Alsopp ipsas a case for accounting reform at the oas

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Heather Alsopp, Director, Organization of American States

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Alsopp ipsas a case for accounting reform at the oas

  1. 1. IPSAS: A case for Accounting Reform at the OAS 2010 ICGFM Winter Conference Practical Uses of New Standards to Enhance Transparency and Program Performance December 6-8, 2010 Enrique Iglesias Conference Center Inter-American Development Bank 1330 New York, Avenue Washington, DC 20577 USA
  2. 2. Table of Contents Pages <ul><li>OAS in context </li></ul>3-6 <ul><li>The move to IPSAS </li></ul>7-10 <ul><li>Implementation challenges </li></ul>11-23 <ul><li>Progress report </li></ul>24-25 <ul><li>2011 and beyond </li></ul>26-28
  3. 3. <ul><li>OAS in context </li></ul>
  4. 4. Member States <ul><li>Public International organization </li></ul><ul><li>Purpose: Brings together Western Hemisphere nations to achieve objectives of human rights, democracy, security and development. </li></ul><ul><li>Authoritative Body: General Assembly </li></ul><ul><li>Annual Budget: $170 million </li></ul><ul><li>Workforce: 1,295 (permanent and temporary staff and project contractors stationed at Headquarters and in member states) </li></ul>(1) On June 3, 2009, the Ministers of Foreign Affairs of the Americas adopted resolution AG/RES. 2438 (XXXIX-O/09) , that resolves that the 1962 resolution, which excluded the Government of Cuba from its participation in the inter-American system, ceases to have effect in the Organization of American States (OAS). The 2009 resolution states that the participation of the Republic of Cuba in the OAS will be the result of a process of dialogue initiated at the request of the Government of Cuba, and in accordance with the practices, purposes, and principles of the OAS. (2) On July 5, 2009, the Organization of American States (OAS) invoked Article 21 of the Inter-American Democratic Charter, suspending Honduras from active participation in the hemispheric body . The unanimous decision was adopted as a result of the June 28 coup d ’é tat that expelled President Jos é Manuel Zelaya from office. Diplomatic initiatives are ongoing to foster the restoration of democracy to Honduras.
  5. 5. Structure
  6. 6. OAS Funds THE NEED FOR CONVERGENCE: <ul><li>Resources are accounted for in several funds: Operating Fund, Voluntary Fund, Special Revenue Funds, Fiduciary Funds, Internal Service funds, and operate under different bases of accounting. </li></ul>FUND DESCRIPTION ACCOUNTING STANDARDS Operating Fund (“Regular Fund”) <ul><li>Quotas from the Member States. </li></ul><ul><li>Voluntary contributions. </li></ul><ul><li>OAS proprietary standards – modified cash basis </li></ul><ul><li>(“Budgetary & Financial Rules”) </li></ul>Special Revenue funds (“Specific Funds”) - Contributions for specific projects/objectives. <ul><li>Some US GAAP </li></ul><ul><li>Some B & F rules </li></ul>Fiduciary funds <ul><li>Funds held in trust for specific objectives. </li></ul><ul><li>(Medical Benefits, Retirement & Pension Fund) </li></ul>- US GAAP Internal service fund - Indirect cost recovery, common costs. - B & F rules
  7. 7. <ul><li>The move to IPSAS </li></ul>
  8. 8. International Drivers <ul><li>EUROPE </li></ul><ul><li>EC </li></ul><ul><li>OECD </li></ul><ul><li>NATO </li></ul><ul><li>Interpol </li></ul>AFRICA Many African governments in the process of adopting cash basis IPSAS. LATIN AMERICA Governments have mandated or in the process of adopting IPSAS. Institutions that support it: World Bank, IMF, Asian and Inter American Development Banks. * Source : http://ec.europa.eu/budget/library/documents/implement_control/conf_accounting_1008/bergmann_en.pdf UN/OAS MOVE TO IPSAS - UN: 2006 - OAS mandate to explore: 2007 - OAS mandate to adopt: 2010
  9. 9. OAS Case Study <ul><li>PROJECT HIGHLIGHTS </li></ul><ul><li>Adoption of IPSAS is happening in the context of wider management reforms. </li></ul><ul><li>Substantial financing from the Canadian International Development Agency (CIDA). </li></ul><ul><li>- $1.9 million </li></ul><ul><li>Expected implementation date: Jan 2012 </li></ul><ul><li>Project cost: estimated $1.5 – 2 million. </li></ul><ul><li>THE MOVE TO IPSAS </li></ul><ul><li>External Stimuli </li></ul><ul><ul><li>UN decision to move to IPSAS (2006) </li></ul></ul><ul><ul><li>Worldwide move to accrual accounting. </li></ul></ul><ul><li>Reform Drivers </li></ul><ul><ul><li>Member States </li></ul></ul><ul><ul><li>Donors </li></ul></ul><ul><ul><li>US Congress legislation. </li></ul></ul><ul><ul><li>Finance Department </li></ul></ul><ul><li>Stakeholders </li></ul><ul><ul><li>Member States </li></ul></ul><ul><ul><li>Donors </li></ul></ul><ul><ul><li>Senior Management </li></ul></ul><ul><ul><li>OAS Staff </li></ul></ul><ul><li>Barriers </li></ul><ul><ul><li>Driving the message </li></ul></ul><ul><ul><li>General implementation challenges </li></ul></ul><ul><li>Institutional Arrangements </li></ul><ul><ul><li>Business culture </li></ul></ul><ul><ul><li>Financial arrangements </li></ul></ul><ul><ul><li>Unclear legal linkages with specialized organs </li></ul></ul><ul><ul><li>Smaller size & budget </li></ul></ul>* Analytical framework derived from the Financial Management Reform Process Model.
  10. 10. IPSAS Guidance <ul><li>THE UN IPSAS TASKFORCE </li></ul><ul><li>Decentralized nature of UN operations and differences among agencies highlights the need for centralized body to issue guidance. </li></ul><ul><ul><li>Working groups tackle specific accounting issues. </li></ul></ul><ul><ul><li>56 working papers issued to date. </li></ul></ul><ul><ul><li>OAS uses these papers as reference. </li></ul></ul>UN IPSAS Taskforce IPSAS Board OAS guidance
  11. 11. <ul><li>Implementation challenges </li></ul>
  12. 12. <ul><ul><li>INTERNAL </li></ul></ul><ul><ul><li>Business culture </li></ul></ul><ul><ul><ul><li>Operational changes driven by the adoption of accrual accounting in a budget-driven organization. </li></ul></ul></ul><ul><ul><ul><li>‘ Fund Accounting’ </li></ul></ul></ul><ul><ul><li>Political support </li></ul></ul><ul><ul><ul><li>Explaining accrual accounting and its benefits to non-accountants. </li></ul></ul></ul><ul><ul><ul><li>Resistance to change </li></ul></ul></ul><ul><ul><li>Project Financing </li></ul></ul><ul><ul><ul><li>- Within the context of challenging financial times and competing initiatives for scarce resources. </li></ul></ul></ul><ul><li>EXTERNAL </li></ul><ul><ul><li>(Relative) Novelty factor </li></ul></ul><ul><ul><ul><li>Lack of documented experiences in the Western Hemisphere. </li></ul></ul></ul><ul><ul><li>Simultaneous implementation </li></ul></ul><ul><ul><ul><li>An advantage because of operational and structural similarities in some cases. </li></ul></ul></ul><ul><ul><ul><li>BUT </li></ul></ul></ul><ul><ul><ul><li>UN agencies are competing for limited expert resources. </li></ul></ul></ul>Implementation Challenges
  13. 13. Impacted areas Employee Benefits (terminations, annual leave) Expense Recognition (obligations, travel/accountable advances) Investments (fair value) Financial Statements (cash flow, disclosures, budget reports) Financial Statement Consolidation Fixed Assets (capitalization, depreciation) Revenue (quotas / pledges/ specific fund agreements) IPSAS
  14. 14. Reporting Entity <ul><ul><li>Consolidation of controlled entities. </li></ul></ul>Current Treatment IPSAS Treatment OAS currently has other affiliated entities and specialized organizations. OAS prepares financial statements for some of these. Most are prepared in accordance with US GAAP. Consolidation based on power and benefit criteria. All transactions, balances, revenue, expense between entities within the controlling entity are eliminated.
  15. 15. Reporting Entity Implementation Challenges BEFORE ADOPTION AFTER ADOPTION <ul><li>Review of all legal documents to analyze potential control relationships. </li></ul><ul><li>Consultation with legal department and affected parties. </li></ul><ul><li>Assess US GAAP to IPSAS transition impact. </li></ul><ul><li>Stakeholder awareness: financial statement changes. </li></ul>Impact of consolidation in fund balance.
  16. 16. Revenue Recognition Eg: Quotas, Voluntary Fund pledges, Specific Fund contributions, interest income. Current Treatment IPSAS Treatment Revenue Recorded upon receipt of cash in all funds. Fully reserved receivables created for all agreements. Binding agreements will trigger revenue recognition and recording of receivables Other income (e.g., interest) accrued as earned
  17. 17. Revenue Recognition Implementation Challenges BEFORE ADOPTION AFTER ADOPTION <ul><li>Review and structure donor agreements </li></ul><ul><ul><li>Exchange/non-exchange distinction </li></ul></ul><ul><ul><li>Conditions yes/no </li></ul></ul><ul><ul><li>Trigger for revenue recognition </li></ul></ul><ul><ul><li>ERP readiness </li></ul></ul><ul><li>- Stakeholder awareness: </li></ul><ul><ul><li>Link between commitments and fund balance. </li></ul></ul><ul><ul><li>De-linking of cash receipts from revenue recognition. </li></ul></ul><ul><li>Accelerated recognition of revenue with ‘no strings attached.’ </li></ul><ul><li>Stage of completion for exchange transactions (services). </li></ul><ul><li>- Increase in fund balance. (in some cases) </li></ul><ul><li>- Budget execution in all funds may be based on binding agreements with member states/donors - not cash on hand. </li></ul>
  18. 18. Expense Recognition Eg: Purchase Order obligations. Current Treatment IPSAS Treatment Commitments fully recognized as expense at the point of the purchase order. Recording of these expenses is not dependent on the good/service actually being received. Delivery principle : Expenses would not be recorded until the underlying good or service has actually been received/performed and then, only the amount applicable to that period is recognized.
  19. 19. Expense Recognition Implementation Challenges BEFORE ADOPTION AFTER ADOPTION <ul><li>Review of policy on expense recognition. </li></ul><ul><li>- Stakeholder awareness: </li></ul><ul><ul><li>Impact of recognizing only actual expenses rather than the full commitment. </li></ul></ul><ul><ul><li>Reinforce need for budgetary & accounting system to control spending. </li></ul></ul><ul><li>Exclude obligations from the Statement of Financial Performance. </li></ul><ul><li>Expense recognition based on delivery principle. </li></ul><ul><li>Continued monitoring and recording of expense as service is delivered. </li></ul><ul><li>Disclose multi-period/year commitments that are not part of the period’s fund balance. </li></ul>
  20. 20. Employee Benefits <ul><ul><li>Eg: home travel, repatriation expenses, separation indemnity, termination pay, and health and life insurance benefits after separation. </li></ul></ul>Current Treatment IPSAS Treatment <ul><li>OAS does not accrue employee benefits in the Operating Fund. </li></ul><ul><li>Results for these funds only reflect these benefits when they are paid . </li></ul><ul><li>An estimated liability for these employees is disclosed in the footnotes to the financial statements. </li></ul><ul><li>Accrual does not include the estimated benefit cost for field personnel. </li></ul><ul><li>Employee benefits accrued for as earned. </li></ul><ul><li>What is not accrued </li></ul><ul><li>“ Accumulating, non-vesting” and “non-accumulating” (sick leave, maternity leave.) </li></ul><ul><li>Special termination benefits should not be accrued until there is a detailed formal termination plan and there is no realistic possibility of withdrawal. </li></ul>
  21. 21. Employee Benefits Implementation Challenges BEFORE ADOPTION AFTER ADOPTION <ul><li>Review and analyze employee benefits </li></ul><ul><ul><li>Annual leave balances. </li></ul></ul><ul><ul><li>Benefit plans (defined benefit/contribution). </li></ul></ul><ul><ul><li>Actuarial valuations for post employment benefits. </li></ul></ul><ul><li>Field Staff </li></ul><ul><li>Create Field Personnel Register. </li></ul><ul><li>Review employee benefits for field staff. </li></ul><ul><ul><li>Issue of local labor law compliance. </li></ul></ul><ul><li>ERP readiness: ability to record benefits automatically. </li></ul><ul><li>Marked increase in personnel-related liabilities. </li></ul><ul><li>Establish standard procedure for recognition of benefits for new employees. </li></ul><ul><li>Stakeholder awareness: possibility of negative fund balance upon adoption. </li></ul>
  22. 22. Property Plant and Equipment <ul><ul><li>Eg: OAS buildings, cars, other project assets. </li></ul></ul>Current Treatment IPSAS Treatment <ul><li>OAS expenses the full cost of acquiring fixed assets at the time of purchase. These purchases are then capitalized and depreciated in a separate Fixed Assets Fund. </li></ul><ul><li>Remaining book value is reported in the Regular Fund Statement of Assets, Liabilities and Fund Balance line item “ Investment in the Fixed Assets Fund.” </li></ul><ul><li>Cost of acquisition (cash or fair value) will be distributed through the asset’s useful life. </li></ul><ul><li>Two models for valuing fixed assets on the Statement of Financial Position (balance sheet) after they have been first acquired and recorded at cost: </li></ul><ul><ul><li>- Cost Model </li></ul></ul><ul><ul><li>- Revaluation Model </li></ul></ul>
  23. 23. PP&E Implementation Challenges BEFORE ADOPTION AFTER ADOPTION <ul><li>Review of all fixed assets (including country offices and projects). </li></ul><ul><li>Review of fixed asset policy. </li></ul><ul><li>Stakeholder education: impact on fund balance. </li></ul><ul><li>Asset valuation model needs to be selected for each class of assets. </li></ul><ul><li>Select depreciation schedule. </li></ul><ul><li>Assets included in the Statement for Financial Position. </li></ul><ul><li>Regular appraisals if revaluation model is selected. </li></ul><ul><li>New account created to record changes in asset fair value if the revaluation model is used for certain asset classes. </li></ul><ul><li>Consistent application of asset valuation model and depreciation schedule across asset classes. </li></ul>
  24. 24. <ul><li>Progress report </li></ul>
  25. 25. IPSAS at OAS: Where are we? <ul><li>2007 </li></ul><ul><li>Mandate to explore IPSAS. </li></ul><ul><li>Preliminary adoption plan and budget approved. </li></ul><ul><li>IPSAS gap analysis completed. </li></ul><ul><li>2008 </li></ul><ul><li>Review of B&F rules completed. </li></ul><ul><li>Documented business processes. </li></ul><ul><li>DFAMS personnel attended limited IPSAS training. </li></ul><ul><li>2009 </li></ul><ul><li>GS/OAS liaised with the UN IPSAS Taskforce to receive implementation guidance. </li></ul><ul><li>Progress report delivered to CAAP in 2009. </li></ul><ul><li>Implemented some IPSAS requirements in the 2009 audited financial statements. </li></ul><ul><li>2010 </li></ul><ul><li>5 IPSAS courses were delivered during 2010 on major change areas. </li></ul><ul><li>Engaged the external audit firm to issue expert opinion on major impact areas. </li></ul>ONGOING Coordination Communication strategy. Training IPSAS ADOPTION: ON THE ROAD TO 2012
  26. 26. <ul><li>2011 and beyond </li></ul>
  27. 27. Moving Forward <ul><li>HIGH LEVEL GOALS FOR 2010 AND BEYOND </li></ul><ul><li>2010 </li></ul><ul><li>Deliver second progress report to the Budgetary Affairs Committee. </li></ul><ul><li>External Auditors to provide expert guidance on IPSAS adoption. </li></ul><ul><li>2011 </li></ul><ul><li>Secure full financing for project. </li></ul><ul><li>Recommend and adopt changes to the Budgetary and Financial Rules. </li></ul><ul><li>Continue building on 2007-2010 achievements for 2012 implementation target. </li></ul><ul><li>Additional training for finance/non-finance staff. </li></ul><ul><li>IPSAS awareness for non-accountants. </li></ul><ul><li>ERP gap analysis for IPSAS implementation readiness. </li></ul><ul><li>2012 </li></ul><ul><li>- Reassessment of viability for 2012 implementation based on progress achieved in 2011. </li></ul>
  28. 28. <ul><ul><li>CHALLENGES </li></ul></ul><ul><ul><li>Bureaucratic barriers </li></ul></ul><ul><ul><ul><li>Approval </li></ul></ul></ul><ul><ul><ul><li>Resistance to change </li></ul></ul></ul><ul><ul><li>Resource Availability </li></ul></ul><ul><ul><ul><li>Financial </li></ul></ul></ul><ul><ul><ul><li>Human </li></ul></ul></ul><ul><ul><li>Change management </li></ul></ul><ul><ul><ul><li>Communication strategy </li></ul></ul></ul><ul><ul><ul><li>Training </li></ul></ul></ul><ul><ul><ul><li>Monitoring </li></ul></ul></ul><ul><li>TO BE ADDRESSED MOVING FORWARD </li></ul><ul><ul><li>Implementation </li></ul></ul><ul><ul><ul><li>Timeline </li></ul></ul></ul><ul><ul><ul><li>Cost </li></ul></ul></ul><ul><ul><ul><li>Detailed review of each standard </li></ul></ul></ul><ul><ul><ul><ul><li>Accounting policy changes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Business practice changes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Risk register </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Technical changes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ERP requirements </li></ul></ul></ul></ul>Overarching themes
  29. 29. Q&A

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