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October 25, 2006

Yet More About the EU Audit!

This is quite wonderful! So, with reference to something earlier about the refusal of the auditors to sign off on the accounts I get a comment/email from within the belly of the beast.

actually our mail servers are being a pain in the butt at the moment so lots of mails are being blocked (including from my own sister) - no conspiracy...

Which is of course entirely fair enough although one teensy thought does occur: if they can't run a few servers then how are they going to run a continent?

I am also directed to this post by TEBAF (The Ever Fragrant And Blessed as she in fact used in one of her own speeches) Margot Wallstrom.

Compare and contrast it with this piece at the BBC. Huge chunks are the same in each, don't you agree? Well, that's OK, because Margot says she is quoting the BBC article for one extract.


(and I make no apologies for copying some of the material which my colleague Slim Kallas has been issuing to the media).

Gosh, a Commissioner 'issues' material to the media, the BBC prints it and then another Commissioner tells us 'The BBC actually puts the problem quite well...'

Do we detect a certain circularity here?

OK, I have a question for someone more qualified in accounting than I am. The standards to which the Court of Auditors holds the European Union accounts.

Are these higher or lower than the standards which Sarbanes-Oxley holds the executives of a publicly traded American company?

There's plenty of such corporations with a turnover of $150 billion or so and as we've just seen with the Jeffrey Skilling sentencing, even before the S-O law, there was a certain insistence that proper accounting standards were followed, certainly severe penalties for not doing so.

So anyone care to enlighten me? Is this too strict?

The Commission quotes evidence given to a House of Lords committee earlier this year by the UK's Comptroller and Auditor General, Sir John Bourn, who said there were 500 accounts representing the expenditure of British central government.

He went on: "In the last year, I qualified 13 of the 500. If I had to operate the EU system, then, because I qualify 13 accounts, I might have to qualify the whole of British central government expenditure."

Isn't that, actually, what auditors do? 'We certify that this is a true and fair view'  or ' We state that this is a true and fair view with some qualifications?'

Is the EU being held to a higher or lower standard that a publically traded company?

October 25, 2006 in European Union | Permalink


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Wow! An organisation issues a press release and a journalist uses it. I didn't realise the world worked that way!

Tim adds: Tsk, it's the requotation, the circularity....

Posted by: Joe | Oct 25, 2006 3:17:57 PM

The point Sir John Bourne is making is that in the UK the accounts are split 500 ways, and a few are qualified (including a couple of major departments if I recall correctly). For the EU accounts, there is just one consolidated set of accounts, and the whole thing is qualified or not as the case may be.

In fact, most expenditure goes back through the memmber states, so problems in any of them will lead to a qualification of the EU accounts as a whole.
As an example, to see the difficulties the EU has with countries unable to account for EU expenditure properly, see last week's National Audit Office report on agricultural support in England.


This type of report seems to go through virtually unreported, but as the summary linked to states, a provision of £131m has had to be made (in addition to the £122m implementation costs) for "errors and other procedural mistakes" that the UK taxpayer will have to make up.

Incidently, the scheme seems to have been handled fine in Wales and Scotland, where there is local democracy, and where they chose to operate a simplified scheme. Perhaps as a result, one of the few decent newspaper reports on this last week was in the Scotsman, which gloated.

Posted by: RichardR | Oct 25, 2006 3:45:38 PM

Well the only part of the BBC article that Margot quotes is their own:

"For 12 years the European Union's auditors have refused to endorse the spending of large parts of the EU budget. To many European citizens, it is a mystery why such a state of affairs has been allowed to continue for so long."

As regards private sector accounting standards, I'm no expert, but I can give you this quote from David Devlin, President of the European Federation of Accountants:

"We do hope the lead of the EU and of those public organisations and governments that have already introduced similar standards, will encourage others, resulting in more transparent, clear and comparable financial information in the public sector across Europe and beyond."

Posted by: Joe | Oct 25, 2006 3:52:48 PM

again - companies are audited only for their books, and the Court of Auditors has no problems withe the EU books (it actually says they are 'reliable'); private companies are not audited for the 'underlying transactions', and definitely not for what their contractors do with the money they receive; in this respect the audit of the EU funds is - as it should be! - much tougher that that of a private company

Posted by: mk | Oct 25, 2006 4:50:06 PM

A company audit is required to state whether the books give a true and fair view of the company's affairs. A public sector audit will have the same requirement but will often have a further requirement to state that funds have been spent for proper purposes (or words to that effect).

So if the EU is dishing out cash to people who will not or cannot say how they have spent it (as they are presumably required to do) then the accounts are quite properly being qualified by the auditors.

RichardR tells us

"As an example, to see the difficulties the EU has with countries unable to account for EU expenditure properly, see last week's National Audit Office report on agricultural support in England."

But if the recipient of funds is unable to account for the expenditure, they shouldn't be receiving EU funds!!!!

Posted by: Bishop Hill | Oct 25, 2006 8:11:37 PM

Your last sentence answers its own question. I looked at the audit for 2004 and the language was surprisingly harsh.

Posted by: james higham | Oct 25, 2006 9:10:20 PM

It's certainly curious that the Commission is held responsible for the accounting practices of entities it does not control.

Posted by: Alex | Oct 26, 2006 12:07:38 PM

RichardR, you wrote:

"The point Sir John Bourne is making is that in the UK the accounts are split 500 ways, and a few are qualified (including a couple of major departments if I recall correctly)."

If I recall correctly, these major departments include the Home Office (eight consecutive years), the Department for Work and Pensions (for the last sixteen years), and Revenue and Customs (specifically Tax Credits, four consecutive years).

NAO Publications

Posted by: TD | Oct 26, 2006 12:47:12 PM