CM(2009)73 30 April 20091
1060 Meeting, 10 June 2009
6 Social Cohesion
6.1 European Roma and Travellers' Forum –
Summary report by the Internal Auditor of the Council of Europe: Follow-up to the audit of the European Roma and Travellers’ Forum (ERTF) 2007
Item to be prepared by the GR-SOC at its meeting on 26 May 2009
1. At the 1011th meeting of the Ministers’ Deputies on 21 November 2007 the decision was taken that the Internal Auditor would provide a report on “…the proper use of the financial contribution [to the ERTF] granted by the Council of Europe in 2005 and 2006.”2 This amounts to approximately € 193,000 per year.
2. A report3 was produced which identified room for improvement in internal control, which could be addressed by the implementation of the following six recommendations:
i. Draw up and approve written procedures in particular for the approval of contracts and payments (ensuring adequate separation of duties) and the reimbursement of expenses to participants at meetings.
ii. Limit cash payments to exceptional low value purchases. Ordinary purchases and expenses claims are to be paid either by cheque or credit transfer.
iii. Keep records of invitees to meetings so that expenses payments can be cross-checked to such records.
iv. Ensure that all payments for goods and services are made following authorisation of a complete invoice, which shows full supplier and goods/services information.
v. Ensure that all expenses payments are made following authorisation of a complete claim form, which shows full participant and meeting information.
vi. Seek legal advice on the status of seconded staff, specifically to identify if they should be contracted as employees and if so ensure the requisite employer’s and employees’ social security deductions are made.
3. At the 1027th meeting of the Ministers’ Deputies on 21 May 2008, the ERTF was invited to give immediate effect to the recommendations contained in the report, and the Internal Auditor to should submit by the end of April 2009 a report on the implementation, by the Forum, of the recommendations.4 At the GR-SOC meeting of 19 November 2008 the ERTF informed the group that several of the Internal Auditor’s recommendations had already been implemented from the beginning of 2008.5
2. Methodology and Tests
4. We carried out a preliminary risk analysis to identify the risks of non-compliance with previous recommendations.
5. We examined documentation in order to verify if recommendations 2i. and 2vi. had been implemented.
6. We tested a sample of 50 transactions, totalling € 56,955 (corresponding to 20 % by number and 38% by value of all expenditure transactions in 2008) which were representative of the different types of expenditure, taking into account those which were likely to incur greater risk, and those which would indicate if recommendations 2ii.-2v had been implemented.
3. Findings and conclusions
3.1 Written Procedures/Financial Regulations
3.1.1 Validity of Financial Regulations
7. The ERTF Statute is unclear regarding the approval process of the Financial Regulations. We consider this power rests with the Executive Committee.
8. In September 2008 the ERTF produced an initial version of their Financial Regulations, on which Internal Audit supplied comments. In October 2008 this unamended version was approved by the ERTF’s Executive Committee and submitted6 to the GR-SOC on 19 November, stating that “…the recommendations contained in the audit report were incorporated/implemented in the Financial regulations.”7
9. In January 2009 the ERTF provided us with another version, which addressed the majority of the comments we made in October 2008.
10. As this version we received in January had not been approved by the Executive Committee it should be resubmitted in order to avoid questioning its current validity.
3.1.2. Structure and Relevance of Financial Regulations
11. The structure of the Financial Regulations makes them difficult to follow, due to incorrect Chapter numbers and titles.
12. The Financial Regulations are based on those of another organisation. This is an efficient approach, but it would have been preferable if the ERTF had chosen those of an organisation more like itself in order to reduce the changes needed to produce a relevant document.
13. When amending the text to its own requirements, the ERTF did not exercise sufficient care, resulting in a document which is not wholly relevant, as it contains references to arrangements not present in the ERTF, nor consistent.
14. In addition, in our opinion the document is far too long. Given the limited financial activities of the ERTF we do not consider that a 30 page document is required.
15. A set of workflow diagrams is included in the document, but they do not cover the main processes of the ERTF, in particular the reimbursement of expenses to participants at meetings, and are too general to be of real value.
16. The sections in the Regulations dealing with processes and procedures need to be simplified and streamlined.
17. The ERTF would have benefitted from more substantial input from its direct partners in the Secretariat, and from its External Auditors.
3.1.3 Separation of Duties
18. In our original report we identified problems with the separation of duties (all steps in a procedure, such as a purchase, should not be carried out by the same person).
19. There is a table and considerable text in the Financial Regulations referring to which persons can verify, approve, and pay for goods and services. However there are inconsistencies in the table, and between the table and the text. This produces an overall lack of clarity.
3.2 Financial Transactions
20. We examined 50 transactions in detail, covering translation, interpretation, consultancy, travel and subsistence, telephone costs, and salaries. This examination showed that certain weaknesses in internal control persist, but there have been improvements since our last report.
21. With one exception all payments were made either by cheque or credit transfer.
22. There were problems regarding correct documentation relating to contracts and invoices for translation and interpretation. For one transaction there was no contract or invoice, and for another the contract was signed months after the service had been delivered.
23. For consultancy no quotation nor tendering procedure had been followed. This is required by the ERTF’s Financial Regulations for expenditure exceeding € 3,000.
24. We are concerned that individuals were recruited as consultants for administrative tasks, when the nature of their work indicated they should have been treated as employees.
25. As regards travel and subsistence claims of participants at meetings, there was a lack of supporting documentation concerning who was invited to the meetings.
26. In addition, in a small number of cases claim forms were absent.
3.3 Employment status of individuals engaged by the ERTF
27. Legal advice has apparently not been sought, although recommended in our original report. Therefore our original reservations persist, namely that due to the nature of the work some individuals should be engaged as employees, not as self-employed. Failure to do so poses a financial and legal risk to the ERTF, (as social security deductions are not being made), and a reputational risk to the Council.
28. The extent to which the six recommendations in our initial report have been implemented is as follows:
29. Recommendation 1: Draw up written procedures. A document was drawn up, but it requires significant re-working to be relevant, consistent, and clear. The recommendation was therefore partially implemented.
30. Recommendation 2: Limit cash payments to exceptional low value items. With one exception all payments in our sample were not in cash. The recommendation was therefore effectively implemented.
31. Recommendation 3: Keep records of invitees to meetings so that payments can be cross checked to such records. The nature of the records (generic invitation letters) for the annual Plenary Meeting, by far the biggest meeting did not provide a list of named invitees. The recommendation was therefore effectively not implemented.
32. Recommendation 4: Ensure that all payments for goods and services are made following authorisation of a complete invoice. In 14% of cases there was minor non-compliance (some invoice detail missing), and in 21% major non-compliance (lack of an invoice). We conclude the recommendation was partially implemented.
33. Recommendation 5: Ensure that all expenses payments are made following authorisation of a complete claim form. In 25% of cases there were some points of non-compliance (lack of name or address or name and dates of meeting). We conclude the recommendation was partially implemented.
34. Recommendation 6: Legal advice to be sought on the status of persons engaged by the ERTF. This was not implemented.
35. Of the six recommendations we therefore conclude that one has been implemented, two have not been implemented, and three have been partially implemented.
Below are the comments on the draft audit report8 of Mr. Kawczynski, President ERTF, and Mr. Raducanu, Treasurer/D.G. Strategy and EU Policy for Roma, ERTF. They were received on 31 March. The deadline for comments was 24 March. The paragraphs in that report to which the comments relate are reproduced in italics. Our responses to the ERTF comments are shown in the text boxes and start “IA comment”
European Roma and Travellers Forum
Comments on the Draft Audit Report 2008 produced by the Council of Europe
In the fourth year of the Partnership Agreement with the Council of Europe, the Non-Cash contribution (B3) was still not fulfilled. Due to the delay with the transfer of the Cash contribution in 2008, ERTF was unable to employ a crucial needed CeO. This led to the situation, that only one B3 assistant was available to run the whole ERTF Secretariat. This should been taken into account in the context of “delays and” to give immediate effect to the recommendations.“
The Ministers’ Deputies invited the ERTF to give immediate effect to the recommendations in May 2008. The ERTF’s difficulties in respecting this timescale were raised with us for the first time on 31 March 2009.
3. Methodology and Tests:
Para 10. ”Firstly we carried out a preliminary risk analysis to identify the main risks related to the non-implementation of the previous report’s recommendations, which were to address weaknesses in the financial administration of expenses financed by the Council of Europe. From this we created the audit programme. The main risks were identified as:
a. Poor compliance with legal and internal requirements, inefficient and ineffective working procedures, and unreliable financial information (resulting from poor procedures, inadequate records and supporting documents);
b. Poor safeguarding of assets (resulting from using cash as a means of payment);
c. Legal obligations of ERTF not met regarding staff (resulting from unclear/incorrect employment status)”.
a. We totally reject this formulation (page “unreliable financial information“ ) as this implies an Investigative rather than a regular Audit. Anyone who reads the information above thinks (as a first reaction) that money has been purloined, which, in my opinion, an accusation is made without any proofs.
b. It is an ungrounded affirmation, because all payments are made by bank transfer or cheque. I regret to note that you contradict yourself (see Chapter 4, 82.).
c. We only have advisers and no employees. Our accountant ascertains the clearness and correctness (our book keeping company).
Paragraph 10 relates to the potential risks associated with non-compliance to the recommendations from the previous audit report. They are not audit findings or affirmations. Starting with an identification of risks is standard audit methodology for a regularity audit.
Para 22. ”On 8 January 2009 the ERTF provided us with another version of the Financial Regulations which the President confirmed to be the current valid version. We were informed that the President and the Treasurer had been working on them until the day before. In this version, the ERTF addressed the majority of the 37 comments we made on 24 October 2008. “
The text version of the “Rules of procedure” which you have received in January was approved by the Executive Board at the preparatory meeting in November 21 -23 2008. We “worked” on improving the document ”until last minute”.
Para. 23. “The Statute is unclear regarding the approval of the Financial Regulations. The draft minutes of their meeting of 18 and 19 October 2008 imply that this power rests with the Executive Committee. We consider this reasonable. “
The status to which you refer to be unclear is actually your own work, the work of the Council of Europe and more precise the work of the Committee of Ministers. The Committee of Ministers and an ad-hoc selected group of Roma were working on the Status for 2-3 years.
Either good or bad, the status is accepted by the Strasbourg Court. We, the European Roma and Travellers’ Forum cannot change it, unless the Council of Europe agrees.
We simply make the point that the Statute does not address the issue of who can approve the Financial Regulations.
Para. 30. “The structure of the Financial Regulations makes the document difficult to follow, due to incorrect Chapter numbers and titles.”
Thank you for this comments we will improve the document by taking into consideration your suggestions in order to make it easier to understand.
Regarding the financial regulations, we must underline the fact that the 6 recommendations which you have made have been applied as of 1 November 2008, as it has been decided during the meeting from 19 November at G-R-SOC. An exception is recommendation 2.ii avoiding cash payment which was implemented at the beginning of October 2007, long before you made this recommendation, as our own initiative.
The synopsis of the meeting, GR-SOC(2008)CB9 para.12 restates that the ERTF was invited to “give immediate effect to the recommendations” as decided by the Ministers Deputies on 21 May 2008. In para.13 the ERTF Treasurer informed the group that “several [recommendations] had already been implemented from the beginning of 2008.”
Paras. 31.- 37. “The Financial Regulations were drawn up by the President and the Treasurer.9 We were informed that the document was drafted in Roma and later translated into English.
The majority of the original text, however, is identical to the “NGO Financial Management Pocket Guide” in English, produced by the South African branch of a US based medical foundation.10 We therefore consider the latter to be the basis of the Financial Regulations.
Due to the difference in the operations of such an organisation and the ERTF the source document required extensive modification. Comparing it with the ERTF’s latest version of its Financial Regulations, we found the following:
Text which is not applicable to the ERTF, e.g. regarding:
a. program budgets (paragraph 2.5);
b. local offices (paragraph 2.6);
c. salary advances (paragraph 19.1.2).
Reference is made to donor requirements. Although the ERTF is funded by more than one donor, the Financial Regulations do not indicate from which donor(s) the requirements originate.
The references to donor budgetary requirements in Chapter 12 regarding, for example, changes in project scope, key management personnel, and Project Director time, have no relevance for the ERTF, because it does not function in this way.
Following our initial comments, the ERTF decided to remove Chapter 6 (dealing with the General Ledger). However, the General Ledger is still referred to seven times in the document.”
The document was consisting of documents in English and Romanes, the valid version is translated, final version in Romanes.
The “NGO Financial Management Pocket Guide” is a guide produced specially for NGO working under aggravating circumstances.
As the ERTF is an independent NGO and not body of the Council of Europe the ERTF has to elaborate their own financial regulations and working-methods, based on the given law and in accordance with the Statute. Moreover, as the Council of Europe is not the only financial supporter of the ERTF, the ERTF has of course, to fulfil the requirements of the given Donors. For example; the requirements from private Donors and Foundations differs as from the European Union.
Usually a Donor issues a notice of granting in which the requirements of reporting the finances are stated. This notice of granting is the base for a transparent and fair Audit procedure. Without such notice the Audit become indiscriminately, the “requirements” must afterwards be “constructed”.
Misunderstandings and misinterpretations are unavoidable specially if a large international Institution such as the Council of Europe start to impose their view, on “how an NGO supposed to function”.
The points we make are:
i) if donor requirements are included in the Financial Regulations it should be clarified which donor has which requirements. Otherwise the document does not clarify what is to be provided to the different donors, and
ii) donor requirements could be dealt with outside the Financial Regulations, as they are included in the agreements with the individual donors e.g. in the Partnership Agreement with the Council of Europe.
We do not wish to impose how the ERTF should function, except that it should meet basic standards of financial management regarding the use of the Council of Europe contribution.
Para 38. The production of a “Financial Regulations” document is in itself a positive step.
This statement sounds very arrogant and dismissive, it has no qualitative relevance.
We considered we should mention in the Conclusions that the creation of Financial Regulations was positive. It was not our intention to be arrogant or dismissive. The comment is deleted from the final report.
Para. 39 “The use of another organisation’s regulations as a starting point is an efficient way of producing regulations. There is no point in “re-inventing the wheel.” However it would have been preferable if the ERTF had chosen the regulations of an organisation more like itself in order to reduce the changes needed to produce relevant Financial Regulations.”
The ERTF consist out of organisations “like it self” the developing of this document was imposed on the ERTF. The treasurer Mr. George Raducanu profession is economist and he is dealing with NGO and political parties’ finances since 1989. The President Rudko Kawczynski has more than 25 years of experience in NGO finances, fundraising and was responsible as the Program director for the Open society Institute and the Soros Foundation in setting up financial procedures for the various Roma Programs which are still running. The comments, suggestions and demands started with six pages, after implementation of these six recommendations, it expanded to 37 until today’s.
Thanks to the Council of Europe there is no other NGO that is in relation with the Council of Europe, which has such a detailed and bureaucratic financial procedure likes the ERTF, even though there is in accordance with the law in Alsace and the Statute of the ERTF no need for this.
We make the point in our report that “in our opinion the document is far too long. Given the limited financial activities of the ERTF we do not consider that a 30 page document is required.”
Para. 58 “As regards the approval of, and payment for, goods and services, there are inconsistencies in the table and between the table and the text. This produces a lack of clarity “
We refer to 4.1.3 (30.) - Thank you for this comments we will improve the document by taking into consideration your suggestions in order to make it more easier to understand.
Para. 68.“The ERTF’s Financial Regulations require that there is a call for tender for purchases exceeding € 3,000. In two cases the amounts paid, both in November, were € 4,000 for secretarial assistance and € 4,000 for administrative support to the Treasurer. In neither case was there a call for tender.”
To insure a proper work of ERTF is was necessary to reinforce the human resources capacity of the secretariat. This was an exception, in the transitional period of implementing the new financial procedures and for lack of time to introduce a serious call for tender.
Para 71. “Two consultant contracts could be reclassified as employment contracts, because the nature of work did not constitute consultancy. Treating the contracts as employment would have obliged the ERTF to pay social security contributions and related charges. The issue of the classification of individuals engaged by the ERTF was also raised by their External Auditor.”
We consider that you were insisting too much upon this matter, which is connected to the French legislation in this domain and not to the regulations of the Council of Europe, which has special rules and procedures. However, the ERTF is paying Cabinet Bartholdi11 for reviewing and classifying contracts, managing social security contribution, taxes and all other related charges.
We aspect, that a professional local based accountant company is aware of the given finance law in France and if there are charges, they have to be paid. Until today we are not aware of problems in this field.
We recommended in our original audit that a legal opinion be sought. The Committee of Ministers invited the ERTF to give effect to this recommendation in May 2008. On 18 December 2008 we asked for a copy of the legal opinion. We did not receive any response, nor was a legal opinion attached to the comments on the Draft report. We therefore conclude that legal advice was not sought, and the risk persists.
Para 74. “Our last audit pointed out that we could not identify the participants invited to meetings. During the present audit we were provided with a model of an invitation letter, but not with a list of to whom the letter was sent (by Email). We therefore could not verify that participants who received expenses reimbursements were the same people as those invited.”
Contains also a very serious affirmation. The one that reads this understands that we also discounted participation fees [to some people, which were at home and watched the meeting at the television]. The ERTF consist, at the moment, of seven international member organisations with 3 delegates each and elected national Delegates. Delegates are invited with an open invitation letter but (in case of some inconvenience) they are entitled to send their substitutes.
Only the numbers of Delegates granted to a Representation are reimbursed. It could happened, that persons invited are not the same like that representing an organisation. Therefore the List of participants and especially the reimbursement form together with the signed cheques collected at Société General12 are best proofs of attendance of participants at meetings. A list of invitees, participants as well as all relevant documents has been at your disposal.
The ERTF agreed to implement the recommendation, but we were not however provided with a list of invitees.
Para 75. “In 75% of cases the claim form [for travel and subsistence] was complete. In the other 25% the claim form was absent. The ERTF commented that the new Financial Procedures did not apply before the 1 November 2008. The Ministers’ Deputies in May 2008 decided however that the ERTF should “…give immediate effect to the recommendations contained in that [the Internal Audit] report.””
Is only partially true. The Ministers’ Deputies, it is true, decided in May 2008 that the ERTF should immediately apply effect of your 6 recommendations. The specification that, in order to obtain most rapidly an effect, we had to accomplish your first recommendation (2.i./page 3- written procedures) has to be made. The written procedures which had to be submitted to the Executive Committee of the ERTF without the approval of the General Assembly, because we had the mandate of the General Assembly to adopt such procedures. This was necessary, because all others find themselves into the Written Procedures.
In spite of this, we applied some recommendations quicker that you suggested:
- The achievement of written procedures.
- The evasion of cash payments (October 2007).
- Presence list at all meetings.
The two participants from the General Assembly, which did not sign the participants list (77.), do have however the proof of their participation, as it exists another document: “the request of the reimbursement signed by them”. The two participants were at the time of hand round the list, at the restrooms.
The finding was that 4 out of 16 claim forms were absent. The explanation provided by the ERTF was that the new Financial Procedures did not take effect until 1 November 2008.
Para 78. “There were no attendance lists for other meetings”
I have to say that the affirmation is not true, because we have the participants’ lists of all our meetings.
We did not find attendance lists for other meetings in the files.
Para. 79. “Telephone costs are recharged by the Council of Europe, and therefore there is no standard contract. We did not find however that any of the five invoices, totalling € 3,554.84, had been signed by the Treasurer.”
No invoice has been also signed for the € 6,000 that are kept by the Council of Europe. No invoices, explanations or other documents have been given to the ERTF for € 24,000 that retained with the Council of Europe during 2005-2008. Also no information is available for the unspent “non cash contribution” it would bee desirable to include this in the scope of your Audit.
The scope of the audit was defined by the Committee of Ministers, namely, to verify if the recommendations of the original audit had been implemented.
Para 83. “The lack of documentation regarding meetings participants and missing claim forms remains a control issue.”
Appears again a serious and false affirmation, because all reimbursements beginning with October- November 2007 have been made only through cheque or through bank transfer, and all cheques have a reimbursement form attached. Only in one case the Payment was made, exceptional in cash, due to internal misinterpretation and to avoid conflicts.
The comment does not appear to relate to our statement, which is a conclusion based on the findings from our audit tests.
Para. 84. “The lack of procurement by quotation or tendering is also a weakness.”
Regarding public acquisitions- if you refer only to shopping, I have to underline the fact that the Forum purchased in 2008 only office supply.
This is a conclusion based on the findings from our audit tests, and given the ERTF Financial Regulations which state “Goods and services valued at more than € 1,000 should be procured through quotations” “All goods and services valued at € 3,000 and over should be procured by tendering.” Thus these rules apply to all goods and services. Our findings related to consultancy services.
Para. 86. “Legal advice has apparently not been sought. Therefore our original reservations persist, namely that due to the nature of the work some individuals should be engaged as employees, not as self-employed. Failure to do so poses a financial and legal risk to the ERTF, (as social security deductions are not being made), and a reputational risk to the Council.”
This is an accusation which is simply incorrect. In 4.2.3, 67. you are noting, that the ERTF purchased legal services (€ 1,670). Moreover the ERTF’s legal adviser the Attorneys office; Heinsen & Schneider13 is since the negotiations and establishment of the ERTF escorting our work. Since this year we also cooperate closely with lawyers in Strasbourg in preparing lawsuits against tradesmen. In the context of legal advice for Contracts we are supported by our legal advisers, and the companies Bartholdi and Grant Thornton.
We consider that the final affirmation “a reputation risk to the Council” could not exist, but the presence of it indicates the existence of a stereotype or of a prejudice to the fact that we are Roma.
We recommended in our original audit that a legal opinion be sought. The Committee of Ministers invited the ERTF to give effect to this recommendation in May 2008. On 18 December 2008 we asked for a copy of the legal opinion. We did not receive any response. We therefore conclude that legal advice was not sought, and the risk persists.
The legal services purchased for € 1,670 were not a general opinion on the employment status of individuals engaged by the ERTF, but related specifically to the departure of a staff member.
We would appreciate:
· if in future the grand is accompanied by an notice of granting stating in detail the demands of the Council of Europe instead of imposing on as general modifications of our internal procedures.
If conditions are attached to the grant they could in any event impact on internal procedures.
· Also a more focused approach on “was the grand spend for the granted purpose” instead of repeating insults and subtly allusions.
The scope of the current audit covered the financial administration of the contribution of the Council of Europe.
Please read carefully these comments and if you decide to cast anchor a more balanced and objective position, you may adapt the summary of the end of the audit.
Our report is a factual comparison between the recommendations to be implemented and the actual situation we found in the ERTF. The statements in the report are based on the facts as we found them. We thus do not accept they are “insults and subtly allusions.”
Note 1 This document has been classified restricted at the date of issue; it will be declassified in accordance with Resolution Res(2001)6 on access to Council of Europe documents.
Note 2 CM/Del/Dec(2007)1011/6.1
Note 3 CM(2008)73
Note 5 GR-SOC (2008)CB9, para. 13
Note 6 DD(2008)591
Note 7 GR-SOC (2008)CB9, para. 13
Note 8 The final long form audit report is available upon request from the Internal Auditor
Note 9 Draft minutes of the Executive Committee meeting of 18 and 19 October 2008.
Note 10 Bristol-Myers Squibb Foundation, which gives grants to partner organisations tackling the HIV/AIDS pandemic in sub-Saharan countries.
Note 11 Cabinet Bartholdi, Expert-Comptable & Commissaire aux Comtes , 19,rue du marechal Foch-67190 Mutzig.
Note 12 Société General, av de l’Europe, c/o Council de Europe 6700 Strasbourg.
Note 13 Dr. Heinsen & Schneider, Wirtschaftsanwälte, Dr. Heinsen was Minister for Justice in Hamburg, Schwerin.