The European Union awarded about 7.4 billion euros ($8 billion) to a plethora of NGOs between 2021 and 2023, but public information about who got the money and how it was used is patchy, the European Court of Auditors (ECA) said.
"EU funding for NGOs is too opaque and suffers from a lack of transparency," said Laima Andrikiene, the report's lead auditor. "We are not talking about peanuts here," she added, referring to the amounts involved.
Indications that the EU had earmarked some of the money it gave to environmental NGOs for use in lobbying European institutions sparked a political firestorm in Brussels earlier this year.
Right-wing lawmakers in the EU parliament have used reports that money given out under an environmental funding tool known as LIFE were tied to the lobbying of fellow lawmakers as fodder in a wider pushback against Brussels's green agenda.
Calls for a probe and a halt to the funding have met the resistance of left-wing parliamentarians.
The Socialists and Democrats group last week denounced an "outrageous assault" aimed at silencing civil society efforts to protect the environment.
"Greater transparency in how these funds are used is undoubtedly necessary. However, it is a mistake to point the finger at civil society in this debate," said Daniel Freund, a European lawmaker with the Greens.
In its report, the ECA said the commission did not clearly disclose the information it held on advocacy activities carried out by NGOs with EU money.
It lamented the lack of active checks to ensure that the funded groups were effectively independent NGOs and respected EU values -- as well as the absence of a "reliable overview" of just how much EU money is paid to NGOs.
In one case, one large research institute was categorised as an NGO although its governing body was composed solely of government representatives, it said.
Some of these shortcomings exposed the EU to "reputational risk", the ECA said.
"Transparency is key to ensuring credible participation by NGOs in EU policymaking," said Andrikiene.
As the lobbying controversy brewed last year, the commission reviewed its policies to ensure that grant agreements would not require recipients to lobby EU institutions.
In January, budget commissioner Piotr Serafin said the practice had been legal, but "inappropriate".
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