JOINT COMMITTEE ON EUROPEAN AFFAIRS debate -
Wednesday, 10 Dec 2003

Vol. 1 No. 55

Report on the Role of the European Court of Auditors: Presentation.

Chairman

We will begin with a discussion of the report from the advisory group on the role of the European Court of Auditors. I welcome the members of the advisory group led by the chairman, Professor Patricia Barker, Ms Mairéad Divilly and Dr. Moore McDowell. I thank them and the other members of the group, Mr. Brian Murphy, Ms Mary Fulton and Mr. Brian Coffey, for their assistance in compiling this report. It is a very impressive report which has been produced in a very short time. The committee is appreciative of the work of the advisory group.

The committee has already indicated to COSAC that it may wish to discuss this issue when it meets here in May. Under the Amsterdam treaty, COSAC has powers to make recommendations to the institutions of the Union.

The terms of reference of this advisory group were to consider the role of the European Court of Auditors, in particular its capacity to fulfil its functions and to efficiently and effectively discharge its responsibilities, taking into account the needs of a Union of up to 25 or more member states, and to report its findings to the Joint Committee on European Affairs.

Having considered the report today, I will be asking the committee to make its own report commending the report and referring it to COSAC for its consideration. Once again, I thank the group. Perhaps Professor Barker will make some introductory comments in respect of the report which was presented to the joint committee in October.

Professor Patricia Barker

I thank the joint committee for inviting us to this meeting. I convey the apologies of the members of the group who cannot, for various reasons, appear today .

Our terms of reference were set by the joint committee. We were required to consider the role of the European Court of Auditors paying particular attention to its capacity to fulfil its functions and efficiently and effectively discharge its responsibilities in the context of the needs of a 25 member Union, or possibly more. We were asked to report our findings to the joint committee.

It is undoubtedly true that this review was carried out at a particularly opportune moment. The increase in the membership of the EU from 15 to 25 was one reason for that. The European Court of Auditors comprises 15 members at present. If nothing else were to happen, the court would be managed by an executive body of 25 members which represents a significant increase in membership. It is also an opportune time to consider change in view of the huge technical changes in auditing and corporate governance which have taken place since the court was established in the 1970s. There has been an increase in professionalism and an expansion of techniques and mechanisms. There has also been a movement toward standardisation and internationalisation of auditing in response to the increasing complexity of commercial and government business.

We recommend five principal changes. First, we recommend a change from the system of one member per member state to the professionalisation of the court. We recommend the establishment of posts for five auditors general who would be appointed on the basis of professional competence rather than by virtue of the fact that they happen to represent member states. Among the five, there would be a mix of competencies and skills. Second, we recommend a change in the focus of the court on national representation to a focus on professional and mixed competencies. Third, we recommend enhanced collaboration between the court and national audit offices across the European Union and between and among the court and the internal audit service of the European Commission and OLAF, the fraud office. Fourth, we recommend a review of the competencies of the staff of the court. The European Court of Auditors should adopt a better system of human resource strategies with particular reference to change management and increasing the competence of court staff. Fifth, we recommend a review of the professional standards of the court. We suggest that the work of the court should be subject to external review. The old question of who guards the guards should be asked. We suggest a concentration on robust methodologies for assurance and value for money audits.

Under the category of professional standards we recommend prioritisation of work in co-operation with the Commission on accounting information systems and financial controls. We have all read recently of the difficulties the Commission has had in terms of its accounting system. This is an area in which the court should concentrate on making a strong contribution. We recommend clarification of the parameters and boundaries of value for money audit. In the context of the prioritisation by the court of work on assurance audits, particularly those with the Commission, value for money auditing should be passed on to the internal audit service as is usual in these cases. We suggest the use of internationally understood terminology in the making of reports by the court.

We recommend the publication, particularly on the court's website, of guidelines for whistleblowers. Any person who would like to communicate directly with the European Court of Auditors should be able to discover the procedure for providing the court with information on the website and determine what confidentially guarantees he or she can expect. We also recommend a parcel system of continuing professional development from the bottom of the organisation to the top, which includes senior executives. Finally, we recommend that the name of the court be changed to the European Audit Office to reflect the reality of its work. The body does not operate like a court; it operates like an audit office.

I appreciated very much working with the colleagues selected by the committee. We worked well as a team. I thank the people who collaborated with us and who met with us during the course of our work. While some of our suggestions are fairly radical, there is an appetite for change within the court and the auditing and public finance sectors. There is a good opportunity to make changes at this time. We commend to the committee our recommendations.

While we are happy to answer any questions members may have, my colleagues may have something to add first.

Ms Mairéad Divilly

Professor Barker has adequately covered every aspect of our report.

Dr. Moore McDowell

I was brought to this process as an economist and I do not, therefore, possess skills central to the requirements of the work. I pay tribute to Professor Barker who carried out a great deal of work in co-ordinating our activities. I also pay tribute to the skill and diplomacy with which she managed the process. The report, which I heartily commend to the committee, is a tribute to the careful way in which she steered our undertaking.

Chairman

Thank you very much.

Deputy Carey

I thank the members of the group for their work. As I speak entirely as a lay person, the witnesses should not be afraid of telling me I am talking rubbish if I do so.

Reflecting on a number of the group's recommendations, I am struck by one in particular in view of ongoing discussions on the size of the Commission in the context of the Intergovernmental Conference and the coming heads of state and government meeting. The report of the group refers to a slimmed down version of the court. Is there an analogy to be drawn between the size of the Commission and the size of the court in terms of ownership by the new member states of the various institutions of the EU? The accession countries will need to experience ownership of all the institutions, possibly until 2009. There may even be a case for going beyond that. I notice that the group recommends a supervisory as well as an executive board. The recommendation looks very like one we made at the convention to establish voting and non-voting Commissioners. I am not sure in retrospect that the recommendation will be a runner. It is not a great idea.

I have considered the question of the interaction between OLAF and the European Court of Auditors in the context of my membership of the convention's working party on justice and human rights. OLAF is not exactly a robust organisation and I am not sure of its potential to become one. Did the group have an opportunity to examine the potential role the Court of Auditors with regard to the possible emergence of a European public prosecutor, initially in the area of financial fraud?

My final question is from a lay person's perspective. With regard to the harmonisation of procedures, standards and so forth, are different codes of practice and standards applied in the various member states? At least two different institutions operate here, for example.

Professor Barker

With regard to the Deputy's question on the size of the Commission, we have limited ourselves to discussing the size of the Court of Auditors. Our recommendations are based on the fact that the court is not intended as and should not be representational, that is, it is not intended to be a parliament or politically representative. Having considered at great length the possibility of having a voting and non-voting membership, we concluded such a system probably would not work for the simple reason that it would create two tiers of members. Such a system would require one to select the countries with the higher standard of auditing, which is an invidious delineation to make. In addition, the countries with the highest standards of auditing may not necessarily produce the individual with the best competency in the area and for these reasons we rejected this option.

In light of a future membership of the European Union of 25 countries, we concluded that the best mechanism would be to have a powerful, technocratic executive, whose members were competent in the area, supported by a supervisory body representative of all the member states. As enlargement proceeds, the new member states would be represented on the body, for example, if EU membership reaches 30, there would be 30 members of the supervisory body. Having considered all the options, we concluded that this was the best model for an area such as audit, which does not represent political perspectives and for which there is no particular lens peculiar to a geographic location or national state.

As regards the Deputy's second question on OLAF, our brief was limited to the European Court of Auditors. While we spoke to members of the court about their relationship with OLAF, we did not meet representatives of the organisation or form any view about the relationship between it and the court other than arriving at the conclusion that, in light of current movements towards forensic auditing in the world of auditing in general, it would be appropriate for the new auditors general, once this new system has been introduced, to examine the role of forensic audit and collaboration between the Court of Auditors and OLAF. We did not conduct an investigation or a review of OLAF.

As regards the Deputy's third question, harmonisation of standards in accounting and auditing is taking place worldwide. The European Commission, for instance, has just agreed to a standard system of regulating accounting using common international accounting standards, which it intends to introduce by 2005. Moves are also afoot to standardise audit standards on foot of changes in accounting. One must first change fundamental accounting before one changes the standards of auditing. There is, therefore, a worldwide movement towards internationalisation. Our view was that the European Court of Auditors could and should take part in the negotiations and discussions on the development of best practice international auditing.

Dr. McDowell

If we are in a world which, due to increased globalisation, requires that accounting and audit standards be at least compatible, if not uniform, across the Atlantic, throughout the European Union and in other countries, it is crucial that the European Court of Auditors should speak with deep technical competence at the highest level. This is one of the motivations for requiring, as Professor Barker put it, the court to be professional at the top rather than seeking in any way to represent a balance of political forces. Members of the court must be able to speak purely from a technical, disinterested viewpoint. This is the reason membership should consist of around five people who will be required to divide up responsibilities among themselves, as is currently the case.

The people concerned should be, and be seen to be, independent of political considerations and offer competent, disinterested advice. This is the reason for our view that appearances matter in this respect. The court should not be seen as being representative of interests but as disinterestedly professional, which will be particularly important in terms of the standardisation of procedures.

Deputy Mulcahy

I join my colleagues in thanking the review group for this excellent document and for taking the time to prepare it. My first question is a little basic and goes back to the old principle that if it is not broken, one does not fix it. Is the European Court of Auditors broken? Is it flawed goods? I ask this in the context of two major financial scandals in the European Union in the past two years, one of which involved the resignation of the entire Commission, with a second scandal reported a few weeks or months ago. I am not, nor would I claim to be, au fait with the details of either case. Did the Court of Auditors have any role in discovering these scandals? Was it supposed to have a role in discovering the irregularities in question? Is it, as currently constituted, fulfilling its mandate adequately and properly?

When changes to any constitution are being considered, it behoves those proposing change to show that it is required. To take up Dr. McDowell's point on the independence of appointees, is there not an argument for having national governments appoint members of the Court of Auditors? One presumes that they would be independent in the same way that judges and Commissioners appointed by national governments are, by and large, independent. The upside of such a system is that the national governments would have a democratic link to and ownership of the court, which could be eliminated by establishing a technocratic body. Why not have a technocratic system operating under the court as currently appointed?

Professor Barker

With regard to the Deputy's first question on fixing something that it is not broken, the point we make in the report is not so much that the Court of Auditors is broken but that it is inappropriate to current circumstances. The court was set up, as it is currently structured, in 1977 essentially as an oversight body. At the time there were nine members of the European Union. We are now moving towards 25 member states with the number possibly increasing further. This means the executive body is now too big and cumbersome and it was described to us in these terms by those in the Court of Auditors. As I said, the court was established as an oversight body. The whole audit environment has changed. We are conscious of a need. In the commercial sector we have seen the disaster of Enron while in the public sector we have seen the kind of events mentioned by members, such as fraud within the Commission. There are new techniques to be considered. Finance is becoming increasingly sophisticated, as is treasury management. The way in which auditors must handle these matters is largely based around computer auditing tools, risk management, assessment of risk and statistical analysis, all of which require specific technical training. It is no longer a matter of general oversight - good common sense and a general background in public finance equipped one to deal with the kind of audit that happened in the 1970s. It is not so much that the system is broken but it is out of date. It is no longer appropriate for the sophisticated financial market and the globalised public sector finance market operating at the moment. We need to move forward. The system has served us well but it is no longer appropriate.

The second question was about independence and appointment by member states. When member states appoint members the mix of membership skills is not necessarily a good one because member states appoint people they feel have the appropriate qualities but without taking account of the lacunae in the skills mix at the time. Taking into account the distribution of competencies of the five auditors general means that a proper mix can be achieved. At the moment we do not achieve the mix of technical skills to which I referred in the report. One can see in the report the list of skills required. While the person appointed may have a good general background, if he or she is not examined in the context of the other skills that are there already, the objectives we have set out as our recommendation will not be achieved. In setting up the supervisory body with representation from each member state we will achieve the kind of representation, feedback and input to which members referred. We have achieved that in the model we have suggested.

Dr. McDowell

The point raised about ownership is particularly important in the context of the emerging Union because there must be a feeling, not just among the applicant states but in the existing member states, that the enterprise is owned rather than simply being imposed from the top. I understand and accept that point. Professor Barker has pointed out that this would be one of the functions of the supervisory board. While riding shotgun, it could supply advice and produce political, regional and interest group input into the deliberations of the Court of Auditors or the audit office, whichever it turns out to be called.

One thing jumped out at me when I came to this at the beginning of the summer. The degree of complexity that exists at the moment - as between the existing member states, their laws and, more importantly, their practices and conventions, written and unwritten, which affect accounting and the reporting and monitoring of performance - coupled to the requirement of translation and linguistics means that, in effect, the staff of the Court of Auditors must be representative of all the member states. That is how it is at the moment. One of the problems facing the Court of Auditors as things stand is that the burden of dealing with the degree of difference will be multiplied enormously by the advent of the new member states. The plus and minus side is that there will need to be substantial importation into the office of people, below the current Court of Auditors level, who will be drawn from the member states. Provided the presentation is undertaken seriously, given that the supervisory board will be representative and that because of the requirements, it will be necessary to make sure the staffing at line management level is representative of different countries, I do not see this as a big problem. However, it is a problem we will need to keep at the front of our minds.

Senator Ormonde

I welcome the deputation. It is great to have stimulating discussion on this issue. I have thought about this before now in the context of people who have been there already and have done a superb job and are still performing to their full capacity.

I want to zoom in on the area of the five auditors general. Reading through the list of desirable qualities I reflected that one would have to be God to have all of them. One must have excellent communications skills, fluency in French and English, understanding of political sensitivities, understanding of public finance, common sense, independence, a good sense of ethical values, willingness to participate in personal CPD and development review, self-efficacy and so on. These are separate to one's professional capacity. One must have professional experience of being an accountant.

I accept that we are moving towards increased complexity in these matters and must cope with ongoing change, so we need harmonisation in accounting standards. However, one could take the idea further and infer that in this country, instead of having someone who is qualified in engineering as Minister for education, the Minister must be a professional in the field of education. That would narrow the possibilities considerably. I would prefer to have a broader picture of someone at the top with skills of common sense, fluency in English and French and independence who is surrounded by professional people. Is it the case that there is currently incompetence? When the system is extended to include 25 members, could the new members be told they did not have the capabilities required? Why is change being considered at this point?

Professor Barker

The Senator has raised a number of questions. The change is being considered now because the committee has asked us to consider it. However, it is an appropriate time for the reasons I mentioned earlier.

The Senator stated that candidates would have to be God to possess the skills we mentioned. These people would be paid a considerable salary. That is not to say that being God necessarily equates with having a considerable salary or vice versa.

Deputy J. O’Keeffe

Can one buy God?

Professor Barker

I have not tried yet, but I will let the Deputy know. The skills and competencies mentioned as essential for potential auditors general are the kinds one could find among most of the partners in the big five auditing firms. They include common sense, independence, and a good sense of ethical values. Possessing the latter does not necessarily mean one applies such values.

Senator Ormonde

Is the witness saying that national figures would not have such values?

Professor Barker

No. I have never said that.

Senator Ormonde

The implication could be there.

Professor Barker

There is no implication whatsoever that the people currently doing the job are lacking in these skills, except perhaps in the technical skills. We acknowledge that it is not possible for a technical person to have all the skills mentioned. We have included technical skills on the list of those skills that must be present among the five auditors general. It is not meant that each of them would have each of those skills. For instance, the area of risk analysis and risk management assessment is a highly complex technical area on which accountants spend a good deal of their lengthy training. Treasury management is also a very complicated technical area, as is IT and computer audit. Some of the current members of the Court of Auditors may or may not possess some of the skills in that latter area. They are not required to have them. It can be seen from our report that detailed competencies are not set out for them. We are suggesting that the time has come, in 2003 going into 2004, to specify the competencies and simply not to have a general requirement for good citizenship, which is how it could be currently interpreted. There is nothing in this report to suggest that the people currently in these positions are incompetent. It is important to put that on record.

It was suggested that it could be inferred from the document that the ten members coming in would be particularly deficient. What the document says is that those ten have expressed considerable interest and enthusiasm in enhancing their skills and in bringing themselves to a high level of international auditing and accounting in terms of their own national audit offices and therefore in terms of the potential candidates for one of the auditor general roles. In this document there is no inference or implication to be drawn of criticism of the new members.

Ms Divilly

I would use as an analogy the way in which a business operates, with a management team. It would be like having a national organisation, taking one person from every county to do the job on the ground, though as a team it might not have the necessary competencies. In the current environment one is talking of a mandate for the finance director and for the rest of the team, but in terms of composition, every county votes. One might not have the competency there for someone to act as finance director or managing director. The supervisory board is in effect the board of directors, though non-executive. The five auditors will be very much the operational executive management. That is the only analogy I can suggest.

Professor Barker

There is a question about whether we can be seen to be trying to extend this argument into the roles of Ministers of State and full Ministers of the Government. We are not doing so.

Senator Ormonde

One would think that.

Professor Barker

No. Among other roles, Ministers of State have their executive roles. They also have the role of representing the views of their constituents. There is no role in this job for representing constituencies or representing local interest. We are suggesting that the representation of local interest should not be a feature in an organisation that applies best international technical world class standards of auditing. There is no role for representation of national interest in the way in which a Minister of State has such a role.

Dr. McDowell

The function of any politician, whether a backbencher in the Dáil or in the Seanad, or a Minister, is to make political choices or support their making. They must make choices all the time. These choices are made on the basis of a range of criteria, which could include naked self-interest, regional representation, the common good or whatever. For people to make those choices, they must be politicians. Probably the worst thing one could do would be to say that the Minister for Finance, for example, has to be an accountant, the Minister for Defence should be a general, or the Minister for Health a doctor - though a bit of medical knowledge might help. There is nothing wrong, for example, with accountants being Ministers for Finance. We are not making such a point. It is not applicable. This should not be taken as in any way suggesting there is a lack of expertise in the Cabinet which is to be resolved by the appointment of doctors, generals, teachers - and a policeman as Minister for Justice.

Deputy J. O’Keeffe

This is a great report and I compliment those involved in its production. Without being condescending, it is an example of genuine public service when people are prepared to do such excellent work in their own time and at their own expense, which might include trips to Luxembourg, for example, and so on.

The report provides an ideal blueprint. The timing is right. Everyone is currently looking at the institutions from the point of view of the Intergovernmental Conference and the new EU treaty and so on. In the light of the big corporate scandals of Enron, for example, and the new emphasis on good principles of decent corporate government, the timing of this report is perfect.

The only problem is that we are not starting with a green field site but with an existing situation. As always happens with institutions, there are vested interests of different kinds, for example, with regard to staffing levels. I understand there are to be 600 staff. The report had a figure of between 15% and 34% as the estimate given of people on the staff with professional accounting qualifications. It struck me as a very broad range. I am surprised that a more exact figure was not supplied to the compilers of the report.

In constructing or reconstructing any political or semi-political institution there is a certain pork barrel aspect to the appointments. That is not to denigrate in any way the people appointed from Ireland who have been outstanding political figures. The member who springs to mind is Máire Geoghegan-Quinn. Barry Desmond was the figure before that. Richie Ryan was also there. They have all had a major political input to national politics. I am not denigrating people in any way, but it is a fact of life that there is a certain approach on the part of whatever Government is in office which to some degree limits their choice. There is a point beyond which a government is not normally prepared to go.

Have the witnesses looked at the practicalities? The things which influence us as committee members, or influence human nature, are no doubt the same everywhere, and influence governments in the 24 member states which will make up the EU after 1 June next year. What do the witnesses feel are the practical possibilities of getting an acceptance of the kind of changes they are proposing? Starting from a green field basis they look sensible. The name has been given as the European Court of Auditors. I believe that the Bank of Ireland has a court of governors, so such a name is loosely used in many ways. The name might be changed, but in effect one is creating five gods or goddesses who will be responsible at an executive and management level for doing the main work and who will, as I understand it, report to a supervisory board which will include a representative from every member state. In a way, of course, that is sensible in that it allows the continuation of a national appointments system. Given that politics is the art of the possible, has Dr. McDowell examined the possibility of getting this kind of change accepted? Can he give us an idea what he has in mind from that point of view? I am not just talking about what Ireland can do in taking over the Presidency and running the Intergovernmental Conference but about the practical possibilities of getting these changes into effect.

Dr. McDowell

It would be easy to retreat behind the terms of reference and say we were simply asked to state what ought to be but did not have to bother about getting it into place. However, that is not, in fact, the way the discussions were informed. If I can answer the question somewhat elliptically, the view of the advisory group is that the present situation will not be sustainable and there will have to be changes, if only because there are now going to be 25 members. If one was to try to operate the existing structures with 25 co-equal members of the Court of Auditors, each having his or her own area of specialisation and responsibility, it would be impossible for it to function. At the moment, it is already in team blocks and different areas, with somebody taking responsibility and others working with him or her. Unless one believes that one can break down the team blocks, one is going to end up with 25 people running very small shows in groups of three or four and cohesion will be lost. If one tries to revamp the Court of Auditors so that each member has his or her own division for which he or she is responsible, there simply are not enough credible areas for this to happen. In our view, something will have to change as regards the cohesion of management and decision making at the top. We do not mean to be critical of the skills or performance of the existing members, but if I were asked for my personal view I would say it is pushing the envelope to try to get cohesive decision making from 15 people other than by doing so - as they have managed it themselves - in teams. Something has to give and change, in our view. We are proposing a structure which we think would work. Clearly, it has to be accepted not just by this committee but also by the others to whom the committee's comments will be presented, that something has to be done and that, if the committee agrees, something along the lines we are suggesting provides a useful template to consider. The question then is how one persuades people to accept it. I am not a politician and I do not suppose I can be expected to ask how you are going to persuade other people to accept what we have said, if you think what we have said is right.

Some of the political problems would be resolved by the fact, as Professor Barker has been at pains to point out, that the supervisory board provides the basis on which representational, regional and political input to inform the decision making of the experts becomes possible. Therefore, one continues to be in a position where member state governments can feel that they have an input into what goes on. As auditing develops, the requirements are moving from simply asking whether the money was actually spent on bananas, as required, to asking whether it was sensible to spend it on bananas in the first place. Auditing is moving towards this value-for-money aspect as well as the technical aspect of tracking the paper trail to see what was spent and where. In addition, the problem of fraud and the need for transparency in financial management are becoming more important at EU level and commercially because of the interface between the EU and commercial bodies.

As an outsider, my view is that unless the Court of Auditors can primarily can rely on acceptance of its technical competence and its disinterested approach to evaluation, it will have problems. The world in which the court is operating has changed to such an extent that changes along these lines will have to happen, whether one agrees with the precise details of what we are suggesting. At that stage, it is an advocacy problem to make this clear in the political arena where there will be problems in terms of the way governments and political interest groups perceive it, particularly among the applicant countries. Regardless of the details, there is no way that the existing procedures can be maintained. Somebody will have to find a mechanism for slimming down decision making at the top in the context of a broader EU. There is a requirement for competencies which have not been uniformly present before and new competencies. The report is absolutely right in saying that this requires hard nosed professional people running it, subject to a supervisory board.

Professor Barker

Deputy O'Keeffe mentioned the five gods or goddesses. I hope there would be five gods and goddesses so that there would be a reasonable gender mix - something which the European Court of Auditors lacks at the moment.

The figures for the 15% to 34% range were given to us by two different areas within the organisation. When we ran the draft report past them for accuracy, there seemed to be a difference in their understanding of what "professional qualification" means. Some would say it means professional qualification as an accountant while others seem to feel that professional qualifications could mean qualification as a lawyer or having a professional qualification. They could not quite get a handle on it, so that explains that range of figures.

As regards the practicalities mentioned by the Deputy, Dr. McDowell is absolutely right - we will have to do something to change it. That does not answer the Deputy's question directly but continuing with the way it is at the moment is not an option. The members of the European Court of Auditors have spent the last three years deliberating on how they will accommodate the ten new members. They have done it but they are not really happy with the mechanism they have come up with, which we mentioned in the report. The ten new members will bring the total to 25 but they are not comfortable with it and nobody is supporting the status quo, including the current members of the Court of Auditors.

As regards practicalities, we have suggested five members. There was a considerable body of opinion that said there should be a single auditor general, which is a model we are comfortable with in this country. The UK and some other member states are also comfortable with it. We felt, however, that having five members allows one to focus on the mix of competencies. That is a way of phasing in our recommendations. It will not be possible to phase it in in any other way. The practicalities are that it has been decided that from 1 January the membership will change. The existing members will step down on that day and the new members - the five new auditors general who have been appointed - will take over on that day.

Deputy J. O’Keeffe

The existing members will become members of the supervisory board?

Professor Barker

It may or may not be the case. We have not suggested that. It may very well be the case that the current members, who are full-time professional operatives in their jobs, may not wish to take on a supervisory role.

Deputy J. O’Keeffe

Professor Barker would not see membership of the supervisory board as being a full-time job?

Professor Barker

No.

Senator Lydon

In general, it is a very good report. The "fab five" is a good idea but I am not sure it will happen too quickly. I am sure Professor Barker will agree that prime ministers like to hold onto jobs like this so that they can promote someone who has been faithful or, heaven forbid, send away somebody who might be a threat. That is a purely political point.

We will all have representatives on the Court of Auditors until the applicant countries join the EU and suddenly they will have no representatives. We must be sensitive to the perceptions of the applicant countries. I refer to the competencies required, to which Senator Ormonde referred. It is a good aspirational list but I am not sure it is helpful to include qualities that cannot be measured objectively, such as common sense or good ethical values, independence and an understanding of political sensitivities. People should possess these qualities but they should be expected rather than listed because they are difficult to measure. Skills in accountancy and auditing, for example, can be measured. In general, it is a good report.

Professor Barker

We did not visit the question of whether people were appointed because they were faithful and/or unfit. We did not make judgments. The Senator is correct regarding the sensitivity towards new members, which is pointed out in the report. Intelligent people will understand the need for an appropriate explanation of where we are and why we need to get away from there and go to another place. A seat will also be available on the supervisory board but all these issues should be explained sensitively.

With regard to the competencies, ethical values can be measured whereas common sense cannot. Professional human resource managers have methods to assess common sense and measures can be applied. Assessment centres go through significant detail in the selection process and they have mechanisms whereby they can conclude on the balance of probability a person demonstrates a strong sense of ethics and moral values and displays common sense. Common sense can be measured but I agree with the Senator it is more difficult to assess than a number of the technical competencies. They are also difficult to assess because it may be possible that an individual could have a wonderful set of letters after his or her name but could have difficulties applying them in practice.

There are always difficulties and I accept what the Senator is saying. This is a set of guidelines and not a shopping list that can be added to or taken from. These were the competencies we felt were appropriate.

Deputy Sexton

I congratulate the group members on a job well done and on their commitment to public service, which is second to none. It is regrettable, however, that a report commissioned by the committee has been reported on in the media before members have had an opportunity to read or discuss it. This tends to set an agenda and a tone.

Chairman

That did not happen. The report was circulated to members in October and was reported on subsequently.

Deputy Sexton

But we did not discuss it.

Chairman

It was circulated.

Deputy Sexton

The report was circulated but we did not have an opportunity to discuss it in the appropriate forum. Chairman, do you mind not interrupting me? I do not interrupt you. I should be allowed to finish.

Chairman

The document was circulated.

Deputy Sexton

The document was circulated but we did not discuss it nor did we have an opportunity to arrive at a common position before comment was made in the media. An agenda and tone were set. I envisaged broad consultation on such a report but an adversarial tone has been set on this issue. Other members have alluded to implied criticism in the report through the group setting competencies. The report carried in The Irish Times referred to the report being sharply critical at times of the court’s operation. It stated: “Some of the political appointees have proved to be visionary, extremely hard working and excellent leaders of change. On the other hand, some of the professionally qualified accountants have proved quiet.” This is an astonishing statement. Is it wrong to be quiet about doing one’s business?

A number of issues relating to the report that have been raised in the media are astonishing. The report was meant to be the subject of debate and consultation because everybody believes during the enlargement process it is absolutely imperative that the way in which a number of organisations conduct business should be changed. Other members asked whether the Court of Auditors had been found wanting and whether it had missed something. We should build on what is there because, as Deputy Jim O'Keeffe said, we are not in the privileged position of working from a green field site and, therefore, the rules cannot be changed because other member states are not joining Ireland.

I have not discussed the report with anybody and I have come to these conclusions myself. The report sets all the wrong agendas. A good report has been turned into an adversarial report and an agenda has been set whereby the Government should not appoint people and it is wrong, by implication, to do so. Professor Barker stated the group did not imply criticism and while its members may not have contribution to the press reports, the danger of such reports getting into the media before discussion has taken place is highlighted. The Irish Times article refers to “the history of continuing professional developments from its most senior. . . . ”, the implication being that senior figures do not wish to partake in training to upskill themselves in a rapidly changing environment.

I regret the report was in the public arena, for whatever reason, before the committee had an opportunity to discuss it and present it to the member states during the Irish Presidency as a discussion document. I am a quiet member of the committee but I am annoyed about this issue. Barry Desmond and Máire Geoghegan-Quinn, whom I do not know, served Ireland well and the implied criticism of other members of the court should not have made it into the public domain so that an agenda could be set which has resulted in an adversarial rather than a consultative process. I thank the group for its hard work.

Professor Barker

I am not quite sure what is suggested. The report in The Irish Times had nothing to do with anybody in the group. Copies of the report were sent to the committee and it was sent in draft from to the Court of Auditors so that it could be checked for accuracy. Changes were made as a result. We had nothing to do with the report being picked up by the media. I am not sure whether the Deputy is suggesting we did but I assure the committee, that as far we were concerned, the report was written for and sent to the committee and it was not sent to a media outlet.

The points about which the Deputy is angry relate to statements of fact. It is the perception in the Court of Auditors that some of the political appointees were energetic and enthusiastic and had been contributors to change. It is a fact that there is also a perception that, even though it was staffed by professionally qualified accountants, they were not necessarily great contributors to the development of the audit techniques within the court. It is a fact that the members do not engage in continuing professional development. That is a fact, not an opinion. This is not set up as a conflict. It is a question of fact. We are suggesting, in order to enhance the performance and the role of the European Court of Auditors and moving from the model which was appropriate when it was set up in the 1970s to one which is appropriate to 2004, that we should change those kinds of things. The key fact is that we had nothing to do with this report or any commentary getting into the media.

Senator Quinn

Since I became a Member of the Oireachtas ten years ago I have looked on any reports we have received from a business point of view. Ms Divilly has already spoken about management and best practice. I agree wholeheartedly with the four recommendations of the advisory group. They seem to point in the right direction and to be correct, from what I know of it.

Rather than reinvent something, has the advisory group standards to go on elsewhere? I do not know how this operates in the federal system of the United States. Is there anything similar that we can learn from or have learned from? If so, have we done something about that?

I was interested in the change management programme recommendation. I have had a concern, since looking at the State system for ten years, that we seem to be very slow to move. It seems to me that even in European affairs there is a lack of urgency and time. Can the group recommend anything that would ensure that the change management programme in the report would move in speed and in time rather than just be delayed?

I am not sure what the challenges are. In business terms, transparency and fraud have already been mentioned. Incompetency also comes into being. Does the group believe these are the challenges facing auditors in any organisation, whether the European Union, a state or a business? If so, are they happy that they have been given the freedom to investigate and make recommendations without influence or obstruction elsewhere?

Professor Barker

We looked at what happens in the United States. Their system follows the Comptroller and Auditor General model. We considered that but we concluded that it was, maybe, a step too far for us.

We looked at the way change has been happening in the European Court of Auditors. It has been happening in a way that is not in accordance with the best practice we all might expect of change management, where one has a bottom-up process which involves staff and engages with them, where people buy into the change, feel they can contribute to it and see they are part of it. That has not been happening. All of that process can make the change slower. In this case the process has not been fast anyway, since it has been going on since 2000. Senator Quinn asks if one can guarantee that if one has good change management the process will be faster. One cannot guarantee that it will be faster but one can guarantee that it will be stickier. It is likely to hold together as one moves forward and to fall apart as it is implemented.

Mairéad may answer Senator Quinn's question about fraud.

Ms Divilly

Part of our recommendation was that the whole aspect of fraud should not be within the European Court of Auditors but in the internal audit service so that the European Court of Auditors would concentrate on the assurance in terms of the information and the systems within each member state.

Senator Quinn

What about incompentency?

Ms Divilly

The European Court of Auditors has all the competency skills. One does not need incompetence at that level. Is this what Senator Quinn means?

Senator Quinn

I meant to investigate incompetence. In checking as auditors do they also check for incompetencies?

Ms Divilly

That comes from the management structure and the internal control systems as well as value for money.

Professor Barker

In the European context, an auditor must assess the risk of poor internal control. That is the primary risk at the moment and the real risk to which they are exposed. Within the Commission, and not necessarily within all the member states where there are funds which they are auditing, the primary risk is poor internal control.

Senator Quinn

With the development of IT it is easy either to be incompetent or to cover fraud in that area.

Professor Barker

Yes, absolutely.

Chairman

There is a reference in your report to one of the qualifications for oversight being experience of government, politics and public service. I cannot find the reference but I know I read it. Under the heading "Competencies of Auditors General", the report states:

Some of the "political appointees" have proved to be visionary, extremely hard working and excellent leaders of change. On the other hand, some of the professionally qualified accountants have proved quiet and not necessarily at the cutting edge of professional development. Indeed, it was suggested to us that it would be better to have no auditors than all auditors. It was clear to us that qualification and experience in audit by itself is not enough to provide the range of skills needed to manage a modern audit facility.

The statement of assurance is referred to in page 11 of the report. The statement of assurance, DAS in the French version, refers to "the audit carried out in accordance with the court's own audit policies". The report continues:

The most recently published DAS opinion refers to what would generally be regarded as serious qualifications of opinion as "observations" and "the remark".

It goes on to make remarks about the following:

(a) overstatement of €148.7 million of provisions paid to member states in respect of agricultural intervention stocks;

(b) entry without adequate justification under “Sundry debitors” (sic.) of €980 million relating to cash transfers in third countries;

(c) provision of €564 million set out on doubtful bases in respect of the cost of dismantling the Joint Research Centre’s nuclear installations;

(d) overstatement of commitments still outstanding by about €1,318 million.

That is not a criticism of the European Court of Auditors, which clearly is reporting on these matters. The difficulty is that other institutions are not taking the court's reports and acting upon them. In the modern situation where the Union is about to expand to 25 states and we have looked at the size of the Parliament and the functions of the Parliament and the Council of Ministers, the function of the Court of Auditors is not being looked at. This report has been written by six professional people.

Things will not change overnight. We do not have the power to make them change. However, the least we should do is to put the matter before COSAC, the Conference of Community and European Affairs. Some of these changes could be made by agreement if there was agreement of the European Council, consisting of heads of state or government, and some would require the implementation of treaty changes. This committee could present this report as an independent review of the European Court of Auditors and a possible way of modernising the way the audit is done, and ask for COSAC's opinion of it. Clearly, all 25 member states and the European Parliament would have an input into a commentary on the report.

This is not something we will decide on today. The report is excellent and is a very good public service by those who gave their time freely and compiled it. We should not see criticism of anyone in the report. If there is a criticism it is that the qualification from the DAS, which I read out, has been repeated year after year, no matter who has been in Government and who has been appointed to the court. Other European institutions do not want to act on the court's reports. We must try to prompt some change in the role of the European Court of Auditors along the lines proposed.

We have the report. The very least we can do is ask COSAC to examine it when it meets here in May and let COSAC decide whether it wishes to debate the matter further. Perhaps Professor Barker would make a presentation to COSAC and let people hear its comments. This is only the start of a process and will not change anything overnight.

Deputy Sexton

On a point of information, what will be the status of the document if given to COSAC?

Chairman

It will be our report as one of the member committees to COSAC. The other member states would examine it and discuss it and the European Parliament would do the same. Hopefully, some recommendations would eventually result from it. It would then be up to the Council of Ministers, or whichever institution we refer it to - COSAC has that power - to decide what to do about it.

Deputy Sexton

I would prefer if it was a discussion document and not a recommendation from us.

Chairman

That is all it is, a discussion document.

Deputy Sexton

I propose that it remain that until it is discussed because I have an open mind on the matter.

Chairman

We will refer the document to COSAC for discussion. Is that agreed? Agreed. I do not know what it would have cost to do this professionally and I wish to thank the advisory group for the work done. It has done a great public service both in time and content of the report which will stimulate interest in the debate. It will not cause change overnight but will bring real change in the long-term. I do not know what the current EU budget is but the Department of Finance suggests it is approximately €100 billion. I think it is probably more. As the EU expands, new member states will also contribute. Therefore there will be an extended budget for auditing. We must strengthen the role of the court in carrying out its audit.

Again, I thank the advisory group. Perhaps Professor Barker will make herself available if we make a presentation on this to COSAC in May.