An uphill battle: as the European Commission's internal audit chief, Jules Muis has battled a culture resistant to modern conceptions of control and responsibility

Internal Auditor, Feb, 2004 by Michael Barrier

JULES MUIS, A 60-YEAR-OLD DUTCHMAN, HAS BECOME THE man to call when an international institution recognizes the need to modernize its governance structures. The former Ernst & Young accountant was for six years vice president and controller of the World Bank, where he played a leading role in overturning an institutional "conspiracy of silence" on the subject of corruption. In 2001, he became director general of the new Internal Audit Service (IAS) of the European Commission (EC).

The EC, the policymaking body for the European Union (EU), has for years been rocked by financial scandals growing out of lax accounting and the ill-defined roles of its financial officers. In 1999, one such scandal prompted the mass resignation of all of its 20 commissioners. In 2002, the EU's short-lived chief accountant--whose questioning of the system was internally supported by Muis--lost her job after refusing to refrain from publicly voicing her perceptions on the flawed state of the EU accounting systems.

Muis has announced that he will leave his post in April 2004, but in the meantime, his job requires that he continue to challenge shortcomings in EU financial control matters. In November 2003, for example, he was asked to brief the European Parliament about Eurostat, the EU's statistical body, and its poor fiduciary handling of its procurement processes, which was at the base of a major new scandal within the commission.

Muis recently spoke with Internal Auditor from his office in Brussels, Belgium.

Your resignation doesn't take effect until next April. Why did you give notice of your intention to leave so far in advance?

I needed three years for the IAS to reach critical mass on the basis of the mandate I received when I came, which was to build a mature IAS. In this pioneering period, we have had to do quite a lot of uphill climbing. We are right in the vanguard of cultural change. Off and on, we have had good traction, but also off and on, we have been spinning our wheels. Now that much of the tough work is done and the service is reaching cruising speed, I want to give it the opportunity to have a different captain, earlier rather than later. As I stated in writing to the EC, I think it would be good for the commission, for the service, and for myself to have a different face and a different voice.

The impression one might get from recent developments at the commission, like the Eurostat scandal, is that it's the culture of the EC, as regards financial controls and internal auditing, that has been very resistant to change. But it sounds, from what you've just said, that you think you'll have made enough progress by the end of your term that you can leave without misgivings.

When I leave, I will probably have achieved 50 percent of what I set out to do and what I could have done had the EC apparatus been a more willing partner in implementing the Reform White Paper it adopted some three years ago. And, let me hasten to add that I also would have had to have been more patient with a culture that has reached its absorption limits of change to have the other 50 percent.

The Reform White Paper was predicated on the rollout of The Committee of Sponsoring Organizations of the Treadway Commission (COSO) concept of controls. It was thus also predicated on a mature governance construct, under which you have proper separation between the management function and the monitoring function, where you have a mature controller or accountant, and where you have checks and balances. The commission has made progress on that score, but it has traditionally suffered from tremendous capacity deficits in controls and auditing. Therefore, you have to show patience when the commission moves more slowly than an idealistic reform paper would suggest.

The barriers are not only resources, but also, to some extent, the will to create transparent governance structures. The EC has been progressing; we are going in the right direction. But the key question is, are we going to get where we want to go? And will we get there by design or principally by default? The commission still has quite a way to go before it actually gets to the end station of what reform was supposed to be.

There are two distinct reasons for this. The first is that the EC grossly underestimated the importance of the EU's central accounting system. That was not part of the original reform package but became part of it as a result of strengthened controls and also, I have to add, as a result of unsolicited adverse publicity--an example of change by default rather than design.

The architects of reform may not have recognized a second element--governance--but I have particularly been emphasizing it. You cannot talk about good controls if you do not also include the EC's own governance construct. We have had very loose reporting lines, if any, from the bottom up. We have too little feeling of responsibility for controls, top down. Ownership of horizontal control issues, if any, is fragmented and fragile. The commission's accountant traditionally felt that he had no responsibility for the systemic issues that go with good controls, anything from the hard-core systems up to the soft controls, tone at the top, and everything else. If you don't feel you have that responsibility, you then lack the main driver--the leadership that should go with a reform process of which controls are a particular feature. Leadership really should start in a reform process with the accountant or controller. If that doesn't happen, the internal auditor becomes a repetitive advisory voice without empowerment.