The European Court of Auditors said there were errors in allocating about 5bn euros (Â£4bn) from the 2011 budget.
Critics said it showed the EU's wastefulness, at a time when it was arguing for a budget increase.
Court President Vitor Caldeira said: "With Europe's public finances under severe pressure, there remains scope to spend EU money more efficiently."
He added: "Member states must agree on better rules for how EU money is spent, and member states and the commission must enforce them properly."
The court's report said most errors arose from "misapplication or misunderstanding" of the EU's complex rules, though there were some suspected cases of fraud.
It also said the failures were often down to the national and local governments responsible for overseeing the distribution of funds, rather than just the European Commission.
"A little more effort by member states to control projects properly and retrieve misused funds could go a long way, particularly in this time of economic difficulty," said the EU's Audit Commissioner Algirdas Semeta.
However, critics said the commission itself must also accept some of the blame.
"The European Commission is ultimately responsible for all EU monies spent and it falls to them to take responsibility for this report," said Martin Callanan MEP, of Britain's Conservative Party.
EU budget plans in detail
"It is risible that the commission wants a 5% increase in the EU budget, yet nearly 4% of spending is affected by error. Before asking for more taxpayers' money, perhaps the commission should prioritise better spending of the money it already has."
National leaders will meet for a summit in two weeks' time to try to hammer out the next seven-year budget.
Britain has been leading demands for a freeze, saying proposals for an increase are incompatible with a time of austerity.
A number of countries which are net contributors to the budget are also arguing for restraint.
But net-recipient countries argue that the EU's spending on agriculture and regional development are valuable ways of stimulating the economy.
Auditors have said the European Union has failed to keep tight enough control over its own spending.