Accounts upgrade on target, but fraud will not be detected

By Jeremy Woolfe

Date: 23/10/03

THE European Commission's plans to switch to a more accurate accounting system is on target for roll out at the start of 2005, but its effect on detecting fraud is likely to be minimal.

Brian Gray, the Commission's accounting officer, states in his latest report to the European Parliament that the move to an accrual-based system is progressing well. The new system means the executive's number-crunchers will log financial transactions as they are incurred, rather than when the cash actually moves.

However, the UK's Chartered Institute of Public Finance and Accountancy (Cipfa), warns against any "misselling" of the accrual system. Its chairman, Noel Hepworth, underlined that what matters in the detection of wrongdoing is the strength of control arrangements, regardless of whether the system be traditional cash, or accrual, accounting.

For instance, he points out that 80% of mistaken payments from the EU budget arise in member states. "Often the Commission can do very little [about fraud] because of the dual responsibility for the money. The new accounting system will help, but it is not the final solution."

Gray says this month will be a milestone for the Commission's upgrade. Following initial analysis, it now needs to decide how to integrate the new software handling suppliers into the existing system for treasury operations. "We have to avoid the risk of not having money in the various bank accounts, and paying money to the wrong supplier," he adds.

Gray, a chartered accountant, is a firm advocate of the switch to accrual accounting. It will provide opportunities to improve controls over the Commission's assets and greater clarity in financial reporting, he said.

However, he makes it clear that the system would not help to detect criminal activity, for instance as alleged at Planistat, the contractor to Eurostat, the Commission's statistics agency. That is because transactions in that case took place outside the system, he explained.

The cost of the upgrade include employing 12 staff this year, plus contracts with IBM and PricewaterhouseCoopers.

The European Federation of Accountants (FEE) has noted a general tendency for governments to switch to accrual accounting. The UK, France, Sweden and Finland either have, or are in the process of converting to the new system.

Marta Andreasen, who was appointed accounting officer in January 2002 but suspended a few months later after she criticized the accounting system, commented that the Commission should have adapted its existing computer system, known as SAP.

Last autumn, the European Court of Auditors criticized the "weakness in the design" of the present Commission accounting system, and refused to back the majority of the budget due to the incidence or errors found.

Report from Brian Gray, the European Commission's accounting officer, to the European Parliament.

http://ec.europa.eu/comm/budget/execution/execution_en.htm http://ec.europa.eu/comm/budget/execution/execution_en.htm

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