Accountability and Reform of Internal Control in the European Commission

Neil Kinnock

Contrary to perceptions in some quarters, reform of the European Commission is not a project forced on it by recent crises or impelled by neo-Napoleonic ambitions. It is part of a deliberate and widespread desire to raise standards of quality and efficiency in public administration in all parts of this continent, in which public service was invented; part of a process of administrative change generally current across the European Union. This has merit in itself; but I believe that the changes and improvements which are being pursued in public administrations are also essential in a wider and directly political context. For the way in which the general public most frequently encounters democracy is not through political activity, or even through reporting of political activity; it is in day-to-day contact with public administration at local, regional, national and—increasingly—international levels. Where that contact gives evidence of efficiency, responsiveness and accountability, confidence in democracy as a means of service as well as a political and ethical system is strengthened. But where the public experiences opacity, insularity, inefficiency or arrogance, confidence in public provision is diminished, and so is confidence in the democratic system which is responsible for that provision.

To me, therefore, administrative reform is not simply a quest for professional excellence, or efficiency, or customer satisfaction, essential though those qualities are; it is also vital to strengthening public confidence in democracy as an answerable system for delivering many of the essentials of modern life, and for helping to advance social and economic progress and security.

Against that background, my aim here is to outline the circumstances which made reform necessary in the European Commission as an international public administration; the objectives which we are pursuing and the methods which we are using in undertaking that reform; the changes so far achieved; and the further modernisation which we are seeking. In so doing I will focus on the components of the reform programme which relate specifically to accountability and internal control.

Meeting the challenge

The current reform programme was, in part, ignited by the 1999 crisis and the response to it of the European Council, the European Parliament and the European public. But the major reasons why reform and modernisation are essential go back much further. They are to be found in the fact that, while Europe and the Union have altered hugely over four decades—and will alter more in this decade of enlargement—the organisation, structures and working methods of the Commission as the executive administration of that Union have never really been sufficiently adapted to the changes that have taken place. Europe evolved; the Commission as an organisation didn’t keep pace.

In those 40 years, the Community grew from 6 to 15 member states; the Treaty was amended substantially; the single market was created; the single currency became a reality; communism collapsed, the new democracies needed help and then applied for membership. The financial management obligations of the Commission increased exponentially: between 1988 and 1999 alone, the number of financial transactions managed by the Commission every year rose from just over 60,000 to 620,000. The overall EU budget grew by 113 per cent (from €44 billion to €95 billion) in payment appropriations. The external budget grew by close to 600 per cent over the same period. Meanwhile, the number of staff grew by just 40 per cent—and, even more important, they operated a financial management system which barely changed.

In that system, officials with responsibilities for spending money were not truly accountable because their responsibilities were not clearly defined or attributed to them. The borderline between political and administrative responsibility was often blurred. The Commission continued to operate a centralised ex ante control system that was the legacy of a much smaller organisation with responsibility for very few financial transactions. Internal control and risk management were not really recognised as intrinsic parts of a manager’s job. Indeed, the complexities and technicalities of financial management were not regarded to be among the most ‘noble’ functions of the Commission at all.

There were two main reasons for that failure to adapt to new demands and to the multiple alterations in the scale and nature of the Commission’s work. First, the size, work and responsibilities of the organisation expanded gradually by enlargement of the Community and by allocation of additional tasks (mainly by the Council). There was no sudden event which prompted rethink or redesign; no enlargement, for instance, of the size and complexity of that which is coming in the next few years. Second, policy advance and application were necessarily the greatest preoccupations, and the Commission—the ‘engine of European integration’—was fulfilling those functions, sometimes brilliantly. As a result, little attention was paid by the Commission—or, it must be said, by the Council or Parliament—to fixing something that went on working.

As the decades passed, the Commission never refused a new task, never (until last year) systematically examined whether its resources matched its tasks, did not consistently seek additional resources to deal with the extra work or with the changing skill needs, did not undertake any significant updating of human resources policies developed in the 1950s and 1960s for a much smaller institution. The strains imposed by these outdated structures and systems (and by the attitudes which they engendered) were inevitably going to show at some time. And they did—most graphically with the resignation of the Santer Commission (of which I was a member) in 1999. But whether the need for urgent change had been made manifest by crisis or by more gradual evidence of the gaps between tasks and resources, the deficient systems and structures, the underperformance in some areas, that need would still have been exposed as the Commission slowly fell behind the times as an organisation.

Reform is fundamentally about putting that right. It has to be undertaken on several fronts because—while policy capability and activity are still strong and effective—the organisational arthritis is sufficiently general to justify a breadth of change. Reform also has to be undertaken with urgency, partly because several systems and practices require immediate change, and partly because it is essential to sustain momentum in order—as much as possible—to abbreviate the inevitable concomitant turmoil in operations. The reform experience is therefore uncomfortable for many. It is, however, necessary for all.

Managing change

We have consequently designed the project as a strategic process with a detailed published action plan and timetable. We have also specified the reform objective: it is to ensure that the Commission is a well-managed policy-producing and policy-applying administration of the highest quality, integrity and service, focused firmly on its core tasks and executing them efficiently and with independence, transparency, responsibility and accountability.

From the outset, the members of the present Commission have sought to give practical and personal effect to those principles. We are the first to disclose publicly our financial interests; to adopt clear, stringent standards and codes of behaviour for ourselves, our private offices and our services; and plainly to delineate the scope of responsibility and authority of Commissioners and of their Directorates-General. In the interests of efficiency and accountability we have also implemented a Code of Good Administrative Behaviour which specifies responsibilities, sets new standards for the conduct of officials in their dealings with the public, and provides innovative rights of complaint.

In addition, one of the earliest initiatives of this Commission was to present a proposal for a regulation to implement Article 255 of the Treaty of Amsterdam, which stipulates that all EU citizens should have the right of access to documents of the European Parliament, Council and Commission. The Council enacted that proposal as Community law in May 2001.

Meanwhile, as part of our package of comprehensive personnel policy proposals, we are reinforcing conventions of accountability by giving sustained emphasis to the need to be, and to the means of being, accountable. That is happening through our greatly expanded management training programme, through modernising and improving both disciplinary procedures and arrangements for dealing with professional inadequacy, and through strengthening and extending provision for European civil servants to discharge their duty to report any form of suspected wrongdoing—’whistleblowing’.

Reform initiatives of this kind are, among their other purposes, clearly intended to be subscriptions to an environment, an ethos, of answerability in the Commission and by the Commission. They buttress the radical changes in internal organisation and control which have the current of accountability running through them and animating them. The reason for giving such emphasis to accountability as a means and an end of reform is very straightforward: for increased accountability to be an evident external result of gaining higher standards of public service performance, it must be an essential component of internal practice—a regime in itself.

With that in mind, the reforms in internal financial organisation and control were designed, and are being implemented, in three related areas of activity:

As we compiled the structure for change in the course of preparing the Reform Strategy White Paper that was published in March 2000, it became evident that we also had to define clearly the strategic priority tasks of the institution and, simultaneously, identify the activities which, although necessary, were not at the public service core and which could be suitable for execution by external bodies. This Commission then became the first that has ever asked itself: ‘Do we really need to do all that we are doing at present?’ and ‘Can we do what we must do, and do it properly, with the resources at our disposal?’

To enable us to answer those questions authoritatively and accountably it was necessary to conduct a comprehensive review of tasks and resources. Consequently I proposed a ‘peer group’ of five Commissioners to undertake a rigorous assessment of all services on the basis of common, detailed, written questions to every department, followed by oral hearings with all Directors-General and Commissioners. We then produced a full report on the obligations, assets and needs of the Commission. That enabled the institution to provide the European Parliament and the Council with some dependable arithmetic which showed, with unprecedented precision and candour, what was done with available resources, what needed to be done, and what changes in activity, in use of people and in numbers of staff were required to enable the Commission to fulfil its role properly and efficiently.

The short-term result of that peer group activity was a set of specifications which meant (1) reordering the Commission’s priority activities and relocating people to meet over two-thirds of the identified need for 1,200 posts entirely from internal changes, and (2) making a detailed submission to Parliament and Council justifying budgetary support to meet the remaining one-third of that need.

The peer group exercise also provided a rehearsal in matching tasks and resources—a practice which we are in the process of making permanent by employing activity-based management, a results-oriented process which is now used widely in the public and private sectors in order consistently to marry the objectives and obligations of an organisation with the means required to fulfil them. ABM requires detailed management information on costs, resources and results, and necessitates continuous processes of monitoring, assessment and prioritisation. At both budget preparation and budget execution stages, ABM will provide a primary instrument for ensuring accountability and improved management in the use which the Commission makes of its resources.

Strategic planning and ABM will clearly provide the two major ingredients of more effective internal control. They will also bring a profound structural change in accountability, because for the first time in Commission history, all individual members of staff will have specifically allocated responsibilities, a written outline of what results are expected of them, and the knowledge that their performance will be measured against these objectives.

Putting responsibility where it belongs

The second major theme in the Commission’s modernised internal control system is the thorough decentralisation of control responsibility to clearly identifiable participants; in the Commission’s case, these are the Directors-General of the various departments. That responsibility obviously has to be facilitated by allowing flexibility in the management of departments, and it also means ensuring a clear system of accountability to the College of Commissioners. That accountability will be facilitated in two complementary ways.

First, starting next year, by 1 May each Directorate-General will produce an Annual Activity Report which will describe initial objectives in each activity, set out the results achieved in terms of those objectives, and show how the results have been achieved by reference to the use made of the available human, administrative and financial resources. Those reports will be made available to the public and, of course, to the European Parliament.

Second, all Directors-General will take individual responsibility for the functioning of internal control in their respective departments by signing an Annual Declaration in which they give the College of Commissioners a reasonable assurance of sound management, functioning internal controls and pursuit of specified objectives. Because Directors-General will obviously not give full assurance if they have reservations, the Declarations will also highlight any perceived shortcomings in internal control.

Making accountability this explicit is only possible, of course, because we are making vocational and operational changes to facilitate it. First, we are significantly expanding the training of managers and other staff. Since November 2000, for instance, 2,500 officials—about one in eight of all full-time Commission staff—have participated in specific finance training courses, and we will provide training for another 3,300 participants by July 2002. Second, as part of the reform strategy we have given managers the autonomy and flexibility necessary to design the management systems that are best adapted to the nature of their activities. The new regulatory framework which the Commission has proposed for managing its resources includes a specific Charter that sets out the responsibilities of officers who authorise financial transactions. Subject to uniform minimum standards, each Head of Service has full autonomy to design and establish management and control systems which are related to the particular needs and risks of their departments.

The third basic element of strengthening accountability as an instrument for improved management and performance in the European Commission is the major modernisation of financial control and audit.

In the financial management system that operated in the Commission, a central Financial Controller—established with defined powers under the Financial Regulation—checked proposed individual financial activities before an operational department was allowed to undertake the transactions. With just a few thousand transactions a year, that system (centralised ex ante financial control, in the jargon) was a feasible and valid means of supervising financial operations, even though it always meant that individual responsibility was—to say the least—indistinct because responsibility was operationally and culturally thought to reside with that central authority; indeed, for all practical purposes, it did.

That lack of distinctive responsibility, and the consequent weakness in accountability, would be a defect in any system of financial management and control. However, it was only when the financial management obligations of the Commission increased hugely from the late 1980s that such defects began to generate any interest from the Commission’s external auditors or by the budgetary authority. By the late 1990s, by which time the Commission was undertaking more than 600,000 transactions a year, the centralised ex ante control system—even when based on risk analysis—had become manifestly inadequate.

In the course of the current reform, we are therefore replacing the central ex ante approval of individual transactions with full decentralisation of these control functions to the Directorates-General and, more specifically, to the individuals who authorise expenditure. To the extent that we can make such changes without alteration in the law (the Financial Regulation) we have made them. To implement the necessary reform fully we now await enactment of amendments to that Regulation by the Council of Ministers.

It is hard to think of an operational and cultural change more radical than one which replaces a 40-year-old financial management system in which responsibility could always be passed on to a central authority with a system in which individual responsibility is explicit and subject to continual monitoring and assessment. In terms of accountability it is a step from Stygian darkness to sunburst.

We have also moved rapidly to put the other elements of the new financial management system in place. In May 2000 a Central Financial Service, with the function of designing and monitoring Commission-wide internal control standards, was established under my colleague Michaele Schreyer, the Budget Commissioner. A new, professionally qualified and specialised Internal Audit Service was set up under my direct responsibility to provide continual, independent and objective assessment of the functioning of internal controls. The Internal Audit Service covers all Commission activities, it has unfettered access to all information necessary for the conduct of its audits, and it provides assurance to the College. In addition, decentralised Internal Audit Capabilities were established in all Directorates-General to provide them with direct information on internal control in their departments—knowledge which is, of course, vital for effective management and for the DGs’ annual Declarations of Assurance.

Finally, we have also established an Audit Progress Committee made up of four Commissioners and an independent outside expert in internal audit. The functions of the committee are to monitor the quality of internal audit, to check the progress made by services in implementing internal audit recommendations, and to report to the College.

This complementary series of audit activities will obviously greatly strengthen internal control by making accounting for decisions and activities an explicit and central feature of the functioning of the Commission at all levels. It will also promote the transformation of the Commission from an organisation that has conventionally been preoccupied with resource inputs into an organisation which must focus clearly and constantly on the quality of outputs and the extent to which it has met, failed to meet or exceeded its specified objectives.

In addition—and this is of direct relevance to the financial management and internal control reforms—on 30 October the Commission finalised our personnel policy reform proposals, after six months of consultation and negotiation with the staff and their representatives. In order to complete this vital section of the reform strategy we will then require the understanding and cooperation of the Council and Parliament as legislative and as employing institutions. They are, of course, the representative bodies that rightly and insistently called for profound reform in 1999. They must comprehend the link between high standards of financial management and well-managed and highly motivated staff. We have demonstrated that we can make the reform without breaching the financial boundaries set by the Council two years ago at the Berlin Summit. Ready assistance with reform legislation to implement proposals should therefore be available from both bodies. If for any reason it is not, it is they who will then have the task of explaining to the European public why they will not facilitate the fulfilment of the clear reform mandate which they gave to the Commission in 1999.

A new confidence

In the two-year life of the current Commission we have changed financial management and control systems and procedures to make them efficient and transparent; we have clearly defined the boundaries between political and administrative responsibility; we have asked our top management to take full responsibility for their own performance and the performance of their departments (while, incidentally, requiring that top management to accept an unprecedented and very rigorous individual appraisal system and time-limited tenure in any given post); we are providing staff with the procedural and practical means of fulfilling new responsibilities, including accessible advice and guidance in the event of doubt; and all of these changes—particularly as they concern specific functions and responsibilities—have been codified in written documents to ensure Commission-wide high standards of practice and full understanding of responsibility and accountability.

I describe these rapid and complex achievements with some enthusiasm but without complacency. It is certainly too early to say that the task of installing the means of reform is completed—it isn’t—and it is much too early to begin to look for reform finishing lines. Indeed, there probably are no finishing lines to renewal, and I am inclined to think that there shouldn’t be. The reason for that is simple. A substantial purpose of reform must be to establish systems, standards and practices that ensure that the Commission (which has a primary role of anticipating and providing for change in the European Union and the wider world) becomes very good at adapting to change and being comfortable with change itself. If that is achieved, the institution will continue to be well managed and motivated, confident about internal and external accountability, and unlikely to fall behind the times as an organisation ever again.

That is what we are striving for, and so far the prospects are encouraging. That I can say so is a tribute to managers and staff, particularly those who are engaged in financial management and control. They have shown a degree of flexibility and adaptability, and a willingness to deal with change that directly contradicts the tabloid caricature of the rigid, remote Brussels bureaucrat. The prevalence of that positive attitude is one of the reasons for my confidence that this reform will succeed. The other reasons include the fact that this programme for modernisation is truly a strategy; the fact that it has been (indeed, it still is) the subject of prolonged explanation, consultation and negotiation; the fact that it has the clear purpose of strengthening the performance, confidence and independence of the European Commission; and the fact that it includes practical mechanisms and workable rules for ensuring that internal and external accountability is a perpetual and essential component of the system of management and a persistent intrinsic characteristic of the institution—a part of what is conventionally called the ‘culture’ of the organisation.

I recognise, of course, that even these advances are unlikely to guarantee faultless performance. Realism requires me to acknowledge, for instance, that the widening spectrum of Commission activities, the massive variety of partners in (and well beyond) Europe, and the uneven quality of control arrangements in governments and other organisations inside and outside the Union will always generate some risks. I do believe, however, that the changes that we have made and are making to strengthen financial management and control will mean that the Commission is able to sustain the high standards of service and value for money that the public has the right to expect, and the staff of the organisation want to provide. As we do that, as we fulfil our mandate, I believe that the Commission will earn fresh and justified respect, and that will have positive effects on perceptions of the institution and of the European Union generally. That, in turn, will be a subscription to greater public confidence in the operation of accountable public service—even at an international distance.

It is those possibilities which make my job worth doing.

 

Note

This edited version of the Sunningdale Accountability Lecture presented by the Rt Hon. Neil Kinnock, Vice President of the European Commission, at the Royal Society of Arts on 15 October 2001 was published in The Political Quarterly, vol. 73, no. 1 (January 2002). The lecture was organised and sponsored by the United Kingdom Public Administration Consortium.