The European Court of Auditors (ECA) published today (18 October) a special performance audit report on the governance arrangements in the European Commission. The report concludes that the Commission needs to further strengthen its governance right across the institution to address key risks.
The auditors write that recent organisational reforms at the Commission go some way towards addressing the so-called “silo” culture, but that in several areas, the Commission diverges from, or does not fully adhere to, international best practice in Member States and other international organizations.
A “silo” culture refers to a situation where different departments in an organization work isolated from each other without sharing information, something which affects negatively the effectiveness of the whole organization.
According to a definition quoted by the auditors, “governance comprises the arrangements put in place to ensure that the intended outcomes for stakeholders are defined and achieved”. Good governance is thus not just about relationships, explain the auditors. Accountability and transparency, two connected concepts, are key elements in good governance.
In 1999 the Santer Commission was forced to resign after allegations of corruption that were disclosed by a lonely whistle-blower, Paul van Buitenen. In the wake of the resignation of Jacques Santer and all his Commissioners, the Commission approved a White Paper on “Reforming the Commission”, intended to modernise its governance.
The reform package that was adopted in 2000 and gradually implemented consisted of three pillars: resource allocation, human resource policy and financial management. Since then best practice has continued to evolve. The ECA auditors examined governance arrangements at the Commission with a focus on internal audit, internal control and financial management.
“Getting governance right is a priority in the public and in the private sector”, said Mr. Lazaros S. Lazarou, the ECA Member responsible for the report. “The Commission’s current governance is functional, but it is in need of an update. The Commission needs to be a role model in governance, at theforefront of developments in best practice.”
The ECA auditors told The Brussels Times that the report is not the first one by ECA on the reform package.“We looked at progress in earlier Annual Audit Reports. But this is the first time we attempt to bring an analysis together of the major impacts of the reform.”
The scope of the audit was limited to one of the three pillars of the reform package to make the audit manageable and thematically consistent but the auditors promise to return to other themes in the future.
Other issues related to good governance – such as whistle-blowing, reporting of irregularities and the Commission’s function for disciplinary affairs and appeals – were also outside the scope of the current audit. “We are considering looking at some of these issues in a future audit,” the auditors say.
Asked to summarize the report, the ECA auditors said that “Very significant progress, especially in the period 2000-2007, has taken place. The areas where most effort is now needed include the role and composition of the audit committee, the coverage of issues brought to their attention, and improving non-financial reporting.”
A fundamental building block in the reform, which became instrumental for enhancing managerial responsibility in the Commission, was the move from central ex-ante approval of expenditure decisions to a system of delegated decisions in the Directorates-General. The Commission abolished the financial controller function and moved responsibility for checks to the Directorates-General.
“Our recommendations are aimed at making it work better by improving mechanisms for ex-post accountability,” the ECA auditors say.
Another major issue in the report concerns who is responsible and held accountable in the Commission for irregularities, failings and omissions. Is it the College, the group of Commissioners as a whole, individual Commissioners or the Directors-General in charge of the organisation?
The auditors do not directly state that accountability is diluted in the Commission but they question whether the arrangements are clear. Asked by The Brussels Times, they were not currently aware of any cases where Commissioners and Directors-General have been held accountable since the reform entered into force.
However, they told The Brussels Times that the reorganization of the current Juncker Commission was consistent with good governance. “We see advantages in the change.”
A crucial element of the reform was the set-up of a Commission-wide internal audit service (IAS) and internal audit units in the Directorates-General. The internal audit units were however abolished in 2015 and no reason or assessment of this decision is given by ECA in the audit report.
“We think this is primarily a question for the Commission. Some staff was moved to reinforce the internal audit service.” The ECA auditors added that the change has an impact on internal assurance in – for example – the Annual Activity Reports issued by the Directorates-General. The internal auditors were supposed to be independent of management and verify the information in the reports.
The ECA auditors raise some criticism against the audit approach of the Commission’s internal audit service and the so-called Audit Progress Committee, a body supervising the work of the internal audit and dealing with its reports.
The IAS has carried out horizontal audits across several Directorates-General but more recently the focus has been on questions whether rules were followed rather than if they were appropriate. Although IAS does audit Commission agencies – which play an increasingly important role – there is no Commission-wide body dealing with the reports on the agencies.
ECA recommends that the Internal Audit Services should carry out more work on high-level governance issues and that the Audit Progress Committee should expand its mandate and turn into a real Audit Committee with a majority of independent, external members.
The report deals at length with the Commission’s reporting arrangements which apparently need to be updated. The ECA auditors refer to best practice and recent international documents on internal control standards. “For some criteria it is harder to compare because comparison requires detailed work inside other bodies.”
“Our analysis suggests that for example France is better than the Commission at financial and non-financial reporting. The United Kingdom and comparable public sector bodies, such as the World Bank, World Food Programme and European Investment Bank, are better in terms of using audit committees,” the ECA auditors say.
The auditors end with a positive note when it comes to improving Commission reporting. ECA is proposing a simple, brief, readable, annual report which would cover all required financial and non-financial information. “We believe that it is possible, as demonstrated by the French and US annual reports.”
The Brussels Times