Communication from the Commission - Progress report as at 31 march 2008 on the modernisation of the accounting system of the European Commission
Date: 2008-08-13
Institutions: European Commission
Subjects: European Commission, accounting system, computer system, financial regulation, institutional reform, international standard, management audit, report

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 13.8.2008 
COM(2008) 515 final 

COMMUNICATION FROM THE COMMISSION 

PROGRESS REPORT AS AT 31 MARCH 2008 ON THE MODERNISATION OF THE 
ACCOUNTING SYSTEM OF THE EUROPEAN COMMISSION 

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COMMUNICATION FROM THE COMMISSION 

PROGRESS REPORT AS AT 31 MARCH 2008 ON THE MODERNISATION OF THE 
ACCOUNTING SYSTEM OF THE EUROPEAN COMMISSION 

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TABLE OF CONTENTS 

1. 

2. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

6. 

7. 

8. 

9. 

Introduction .................................................................................................................. 4 

Summary of implementation in the year to 31 March 2008 ........................................ 4 

Implementation of a modernised accounting system in the Commission.................... 5 

Annual accounts ........................................................................................................... 5 

Training ........................................................................................................................ 6 

Accounting control environment and validation of local systems ............................... 7 

Accounting quality project........................................................................................... 7 

Validation of local systems .......................................................................................... 7 

IT developments for the General Budget ..................................................................... 8 

ABAC upgrades ........................................................................................................... 9 

IT Development Process and Systems architecture ..................................................... 9 

Budget Control System (BCS) ..................................................................................... 9 

SAM (Supply and Assets Management) .................................................................... 10 

ABAC Delegations..................................................................................................... 10 

European Development Fund..................................................................................... 10 

Implementation of ABAC by the other Institutions and Agencies ............................ 11 

CONCLUSION .......................................................................................................... 11 

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1. 

INTRODUCTION 

On 17 December 2002, the Commission adopted its Communication on modernisation of the 
accounting system of the European Communities1. An accrual-based accounting system was 
put  in  place  in  January  2005  and  from  that  year  accounts  are  prepared  in  accordance  with 
internationally  accepted  accounting  standards,  thus  respecting  the  deadlines  set  in  the 
Financial Regulation. 

The transition to a new accounting system gives the European Commission greater day-to-day 
control over its finances and provides it with better financial information. The Commission's 
external auditors and discharge authorities have been largely satisfied with the progress made. 

The  work  on  modernising  the  financial  accounting  system  is,  however,  a  long  project. 
Attaining  full  compliance  with  all  accounting  standards,  obtaining  efficient  and  complete 
management  reporting  and  achieving  a  more  fully  integrated  IT  system  is  a  process  which 
takes time. The accrual-based accounting system continued to be developed throughout 2007, 
and development will continue in 2008 and 2009. 

The  Commission  has  regularly  presented  reports2  on  the  progress  made  with  the 
modernisation project since 2002. The present Communication summarises the progress made 
in  the  year  to  31  March  2008.  Like  the  preceding  reports,  it  will  be  communicated  to  the 
relevant committees of the discharge authorities and to the Court of Auditors. 

2. 

SUMMARY OF IMPLEMENTATION IN THE YEAR TO 31 MARCH 2008 

The  main  objectives  of  the  modernisation  project  are  pursued  through  a  rolling  two-year 
action  plan,  an  updated  summary  of  which  is  annexed  to  each  annual  report.  The  principal 
achievements in the year of the present report are set out below. 

Improving the reliability of the accounts 

Through  its  network  of  Accounting  Correspondents,  DG  Budget  endeavours  to  improve 
controls in regard to the accounting activities during the year and the closure of each year's 
accounts. A team verifies that the financial systems of the authorising services respect certain 
criteria aimed at ensuring the timeliness, accuracy and completeness of accounting data. The 
systems of all but two DGs had been validated by 31 March 2008. 

DG  Budget  also  coordinates  a  network  of  Accounting  Officers  of  the  Agencies  and  of  the 
other Institutions in order to promote high quality in the Communities' consolidated accounts. 

In  July  2007,  for  the  first  time,  the  Accounting  Officers  of  the  Commission  and  of  the 
Agencies and other Institutions signed off their annual accounts. 

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COM(2002) 755. 
at  30  June  2003  (SEC(2003)  790),  at  31  December  2003  (SEC(2004)  118),  at  30  June  2004 
(COM(2004) 565), at 31 January 2005 (COM(2005) 90), at 31 March 2006 (COM(2006) 358), and at 
31 March 2007 (COM(2007) 343). 

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Developing and extending the IT system, ABAC 

With the extension of the ABAC system to the Delegations and Representations in 2007, all 
Commission  services  are  now  connected  to  ABAC.  The  system  is  being  extended  to  all 
Executive Agencies, to those Traditional Agencies which wish to use it, to the European Data 
Protection Supervisor and to the two Committees. Six of these bodies were connected during 
the reporting year, bringing the total to 15. The project entailing the transferral of the accounts 
of the European Development Fund restarted in 2007, and is on track to be completed by the 
end of 2008. 

As  part  of  the  strategy  of  integrating  the  principal  financial  systems  onto  a  common  IT 
platform in the medium term: 

–  The  budgetary  accounting  system  was  transferred  to  a  new  budgetary  control  module 
(BCS), which should allow local budgetary lines to be managed in the central SAP system 
instead of in ABAC-Workflow. 

–  A plan to transfer the management of asset procurement and inventories to an SAP module 
progressed from a study of its feasibility to the delivery of functional specifications for the 
Brussels and Luxemburg Infrastructure Offices (OIB and OIL). The new system should be 
in place by 2009. 

–  The scope for transferring more functionalities to the SAP system was studied, as were the 
options  for  developing  a  better  contract  managing  system  than  the  present  ABAC-
Contracts. 

Developing financial reporting 

The single data warehouse went into production in July 2007, as planned. It has been used to 
prepare  the  annexes  to  the  2007  annual  activity  reports,  and  the  information  on  payments 
which  was  communicated  to  each  Member  State's  Supreme  Audit  Institution  in  order  to 
promote better controls. Reporting on the Commission's financial relationship with individual 
beneficiaries is now well developed, but further work on other reporting facilities is necessary 
before user needs can be satisfied. 

Training and user support 

The  Commission  continued  to  deliver  high-quality  training  courses  on  financial  matters  to 
Commission  staff  across  the  world,  and  to  staff  in  the  Agencies  and  other  Institutions. 
Satisfaction with the quality of training rose to 96% in 2007. 

3. 

IMPLEMENTATION OF A MODERNISED ACCOUNTING SYSTEM IN THE COMMISSION 

3.1. 

Annual accounts 

European Communities' annual accounts 2005 and 2006 

The  annual  accounts  of  the  EC  were  prepared  for  2005  and  2006  using  the 
modernised accounting system. These accounts were deemed reliable by the Court of 
Auditors  following  their  audits,  although  some  reservations  and  remarks  were 
expressed  which  did  not  affect  the  accounts  as  a  whole,  but  which  led  to  further 

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improvements  being  made  to  the  accounting  controls.  Both  accounts  have  now 
received a discharge from the Parliament. 

European Communities' annual accounts 2007 

The  provisional  2007  accounts  were  delivered  to  the  Court  on  31  March  2008  and 
are  currently  being  audited.  Following  any  adjustments  as  a  result  of  the  Auditors' 
findings, the final accounts for 2007 will be signed off by the Accounting Officer and 
adopted by the Commission before 31 July 2008. 

The quality of the accounts is improving year on year as users become more familiar 
with  the  new  system  and  rules.  Additionally,  initiatives  like  the  accounting  quality 
project  (see  below)  appear  to  be  contributing  to  a  general  improvement  in  the 
reliability  of  the  accounting  data  and  thus  of  the  annual  accounts.  No  Director-
General  or  Head  of  Service  included  an  accounting  reservation  in  the  declaration 
accompanying his or her 2007 Annual Activity Report. 

With  regard  to  the  accounts  themselves,  the  Commission  has  tried  each  year  to 
improve the information disclosed so as to make it more relevant and understandable 
to the reader. An example is the information presented about the recovery of undue 
payments  and  financial  corrections,  an  area  that  is  of  particular  interest  to  the 
discharge authorities. 

3.2. 

Training 

A  significant  effort  concerning  staff  training  continued  in  2007,  the  main 
achievements in this area being: 

–  Delivery  of  more  than  4 100  participant-days  of  ABAC  and  SAP  training  to 
Commission  staff  in  Brussels  and  Luxembourg,  including  a  specific  set  of 
sessions dedicated to Commission staff in Delegations; 

–  Satisfaction  with  the  quality  of  training  rose  from  91%  in  2005  to  94%  in  2006 
and to 96% in 2007, with 44% finding the courses "very good", compared to 38% 
in 2006; 

–  Ordering  of  a  specific  training  package  for  Agencies,  meeting  their  particular 

needs. It became available at the end of April 2008; 

–  Launch  and  management  of  a  call  for  tenders  for  renewal  of  the  framework 
contract  for  financial  training  (which  expired  on  23  March  2008).  The  new 
contract  was  signed  on  7  March  2008  and  is  now  inter-institutional,  allowing 
every Agency or other Institution to use it.  

The main objective for 2008 is to continue delivering high-quality training courses to 
Commission  staff  across  the  world,  and  to  staff  in  other  Institutions  and  Agencies, 
and  to  adapt  these  courses  to  new  IT  developments.  Training  on  accounting  issues 
will  also  be  intensified  in  2008,  as  it  is  intended  to  develop  a  practical  course 
highlighting the links between the entry of transactions in ABAC and the accounting 
impact of such operations. 

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4. 

ACCOUNTING CONTROL ENVIRONMENT AND VALIDATION OF LOCAL SYSTEMS 

As  a  result  of  the  adoption  of  the  new  accounting  framework,  each  Directorate-
General  and  Service  was  asked  to  ensure  that  its  accounting  procedures  were 
sufficiently well organised to achieve a high level of quality in the accounting data. 
The quality of the data introduced into the accounting system directly or via local IT 
systems depends on the control environment put in place by each Authorising Officer 
by delegation. In order to help Authorising Officers to give a reasonable assurance to 
the Accounting Officer that the accounts present a true and fair view of the financial 
position,  DG  Budget  introduced  two  tools:  the  accounting  quality  project  and  the 
validation of local systems. 

4.1. 

Accounting quality project  

In order to improve the accounting environment in each DG over the medium term, 
an 'accounting quality' project was developed during 2006 and launched in all DGs in 
March 2007. The objective of this project is to present to the authorising services the 
IT tools made available to them, and the controls which enable them to ensure high 
quality of the accounts for the operations managed by them. The responsibilities and 
the  roles  of  the  main  financial  actors  were  defined,  in  particular  that  of  the 
Accounting  Correspondent  who  is  now  formally  integrated  into  the  internal 
organisation of each DG. Several guidelines and practical aids were developed by the 
accounting services and presented to the DGs. 

Each Directorate-General or Service draws up a register of the accounting risks, and 
proposes  a  pragmatic  action  plan  to  control  the  risks  identified.  The  accounting 
revision  consists  in  undertaking  a  regular,  documented  review  of  the  proper 
application  of  the  accounting  procedures  or  controls.  All  the  revision  work,  the 
description of controls carried out and their frequency, the presentation of the results 
obtained  and  measures  taken  to  remedy  detected  weaknesses  are  formalised  in  a 
revision  file.  The  action  plan  and  the  summary  revision  file  are  sent  to  the 
Accounting Officer for analyses and comments. 

This project started to bear fruit in 2007, when fewer corrections had to be made to 
the data sent at the closure of the accounts. 

4.2. 

Validation of local systems 

The use of local IT systems for accounting purposes is a source of risk for the quality 
of  data,  and  an  additional  layer  of  complexity.  The  DGs  using  local  systems  are 
responsible  for  the  quality  and  integrity  of  their  accounting  information,  and  for 
ensuring  that  their  systems  remain  aligned  with  ABAC.  One  of  the  duties  of  the 
Accounting  Officer  is  to  validate  the  accounting  systems  laid  down  by  the 
Authorising Officers. This is done by verifying that certain criteria are met by these 
systems  and  by  their  surrounding  controls,  either  on-the-spot  or,  in  the  case  of 
services managing smaller portions of the budget, through questionnaires. Significant 
changes to these systems are also examined. An annual report summarises the work 
done and presents the issues common to many DGs.  

DG Budget's validation team also monitors the controls within all DGs and Services 
which ensure that the guidance given under the accounting quality project is adhered 

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to.  In  particular,  checks  are  performed  on  cut-off  methodologies  and  calculations 
needed for the closure of the accounts. 

During 2007, the team undertook a programme of evaluation for eight systems laid 
down  by  Authorising  Officers  to  supply  or  justify  accounting  information,  as 
required under Article 61(1)(e) of the Financial Regulation. This brings the number 
of  services  subjected  to  on-the-spot  checks  to  thirty  over  the  period  2005/2007. 
These checks covered the bulk of expenditure incurred by the Commission. 

Extensive work was also carried out in relation to the follow-up on issues which had 
been  identified  in  previous  reports.  The  results  of  this  investigation  were 
incorporated in a Global Report covering the year 2007 and issued at the beginning 
of  April  2008.  Services  have  generally  taken  appropriate  measures  to  address  the 
main issues raised over the years. 

A procedure to enable the Accounting Officer to examine (and if satisfied, to give his 
agreement)  to  proposed  changes  in  local  IT  and  administrative  systems  came  into 
force in June 2006. This has led to the examination and approval of 15 such material 
changes during 2007. 

At  the  date  of  the  last  progress  report,  the  systems  of  three  DGs  remained  to  be 
validated (AIDCO, EAC and RELEX), and a reserve remained regarding JRC's use 
of ABAC-Contracts. 

With regard to DG AIDCO, the previously noted improvements led to the validation 
of its local system, with a reserve regarding its local IT system which has been lifted 
in  2008,since  now  CRIS  is  systematically  reconciled  with  the  central  accounting 
system. The JRC has uploaded all its 2007 contracts to the central database (ABAC 
Contracts).  The  contracts  for  2005  and  2006  will  have  to  follow  in  order  for  it  to 
fulfil its obligations. 

The systems of EAC and RELEX have not yet been validated. Some issues remain to 
be  resolved  in  both  DGs  although  significant  progress  was  made  during  2007, 
notably  the  improvements  to  the  internal  control  systems  in  DG  EAC  and  the 
successful introduction of ABAC in the Delegations by DG RELEX. 

5. 

IT DEVELOPMENTS FOR THE GENERAL BUDGET 

The IT development plan is intended to provide the information system with the features that 
are  required  to  improve  financial  accounting,  controls  and  reporting,  and  to  obtain  better 
integration  of  the  various  IT  modules.  The  purpose  of  the  IT  strategy  is  to  standardise 
application platforms in order to improve user support and to lower maintenance costs. 

Since 2005, the Commission has been working actively to limit its accounting application to 
two  platforms  only,  i.e.  SAP  for  ABAC  Accounting  and  JAVA  for  ABAC  Workflow.  Its 
medium-term strategy is to integrate all the Commission's accounting processes into a single 
platform. This strategic plan is being guided by the ‘buy-before-build’ principle that favours 
commercially  available  off-the-shelf 
in-house  bespoke  application 
development. 

software  over 

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As  part  of  this  strategy,  DG  Budget  has  implemented  the  SAP  BCS  module  for  its  budget 
management,  has  tested  and  analysed  a  standard  SAP  solution  for  asset  management,  is 
analysing  a  standard  solution  for  procurement  and  is  examining  the  options  for  a  new  SAP 
application architecture. The progress made in all these initiatives is described below, and in 
more detail in Annex 1. 

5.1. 

ABAC upgrades 

During the period April 2007 – March 2008, three releases of ABAC Workflow and 
associated  modules  were  brought  into  production.  The  main  objectives  of  these 
releases can be summarised as: enhancing functionalities supporting the execution of 
the budget and the management of the general accounts; implementation of support 
for  the  Financial  Regulation  as  amended  in  2007;  and  the  gradual  recasting  of  the 
technical foundations on which ABAC is built. 

•  ABAC Assets 

DG  Budget  is  restricting  investment  in  ABAC  Assets  to  essential  maintenance  and 
minor  improvements  (notably  for  the  EU  Delegations).  The  gradual  phasing-out  of 
ABAC Assets will be timed to coincide with the deployment of its successor, ABAC 
SAM  (see  §5.4  below).  Directorate  Generals  should  not  use  the  two  systems  in 
parallel. 

•  ABAC Contracts 

For ABAC Contracts, preliminary work is being undertaken to assess the feasibility 
of integrating its functionalities into the ABAC corporate system, profiting from the 
experience gained by Directorate-General JLS when introducing SAP Grantor. In the 
meantime, investment in ABAC Contracts is limited to essential maintenance. 

•  Single Data Warehouse 

It  is  difficult  to  synchronise  the  information  in  the  two  present  financial  data 
warehouses,  and  to  reconcile  this  information  to  the  accounts.  They  are  being 
progressively  replaced  by  a  single  data  warehouse,  built  on  accounting  principles, 
and are scheduled to be closed down in mid-2009. 

5.2. 

IT Development Process and Systems architecture  

Improvements  in  the  IT  development  process  are  guided  by  a  data  modelling 
methodology  supported  by  dedicated  tools.  This  approach  ensures  that  IT  systems 
are aligned to the operational procedures of the Commission, that all documentation 
is centralised and up-to-date and that the software engineering is efficient. 

5.3. 

Budget Control System (BCS) 

The  new  version  of  the  SAP  FM  module,  BCS,  replaced  in  April  2008  the  FBS 
version  used  for  central  budget  management,  as  it  is  capable  of  incorporating  the 
local  budgetary  lines  required  to  provide  departments  with  a  more  detailed  system 
for managing their budgets. 

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5.4. 

SAM (Supply and Assets Management) 

As part of its IT systems integration strategy, DG BUDG is carefully analysing and 
developing a fully integrated Supply and Assets Management module to replace the 
present  ABAC  Assets.  An  initial  demonstration  of  the  Supply  and  Assets 
Management module was presented to DG BUDG and OIB in March 2007, resulting 
in  a  decision  to  proceed  to  the  next  stage.  A  full  Proof  of  Concept  analysis  and 
prototyping was presented to DG BUDG, OIB and OIL in July 2007. This resulted in 
a decision to proceed with the deployment of the new module. The needs of all 12 
services  managing  assets  will  progressively  be  integrated  into  SAM.  This  work  is 
progressing  on  schedule,  with  two  offices,  OIB  and  OIL,  set  to  become  the  first 
client services to use the new module at the end of 2008. All services should work 
with  SAM  by  2011;  special  attention  will  be  made  to  the  particularities  of  DG 
RELEX. 

6. 

ABAC DELEGATIONS 

Since January 2007, all the Delegations have been working directly with the ABAC 
system, which now includes an Imprest Account module for the simplified recording 
of small payments (below 300 euro), and facilities for bank and cash reconciliations. 
ABAC  Assets  was  adapted  for  use  by  Delegations  in  April  2007,  so  all  the 
Commission inventory of assets is now in the ABAC system. 

During  2007,  a  number  of  improvements  were  made  to  the  IT  system  to  remedy 
problems reported by Delegations, and the missing functionalities of ABAC Assets 
were introduced. 

For  the  Delegations,  this  also  meant  a  cultural  change  from  cash  to  accrual 
accounting,  a  more  far-reaching  development  than  only  making  changes  to  IT 
systems. Delegations had to develop expertise in each area, and this must be properly 
applied before RELEX's financial systems can be validated (see 4.2 above). 

7. 

EUROPEAN DEVELOPMENT FUND 

The  IT  platform for  the  accounts of  the  European  Development Fund, which differ 
from those of the General Budget, is also being modernised. 

The ABAC developments needed for the EDF were largely completed and tested by 
mid-2006, but the implementation of the new IT system (CRIS-ABAC-EDF) has had 
to  be  postponed,  mainly  because  of  the  need  for  DG  AIDCO  to  complete  the 
developments necessary for CRIS to comply with the accrual accounting rules for the 
General Budget. Implementation of the new IT system for the EDF is now planned 
for January 2009. Both DGs are fully committed to meeting this deadline. 

2008  should  therefore  be  the  last  year  for  which  EDF  accounts  are  drawn  up  from 
records  that  do  not  comply  with  international  standards.  Although  the  new  IT 
systems are still being developed, the EDF annual accounts have been established in 
compliance with accrual-based accounting principles since 2005.  

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8. 

IMPLEMENTATION OF ABAC BY THE OTHER INSTITUTIONS AND AGENCIES  

Agencies and other Institutions have the autonomy to choose between ABAC or any 
other system. For those choosing ABAC, a dedicated project team reporting directly 
to the Commission's Accounting Officer plans, analyses and coordinates all activities 
accompanying the roll-out of ABAC, in terms of both timing and resources. 

A specific financial and accounting environment is implemented in ABAC for each 
Agency,  whose  accounting  officer  remains  responsible  for  its  accounts  and  for  the 
execution of its payments. 

Five  regulatory  agencies3  were  connected  to  the  ABAC  system  during  2007.  Nine 
further agencies will start using ABAC in 20084: At least twelve further agencies or 
bodies  are  due  to  be  connected  to  ABAC  in  2009  and  2010.  The  SI2  module 
currently used by these bodies is being phased out gradually and will be maintained 
until all are connected. 

9. 

CONCLUSION 

The new accounting system of the European Commission has allowed it to meet the 
statutory deadlines set for the preparation of annual accounts, prepared on an accrual 
basis  and  which  comply  in  all  material  respects  with  internationally  accepted 
accounting standards. 

The  project  cannot  rest  on  its  laurels.  The  accounting  and  financial  processes  must 
continue to be improved and developed further. The most immediate challenges now 
remaining are to: 

•  Continue  making  the  necessary  improvements  to  the  systems  to  ensure  that  all 

accounting transactions are recorded accurately by the DGs, 

•  Complete the validation of the RELEX and EAC local systems, 

•  Incorporate the EDF accounts in ABAC and train staff in 46 Delegations, 

•  Optimise  the  integration  of  the  IT  systems,  integrating,  when  possible,  the 

Commission’s accounting processes into one single platform, 

•  Enhance financial and management reporting, 

•  Provide the same level of service to new clients (eg. the Agencies). 

The  project  plan  for  the  next  two  years  addresses  these  aims,  and  the  Commission 
remains  committed  to  achieving  the  highest  standards  of  accounting  in  the  public 
sector. 

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4 

FRA, Eurojust, Eurofound, CFCA, ECHA 
three  executive  agencies  (TEN-T  EA,  ERCEA,  REA)  and  six  regulatory  agencies  (F4E,  CEPOL, 
OSHA, ENISA, EMCDDA, CdT) 

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Faced with these increasingly demanding challenges, DG Budget recognises that its 
current  accounting  system  has  reached  its  limits  in  how  it  records  and  reports  the 
expenditure and income of the General Budget, and that it needs to push ahead with 
its strategy to manage the General Budget on one single and standard platform using 
software which can be readily maintained by its supplier. 

This  exercise  will  challenge  the  current  way  of  accounting  for  Commission 
operations. It will require an open and flexible approach but will be instrumental in 
keeping the Commission at the forefront of public sector accounting under IPSAS. 

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