Tuesday, March 15, 2005

"Mission impossible"

In our third post today on the Jules Muis e-mail which Ambrose Evans-Pritchard featured in this morning’s, Daily Telegraph, we resume our account with a study of the questions put to Muis by the commission and his responses.

These were framed in September last year as evidence for the inquiry into the appointment of Marta Andreasen and provide a fascinating insight into the nature of the commission, its treatment of staff and its accounting systems.

Muis prefaces his first response with a personal view of Andreasen, confirming that his "limited contacts" showed "a highly concerned, focused and determined professional who was asking the right questions and clearly seeing the professional responsibilities and exposures that go with the position of the commission's accountant."

She was, says Muis, seeking to get the weaknesses in the accounting system acknowledged by her managerial and political peers. This, she set as a precondition for accepting responsibility for the immediate financial management functions that went with being the commission's accountant.

Then addressing the first question, where he was asked whether he thought there was any substance to the claim (by Andreasen) that the new financial regulation - and all the implementation measures – would encourage fraud, Muis was more than a little equivocal.

It was up to Andreasen to explain what he meant, but then added:

Reality has it that fragile controls are conducive to error, waste and fraud; and, I would add, fragile controls mask the real exposures for an organisation by reduced discovery risks of fraud and error. Our (accounting) audit reports, and those of the European Audit Court, and to a lesser extent BUDG itself, show a major longstanding compliance gap with standard practice and even with the 'old' Financial Regulation.

The new Financial Regulation does not really change the picture that much unless there is a political and senior managerial will, backed up by adequate resources, to make a break with the past in the substantive spirit of the Reform White Paper.
His next tranche of comment though really put the commission on the spot: "…progress has been made on various fronts", he says. But he then slams the budget directorate senior management, both old and new.

Amongst the problems were its "persistent denial of the real nature and depth of the problems... and its "ongoing refusal to acknowledge the need for internal governance reform." The reform was "too flimsy for anyone's comfort" and the directorate's longstanding position "seriously impairs and impaired reform progress". Some thought, declared Muis, "we have slipped backwards instead of moving forward."

The second question concerns an argument over whether the budget directorate refused to hold an internal audit for 2001 with Muis commenting that he did not remember ever receiving an adequate explanation as to why it was not carried out by the directorate's internal auditor. "It might, with hindsight, have saved all a lot of grief", he says.

Then Muis is asked about an note he had written to the Kinnock cabinet about a "perceived hostile working environment" in the directorate, when the commission cites a number of anonymous witnesses giving "favourable comments" on the efforts made by the directorate to integrate Andreasen.

Muis replies that, a very short time after his letter to the Kinnock cabinet, Andreasen had been removed from her job. On that, he remarks, I "rest my case."

Of the five different commission accountants he dealt with over the first two years of his work at the commission, he says, Andreasen was the one and only who understood, accepted and focussed professionally on the assumption of the chief accountant having responsibility for the integrity of the Commission's accounts. She expected nothing else than to have to sign off on them, qualified or not; and be held accountable and liable if proven wrong.

According to the treaties and the financial regulations, the Commission should have had - like any other organisation in the world - a professionally-independent chief accounting officer, who kept record of the results of business. But Muis did not recall any commission accountant "stepping up to the plate saying 'I am the first accountable; what are your questions?', or being held accountable for close to ten years for gross substandard financial reporting."

Even today, he adds, the traditional directorate doctrine only assumes process responsibility for the accountants. No responsibility is taken for whether the accounts are right in the end. That means that ten years after the Commission first failed to get normal audit blessing on its accounts and controls. It still does not have a proper accountability construct; and normality is not in sight.

The commission, he says, still does not have a proper results-based sign-off by a professional, or anyone for that matter, protecting the commission against undue criticism. This extraordinary situation, Muis says, "is not just the result, but also a major cause of the chronically sordid state of quality accounting".

It was there that Andreasen had the problem. Her beliefs were very different from the directorate's functional and accountability beliefs. This made her "at the time justifiably challenge the directorate's vested wisdom, and insist on transparency." It was, therefore, "no surprise she appeared to be a threat to vested interest; she was cursing in the church so to speak."

Thus, it was clear to Muis that, with Andreasen's arrival, "two irreconcilable schools of thought had to be accommodated in the not so open, too small for comfort, BUDG House." He inferred from this that the directorate "did not offer a particular welcoming environment". It was, it seems, "looking for cavity filling solutions where root canals were called for. That required less penetrating diagnostics; others not being welcome and welcomed."

In the final, of four, questions Muis is asked about whether the head of the budget directorate did in fact encourage Andreasen in her attempts to modernise the accounting system.

Muis replies that Andreasen was working "in an environment to a major degree still in denial on the nature and depth of the problem." It was an environment, he says, "that did not share information freely and unencumbered with the new accountant."

The directorate preferred to describe her work as an "accounting upgrading exercise, rather than a massive and very complex information systems renewal problem". The work required substantial support, organisation and resources which, as he understood it from Andreasen at the time, were for most part denied to her. "If one combines that with signals to ones own staff and peers that the lady is no longer wanted, I would think it is nearly 'mission impossible'", he concludes.

That is the picture presented by Muis. It is a dark and sombre picture, far different from that which the commission would like to present to us. We will pick up these and other threads in a final, analytical piece tomorrow.

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