WRITTEN QUESTION E-2436/02 by Christopher Heaton-Harris (PPE-DE) to the Commission. Alleged mismanagement of funds entrusted to the European Communities.
Date: 2002-08-26
Institutions: European Parliament, Provisional data
Subjects: accounting system, administration of the Institutions, financial regulation, implementation of the budget, information system, management accounting

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of important international conventions in this area such as the Rome Convention, the World Intellectual
Property Organisation (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty).

But along with further legislative improvements Ukraine must urgently ensure the implementation and
enforcement of the adopted legislation. This includes notably the creation of appropriate infrastructure to
including registration mechanisms, where applicable, and a
ensure effective IP rights management,
strengthening of the administrative capacity and enforcement measures,
in
particular in the area of copyright.

including border controls,

The Commission is assisting the Ukrainian authorities in these efforts by offering technical assistance under
the TACIS programme. A further project of support to the relevant institution building is currently being
prepared.

The Commission has also been working closely with the customs administrations of the Member States
and rightholders,
in particular the international Federation of Phonographic Industries to address this
serious problem. Close co-operation and technical workshops have increased the seizures made under the
Community customs legislation dramatically. In 2001 customs in the Member States stopped more than
40 million pirated CDs and DVDs, a 349 % increase over the figure for 2000 and a 15,300 % increase over
the figure for 1999. Criminals handling such goods change transport routes and methods to disguise the
origin of these goods and hence precise figures by countries of origin are not available. However, there are
indications that production may be shifting from Ukraine to other countries. The previous situation
whereby many of these items originated in the Ukraine appears to be changing as production moves to
other countries.

As regards similar problems in the applicant countries, the Commission is monitoring efforts to combat
piracy and counterfeiting in the framework of the accession negotiations. Whereas the enforcement record
in the candidate countries, in particular in the Baltic States, has been a matter of concern in recent years,
the effectiveness of the judicial and administrative bodies involved in enforcement is increasing in order to
meet the requirements in the field of protection of intellectual property rights. In October 2002, the
Commission will again report on the measures adopted throughout the last year in its Progress Reports on
each candidate country.

The Commission has also actively involved the enforcement authorities of the candidate countries in the
Customs 2002 seminars which bring together rightholders and enforcement authorities to improve risk
management and controls in this area.

(2003/C 242 E/028)

WRITTEN QUESTION E-2436/02

by Christopher Heaton-Harris (PPE-DE) to the Commission

(26 August 2002)

Subject: Alleged mismanagement of funds entrusted to the European Communities

Marta Andreasen was Budget Execution Director and Accounting Officer at the European Commission,
a very senior post. In accordance with the relevant legislation, she had full responsibility for the ‘funds
entrusted to the European Communities’. Any allegation made by her of mismanagement, is, therefore,
extremely serious.

Does the Commission have an accounting system that supports the accounts presented each year by the
Commission?

Does the Commission have a secure, coherent and exhaustive computer system on which financial
transactions are processed?

Is there compliance with basic and minimum accepted international and governmental accounting
standards?

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How do the Commission’s accounting and auditing practices compare with the 15 Member States’
systems?

Does the European Commission use double-entry bookkeeping as a standard accounting discipline?

Is there compliance with all aspects of the current Financial Regulation?

Has there been a Treasury audit in the last 10 years?

Are there cash flow statements for the Commission?

Without any of the above, is it possible to produce reliable accounts covering EU institutions?

Answer given by Mrs Schreyer on behalf of the Commission

(27 November 2002)

1. and 2.
year.

The Commission does have an accounting system that supports the accounts presented each

The Commission’s central financial management and accounting needs are provided for by a central
computer system (Sincom2), introduced for the first time in 1997 and extended to cover all Commission
services in 1999. The architecture of this system comprises three different elements, which are inter-linked
and also interfaced with the local systems of the operational services, which exist primarily to meet local
management needs.

The three central sub-systems are designed to meet the needs of different users:

(cid:1) SAP R/3 is used by the services of the Accounting Officer and by the Financial Controller. This system
is the official accounting system of
the Commission in which budgetary accounting, general
accounting, treasury management, the validation of bank data concerning third parties, recoveries
and the emission of payments via the SWIFT banking network are carried out;

(cid:1) Si2 is the budgetary management tool for the authorising services. Transactions are introduced by the
Directorates General (DG) in Si2, either directly or indirectly via transfer from local computer systems
through a standard interface. Irrespective of their origin, all transactions must follow an internal
workflow within the DG and must be validated in Si2 by the authorising officer before transfer into
R/3; and

(cid:1) the data warehouse, which is a reporting tool, and into which data from Si2 and R/3 are copied.

The legal reporting by the Accounting Officer is carried out on the basis of SAP R/3 data.

2.
Access to all parts of the Sincom2 system is password controlled. Passwords are only attributed to
approved persons. Individuals’ access in the system is limited to the areas and actions for which a senior
officer has given approval. Security over the system is being constantly reinforced with the assistance of
external computer security experts.

The vast majority of transactions pass without problem between the various sub-systems of Sincom2.
However, some apparent inconsistencies have been identified principally due to differences in the data
structure between systems. The Commission is currently carrying out a reconciliation between the systems
in order to further improve the transmission of data between the different elements.

All data used to produce the Commission’s accounts are included in Sincom2.

3.

Legal provisions

The accounts are kept in accordance with the Financial Regulation (1).

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Accounting principles:

(cid:1) the accounts of the European institutions comprise general accounts and budget accounts;

(cid:1) accounting for budget execution is based on the modified cash accounting principle (2);

(cid:1) the general accounts show all expenditure and revenue over the financial year and are designed to
establish the financial position of the Commission presented in the form of a balance sheet at
31 December.

(cid:1) The general accounts are based on the following principles (which conform with generally accepted

accounting principles):

(cid:1) the principle of going concern;

(cid:1) the principle of materiality and aggregation of data;

(cid:1) the principle of substance over form;

(cid:1) the principle of no-netting between assets and liabilities.

(cid:1) The financial statements themselves take account of certain elements pertaining to the principles of

prudence and accrual accounting.

(cid:1) Harmonisation of the accounts and consistency of accounting data are achieved by applying the same
rules of valuation (of assets and liabilities) and identical accounting methods in all European
institutions currently falling within the scope of consolidation (Parliament, Council, Commission,
Court of Justice, Court of Auditors, Economic and Social Committee, Committee of the Regions and
the Ombudsman).

Respect of generally accepted accounting principles (3):

(cid:1) The International Federation of Accountants has in recent years established two sets of generally
accepted accounting principles for the public sector, depending on the basis of the accounting
methods adopted: cash basis or accrual basis. The budget of the Union is voted and executed on a
cash basis.

(cid:1) The Commission fully complies with the cash-based accounting standards, which constitute the
traditional accounting standards used by the public sector. The Court of Auditors has consistently
declared the cash accounts reliable.

(cid:1) The financial computer system Sincom2 allows the Commission to produce fully automatic financial

statements on a cash basis.

(cid:1) However, as is the case for most Organisation for Economic Cooperation and Development (OECD)
governments, the Commission does not, at present, fully apply the corresponding accrual accounting
standards nor is this currently required by the Financial Regulation.

(cid:1) To enhance the information provided in the accounts, nevertheless, the financial statements produced
by the Commission take account of accrual elements such as the registration and depreciation of fixed
assets, value adjustments for entitlements, provisions, pension rights, the entry of carryovers in the
accounts as charges and debts for the financial year and registration of contingent assets and liabilities.

(cid:1) The supplementary information needed to achieve this accrual-based accounting is collected
throughout the Commission and introduced in the central accounting system (SAP/R3), on a double
entry basis, by the Accounting Officer’s services.

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(cid:1) In the context of general efforts to secure improvements in 2000 and 2001 a particular effort was

made to improve the reliability of this additional, accrual based, information.

Evolution of the accounting framework and of the accounting standards

(cid:1) The trend in the public sector has been to evolve from focusing on a cash-based description of budget
expenditure and revenue operations, towards a system based on financial reporting in the private
sector. In line with this trend, and with the requirements introduced into the new Financial Regulation
by the Commission, the Commission will move towards the production of integrated accrual accounts.
The recast Financial Regulation that comes into force on 1.1.2003 requires that an integrated accrual
accounting system is in place by 2005.

(cid:1) The incorporation of accrual data within the official accounting system, together with the overall
is a key element in the ongoing accounting

respect of generally accepted accounting principles,
modernisation.

Conclusion:

(cid:1) The Commission fully complies with the cash-based accounting standards and with the accounting
requirements laid down in the current legal provisions. Furthermore, the Commission has already
introduced several accrual-based elements and it has to apply full accrual standards by 2005, as laid
down in the new Financial Regulation.

4.
Few Member States or other public bodies fully comply with accrual accounting principles. There is a
general underway in many countries, although the situation varies by country: in general, the Netherlands,
Sweden and the United Kingdom are furthest towards this objective, while other Member States have not
yet gone so far towards this.

From 2000 and the launching of the multi-annual plan for the modernisation of the accounting, the
Commission started its move towards accrual based financial statements, and thus the Commission is
participating actively in the general trend of the public sector accounting and changing faster than many
Member States.

5.
The Commission uses double-entry bookkeeping principles to account for the cash inflows, cash
outflows, payment orders and recovery orders. The elements of accrual accounting already used by the
Commission are also introduced into the system using double-entry principles.

6.
The Commission has produced and produces reliable accounts, in accordance with the Financial
Regulation. As the Honourable Member of the Committee on Budgetary Control knows, the Court of
Auditors has never refused to give assurance on the reliability of the accounts.

The Court of Auditors’ remarks in the Statement of Assurance concerning the general budget for the
financial year closed in 31 December 2000 (4) concern the non-respect of accrual accounting principles
and not the cash based accounting as such. The respect of accrual accounting principles is not however
obligatory for the Commission in the current Financial Regulation. The new Financial Regulation imposes
the application of these principles for the first time as from the financial year 2005.

The Court of Auditors is the external auditor to the Commission. The Court’s auditors have access to
7.
all systems and data related to the Commission’s activities,
including the treasury function. The Court
examines the Commission’s accounts every year and as a part of this audit work it may examine the
treasury function. The Court has not criticised the treasury used by the Commission in its reports.

8.
The cash-flow statement shows actual payments up to the month in question and estimates for the
following months. A range of data produced monthly can be found at the following address: http://
europa.eu.int/comm/budget/execution/utilisation/details_fr.htm. These documents are available to the
Budgetary Authority (Parliament and the Council).

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The Commission has produced and produces reliable accounts.

In spite of certain remarks
9.
concerning accrual based accounting aspects, the Court of Auditors has consistently given assurance on
the reliability of the accounts.

(1)

Financial Regulation of 21 December 1977, as last amended by Council Regulation No 762/2001 of 9 April 2001
and Commission Regulation No 3418/93 of 9 December 1993 laying down detailed rules for the implementation
of certain provisions of the Financial Regulation, as last amended by Regulation No 1687/2001 of 21 August 2001.

(2) This differs from cash-based implementation because of elements such as carryovers.
(3) The IFAC (International Federation of Accountants) issues international accounting standards for the public.
(4) OJ C 359, 15.12.2001.

(2003/C 242 E/029)

WRITTEN QUESTION E-2557/02

by Erik Meijer (GUE/NGL) to the Commission

(13 September 2002)

Subject: Financial control 1: vital need, in response to negative public opinion, to recruit and retain officials

who take a critical attitude

1.
Is the Commission aware that large sections of public opinion in the Member States have little faith
in the purpose, effectiveness, resolve and transparency of the European Union, seeing it as a vast
organisation which they suspect of maintaining an unnecessarily centralist bureaucracy, wasting money
and being susceptible to nepotism, profiteering and fraud, an attitude which helped bring about the
resignation of the previous European Commission in the spring of 1999 and led to a low turnout in the
subsequent elections to the European Parliament?

2.
Does the Commission wish to remove the suspicions felt by citizens by publicly providing
convincing evidence to the contrary, or is it resigned to seeing the situation described in the first question
continue indefinitely?

3.
Does the Commission consider the unfortunate situation described in the first question as a reason to
show itself to be even more meticulous than non-profit institutions, national authorities of the Member
States, local authorities and companies in managing its finances and seeking to understand what has gone
wrong and what needs to be improved?

4.
Does the Commission agree that, in the light of the above, it is extremely inadvisable to remove from
their posts officials who criticise the management of finances or to restrict their opportunities for voicing
criticism, including in cases in which it considers that it has very strong grounds for refuting the criticism,
since this gives rise to the suspicion that unlawful practices are being concealed, remain unpunished and
are continuing?

5.
Does the Commission agree that recruiting and retaining officials who take a critical attitude is a
necessary and inevitable counter to the enduring suspicions referred to in the first question, and that this is
an essential means of refuting such suspicions?

6. Would it not be advisable, in the view of the Commission, both in its capacity as manager of public
affairs at EU level and in terms of protecting its own position, to present a positive image of an EU that
counts among its ranks officials who take a critical attitude and that at all times allows independent
experts to examine the way in which the Commission is organised?

Answer given by Mrs Schreyer on behalf of the Commission

(7 January 2003)

1.

The Commission does not share the opinion expressed in the first paragraph of the question.

The Commission favours a strict, ‘zero tolerance’ approach to fraud and corruption.