The European Union misspent nearly 7 billion euros ($8.76 billion) in 2013, an ombudsman said Wednesday, warning that Brussels must focus on getting better results for its money.
The so-called error rate for spending fell to 4.7 percent in the EU's 2013 budget of 148.5 billion euros, against 4.8 percent the previous year, the European Court of Auditors said.
The report comes as Brussels faces increasing pressure from member states to tighten spending, especially amid a row with Britain over a huge demand for back payments.
"From now on, there has to be more careful management and control of EU funds," said Vitor Caldeira, the head of the independent watchdog.
"Once again it is clear from our audit just how much of that spending is not in compliance with the rules."
The European Commission, the powerful executive branch of the 28-nation EU, said the report showed its efforts to tackle misspending were "starting to pay off".
The watchdog said the two most error-prone spending areas were regional policy, with a misspending rate of 6.9 percent, and rural development, on 6.7 percent, the auditor said.
It cited mistakes including a company claiming funds as a small business when it was actually owned by a large firm; the managers of an airport project adding to a contract without letting other firms bid; and a farmer claiming a subsidy for grassland that was partly covered by bushes and trees.
The EU's focus on a "use it or lose it" approach, instead of checking how well money was spent, is a "fundamental flaw in the design of much of the EU budget," it added.
It said however that the figures were "not a measure of fraud, inefficiency or waste" but examined how EU money was not spent within the bloc's rules.
Caldeira called for "more incentives to improve performance and to deliver value for money."
The EU's budget is a perennial source of debate at a time when the continent's economy is in the doldrums and many member states face tough decisions on austerity.
The European Commissioner for the budget, Kristalina Georgieva, said the commission would do more to stop spending errors but said they had to be seen in "context".
"I am pleased that the court's audit findings show that last years' trend of increasing error rates has been stopped," she said.
She said the EU had to work with member states to improve the situation "without adding more costs and bureaucracy."