EXECUTIVE SUMMARY
|
Ø The overall results of the audit: - an unqualified opinion on the budgetary management accounts; - a disclaimed opinion on the financial statements because of the absence of an - observations and 10 recommendations directed at fundamental improvements in financial reporting and control. |
1. The audit of the Council of Europe’s annual accounts for the period ended 31 December 2004 is the first since my appointment as External Auditor. Under the terms of the Financial Regulations my report includes specific observations and recommendations directed at improving the Council’s financial management and control.
2. For the audit in this first year of my appointment under the Council’s improved external oversight arrangements, I have concentrated on providing the Council with an audit scrutiny which builds on these new arrangements, to support improved financial reporting, greater transparency and enhanced accountability.
Annual Accounts
3. Article 74 of the Council of Europe’s Financial Regulations states that the annual accounts of the Council shall consist of:
(a) budgetary management accounts, by which the Secretary General reports on the collection of receipts and the utilisation of the appropriations accorded to him; and
(b) the Council’s balance sheet.
4. I am required by the regulations to audit both parts of the annual accounts and express an audit opinion on each of these in respect of the General Budgets and Partial Agreements. At the request of management, I also audit the separate annual accounts of the Partial Agreement of the European Support Fund for the co-production and distribution of creative cinematographic and audio-visual works Eurimages (Eurimages Fund) and the Partial Agreement establishing the European Centre for Global Interdependence and Solidarity (the North-South Centre).
5. The content of the budgetary management accounts is set out in Article 75 of the Financial Regulations and comprises a receipts account and an expenditure account which provides a reconciliation of transactions against the budget appropriations approved by the Committee of Ministers. I have concluded from my audit that in all material respects the budgetary management accounts present fairly the budgetary outturn of the Council of Europe and separately of the Eurimages Fund and of the North-South Centre for 2004, and that the transactions underlying them were made in compliance with the budgetary authorisations and conform to the Financial Regulations.
6. The requirement to provide the Council’s balance sheet is developed in Article 76, which provides that the financial statements will include a balance sheet, a statement of income and expenditure and a cash flow statement. These financial statements should be prepared according to a manual of accounting procedures based on International Accounting Standards to the extent that they are compatible with the principles of the Council’s Financial Regulations. My staff found that no such manual has been issued and in consequence the Council lacks a properly approved financial reporting framework on which to base the financial statements. In the absence of an agreed framework, my staff found that accounting policies used at the operational level to draw up the financial statements were incomplete or applied inconsistently between similar accounting balances and transactions, notwithstanding that the approach used in drawing up the financial statements for 2004 may have been consistent with previous years’ practice.
7. I was therefore unable to obtain the required audit assurance that the financial statements of the Council of Europe, the Eurimages Fund and the North-South Centre conform to an approved framework. I am therefore unable to express an opinion as to whether the financial statements are true and fair, or whether the balances and transactions underlying them are in accordance with the financial regulations.
8. The lack of an appropriate financial reporting framework against which the financial position of the Council can be presented to member States results in a lack of clarity and transparency necessary to support my audit opinion. Without a reliable statement of the Council’s assets and liabilities, including fixed assets and pensions assets and liabilities, it is difficult for the Council to adequately measure its performance in financial terms, or plan its financial future with an adequate level of certainty. I have recommended review and revision of the Financial Regulations; and the establishment of a proper accounting and reporting framework.
Financial Control
9. In the course of their audit, my staff also examined a number of aspects of financial control within the Council. My report highlights a number of weaknesses in the control of certain bank accounts, and makes a number of recommendations designed to secure improvements.
10. My staff examined aspects of budget management, where there had been a high number of transfers and scope for improvement to budgetary control and reporting; and temporary staff expenditure, where restrictions on the use of temporary staff contracts had been promulgated by the Secretary General in 2002. I have recommended a review of budgetary control procedures, to improve transparency and accountability.
11. During 2004, the Council experienced a number of difficulties related to the lack of integration between its key computer systems: the Financial Information Management System, FIMS, and the Human Resources Department’s Personnel Information Management System, PIMS. These systems were developed independently and have presented issues of coordination and reconciliation of data (inputting payroll data) which proved inefficient and costly. I have recommended that as a matter of priority the Secretary General should take steps to review integration between the two systems, and ensure cooperative working between the Finance and HR departments to secure efficient processes and use of staff time.
DETAILED OBSERVATIONS
Introduction
12. The External Auditor is appointed by the Committee of Ministers, under Article 80 of the Financial Regulations of the Council of Europe. This is the first year of my appointment as the External Auditor. My report covers my audit of the Council’s annual accounts and explains the reasons why I am unable to provide an opinion on the financial statements prepared under Article 76 of the Financial Regulations; and reports on a number of financial control issues and other matters which I feel should be brought to the attention of the Committee of Ministers.
Annual Accounts
13. Article 74 of the Council of Europe’s Financial Regulations states that the annual accounts of the organisation shall consist of:
(a) budgetary management accounts, by which the Secretary General reports on the collection of receipts and the utilisation of the appropriations accorded to him; and
(b) the organisation’s balance sheet.
14. I am required by the regulations to audit both parts of the annual accounts and express an audit opinion on each of these in respect of the General Budgets and Partial Agreements. I am also required to audit the separate annual accounts of the Eurimages Fund and the North-South Centre.
Audit scope
15. The Council of Europe’s budgetary accounts are produced under Article 75 and the financial statements under Article 76 of the Financial Regulations. The budgetary management accounts provide a report against the amounts voted by the Committee of Ministers, as documented at CM(2004)28 Budgets of the Council of Europe (and NS/bud/2004F Corrigendum 2) for the financial year 2004. The financial statements should consist of a balance sheet, statement of income and expenditure, and a cash flow statement.
Audit objectives
16. The main purpose of the audit was to enable me to form an opinion as to whether the expenditure recorded in the financial period had been incurred for the purposes approved by the Committee of Ministers; whether income and expenditure were properly classified and recorded in accordance with the Financial Regulations; and whether the budgetary accounts present fairly the financial performance in the year to 31 December 2004, and the financial statements provide a true and fair view.
Audit standards
17. My audit was carried out in conformity with International Auditing Standards. These standards require me to plan and carry out the audit so as to obtain reasonable assurance that the financial statements and budgetary accounts are free from material misstatement. The Council of Europe’s management are responsible for preparing these financial statements and budgetary management accounts; and I am responsible for expressing an opinion on them based on evidence obtained in my audit.
Audit approach
18. In accordance with International Standards on Auditing, my audit included a general review of the accounting systems and such tests of the accounting records and internal control procedures as I considered necessary in the circumstances. The audit procedures are designed primarily for the purpose of forming an opinion on the Council of Europe’s financial statements and budgetary management accounts. Consequently my work did not involve detailed review of all aspects of financial and budgetary systems and the results should not be regarded as a comprehensive statement on them. My audit included focused work in which all areas of the accounts were subject to direct substantive testing. A final examination was carried out to assess whether the financial statements and budgetary management accounts accurately reflected the Council of Europe’s accounting records and were respectively true and fair and fairly presented.
19. The audit was undertaken at the Council of Europe in Strasbourg from October 2004 to June 2005. During this period, my staff provided the Secretariat with an interim report to management, which outlined findings from their initial work.
Accounts and Financial Statements
Budgetary management accounts
20. The budgetary management accounts comprise a receipts account and an expenditure account, which provides a reconciliation of transactions against the budget appropriations approved by the Committee of Ministers. My audit found that in all material respects the budgetary management accounts present fairly the budgetary outturn of the Council of Europe; and separately of the Eurimages Fund and of the North-South Centre for 2004; and that the transactions underlying them were made in compliance with the budgetary authorisations and conform to the Financial Regulations. My staff were able to audit the budgetary management accounts with satisfactory results because they cover only income and expenditure transactions; are based predominantly on cash; and the Financial Regulations provide clearer guidance on the basis of their preparation. However, I have commented on budgetary control issues in more detail further below.
21. Since the budgetary accounts are voluminous, lacking in clarity (albeit extremely detailed) and without an overview of income and expenditure, we have produced a summary income and expenditure analysis for the main Council of Europe accounts. This summary is provided as an Annex to this report, setting out greater detail on income and expenditure by type.
Financial statements
22. The Financial Regulations contain incompatible requirements between the different Articles of the regulations. Article 83 of the Financial Regulations requires the External Auditor to express and sign an opinion on the financial statements which shall address whether:
· the financial statements present fairly the financial position of the Council of Europe as at the end of the financial year and the results of its operations in that year;
· the financial statements were prepared in accordance with the Financial Regulations and the stated accounting principles;
· the accounting principles were applied on a consistent basis from year to year; and
· transactions were in accordance with the Financial Regulations and budgetary authority.
23. By contrast, however, the provisions of Article 82 of the Financial Regulations require a different, true and fair view, audit opinion on the financial statements.
24. My staff found that the financial statements had not been prepared in accordance with the requirements of Article 76 of the Financial Regulations because the Council lacked an appropriate financial reporting framework against which to report its financial position. In consequence there was no approved financial reporting framework on which to base my audit. Article 76 requires that this framework should be based on International Accounting Standards as far as they are compatible with the Financial Regulations. While my staff used International Accounting Standards as a reference point in conducting the audit, the absence of an agreed framework suitable to the circumstances of the organisation means that I am unable to provide an opinion on the financial statements because the limitations in the basis of drawing them up are so material or pervasive that the financial statements as a whole could be misleading.
25. The financial statements are designed to provide a further picture of the financial position of the organisation, using the accruals basis of accounting to reflect not just the transaction flows in year but also the assets and liabilities of the Council at the year end. It is therefore essential for the Council to have comprehensive accounting policies covering all its financial transactions and balances which are applied consistently in all parts of its business and on a comparable basis from year to year. This needs to be supported by full disclosure of the policies applied, in order to give member States a full understanding of the Council’s financial position as a sound basis for financial planning and budgeting. This framework is also needed to provide a basis for the assessment of performance, by establishing a link between inputs and resources needed by the organisation to meet the outputs and achievements mandated by the Committee of Ministers. In each of these areas my staff found shortcomings in the financial statements presented for audit and subsequently submitted to the Committee of Ministers. The approach used in drawing up the financial statements was consistent however with previous years’ practice.
Accounting Policies
Lack of comprehensive accounting policies
26. Using the International Accounting Standards issued by the International Accounting Standards Board as a source of reference, my staff identified a number of areas where the Council has not developed accounting policies and is using approaches which are not in line with recognised standards. I draw attention to two key areas by way of illustration:
(a) Asset recognition
The organisation does not have a consistent policy for the treatment of fixed assets. International Accounting Standards require fixed assets such as land, buildings and other assets with a useful life of more than one year to be shown in the balance sheet at cost or fair value and depreciated over their useful life. The Council’s balance sheet includes some of its assets but not others. In the case of some buildings, the costs associated with their construction are disclosed, while for some others they have been expensed in the year they were incurred. Table 1 illustrates this issue.
Table 1. Buildings in use by the Council of Europe
|
Building |
Value at cost € |
Accounting Treatment |
|
Palais de l’Europe |
Unknown |
Expensed in year of purchase. |
|
Palais des Droits de l’Homme |
72.6 million |
Expensed in year of purchase. |
|
Batiment B |
Unknown |
Expensed in year of purchase. |
|
Paris office |
3.0 million |
Disclosed as an asset but not included in the balance sheet. |
|
Pharmacopoeia building |
6.9 million |
Disclosed as an asset but not included in the balance sheet. |
|
Buildings under construction: New general building |
5.0 million |
Capitalized as an asset on the balance sheet. |
|
Buildings under construction: New Pharmacopoeia building |
3.0 million |
Capitalized as an asset on the balance sheet. |
(Source - Council of Europe)
In total, some €4.9 million of capital payments for building work were recorded as expenditure in 2004. Most other assets such as IT equipment, vehicles and furniture and fittings are expensed in year, even though their useful lives may be several years. During 2004, the Council purchased equipment in these categories to the value of €7 million but none of these are recognized as assets on the balance sheet. The Council’s policy as to the recognition of fixed assets is not to recognize them for Balance Sheet purposes. The Secretariat has informed us that the financial resources available for the construction of new buildings are being presented under liabilities, as reserves relating to new buildings; and expenditure incurred as at the reporting date is presented under non-current assets as buildings under construction. By accurately recording and fully disclosing the value of the assets it employs, the Council would have a more reliable means of measuring the cost of the resources it consumes in meeting its objectives. This information would also provide a more reliable basis for planning and budgeting for asset management and replacement.
(b) Pension Liabilities
The Council of Europe provides an unfunded, pay as you go pension scheme for its employees. The International Accounting Standard relating to pensions (IAS 19 - Employee Benefits), requires that an organisation recognise its post-employment benefit plans, which account for and value all future obligations in respect of the retirement of its staff. Currently, the financial statements of the Council of Europe do not provide a full estimation or disclosure of the future costs of pensions to comply with this standard. A note is included in the financial statements which provides details of the pension scheme and its valuation. The last actuarial valuation for the pension scheme available for audit confirmation was carried out in 1997. International Accounting Standards require valuation with sufficient regularity to ensure that pension asset and liability values are materially correct. Under best practice arrangements for financial reporting, a valuation should be completed at intervals not exceeding three years to ensure that an up-to-date and accurate valuation is available for the financial statements. The most current valuation provided by the Secretariat for the pension fund liability was €586 million at 31 December 2004, based on the 1997 actuarial valuation. This liability is not recognised in the balance sheet. At the time of finalising my report, a new actuarial valuation was in process of confirmation for 2005. Full disclosure of the assets and liabilities of the pension scheme, in compliance with recognised accounting standards, would assist the Council in planning how to meet its ongoing financial obligations.
Inconsistent application of accounting policies
27. The current structure of financial reporting concentrates on the General Budget account, comprising the Ordinary Budget, several additional budgets, partial agreements and a significant number of special accounts. This information is highly detailed and makes it difficult for readers to make comparisons with earlier reported results or for individual activities.
28. In an effort to provide some clarity to readers and users of the accounts, I asked the Secretariat to provide a statement of accounting principles, as Note 1 to the financial statements. This note documents some of the different accounting treatments adopted in the financial statements for the same categories of financial transactions. Different accounting treatments undermine the fundamental accounting principle of consistency and comparability for users and member States. One example of the problem arising from the absence of an accounting manual is a lack of clarity as to when expenditure is recognised. This was demonstrated by the treatment of a €1.8 million loan repayment relating to 2004 but paid in January 2005. As the payment transfer was made in 2005, the Secretariat recorded this as an expense against the resources of the financial year 2005 rather than 2004, in accordance with the resolution of the Committee of Ministers approving the Extraordinary Budget for 2005.
29. The Council of Europe’s financial records also include transactions relating to special accounts, which are specifically approved and mandated by the Committee of Ministers. The special accounts are in effect trust funds set up to run over a period of time, whose activities are funded by specific member States and some other parties. Currently, the income and expenditure for the activities of special accounts is not recognised in the budgetary accounts, and is not fully and consistently reported in the financial statements.
30. The income and expenditure relating to special accounts should be reported as such in the budgetary accounts and financial statements, in a similar manner to other income and expenditure for the Council. This would allow transparency and consistency of reporting, and reduce the degree of complexity in the financial statements. The existing treatment reduces the clarity, transparency and comparability of the financial reporting available to member States concerning the financial status, activities and achievements of activities funded through special accounts.
Recommendation 1. I recommend that the Council of Europe review and revise as necessary the Financial Regulations, in order to remove existing inconsistencies in requirements.
Recommendation 2. I recommend that the Council of Europe establish an improved framework for financial reporting as soon as possible and apply it consistently across the Council’s activities.
Recommendation 3. I recommend that in taking forward improved arrangements and the implementation of a manual on accounting procedures, the Secretary General should give consideration to the adoption of independent International Accounting Standards as the best practice basis for financial reporting.
Financial Issues
Control of Bank Accounts
31. The cash at bank figure reported by the Council, €35 million at 31 December 2004, reflects balances in 27 accounts held in the Council of Europe’s name. During their audit, my staff found that a further 50 bank accounts with a total year-end balance of €332,000 had been opened in the name of the Council of Europe by authorisation of the Director General of Political Affairs.
32. My staff were informed that these bank accounts related to imprest advances for local offices. However, the establishment of these bank accounts was outside the Council’s normal procedures, which require the Treasurer’s explicit approval for opening accounts. As a result, the amounts held in these accounts are not recorded against the official bank accounts in the Council’s financial records or financial statements, but as cash advances to staff members. The bank accounts are not subject to monthly review processes or independent reconciliation by Finance. There are clear risks that bank accounts improperly opened in the name of the Council of Europe but not subsequently subject to the full level of internal controls could be misused for inappropriate purposes or, for example, for money laundering. However, no evidence of such inappropriate use was found during the audit.
Recommendation 4. I recommend that all bank accounts opened for the holding of Council of Europe funds should be subject to the Treasurer’s approval and to adequate internal control procedures.
Budgetary Control
33. The budget approved by the Committee of Ministers (CM(2004)28 and NS/bud/2004F Corrigendum 2), for the financial year 2004 was €315 million. My staff found that, following the entry of budget approvals for 2004 in the accounting system, there had been 4,056 budgetary transfers during the year to a value of €38.6 million, within and between the ordinary budget and subsidiary budgets. This figure excludes €137 million further budget movements in FIMS, relating mainly to the allocation of contributions to and between special accounts, and the allocation of ending balances carried forward from previous years. Some €25 million was transferred as grants, appearing as expenditure in the budgetary accounts, which mainly represented transfers to special accounts.
34. While the Finance Directorate consider that all transfers have been in accordance with relevant authorities and have been properly reported in the budgetary management accounts, such a high value and volume of budgetary transfers in my view reduces the benefit of controls relating to budget setting and reporting. As an example, in the original budget, the Committee of Ministers allocated €8 million for temporary staff and the budgetary statements disclose a total outturn of €17 million. €24 million was recorded in the financial system against the code for temporary staff, the difference being reported against other budget sub-heads. Within the North-South Centre’s budgetary management accounts, the approved budget for temporary staff was recorded as €13,000, against which expenditure of €58,000 had been reported. In addition, expenditure of €345,000 on temporary staff was reported as programme expenditure in a special account.
35. The Finance Directorate have informed my staff that, while the Committee of Ministers authorises appropriations for the remuneration of all permanent posts under budget lines for Remuneration of Permanent Staff, in practice - and for reasons cited as vacant posts, long term sickness and maternity leave - the persons actually employed in the course of the year may be temporary rather than permanent staff; and that the actual remuneration of temporary staff is recorded under budget lines for remuneration of temporary staff, programme costs or other expenditure.
36. I understand that the Secretary General has taken active steps to ensure that from 2005 forwards this type of reporting will not be repeated and that all temporary staff costs will be shown under one line in the budgetary management accounts.
37. In the course of their audit work, my staff found that some 600 in more than 2,000 different expenditure articles available from the Financial Information Management System (FIMS) had been used during year in the Council’s budgets. Some of these expenditure articles and approvals are highly detailed in their use and application, while others are non-specific. The production of budgets under this type of regime offers a lower degree of accountability and, in addition, makes it harder to consistently compare expenditure against budget under different votes and subheads.
38. In our view, these factors and the high level of transfers are indicative of weaknesses in budgetary structure and control, and a lack of clarity and transparency - as opposed to detail - in the existing budget and reporting framework. The Finance Directorate have commented that they have implemented a strict system of controls within FIMS which prevents any possibility of overall budget overruns.
Recommendation 5. I recommend that the Secretary General considers whether a high number of budgetary transfers is appropriate for good financial control and reporting against budget. I recommend a review of procedures relating to budgetary controls, particularly relating to the high number of budget transfers, the extent of delegation to authorise and the regularity of retroactive budget transfers.
Recommendation 6. I recommend that the Council should consider the benefits of improving the simplicity of the budget process and reporting; the effectiveness of budgetary control; greater transparency in the reporting of budget overruns; and ensuring stronger accountability by budget holders.
Temporary Staff
39. My staff found a relatively high number of temporary staff being employed in the Secretariat, often for long periods. At the time of audit, the Council employed some 590 temporary staff, compared with over 1,700 permanent staff. My staff identified 65 temporary staff who had been recruited more than 10 years previously; and 14 recruited more than 20 years before.
40. Under arrangements for decentralised financial management, produced in November 2002, the use of vacant permanent posts to recruit long-term temporary staff was made subject to prior approval by the Secretary General. Recruitment of new temporary staff on short-term contracts was only envisaged for very specific reasons, for example temporary vacancies, part-time work and to cover sick absences. In July 2003, the Secretary General announced a moratorium on the recruitment of new temporary staff, to apply until further notice (although derogations could be granted for the recruitment of new temporary staff with specialist profiles for Council of Europe/European Commission Joint Programmes or activities financed outside the regular Council of Europe budgets). There is currently a lack of clarity and transparency as to the conditions of recruitment and ongoing employment of temporary staff.
41. Notwithstanding the legitimacy of individual decisions on recruiting temporary staff, there are risks associated with the high numbers of temporary staff, some of whom could be construed as being in continuous employment after having been retained on repeated temporary contracts for such long periods. Where temporary staff are employed over a long period, the Council of Europe could face risks of legal action if individuals do not enjoy appropriate rights, such as entitlement to retirement benefits.
Recommendation 7. I recommend that the Council of Europe review and clarify the policy and practice applied to temporary staff, so as to ensure that all risks associated with continuous employment are assessed; and to ensure clarity and improved transparency in the arrangements, particularly in respect of the approved exemptions from the Secretary General’s moratorium.
Decentralised financial management structure
42. The audit team carried out a review of the Decentralised Financial Management Arrangements as documented by EB(2002)31. As part of the decentralised financial management structure, in place since 2001, 53 Cost Centre Managers (CCM) have delegated responsibility for their budget across the directorates. Each directorate has the flexibility to set up its own structure for financial control, which can be through Cost Centre Managers, in consultation with Local Finance Officers (LFOs) where appointed. Cost Centre Managers are responsible for delegating expenditure authorisation and monitoring expenditure.
43. Audit findings indicated that in seven of the 17 directorates there was formal evidence of compliance with the procedures established by the Secretary General. In the remainder of the directorates, it was difficult to establish that controls had been in operation during the year. Internal Audit also carried out a review of compliance with the decentralised financial management arrangements in early 2005 and the results of their review were consistent with these findings. The audit team found limited monitoring of controls on expenditure on an organisation-wide basis by senior managers.
44. In the review of the Financial Information Management System (FIMS), my staff found that system controls over authorisation by user did not match the delegated cost centre authorisations by individuals held by Finance, neither was there currently within the system an enforced segregation of duties. My staff found that authorisation limits and delegations are at times issued outside the system by management to individuals. However, their work found that there is no systematic enforcement of these authorisation limits other than against the total budget allocated; and these are dependant on discretionary review by management. This approach reduces the level of system efficiency and controls, by requiring additional management review to ensure that budgetary discipline and external authorisations are adhered to by staff. There is a risk that transactions may be wrongly authorised outside delegated authorisations.
45. The Secretariat consider that, while the levels of staffing within the organisation prevent absolute separation of duties, several main duties are separated and that this is effected in FIMS by use of the responsibilities functionality of the Oracle Financials system.
Recommendation 8. I recommend that the Secretary General reviews the implementation of the decentralised management structure and ensures that the established control environment is reinforced across the organisation.
Recommendation 9. I recommend that the Secretary General reviews authorisation and access rights for all users of FIMS, to ensure that financial controls and adequate segregation of responsibilities remain effective within the entirety of the financial system.
Other financial issues
46. The Financial Regulations require me, as part of my report, to bring to the notice of the Committee of Ministers cases of fraud or presumptive fraud identified during the year. The Secretariat have informed me that in relation to 2004 two cases of fraud were identified causing financial loss to the organisation.
47. In 2004, a sum of €3,861 disappeared from the European Youth Centre in Strasbourg, for which an administrative enquiry led to a recommendation of disciplinary action against one staff member; and in addition, false travel claims were made by a journalist, resulting in a net loss to the Council of €2,956.
Information Technology
- Lack of integrated IT systems
48. The Council has a financial system which is primarily a budgetary system of control. The Secretary General is authorised a budget by the Committee of Ministers, which is delineated by Votes and Sub-Heads. The accounting information must therefore be recorded in this manner during the year, in order to maintain budgetary control.
49. Most large international organisations have invested in computerised electronic resource planning systems to assist in the management of their affairs. The Council of Europe is unusual in international organisations in that it currently has two different solutions implemented. These are the Financial Information Management System, FIMS, based on Oracle Financials and used by Finance for accounting and budget control; and the Personnel Information Management System, PIMS, which is based on a PeopleSoft human resources and payroll system, used by Human Resources to manage the HR system. Both systems were developed independently and the organisation has experienced problems in processing some of the payroll outputs from the HR system through FIMS, resulting in additional work.
50. The Council of Europe also has a large number of subsidiary systems that interact with the above applications and are mostly legacy systems that undertake specialised tasks or calculations (for example in relation to mission expenses and the expert payment system). Many produce text or Excel spreadsheet files that must be imported into the Oracle Financials system.
51. Payroll processing was moved from Finance to Human Resources during 2000. The PIM system was implemented in March 2004 after a 3 month period of partial dual running with the old system.
52. The PIM system is designed to manage all HR tasks and produces the monthly payroll from personnel actions for import into FIMS. Some difficulties were encountered in processing the output from April 2004 onwards, although our audit examination has provided assurance that this does not have an impact on the audit opinion. This meant that FIMS could not be updated against the various budget heads in a timely manner with information on staff costs and allowances, which represent approximately 60 per cent of the expenditure of the Council of Europe. The Finance Directorate acknowledged that problems in the interaction between PIMS and FIMS had resulted in delays and problems in producing the accounting information for input to FIMS.
53. The Secretariat have been reconciling outputs on a monthly basis to reconcile HR data to the financial system. While this is a time consuming additional task, it is a necessary control to ensure the integrity of financial data.
54. Each month, time has been consumed in administrative work and some recalculation to ensure that the staff are paid correctly, which adversely affects the productivity and efficiency of both departments. This has reduced the level of useful information within the systems and consequently the quality of reporting available to management. It has also created a poor audit trail to review transactions and payments, for example rendering it difficult to trace specific payments calculated by the HR system to expenditure recorded in FIMS.
55. In September 2004, a task force was established under the authority of the Director General of Administration and Logistics, and including relevant Directorate participants, to review payroll operations. The work of this task force is not yet complete and at the time of audit some problems remained outstanding. We understand that an inter-departmental working group was established in September 2004 to look at the coherence of IT systems and applications.
Recommendation 10. I recommend that the Secretary General takes steps to review the issue of IT systems integration in relation to HR and payroll, in order to achieve more effective and reliable information processing; to ensure efficient processes and use of staff time; and to ensure the availability of reliable, accurate and useable information to management on a timely basis.
Acknowledgement
56. I would like to thank the Secretary General and his staff for the cooperation provided to the audit team during the course of this audit.
Sir John Bourn
Comptroller and Auditor General, United Kingdom
External Auditor
ANNEX
SUMMARY OF COUNCIL OF EUROPE INCOME AND EXPENDITURE
(excluding Eurimages and North-South Centre accounts)
The table and charts summarise income and expenditure. Duplicate amounts (that is recharged services, and transfers between budgets which are recognised as expenditure and income within more than one budget) have been excluded: expenditure of €28m transfers to other budgets (€19m to special accounts) and €13m translations/ interpreters/ document service; and income of €26m budget transfers and €14m translation/ interpreters/document service.
|
Breakdown of I&E: |
Further breakdown of I&E: |
|
|
Total income (net) €297m |
€248m Contributions income |
€205m Compulsory Contributions |
|
€7m Voluntary contributions |
||
|
€11m EU contributions |
||
|
€1m Other contributions |
||
|
€24m Pension member contributions |
||
|
€49m Other income |
€23m Prior year contribution surplus carried forward |
|
|
€26m Sales & other income |
||
|
Total expenditure (net) €267m |
Staff costs €170m |
€104m Permanent staff costs €25m Temporary staff costs €6m Interpreter staff costs €8m Judges’ emoluments €24m Pension costs €3m Other staff costs |
|
Non-staff costs €97m |
€27m IT, stationery, material, utilities, hire, cleaning, building services €10m Administrative arrangements €12m Honoraires: external staff/consultants* €27m Travel & subsistence (Missions, experts, travel) €3m Postage costs €6m Subsidy / aid €12m Other costs |
* Honoraires: external staff/consultants includes translators and interpreters’ services.
