WRITTEN QUESTION E-0372/02

by Armando Cossutta (GUE/NGL) to the Commission

(14 February 2002)

Subject: Contracts between the company Arthur Andersen and the Commission

One of the incredible details emerging from the shocking Enron scandal is the claim that one reason why the bankruptcy was not reported earlier was that the auditing firm Arthur Andersen did not notice the gaps in the accounts.

However we look at it, whether Arthur Andersen was guilty of complicity or ineptitude in the Enron affair, it is clearly unreliable.

1. Can the Commission say whether Arthur Andersen has had contracts with the Commission in the past?

2. In view of the situation, does the Commission not consider that work done by the company should be checked to ascertain whether it was carried out properly?

3. Does the Commission currently have any contracts with Arthur Andersen?

4. If so, does the Commission not consider that the work should be entrusted to other companies proven to be more reliable?

5. Does the Commission intend to use the dubious services of Arthur Andersen in future?

Joint answerto Written Questions E-0372/02, P-0443/02 and E-0450/02given by Mrs Schreyer on behalf of the Commission

(8 April 2002)

Under Article 248 of the EC Treaty, the Court of Auditors is the sole external auditor of the Commission. To this effect, it gives a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. Thus the Commission, as opposed to private companies, does not rely on private accounting firms to produce or audit its accounts.

But like many international and national public institutions, the Commission occasionally avails itself of the services of private accountancy and consultancy firms to get their advice.

These contracts do not relate in general to accounting tasks; these are carried out by officials. The private firms' expertise constitutes technical input. The risk to the Community budget is limited as these advisory services cover only some of the fields of activity carried

out by the Commission. Where such companies have been called in to audit particular projects or programmes, such as in research, this does not intend to replace the external audit work of the Court, but complements it.

In the past, the Commission's departments have awarded expertise and consultancy contracts to Arthur Andersen or Andersen(1) and similar firms operating in the same economic sector. Following the bankruptcy of Enron, a number of Members of the European Parliament have tabled written questions to the Commission on its relations with Arthur Andersen or Andersen and with rival firms.

1. The Commission selects firms to provide accounting and consultancy services in strict compliance with the legal provisions applicable and with the procedures it has introduced to guarantee the effectiveness of preventive controls; these are summarised below.

Under Article 56 of the Financial Regulation, the Commission is obliged to comply with Council Directive 92/50/EEC of 18 June 1992 on the coordination of procedures for the award of public service contracts(2), as for the services provided by Arthur Andersen or Andersen.

The Commission strictly observes these rules, especially those relating to the criteria for selecting service providers.

Under Article 139 of the Financial Regulation, it has also introduced a system of control based on the prior approval of the Advisory Committee on Procurement and Contracts (ACPC) and the Financial Controller. The ACPC gives its opinion on the regularity of the procedure for selecting the service provider and the conditions proposed for awarding the contract, while the Financial Controller ensures that commitment, the authorisation of expenditure and payment are consistent with the rules and are regular.

In its annual report on the 2000 financial year, the Court of Auditors set out the results of its audit of the design and operation of the controls over public procurement procedures(3). It did not express any major criticism of the operation of the abovementioned preventive control mechanisms where the Commission is concerned. It also gave a very favourable assessment of the procedures governing public procurement within the institutions.

It will thus be seen that the selection of firms to provide advice on accounting and audit issues is not discretionary and, moreover, is governed by a rigorous procedure.

2. The nature of the services required and the ex post control mechanisms which already exist rule out any abuse.

As regards internal control and as an essential part of its Reform, the Commission has established an Internal Audit Service and a decentralised structure of financial control and Internal Audit Capabilities.

Moreover, these activities themselves are likely to be examined by the various internal audit bodies in the Commission and by the European Court of Auditors, which, under Article 248 of the EC Treaty, is the external auditor for the management of the Community's public funds.

3. In the years 1999 to 2001, the Commission concluded thirteen contracts for which the amounts involved were equal or greater than 48 200 Euro, which were submitted to ACPC's opinion and where Andersen or Arthur Andersen(4) were concerned. Among these contracts, eight were awarded after an open procedure and the five remaining ones after a restricted procedure. In one single case, accountancy services were concerned (implementation of cost accounting and separate accounts methods for companies operating in the field of telecommunications).

In these thirteen contracts the portion allotted to Arthur Andersen or Andersen totalled 3,7 million Euro. This represented about 4,8 % of the proportion allotted in the same period to the Big Five (KPMG, Group Andersen, Deloitte & Touche, Ernst & Young and PriceWaterhouseCoopers) in similar contracts.

The Commission will review the output of such contracts in the light of current events.

As for the meetings of Members of the Commission and members of their private offices in the exercise of their duties and at the initiative of representatives from Arthur Andersen or their lawyers, the Commission is able to provide the following information to the Honourable Members:

- in June 2000 a member of the private office of the Member of the Commission responsible for enterprise and the information society was given a presentation by representatives from Arthur Andersen on a benchmarking report prepared by the company for a European entrepreneurs' association;

- in February 2001 a member of the private office of the Member of the Commission responsible for education and culture attended a presentation by representatives from Arthur Andersen of e-learning projects which the company had developed for French companies;

- in November 2001 and again in January 2002 a member of the private office of the Vice-President of the Commission responsible for personnel and administration took part in information meetings with representatives from Andersen on the methods used by the firm to conduct a study on a cost-benefit analysis of the possible outsourcing of certain services.

(1) Andersen Consulting LLP (which recently changed its trading name to Accenture LLP) and Arthur Andersen LLP have been separate legal entities and have operated independently since 1989. In 1990, the United States Securities and Exchange Commission formally recognised Andersen Consulting LLP as an entity separate and distinct from Arthur Andersen LLP.

(2) OJ L 209, 24.7.1992.

(3) OJ C 359, 15.12.2001, points 7.19 to 7.32.

(4) In some cases associated with other similar firms.