Whistleblower vindicated in audit report

Date: 12/06/03

By David Cronin

THE European Commission is "inadequately equipped" to introduce planned reforms to its accounting systems, while information contained in its financial reports is "seriously compromised", a new internal document states.

The secret document, produced by the Commission's internal audit service (IAS), casts doubt on whether the EU executive has the wherewithal to implement the planned improvements announced last year to the system of bookkeeping for the Union's €98 billion annual budget.

The document, which was completed on 15 April, backs criticisms made by whistleblower Marta Andreasen.

The Argentinean was removed from her post as the Commission's accounting officer last year after complaining that its bookkeeping system is "vulnerable to fraud".

The report states:

• The information technology systems needed for a "robust financial accounting are not yet in place";
• the system of internal control in the Commission is "not yet mature", and;
• the culture needed for effective reform in the accounting system is "not yet deep-rooted".

Also, it accuses the Commission of practices that "nullify transparency and accountability and lead to inconsistent reporting".

For example, it says that valuation rules applied by the Commission were changed for three consecutive years (1999-2001) to reflect criticisms made by the European Court of Auditors.

According to the document, making such alterations amounts to "superficial accounting".

The report also argues that the accounting system does not include all assets and liabilities. "Non-recorded assets can bypass internal control and are thus more vulnerable to irregularities and fraud," it adds.

An annex to the paper also reveals that a sharp exchange of views has taken place between Jules Muis, the former World Bank official who heads the IAS, and Luis Romero Requena, head of the Commission's directorate-general for budgets (DG Budget).

Muis had written to Romero in November 2002, raising a number of concerns about the system. The latter's reply, which was not made until 17 February this year, accused Muis of adopting a "polemical and negative tone".

The following month Muis replied to Romero's letter, saying: "I note with some regret that your somewhat defensive response does not help build a constructive relationship.

"This is not conducive to an orderly process and also gives the impression that the need for reform in the area of the accounting controls is not as pressing as we firmly believe it to be.

"If DG Budget's management does not deal with these issues now, and in a vigorous manner, then it will place the Commission and its professional staff in a difficult position.

"The spirit of cooperation and constructive communication cannot be found in the overall tenor of your response and this is not mutually helpful," added Muis.

A document from the European Commission's internal audit service has suggested that the institution is ill-equipped to introduce reforms to its accounting system.