This article was first published in the January 2017 international edition of Accounting and Business magazine.

The European Commission needs to reform its governance systems to boost its efficiency and make it compliant with the standards it has set for European public interest entities, explains Lazaros S Lazarou FCCA, the Cypriot member of the European Union’s financial watchdog, the European Court of Auditors (ECA).

Speaking in his Luxembourg office, Lazarou has recently completed a report on the governance of the commission for the EU’s supreme audit institution, which he subsequently presented to the European Parliament’s budgetary control committee in December. He says the report found that new governance arrangements introduced in 2000, following the resignation of the commission led by Jacques Santer in 1999, were ‘good for that time, but since then a lot of things have happened, a lot of water has passed under the bridge, and the governance structure needs to be updated and brought in line with best practice’.

The report, Governance at the European Commission – best practice?, recommends among other things that the commission should publish its annual accounts earlier, noting that currently they come out later than best practice examples, and that they should give more non-financial information, in line with other organisations. The commission also needs to consider operational and strategic risks in its internal control framework, the report suggests.

Such advice is meat and drink to the Court of Auditors, which is also charged with giving governance advice while it audits the EU accounts, commanding a budget worth around €150bn in 2017. Indeed, the court regularly issues special reports on specific subjects, often more narrow in scope, such as recent reports on land parcel identification and EU maritime transport policy. In 2015, 25 special reports were released. 

As the member responsible for the court’s annual report, Lazarou is pivotal in this work, the purpose of which, he says, is ‘to provide the European Parliament and the Council of EU Ministers with a statement of assurance as to the reliability of the accounts’. 

The Court of Auditors reports on ‘whether the EU accounts present a true and fair view, and on the legality and regularity of the underlying transactions. We also report on whether the financial management has been sound,’ he explains.

The watchdog’s audit work is also diverse, as it carries out three kinds of audits at EU level: financial, compliance and performance. The latter leads to specific reports ‘where we express our opinion on whether the money spent on that particular policy action has been spent in line with the principles of sound financial management – meaning with economy, efficiency and effectiveness,’ says Lazarou.

‘When we talk about performance and the principles of performance management, we talk about delivering value for money. We warn of risks, provide recommendations to European policymakers on how to improve the management of public finances and ensure that EU citizens know how their money is being spent.’

The court audits the EU budget, the commission and other EU institutions (the European Parliament, Council of EU Ministers, European Economic and Social Committee, Committee of the Regions) and also 33 EU agencies, eight executive bodies, various joint undertakings and the EU’s European schools.

Sensible choice

The upbeat Cypriot wanted to be an accountant from his high-school days at the English School in the Cypriot capital Nicosia. It was a sensible choice, he says, as ‘at the time – and I’m pleased that it is the case nowadays too – a professional qualification in accounting was a qualification that would open doors for you, and lead to employment at the end of your studies’. 

He chose to study economics at the University of Hull, in northern England, and then worked on his ACCA Qualification, which he regards as ‘a natural progression into professional accounting exams’.

Qualifying with ACCA, he says, has helped a lot with his career. ‘Having the ACCA Qualification gives you knowledge and insight into the business world, and also into public service,’ he explains. ‘It is the icing on the cake. Without it I wouldn’t have had the opportunities I’ve had so far in my professional career. 

‘You have to be professional at work, hardworking, a team player, and you have to be able to build good and constructive working relations. In addition to the professional skills you need to have soft skills and the ACCA Qualification helps you acquire or improve these, which will help you in your career advancement.’

Lazarou started out in the private sector, first in the UK and then in Cyprus for around 18 months until 1989, when he joined the country’s Inland Revenue department.

‘I wanted to have the work experience in the public sector, but not just anywhere, and the Inland Revenue department provided the opportunity,’ he says, adding that he thought then that even if he had decided to return to the private sector, this tax experience would be useful.

However, he never looked back, and has remained in the public sector ever since. He spent around 11 years in the Cypriot Inland Revenue, starting as a tax assessor, serving for nearly two years as a departmental district director and rising to the position of chief revenue officer. In 2000, he was appointed accountant general of the Republic of Cyprus, also for an 11-year stint.

In 2010, the Cypriot government nominated him for appointment to the European Court of Auditors. The court has 28 members, one for each member state, serving renewable six-year terms dependent on passing a European Parliament hearing. Lazarou was reappointed in November 2016. 

‘My hearings were a pleasant experience,’ he enthuses. ‘The reception from the members of the budgetary control committee was very good; they made me feel comfortable.’

As accountant general of the Republic of Cyprus, Lazarou headed the country’s competent authority on public procurement, and the certifying authority for EU funds. Comparing this work to his current role in Luxembourg, he says: ‘Now I’m basically in the same field of business, but from the perspective of the auditor – the other side of the fence.’

Lazarou explains that the ECA is different from the Cypriot or British system, where there’s an audit service headed by an auditor general. Instead it works on the board-style system with a collegial body – a court – made up of 28 members. ‘We take decisions at college level, all 28 of us, and we take decisions at chamber level,’ says Lazarou. Special reports like the one on governance are approved at chamber level, while the court adopts all strategic decisions and the annual report.

A key difference from national audit work is that while the court’s principal auditee is the European Commission, about 80% of budget spending is done in the member states under shared management arrangements. However, Lazarou says: ‘The actual responsibility lies with the European Commission, which stands together with the member states. When we audit the commission inevitably we follow the money through to the final beneficiary in member states.’

However, even though the court examines payments in member states, it does not audit the member states. He says: ‘We cooperate with national audit officers and coordinate common issues through an annual contact committee meeting and working groups that meet more frequently.’

Lazarou insists that the auditors’ reports, which can be critical, do lead to change. ‘Yes, our reports are listened to, and we do follow up,’ he says, pointing out that reports are published and often reported widely by the media. The court moreover presents the reports to the European Parliament’s budgetary control committee where the relevant EU commissioner must respond. ‘There’s also a follow-up from our side as to whether our recommendations have been implemented, and we report on that every year,’ Lazarou explains.

Family footsteps

The average working day for Lazarou is ‘always busy’, leaving little time for hobbies, he says, but he does enjoy reading – anything from novels to the financial press – and walking. He also devotes time to his family. He has four sons, with only the youngest still at school. The middle two are at university in the UK, while the eldest is following in his father’s footsteps. He calls during our interview to say he has just passed an ACCA exam.

Sara Lewis, journalist based in Brussels