Examination of Witness (Questions 463
- 479)
TUESDAY 20 OCTOBER 1998
MR MIKAEL
BARFOD
Mr Canavan
463. Good morning, Mr Barfod. Thank you
for coming to give evidence to the Committee in the course of
their inquiry on conflict prevention and post-conflict reconstruction.
May I first of apologise for the absence of our normal Chairman,
Bowen Wells, who is abroad at this particular time. My name is
Dennis Canavan and I have been asked to take the chair for this
morning's session. My apologies too for keeping you waiting for
so long outside. I understand that you have an opening statement
to make. Could you try and keep it as brief as possible please
because we do have other witnesses coming in later and we have
quite a lot of business to get on with.
(Mr Barfod) Thank you very much, Chairman. I am
of course very pleased to be here. Let us go straight to the point.
I have distributed an information package which has got a lot
of material in it and which I will refer to as we go along.[1]
On this particular occasion as an opening statement I would like
to throw in a few headlines which we can probably discuss further
later on. ECHO was created six years ago. It was set up in order
to improve the efficiency, co-ordination and visibility of the
European Community. Today we have arrived at a substantial financial
weight. We are responsible for the allocation of 500 million ecu
this year. At the peak it was slightly higher: 764 million ecu,
which is a lot of money. An important point here is that 50 per
cent or more (varying from year to year) of the European Union's
humanitarian aid is channelled through ECHO. ECHO is as big as
or bigger than all the member states put together, round about
that. If you compare that with development aid, only 15 per cent
of development aid is channelled through the European Community.
That means that in my opinion we are almost a one-stop centre
vis-a-vis the member states and the outside world. In that connection
there are three quick points I would like to highlight. One is
that I think this weight gives us an obligation to co-ordinate
both with the member states and other big donors, in particular
the United States, which is the other major world donor of humanitarian
aid. The United States is slightly smaller than all the EU put
together, that is, the Community and the member states. It also
gives us another second obligation, which is to develop principles,
practices, standards and new ideas. On my way over on the train
I read an article in which Phil Bloomer from Oxfam, the Senior
Policy Adviser, is supposed to have said that ECHO has become
"an intellectual powerhouse of principles". I thought
that was very flattering. I do not think we are quite there yet
but we are certainly working in that direction; that is our aim.
The third headline, which is also very close to my Commissioner,
Emma Bonino, is that those of us who know a little bit about what
is happening on the ground feel that we have an obligation to
speak out about the causes of crises and the real role of humanitarian
aid. Very briefly, these are the headlines I want to throw in.
With your permission I would also like to highlight one other
matter and that is the current ECHO fraud affair which you read
so much about in the papers. I hope you will allow me to say a
few words about that and that will be my opening statement.
Is that okay?
464. Yes.
(Mr Barfod) You have read a lot about this fraud
affair. The fraud itself is of course inexcusable but it was dealt
with by the Commission itself, which is an important factor, and
it led immediately to the suspension of an official and his file
being handed over to the police. The police have not yet charged
him formally but it is in process. The point is that the whole
affair was presented wrongly and out of proportion in many press
articles that we have read during August, September and part of
October, although the press seems to have become more favourable
towards us recently. There are four simple facts I would like
to highlight which have not always come out of the press reports,
including some of the ones I have seen from this country. The
first question is that if you accumulate all the humanitarian
aid ECHO has provided during the past six years, the amount comes
to almost four billion ecu which has taken place through 4,700
contracts. That is an enormous amount by any standards. The fraud
we are talking about is for 500,000 ecu which is one eight hundredth
of one per cent, in other words 0.0125 per cent. Any organisation
that has been defrauded for 0.0125 per cent cannot exactly be
called crooked in any way I would have said. Also, you must keep
in mind that ECHO's budget itself is a very small percentage of
the EU budget, only 0.3 per cent. The proportions are sometimes
lost. The second point is that the fraud did not affect the victims
directly. The fraud concerned contracts dealing with monitoring,
technical assistance and evaluation. No victim in Africa suffered
because of this unfortunate affair. The third point is that in
many press reports the fraud has been completely mixed up with
so-called irregularities, meaning what kind of staff ECHO recruited
in the early phases of its being. When ECHO came into existence
in 1992 you could compare us with a small boat on a wild river
that was tossed from side to side, in danger of being hit by the
rocks on both sides because there were humanitarian crises of
hitherto unknown proportions, there was lack of political will
to solve these crises, public expectations were running high,
it was on TV every night. We had budgets that were high and we
had a clear mandate from the Commission to do something. We recruited
people on our operational budget in order to work more or less
as officials in ECHO. That was the irregularity. Budgets were
used slightly out of line with the budgetary intentions. We have
taken the blame for that but if you look at it from a management
point of view there is a certain amount of irony in this because
today many administrations talk about sourcing out certain functions.
The Commission itself is talking about sound and efficient management
in terms of also sourcing out and privatising in some cases and
in a sense that is what we did in order to create this new organisation,
ECHO, that everybody wanted to be efficient and quick. That was
not to be mixed up with the fraud case, although of course it
opened the door for the fraud indirectly. There is one more thing
on this subject. ECHO is still very much understaffed, by the
way. If you compare us with other services of the Commission and
member states, we are hopelessly understaffed. If you compare
ECHO with other services of the Commission, there are four times
as many people administering the same amount in other services
as compared to ECHO in some cases. The last point is a question
of control. We have been accused of not being in control of things
and there I must admit one has to look at evolution as well. It
is true that we lost control on the four contracts here when we
were defrauded. However, we have set in place an enormous amount
of control systems since then which will probably mean that the
fraud would be far more difficult to pull off today. We have financial
control, auditing systems, audit evaluations; all this is described
in detail in the information package you have in front of you.[2]
I believe that that is something which the NGOs themselves have
started to speak up about in the press now in some of the more
friendly articles. Of course the NGOs in the UN are the best witnesses
of this control. They have sometimes even complained bitterly
about the fact that we control them. We have also been criticised
in some cases for being over zealous with control by the Court
of Auditors, a report which was also distributed to you before
this meeting. Thank you very much, Chairman. I hope this was not
too long.
465. Thank you, Mr Barfod. While agreeing
that the scale of the fraud ought to be kept in perspective, I
trust you will agree that nevertheless the fraudulent mishandling
of 500,000 ecu is a very serious business indeed. Did I hear you
say that no victim suffered as a result of this fraud? If I heard
you correctly could you justify that statement please, and could
you tell us what exactly ECHO is doing to make sure that such
fraudulent misconduct does not recur? You have talked vaguely
about controls but what exactly are these controls that you are
going to put in place to ensure that never again is there such
a fraud?
(Mr Barfod) As I said, this is inexcusable, so
I think I have already dealt with your first question. I totally
agree with you. Even if it had been one ecu it would be inexcusable.
Nevertheless, the proportion comes into it as well. When I said
that victims are not being affected, I said "directly",
because we were talking about some contracts back in 1993/94 which
were about staff for monitoring and for evaluation for technical
assistance. Of course indirectly you do monitoring and evaluation
and so on to make sure that your operations are running smoothly
and therefore it has an indirect consequence on the victims, but
not a single ecu was defrauded when it comes to direct relief
funds going to victims, food items, health projects, sanitation,
those kinds of things. That is what was behind my statement. The
controls are in place now, and I would really encourage you to
try to read one of these fact sheets that I distributed.[3]
It is only two pages and there you get a complete overview of
the control systems that are in place today: the accounting, the
audits and the evaluation. The reason why I do not think this
affair could happen very easily today is that it was a rather
special situation at the time where we felt there was no way we
could administer the budget at our disposal with the means at
our disposal. Hence some operational contracts were signed which
provided staff that in reality worked as officials within ECHO.
That kind of loose contract where you sign a contract where it
does not really say whether the person will be in the field or
whether he is going to work in ECHO would never be allowed today.
Inside ECHO we now have a financial control unit that looks after
this and would never allow it. The Financial Controller of the
Commission would block it immediately if it happened today. In
addition to that we have had the general inspectorate of the services
at our doorstep several times, we have had the Court of Auditors
and we have had two independent evaluations done on us since those
days. Any of these things, there is absolutely no doubt in my
mind, would have been covered even in the first step of all these
possibilities I have just mentioned.
Mr Rowe
466. Given that you say that you have too
few staff and that a great many of them were either recruited
or found in agencies very quickly, does this not actually have
quite a serious effect on the effectiveness with which you distribute
the aid? Is this not a worry for you?
(Mr Barfod) Are we talking about today or back
in time?
467. You said that you were still very short
of staff. In such circumstances, if you have a combination of
being short of staff and very elaborate control mechanisms, what
tends to happen is that the aid does not get distributed either
quickly or effectively because people are trying to process a
mass of control mechanisms and are not actually paying out the
money. Is this the case?
(Mr Barfod) I can tell you, because I have felt
it in my own body, where the compensation has been. The compensation
has been that we have had a relatively young staff in ECHO who
have worked very hard over the years. This kind of dedication
in the early days of ECHO probably survives to some extent to
this very day, but you cannot continue like that for ever. Another
thing we have done to relieve the problem up until today is that
we have concentrated a lot on recruiting field experts, so-called
correspondents. We have 70 correspondents at field level. They
are typically ex-NGO or ex-Army logistics people, ex-UN officials,
who basically work for us in the field to make sure that all the
things you are talking about happen correctly, that the aid is
monitored, co-ordinated, and that it is delivered efficiently
in every respect. The reason why I still think that we could do
with more staff in Brussels is this, and this is something I want
to come back to later on. I think we (not just ECHO but everyone
involved in this field) need a lot more analytical capacity in
order to understand the conflicts of today. They are so incredibly
complex. Humanitarian aid is not just something that you drop
down from the sky. It plays a part in the dynamics of most of
these conflicts. To understand that, to provide aid in a very
smart way, to understand precisely what the real impact is of
humanitarian aid, you need staff. This is over and above the accounting
controls.
468. Up till 1995 the auditors suggested
that the recipients of humanitarian aid were also getting other
aid, that in fact the aid was going twice to the same people and
therefore not to others. Are you now satisfied that your aid does
not duplicate other aid going to the same recipients when there
are other people who need it more?
(Mr Barfod) I find that question a bit difficult
to answer in general. What I can tell you is that within the Commission
we have a linkage system between relief and development whereby
we keep each other informed at desk level in development and humanitarian
services about the different operations that are carried out.
We have a very clear policy which has as one of its goals to avoid
duplication. It has other goals, namely to reduce vulnerability
to crisis and to prepare the future development process at the
humanitarian phase. Member states participate in the Humanitarian
Aid Committee (the UK certainly does through DFID) and any operation
that we do can be picked up by the member states either in a committee
or even on our Internet home page.[4]
You can see precisely what we are doing in what country, what
the amounts involved are, the field and the channels. If any member
of the public finds out that this duplicates something else, then
he or she can immediately give us a call and we will examine this
very carefully. This is even available to the UN which also does
a substantial amount of co-ordination. Can I add one more sentence
to that? I do not like to flatter ourselves but in one respect
I do not blush. I think we are exceptionally transparent when
it comes to our operations. There is no amount of data that you
cannot obtain about what we do.
Ann Clwyd
469. Mr Barfod, according to your own document,[5]
which I have looked at very quickly, the irregularities concerned
four contracts in a one year period and the suggestion in your
paper is that the workload at the time was enormous. There were
two major crises unfolding and the workload was massive. Is the
suggestion that the irregularities occurred because of understaffing
or the wrong kind of staff or people who were not able to cope
with the situation you were in?
(Mr Barfod) No, they incurred indirectly because
of the staffing situation. As I said, the irregularity, which
was that we recruited people in an innovative way, we recruited
people on operational contracts to work as de facto officials
of the Commission and the contracts——
470. What does "innovative way"
mean? I do not understand.
(Mr Barfod) The President of the Commission in
the European Parliament the other day called it "acrobatics"
in order to set up ECHO in an effective way. Because it is now
an irregularity you are not supposed to do that. You are not supposed
to use funds for operations for monitoring, evaluation, etc, to
recruit people who more or less work as officials. On the other
hand, had we not done that, that was just the Scylla and Charybdis
situation, we would not have been able to set up ECHO and to deliver
the humanitarian aid. The magnitude of the problems was so great
that there was no way we could fail. The political expectations,
the Edinburgh Summit, the CNN every night on Somalia and Yugoslavia:
can you imagine if ECHO had just collapsed and said, "We
cannot handle it; it is too much with the 34 people we have"?
So we got another 22 people through operational contracts, but
those contracts were loose. That is what could not happen today.
That is the answer to your question. They were very loose because
one did not specify very clearly what kind of work these people
would do and where precisely. Therefore, that particular innovative
procedure or "acrobatics" or whatever you call it, irregularity,
opened the way for the fraud, because the person who is accused
of having done this exploited this to make a deal in the gate
with the company that provided this staff, the private company.
That can happen on any contract.
471. That official is now suspended, is
he?
(Mr Barfod) That official has been suspended and
his file has been handed over to Le Parquet, the public prosecutor,
in Luxembourg.
Tess Kingham
472. The European Parliament obviously does
not share your confidence that the fraud situation has been sorted
out in the long term. We have heard this morning that they are
planning to suspend the rest of the humanitarian aid budget, which
is so clearly mentioned as vital to people at the sharp end of
the development problem in situations of crisis. If this goes
ahead and this budget is frozen, what kind of projects are going
to be affected, how many, what impact do you think that is going
to have, and why do you personally think they are taking this
decision?
(Mr Barfod) Can I start with the last point? We
feel in a way that ECHO has been taken hostage to some extent
for a lot of other agendas by the European Parliament to establish
itself as a budgetary authority and because the Parliament initially
did not receive a copy of the UCLAF,[6]
the fraud investigation report, which was kept confidential because
it included names of people that had not yet been officially charged.
That was the reason the Commission gave. Now I understand that
some sort of formula has been negotiated whereby some members
of the Parliament, to the satisfaction of the European Parliament,
will receive a copy of this report apart from the President. The
latest that I heard was that the European Parliament would actually
not—you say (suspend); in fact what it is is that part of
ECHO's budget is put in the reserve and at one stage the European
Parliament said that 100 per cent of our budget is put in the
reserve which can only be released if you go through certain procedures.
That kind of system exists today because 50 per cent of the funds
we operate with today are already in the reserve. When we have
committed 80 per cent of our funds, in September, October, every
year, we have to apply to Council and the Parliament to release
the reserve. That is the right way to say it I think.
473. But the end result surely is the same?
If the 100 per cent has been put into reserve presumably you have
no money to spend?
(Mr Barfod) No, it does not mean that the budget
is frozen or suspended. It means that we have to apply the procedure
already on the 1 January instead of later in the year. That of
course is completely unacceptable for us because if there is a
humanitarian crisis in January or February there is no way we
can have the money released. There has been a storm amongst NGOs
and the UN because of this, because it is felt that the European
Parliament perhaps has mixed up the ECHO affair and the particular
issue of releasing a report with lots of other things. There is
also perhaps a German budget issue mixed into it; there are the
Greens in Germany and their election campaign. There are so many
other things. I did not hear anything this morning but my latest
information was that a deal has been struck whereby everything
will not be put in the reserve next year but the exact percentage
is not known yet.
474. May I just clarify what you are saying?
If this goes ahead and the 100 per cent is put into the reserve,
whatever the technical formulation is, you are saying that if
a humanitarian crisis does break out over the next few months,
say—God forbid—somewhere like Kosovo, you will not
have the money paid out?
(Mr Barfod) We are paralysed.
475. So it does have direct impact on poor
people around the world?
(Mr Barfod) Yes. That is why you have the storm
amongst the NGOs, as I said. In your information pack there is
a little document from Mr Mackie, who is in the European NGO umbrella
organisation and who is also expressing himself quite clearly
on that on behalf of the European NGOs.[7]
This is quite unacceptable by all standards. The European Parliament
I think has come to that conclusion as well, and the latest I
heard was that a deal is worked out whereby we will get some sort
of arrangement like now, perhaps with a different percentage from
50, which is what we have now.
476. What direct impact will that have?
(Mr Barfod) We have fought for years to decrease
the reserve to zero because we think it is quite unreasonable
that we have to slow down in September/October, to find justification,
to find a fleshy crisis, to find something politicised in order
to continue. We do not think that is rational management and we
have been fighting them with everything we have. From that to
having the percentage increased, that is for us almost incomprehensible.
Mr Khabra
477. Talking about the fraud, could it be
possible for you to identify in real terms how big is this fraud
and give us the figures? The other thing is that a person has
been charged. Are there any other people involved in this scandal?
(Mr Barfod) I mentioned earlier that the amount
is round about 500,000 ecu which is missing. What happened was
that the four contracts that were referred to just now have been
examined very closely by the anti-fraud squad, and they have justified
all the amounts; in other words they found out that the staff
I was talking about, the de facto officials, actually did
some work and that the computers they actually used were actually
there, but they could only justify up to a certain amount and
they believe that there is between 400,000 and 600,000 ecu which
they cannot justify. Then, with some amount of evidence—I
do not know what it is because I have never seen the report—that
has caused the Commission to conclude that fraud has been committed
on the last amount, between 400,000 and 600,000 ecu, and therefore
the dossier for that unjustified part has been handed over to
the police for criminal investigation. The Commission would only
do that I suppose if it had some very good reasons to do so, but
you cannot ask me about the details because I do not know. On
the question of whether the affair has spread, within ECHO I have
no other indications that the fraud is wider than what I have
just mentioned, but apparently the company with whom the official
dealt has used similar methods in other places, in other parts
of the Commission and possibly other places; who knows? At least
the President of the Company is accused of doing that, and that
has been up in the press. I only know what I have read in the
press and it certainly does not look to me like an avalanche.
It looks like some small pieces of fraud here and there but none
of it has been clearly documented. No-one has been charged directly
yet.
Mr Robathan
478. You have to a certain extent blamed
all this on hostile or unfriendly reporting in the newspapers.
(Mr Barfod) Some.
479. We know all about unfriendly reports,
I can tell you.
(Mr Barfod) In the last two weeks there have been
some quite decent reports.
1 See Evidence, pp. 204-208. A copy of the whole package
has been placed in the Library. Back
2
See Evidence, pp. 204-208. A copy of the whole package has been
placed in the Library. Back
3
See Evidence, pp. 204-206. Back
4
http://europa.eu.int/en/comm/echo/echo.html. Back
5
See Evidence, pp. 204-206. Back
6
UCLAF is the European Commission's Fraud Squad. Back
7
See article from European Voice, 15-21 October 1998, Evidence
pp. 207-208. Back
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