Two of last week’s events stand out in particular.
On Tuesday, the European Court of Auditors – which styles itself rather
pompously as the ‘financial conscience of the European Union’ – qualified the
European Commission’s accounts for the 11th year in succession. Yes, the court
said that significant progress had been made on implementing a new
accruals-based accounting system. But it could not be sure the system had
recorded all assets and liabilities.
Auditors also questioned sundry debtors and budgetary risk in the
preparations for the accession states. It demanded ‘greater effort’ to deal with
issues relating to agricultural spending, structural measures, internal policies
and external action. ‘The Court is not in a position to provide unqualified
opinion on the legality and regularity of underlying transactions.’
Just 24 hours later on the other side of the Atlantic, the Securities and
Exchange Commission issued its own annual report. The General Accounting Office,
its auditors, identified no fewer than three ‘material weaknesses’ in the SEC’s
internal controls: in the recording and reporting of disgorgements and
penalties; in information security; and in preparing financial statements and
Furthermore the agency admitted a failure to budget for $48.7m (£28.3m) in
costs relating to new facilities in Washington D.C., New York, and Boston.
In both cases the organisations pledged that they would do better. SEC
chairman Christopher Cox said he hoped to ‘eliminate’ the errors next year. But
it doesn’t look good for a regulator to have such material weaknesses
highlighted by its own auditor.
Similarly European Commission CFO, Brian Gray, wants to put in place measures
that secure the commission an unqualified audit opinion. Part of his aim is to
get member states to attest to the accuracy of, for example, agricultural
spending while he focuses on further tightening internal measures.
OK, let’s not pretend that these weaknesses render the two bodies incapable
to do their jobs. But just as the eyebrows will have been raised on Wall Street
by the SEC’s admissions, the fact that material errors continue to blight the
EC’s accounts will not make the continent’s corporate leaders better disposed to
In that regard, it’s vital that both the SEC and the EC demonstrate in 12
months’ time that they can get it right. Actions speak much louder than words.
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