The European Observer said Friday that the commission was scheduled to release a report next week highly critical of Bulgaria's management of EU funds.

Bulgaria's national television network Thursday said the situation would result in the withholding of funding from Bulgaria's pre-accession program.

The Observer said the report itself describes flaws and possible fraud in the financial management of the PHARE program, one of three EU programs designed to prepare Bulgaria for the receipt of future funding once it becomes a full-fledged member of the European Union. PHARE stands for "Poland and Hungary: Assistance for Restructuring their Economies."

"Beyond that, there have been serious allegations of irregularities as well as suspicions of fraud and conflicts of interest in the award of contracts," the report said.

Bulgaria joined the EU in January 2007.