Marta Andreasen Lecture
18 Apr 2006
The Former EU Chief Accountant describes her experience to an Edinburgh audience
The Edinburgh Marta Andreasen Lecture
National Galleries of Scotland, 18th April 2006
ANDREW HAMILTON’S INTRODUCTION
Marta is half Argentinian and half Danish. She is married to a Spaniard and lives with her husband and two children in Barcelona. She is fluent in four European languages. She qualified as a CPA – the US equivalent of a CA in 1978 and started out her accountancy career with Price Waterhouse. After that, she held various posts up to Finance Director, before a two year stint as Chief Accountant with the OECD, based in Paris.
In May 2001 the job of Chief Accounting Officer for the European Commission was advertised in the Financial Times. Marta applied for the job; out of 85 applicants she got down to the last 15. In July 2001 she went for her second interview; before her sat 8 senior Civil Servants. Each one asked her a single question. Finally, the Secretary General of the EEC asked her if she had any questions. Yes she said:-
What happened to the previous Chief Accountant?
What is the job description?
Consternation! In French, one of the Civil Servants said:-
“This lady has turned the interview around and is asking us questions”. Marta was not surprised when, two days later, she was told she had failed the second interview.
A week later however, the Budget Commissioner rang and asked her to come in for another interview. On the 31st October 2001 she was given a third interview by the German Budget Commissioner herself, Mrs Michaele Schreyer. Marta heard nothing until the end of November when Mrs Schreyer rang and said that Marta was to be offered a temporary contract. Bearing in mind the weight of responsibility, Marta “no” to a temporary contract. Marta heard nothing until mid December when she was told that she had got the job as Chief Accounting Officer to the EC on a permanent basis. She never was given that job description but resorted instead to reading extracts from the Treaty of Rome!
She joined the EC in January 2002. Within a month of arriving at her new post, she was asked to sign off the 2001 accounts. Not unnaturally, she decided to have a look at them together with the accounts for 2000. It was when she was comparing the net assets figure for 2000 in the 2001 accounts with the 2000 accounts themselves, that she noticed, a difference of €200 million. What had happened to the difference she asked? Oh, some loans were written off. Why were these not shown as a charge in the 2001 income and expenditure account? No one could say so she said “I cannot sign these accounts off”. Tremendous pressure was put on her by very senior people including the Budget Commissioner, Mrs Schreyer who broke down in tears and said that there would be terrible repercussions if Marta did not sign. But Marta knew that by signing them she would be implicated. She held her nerve and refused to sign them.
Marta soon found out that the accounting systems for the EC were antediluvian; there were none of the controls and systems which we in Britain take for granted in well run Plc Finance Departments. Instead of a system of double entry bookkeeping, she found a single entry accounting system run on a complicated series of spreadsheets whose integrity simply could not be relied upon. She was asked to sign cheques for billions of Euros for expenditure which had not been properly authorised. She asked Neil Kinnock for an Independent Treasury Audit but this was turned down on grounds of cost. She was then summoned by Neil Kinnock and told that because of a personality clash between herself and Mrs Schreyer, she would be moved to a more junior post within the department. In July 2002 she was suspended, from her role as Chief Accounting Officer. This position of suspended animation lasted two years during which time she was locked out of her office but forced – like a prisoner - to live in Brussels, away from friends and family.
Finally, in July 2004, she was sacked. Since then, with her reputation in ruins, she has found it difficult to resume her career.
Ladies and Gentlemen I give you Marta Andreasen.
MARTA ANDREASEN LECTURE
To begin with I would like to thank Andrew Hamilton and all of you who have cooperated to make it possible that I be here today addressing this honourable audience.
What I am about to relate to you has to do with the accountability on the use of public funds. But more specifically I will be referring to you my experience as Chief Accountant of the European Commission.
While my experience has had and has an impact on my family, my profession and my person, I will leave this aspect aside and concentrate on the issues that should be known by all citizens in Europe because this is what matters to you. Even if my experience started 4 years ago now, I will be presenting to this audience, irregularities, that as of today remain unchanged, as you will appreciate in the later part of my speech.
Before going into the essence of the problem I would like to stress that when I joined the European Commission back in January 2002 I was a Euro-enthusiast. I felt honoured to contribute to a project that in my view involved the development of cooperation among the countries of Europe in different areas. Yes indeed, at that time, the European Union entailed for me, a project of cooperation. However soon after joining I started to realize to my dismay that this European project was not about cooperation and that in reality, conducted by a political/bureaucrat elite residing in Brussels, it pursued other interests.
EXECUTIVE ARM AND REGULATOR
The European Commission is, or should be one of the most important institutions in the EU given its role as executive arm and regulator. It is made up of 23 directorates dealing with different matters such as agriculture, environment, enlargement, competition, etc. In addition it has 5 directorates dedicated to general services such as Eurostat, OLAF the anti-fraud office, etc. And finally 8 directorates dedicated to internal services, such as Budget (into which I was obliged to report), Internal audit, etc.
EU ANNUAL BUDGET
The annual budget entrusted to the EC is around 65 billion pounds. Most of it – 85%- is dedicated to agricultural and structural programmes and in this area the European Commission – who in accordance with the Treaty remains the sole responsible for the management of the funds, even if they try to blame the member countries for the errors or frauds- has no value to add other than the control of the proper use of the funds. The rest is dedicated to internal policies -10%- where the Commission exercises its regulatory role and 5% is dedicated to pay the staff. It is worthwhile at this point to say that in the latest years- notably since my suspension- the European Commission, with the assistance of the European Court of Auditors, have reverted to claim that in 85% of the budget the control lies with the member countries. WRONG!!!! The control lies with the Commission. It may well be that the fraud is committed in a member country but the lack of control that allows this to happen takes place in Brussels.
STAKEHOLDERS
There seems to be a general acceptance that the stakeholders in the public sector deserve less respect than those in the private sector. The world has raised its eyebrows about the frauds at Enron and Worldcom. Nobody seems to be concerned that out of the European budget billions are deemed to be lost on fraudulent activities. NOBODY seems to be worried that nobody takes responsibility on the accounts of the European Union or any anomaly that may occur within the EU budget.
BACKGROUND HISTORY
The EU holds a history of lack of control of its funds, financial mismanagement and nepotism. In 1999 the Santer commission had to resign on allegations of financial mismanagement. A group of wise men confirmed this situation and a new commission was put in place to implement a reform. However since 1996 and up until November 2005 in their last report, the Court of Auditors have continued to refuse the clearance of non less than 95 % of the budget. And this is all due to the lack of controls in Brussels.
WISEMEN´S CONCLUSION
Other than confirming the lack of control, this group of wise men came up with a conclusion which was rather alarming: nobody wants to take any responsibility. And this situation has not changed. The present Chief Accountant who succeeded me, does not assume responsibility on the amounts shown in the European Union accounts, which neither he nor anybody signs, a situation that in the private sector would be totally unacceptable. Coming from the outside, I was very ready to accept responsibility for the accounts and controls. But I needed to have the tools and the support of the hierarchy and this is what I requested up to the highest level.
EUROPEAN COURT OF AUDITORS OPINION (ECA) (I)
For 11 years now the ECA has been stating that the accounts of the EU which are in the public domain do not derive from official accounting records. Indeed I found the amounts presented yearly in the accounts correspond to the accumulation of information sent by the Directorates in spreadsheets and not from the recording in the accounting books of the related transactions.
Moreover the ECA refuses to clear the legality and regularity of 95% of the budget of the EU. They blame this situation on the inadequacy of the accounting system. BUT the European Commission (EC) continues to operate the same system.
EUROPEAN COURT OF AUDITORS OPINION (II)
In their most recent report they claim that the security problems in the treasury management system have not even been dealt with. In my view and experience the treasury function is fundamental to the financial management of the EU. As 85% of its budget is being dedicated to agricultural and structural programmes that are run in the member countries, the EC mainly plays the role of a financial institution that receives the contribution and pays out to the countries. The ECs function is to control the collection of receipts and control the adequacy of payments for which the EC is entitled to require all the necessary supporting documentation to prove this adequacy. AND here lies the problem: such control does not take place. The EC always ADVANCES the funds to the beneficiaries before the project is accomplished. In theory the beneficiaries should send back the supporting docs once the project is finished. BUT there is NO CONTROL of this as the advances are always booked as expenses and all track is then lost.
At this point I would like to mention that the advance method is not really necessary other than for humanitarian aid. There is no need to advance subsidies for agriculture or infra-structure projects.
ADMINISTRATIVE REFORM
After the resignation of the Santer Commission and following the Wisemen’s conclusion on lack of accountability, the new Commission decided to decentralize responsibility on Budget management and financial controls to the Directors General. I will not advance any judgement on the intelligence of such a decision in those circumstances.
BASIC REFORM REQUIREMENTS
However, the fact is that the Directors need the tools to assume this responsibility, that is: a sound internal control structure allowing the necessary separation of duties and a reliable accounting system for the production of the accounts. These essential elements are non-existent even today 4 years after I raised my claims and was suspended.
VULNERABILITY OF THE ACCOUNTING SYSTEM
During my recruitment process I was told that an administrative reform was ongoing and was far advanced. However what I found when I joined in January 2002 – two years after the new “reformist” commission was in place- was a situation that would not be acceptable even for a “corner shop”. There is simply NO accounting system. No double entry bookkeeping but only a recording of payments. AND this continues to be the case today. BUT WHAT IS WORSE the computer system on which the funds are managed remains the same as when I was there. And this same computer system – which is known to lack COHERENCE (input not equal to output), and which is known to lack SECURITY - is UNTOUCHABLE.
If the segregation of duties was diffuse before the reform, after the decentralization of responsibility for the budget to the Directorates, any differentiation between the bean makers and bean counters has disappeared, with the aggravation that the Chief Accountant assumes NO responsibility for the Accounts and no responsibility for the legality and regularity of the payments. AND so the much heralded NEW financial regulation has in fact made this lack of accountability worse – this is in contradiction with the spirit of the treaties.
A VULNERABLE SYSTEM = A STRUCTURAL FAILURE
This was the state of affairs in which I had to operate. I was responsible for payments for which adequacy I was unable to control. I was aware that the interface of the two main computer systems could produce the wrong output to the bank. Worse, I was aware that unauthorised users could access the system and make changes, notably to the payment orders before they went to the bank. And this, leaving NO TRACE. I also was aware that the accounts were not reliable. The close of the 2001 accounts which I was asked to sign off faced me with a difference between the closing balances for year 2000 and opening balance for year 2001of 130 million pounds that disappeared both from the assets and the liabilities. NOBODY ever gave any reasonable explanation to me other than wrong reporting of LOANS!
CHIEF ACCOUNTING OFFICER: HIGHEST FIDUCIARY RESPONSIBILITY
Even considering the situation as I have described, I was ready to assume responsibility as the Treaties of the EU and the Financial Regulation at that time required: Responsibility on the accounts, the Assets, on the Treasury, on the Computer System. I did NOT INVENT any responsibility for myself. It was in writing. And it is no different from the responsibility that is associated to any Chief financial officer in any organisation.
EUROPEAN PARLIAMENT SPECIFIC REQUEST FOR AO
And the European Parliament (who REFUSED to hear me when I advised that the new financial regulation WOULD INCREASE THE RISK OF ERROR AND FRAUD), TODAY, in its document proposing the discharge of the Commission for 2004, criticizes the commission for failing to effectively change the financial regulation as they had requested in 2003 in relation to the responsibility that the Chief Accountant should assume in relation to the accounts.
REQUESTS FOR URGENT CHANGE
Amongst the criticism the Commission launched against me, they raised the idea that the changes I was requesting were difficult, costly and would take a long time to achieve. This is NOT TRUE. I requested the implementation of double-entry bookkeeping which in an adequate computer system could have been implemented from one day to the other. I asked for a computer system that was coherent and secure and the Commission already had requested in 1995 a well known German software manufacturer (SAP) to develop a solution which they then decided not to use. I asked for an independent treasury audit which had not been performed at least for the last 12 years and could have been done either by an external firm with a moderate cost in two weeks, a much lesser cost than the “wrong payments” could be representing. I asked for new regulation that would strengthen controls instead of weakening as they were proposing. I RAISED ALL THESE REQUESTS to my hierarchy up to the President and vice-Presidents of the Commission, who instead of offering their support, decided to remove me from the post, suspend me and finally dismiss me.
THE EUROSTAT CASE
In 2003 when the Eurostat fraud became public, not because the Commission made it public but because it was publicized in France given that the French court was prosecuting those involved in irregularities, the Commissioners and high officials refused to accept any responsibility alleging ignorance. BUT they knew the system was vulnerable and allowed this type of irregularities: EU funds being channelled into unofficial bank accounts and being used for unauthorised purposes. This could never happen without the financial department being involved. I, as Accounting Officer, being the only one empowered to authorize signatories and open bank accounts, was never given the list of all authorized signatories and bank accounts in the name of the EC (authorized prior to my time). No wonder there are “unofficial bank accounts”. What is worse no investigation could ever be completed due to the lack of audit trail.
THE SITUATION TODAY
Independent from my personal experience, what is more worrying for all of us as citizens of Europe, is that the situation as described far from changing has become worse. AS you may have seen, the Court of Auditors still refuses to clear the accounts BUT now joins the Commission in blaming the member countries for the failure. The computer system continues to be insecure and incoherent. No independent treasury audit was ever performed nor will ever be. OLAF has failed to investigate any and all frauds AND continues to report into the European Commission - the institution responsible for the control of the funds – thus breaching the most elemental criteria of independence. AND in the face of all this, the European Parliament who should represent our interests, and in the knowledge that the EU funds are out of control, happily discharges the Commission and presses for INCREASE in the Budget!!!!!
EUROPEAN PARLIAMENT DISCHARGE
In the knowledge that nobody accepts any responsibility for the accounts or for the legality of the expenditure, in the knowledge that non-less than 2/3 of the budget has not yet been either used or declared eligible, they still approve the management of the EU funds year after year.
CONCLUSIONS: WHY IS THIS SITUATION TOLERATED? WHO BENEFITS?
WHAT CAN WE DO ABOUT IT?
DEMAND CHANGES FROM YOUR MEPS.