Telling the Truth and Living in Limbo

Marta Andreasen, the European Commission's chief accounting officer, awaits her professional fate after declaring the EC's budget was "massively open to fraud" and endures suspension because of her honesty.

Marta Andreasen doesn't feel that she's a whistle-blower. As the European Commission's chief accounting officer in 2002 she believes it was within her duties, as any auditor, to report that the US$120 billion EC budget was "massively open to fraud." The reward for her forthrightness was suspension from her duties and forced residence into professional limbo. As of publication, the EC's Disciplinary Board is reviewing her case after more than two years of suspension.

"I take this opportunity to express my dissatisfaction for being labeled a whistle-blower," she recently said in an interview with Fraud Magazine speaking from Brussels, Belgium. (The EC requires her to reside in Brussels but she can't work or enter the EC premises. She returns to her home and family in Barcelona at the end of each week.) "I was the chief accounting officer responsible for all the European Union funds and I acted according to my professional integrity in the defence of taxpayers."

After working many years in the private technology sector, Andreasen began her EC job with hopes of entering a more academic world. She definitely received an education but not of the sort she expected. Andreasen said she found "serious and glaring" shortcomings with the accounting computer system, no double-entry bookkeeping, and software that allowed any EC staff to change entries without leaving fingerprints or audit history.

She was asked to sign off the EC's 2001 accounts but wouldn't do it because she believed that she had evidence that the accounts didn't accurately reflect the financial situation. The EC hierarchy threatened her with dismissal if she didn't comply. She reported the accounting system problems to her supervisors -- Commissioner Michaele Schreyer, and Budget Director General Jean-Paul Mingasson. On May 7, 2002, she wrote to the EC's president, Romano Prodi, and vice presidents, Neil Kinnock and Loyola de Palacio, to also tell them about the problems. She says she requested their support to urgently implement measures to revert the situation.

On May 23, Kinnock and Commissioner Kinnock and Schreyer told her they were considering moving her to another position due to what Schreyer described as a "breakdown of relationship," Andreasen says. "I expressed that I was in disagreement with any change as I had performed my duty diligently," she says. "Kinnock then indicated that they could move me with or without my approval. I then asked why they had called me if they could make such a decision without my approval. He said he preferred to have my consent. I asked for three days to reflect. But as I learned later, on the same day, before I met with Commissioner Schreyer, she had already informed the Budgetary Control Committee at the European Parliament, in a closed meeting about the decision to remove me."

On May 24, she wrote letters about the EC's accounting problems to some members of the European Parliament including the president of the Budgetary Control Committee and said that the new financial regulation being proposed by the European Commission could lead to more fraud in the budget.

The next weekend as she was boarding an airplane to return to her Barcelona home, two airport officials tried to deliver a fax from Kinnock removing her from her post. "I neither read nor accepted the fax as I found it appalling that the Commission would behave in such a way involving outsiders," she says. "I had been at the office until 5 p.m. that day and thought they had enough time to deliver any notice to my office."

On May 25, a Financial Times article reported that she had been removed from her post. On May 29, Commissioner Schreyer asked Andreasen to substantiate or withdraw her allegations within 24 hours. Andreasen says she refused to do so and told Schreyer that she already described the deficiencies at length to her. Schreyer's response, Andreasen says, was to ask Kinnock to remove her from her job.

In March 2004 Kinnock sent the case to the EC's Disciplinary Board. "The board is not independent, as the Commission claims," she says. "It is made up of officials who report to the College of Commissioners. In the two hearings I have been able to see that the board is in the line of advising on dismissal. During the first hearing the most senior of the officials in the board responded to my defence by stating that the controls were not important at the EC, that this was a political environment and those who disagreed should resign. In responding to my requests the Disciplinary Board appears strongly pressured by the Commission," Andreasen says.

"The EC has decided that the Disciplinary Board should apply the new staff regulation which entered into force on May 2004," she says. "I consider this illegal and unfair because the alleged breaches that led to my suspension happened in 2002. Moreover, the new regulation favors the Commission to my detriment. After all the unfair treatment received during two years it seems I cannot expect any justice from this process. I have been separated from my job for two years and lack official information to be able to challenge their accusations. I have asked for the annual declarations from the directors general where year after -- up until now -- they refuse to assume responsibility on their finances due to the lack of reliability of the accounting system," Andreasen says. "I believe this to be my best proof that the situation I was faced with required action and nothing has changed in the two years I have been suspended."

Andreasen is a Certified Public Accountant in her home country and an economist with almost 25 years of professional experience, half of them in management at multinational companies and international institutions.

She began her professional career as an auditor with Price Waterhouse (now PricewaterhouseCoopers). She later worked as a financial director in several companies, mostly within the technology sector, including Lotus Development and Rockwell Automation. In 1998 she became the head of accounting for the Organisation for Economic Cooperation and Development. The European Commission hired her in January 2002.

In July, the ACFE honored Andreasen's efforts to shed light on the EC's accounting practices by presenting her with the second annual Sentinel Award at the 15th Annual ACFE Fraud Conference & Exhibition. (Actor Cliff Robertson, "The Whistleblower of Hollywood," received the first Sentinel Award for his courageous efforts in exposing and pressing for the investigation of the then-head of Columbia Pictures for check forgery.)

Fraud Magazine: Can you describe how you discovered that the US$120 billion EC budget was "massively open to fraud," as you once called it?  

Marta Andreasen: I experienced the following: accounts were built on the basis of aggregation of spreadsheets and were not derived from an accounting system, the accounting was not exhaustive (it did not register all the transactions that affected the budget), the accounting did not respond to basic accounting principles (double-entry bookkeeping), the computer system on which funds were managed was not coherent (the input did not correspond to the output), and it was not secure (people could access it without leaving a trace).

You've said that the EC didn't have a quality, double-entry bookkeeping system, its computers were inadequate, and there were insufficient accountants supervising it. How did the EC get off to such a bad start?  

I cannot respond on the whys. I can only speculate on what the whys could be. Looking to the lack of progress since I was suspended, my conclusion is that there is no will for change, fundamentally on the highest levels of management. They involve staff in huge amounts of work that lead nowhere as they are only intended to be a cosmetic change that leaves the essentials unchanged. People who work hard get demoralized when they see that it does not lead to effective improvement. At the end of the day, directors general sign declarations where they express they are not responsible for the accounts under their control.

In 2002, you said there wasn't a system within the European Commission accounts to trace transactions. Why were those internal controls never initiated?  

I wonder myself. My thinking is that there was no real interest in controlling the funds. I can see no other reason that would justify the lack of controls. I identified changes that would have improved the controls in the short term and I oriented my requests to my hierarchy in that sense. But I was not heard.

What other internal-control problems did you encounter?  

There was a complete lack of understanding of what the basic control principle of "separation of duties" meant and this was totally disregarded. Those in charge of operations were not separated from those in charge of accounting and finance. There are no functional reporting lines established. The treasury -- a fundamental function of this institution -- was totally disregarded, to the point that in the last 14 years no independent treasury audit had been performed while the same treasurer had been in the post for those 14 years. Strangely enough, the commissioner responsible for budget (Michaele Schreyer) also chairs the Internal Audit Committee and is responsible for the Anti-Fraud Office. The Anti-Fraud Office has never found enough proof to prosecute anybody. Mr. Muis, the EC's internal auditor, announced his resignation after only two years on the post.

From what you can tell, has the EC instituted any controls since your departure?  

No. No treasury audit has been performed. The treasurer continues to be the same person. No separation of duties has been clearly established. And the directors general continue to avoid their responsibility with the argument that the accounting system is not reliable. All this in detriment of the huge load of work imposed to the staff to justify a cosmetic change and confuse the Parliament and the press.

Could you tell how widespread the fraud was in the EC?  

Without a reliable accounting system that does not allow audit traceability, nor is exhaustive, it is difficult to determine an amount. But the Court of Auditors has refused to clear the legality and regularity of 95 percent of the payments out of the budget (for the last nine years).

What kind of fraud schemes did you see?  

Even suspended I continue to be an official and bound by the "duty of discretion." I have been prohibited from openly describing the anomalies observed for two years now. Once the institution dismisses me I will be able to speak freely about the fraud schemes I encountered.

Were you asked by some to "look the other way"?  

I was asked to assume responsibility for all the monies and assets without reservations in the knowledge that the system was vulnerable to fraud.

Was there one final incident or problem that finally made you decide to condemn the EC?  

I did not condemn the EC. They condemned me for raising concern on the situation and proposing urgent remedial. And they removed me from my post. The incident that prompted my rushed removal was that I requested an independent treasury audit and the implementation of an integrated computer system made by professionals and with worldwide recognition. They denigrated me before the press to explain the decision to remove me. I asked for protection against this denigration (provided for in the staff regulations) and they refused to give me this protection. It was then when I decided to tell my version of the story to the press.

Why specifically did you refuse to sign off the 2001 accounts?  

I was appointed in 2002 so it was not my responsibility to sign for the accounts of the preceding year. More so when I was not granted a proper hand-over process by my predecessor (as is provided by the financial regulation and common practice). But my essential motivation was that I had evidence that those accounts did not reflect fairly the financial situation of the institution and that the system was open to fraud.

You've said that the EC needs to have a culture change at the top. In your opinion, what should that change look like?  

There is a need to replace the long existing management (I refer to the high officials) with new blood who can bring their knowledge and experience from modern organizations, notably in what relates to transparency and accountability. Undoubtedly this new management should have courage and stamina to make the changes that need to be made and abandoning the actual state of denial in which the institution lives today.

In 1998 and 1999, Paul van Buitenen, an EC auditor, spoke up about fraud and mismanagement. Even though he was suspended and his salary was halved, eventually all 20 European commissioners resigned. Why does this continually happen?  

The European Commission has worked for many years with no real vigilance and there is no mood for changing this attitude. Although the commissioners resigned in 1999 the directors general are still in their posts. When you come from outside you believe you need to make them aware of the seriousness of the situation, of the reputational risk. But the arrogance of their culture does not allow them to accept this. If someone wants to insist in improving things for better control you become a traitor. The institution is powerful and they know they have the ability to destroy the "traitors" and in so doing they teach the rest that they should be "quiet."

Jules Muis, the EC's former chief internal auditor, has said in Accountancy Age that even though progress has been made, "the commission has a long way to go before it can present an image of being a world-class administrative machine." Do you agree with that assessment?  

Yes, I agree. I agree with most of his statements in the interview you refer to. Unfortunately he was not motivated to persevere in the battle and was led to resign very early.

In a 2002 report authored by Muis, he said that your charges of fraud at the EC were "factually substantive and correct." And the EU Court of Auditors has criticized the EC's system of accounting and the way the budget is spent. Do you feel somewhat vindicated by those reports? Have those reports made any difference?  

I feel vindicated by those reports but they did not make any difference in my situation. In its arrogance the Commission states that this is "only the opinion of some people." The Court of Auditors has conscientious professionals but is presided over by a politician, who makes all their efforts useless.

You must still stay in Brussels part of the week yet you're not allowed to enter the EC building, access information, or distribute business cards. Why are they punishing you before they decide your fate?  

They would argue this is not a punishment. My fate was probably decided two years ago, but they are looking for the best opportunity from a political point of view to dictate their decision. Now that the European Parliament elections have passed and these commissioners are leaving office, they seem to have found it to be the right moment. They have also looked to change the staff regulations in their own benefit, delaying my disciplinary procedure so as to apply the new rules to my case. And this is to my detriment. It appears that after putting up with a denigrating suspension for two years I cannot expect any fairness in the process. I believe they are now anxious not to leave the coming Commission the possibility to reinstate me.

You worked for a number of years in the private sector. Why did you decide to switch to the public sector? How would you compare ethical accounting in both?  

After having acquired experience in the private sector in highly demanding sectors such as technology, I decided it was time to move into what I judged to be a more academic environment. Indeed I thought the EC, which issues regulations and directives including those that affect transparency, accountability, international accounting standards, and corporate governance, was to be an environment where I could develop my standards to a higher quality. I was wrong. The private sector is subject to more controls. And those who incur in bad practices have a bad ending such as WorldCom Enron. At the European Commission, in the Eurostat fraud case, they concluded nobody was responsible because they "ignored" the situation.

What advice would you give to would-be sentinels either in the public or private sectors?  

It is difficult to give any advice when you are still suffering such a painful situation. Personally I have always tried to ensure I fight until the end to defend my integrity. I am not in favour of giving up.

Are you still interested in becoming the EC's chief auditor?  

I have always been interested to continue to make a valuable contribution to Europe. I believe there is no doubt that I acted in the interest of Europeans. But now the post of chief auditor has been filled with a long-serving official. The story continues -- no new blood.

You had planned at one time to run for the European Parliament under the new Transparent Europe party founded by EC whistle-blower Paul van Buitenen but decided against it. Would you like to do so eventually?  

This would have to be in five years and it really depends on how things have evolved in Europe. Once the Commission makes its decision and if they do not reinstate me I would prefer to reorient my career to a job where my knowledge and experience (in all its extent -- including what I am going through) would be valued as an important contribution.

It can be hard being a sentinel. What kind of toll has it taken on you?  

The price has been high both professionally and personally. But I believe difficulties help you grow. I take this opportunity to express my dissatisfaction for being labeled as a whistle-blower. I was the chief accounting officer responsible for all the European Union funds and I acted according to my professional integrity in the defense of taxpayers.

Dick Carozza is the editor of Fraud Magazine. His e-mail address is: dcarozza@CFEnet.com.

Side Bar  

Sentinel Award Winner: "Simply doing my job"

Marta Andreasen, the 2004 recipient of the ACFE's Sentinel Award, doesn't believe that she was doing anything unusual when as chief accounting officer of the European Commission she alerted her supervisors to internal control problems. "I was doing my job," she said after receiving the award at the recent 15th Annual Fraud Conference & Exhibition. "Simply doing my job and assuming my responsibility with integrity."

Andreasen has paid dearly for her honesty. "I have been suspended from my job for two years now on allegations of misbehavior," she said in her message. "In March of this year, the Commission started to analyze my case. At present, given the unfairness of the procedure, I expect to be dismissed before the Commission leaves office in October of 2004."

When she first began her EC position in January of 2002, Andreasen found the Commission "to be susceptible to the risk of error and fraud instead of being a shining example of reliable and transparent financial management," she said.

She said she requested her hierarchy to make an independent treasury audit and to introduce a reliable and integrated computer system. "Since the EC structure is not more than that of a medium-sized bank the urgent reforms I was proposing were nothing too difficult to achieve or start implementing," Andreasen said. "It was not like sending a man to the moon or building a cathedral. If my request had been followed at that time two years ago, today there would be effective measures in place and the funds would be protected. Instead I was suspended and the EC said they had already known about the problems a long time ago."

Andreasen said that the EC continues to manage the funds on a vulnerable computer system that allows changes to be made without an audit trail and doesn't require anybody to take responsibility for any possible fraud. "A treasury audit hasn't yet been performed for the last 12 years," she said.

"The European Court of Auditors -- the external auditors -- do not certify the annual accounts but only issue an assurance statement each year," Andreasen said. "Given the number of reservations and the seriousness of those reservations for the last nine years, I would prefer to call this a non-assurance report."

Though she may soon lose his position, she said she is undeterred. "Though the consequences for me have been damaging, I do not regret the action I took. Although my story is unique my situation is not. There is a long history both in the United States and Europe of blaming the messenger for the bad news. But the Cliff Robertson Sentinel Award can make a difference. It will encourage me to continue to endure through this difficult time," she said. "The ACFE is important because it is a beacon for the anti-fraud profession by recognizing those who come forward against wrongdoing as corporate sentinels."

After finishing her short message, conference attendees gave Andreasen a standing ovation.