The auditors for the EU have refused to sign off the bloc's financial accounts - for the 13th year in a row.
A report by the European Court of Auditors (ECA) criticises nearly every major area of the EU's expenditure.
However, it says there has been a big reduction in the overall level of error in the EU's Common Agricultural Policy.
The European Commission has blamed member states for audit failings, but the report criticises the commission itself, our correspondent says.
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In all, nearly 80% of the EU's 106bn-a-year euro budget (Ј75bn) fails the auditors test.
The report, covering the 2006 budget, cites spending "irregularities" and a lack of supervision by the European Commission.
It says most of misspending is caused by complex technical requirements rather than outright fraud.
On the plus side, the auditors say that there has been a marked reduction in the estimated overall level of error in the Common Agricultural Policy (CAP), responsible for some 40% of all EU expenditure.
But it adds that some parts of agricultural spending also fail the test.
The European Commission oversees the handling of the budget, but member states are responsible for distributing the bulk of EU spending, mostly in grants and subsidies.
(BBC)
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