For the eleventh year in a row, the European Union's annual accounts have failed to gain a seal of approval from the EU's own auditors.
The European Court of Auditors said the amount of spending they could verify rose to 35% in 2004 from 6% in 2003.
The improvement was mainly due to a new system of control over the payment of agricultural subsidies to farmers.
But the auditors said the vast majority of spending was still affected by "errors of legality and regularity".
Shadow of fraud
The BBC's Jonny Dymond in Brussels says once again the shadow of fraud and mismanagement has been cast over the EU's budget process.
"We need to look at why mistakes happen in the first place and do something about it," the Court of Auditors' president, Hubert Weber, told the European Parliament on Tuesday.
"The vast majority of the payments budget was again materially affected by errors of legality and regularity."
Administrative Affairs Commissioner Siim Kallas said member states needed to take more responsibility for checking how EU funds were spent.
He added that he was confident they would agree to this by the end of the year.
However, a finance ministers' meeting chaired by UK Chancellor Gordon Brown last week rejected the Commission's request for them personally to sign off on their country's EU spending.
British Conservative MEP James Elles, said: "The British presidency of the EU has had a good opportunity to grasp this problem. But Gordon Brown is yet again saying one thing and doing another.
"He says he wants everyone to do their bit to improve the situation but he's not prepared to take the lead himself."
The EU budget last year came to about 100bn euros (£67bn), of which 44bn euros was spent on agriculture.
The British member of the Court of Auditors, David Bostock, said the EU's new Integrated Administration and Control System (IACS) had reduced the risk of error for most EU agricultural expenditure to an "acceptable" level.
But he said the court had not been able to provide any assurance with regard to EU regional spending, foreign aid, internal policies, or some more complicated areas of agricultural spending, such as export refunds and rural development.
"The Commission can say that they have made some progress this year. But there is still a long way to go," he said.
The auditors' report said more than a third of EU farm spending did not "provide the Commission with reasonable assurance of compliance... with Community legislation."
It also pointed out that a lot of EU spending is "high risk", in that you have to rely on people spending it as they have promised to.