REPORT ON IMPLEMENTATION OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) Radislav Pretorico

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1 REPORT ON IMPLEMENTATION OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) Radislav Pretorico Introduction 1. The Fifteenth WMO Congress, in May 2007, approved the adoption of International Public Sector Accounting Standards (IPSAS) with a project envelope of up to CHF 4.0 million for the fifteenth financial period (Abridged Final Report with Resolutions of the Fifteenth World Meteorological Congress (WMO-No.1026), general summary, paragraphs to ). IPSAS replaced the United Nations System Accounting Standards (UNSAS) and essentially represents a move from modified accruals to full accruals accounting. Congress considered that the adoption of IPSAS would improve the quality of the financial reporting of WMO with consequential benefits to governance, accountability and transparency. The decision of Congress was based on the report of the fifty-eighth session of the WMO Executive Council (Abridged Final Report with Resolutions of the Fifty-eighth Session of the Executive Council (WMO-No. 1007), general summary, paragraph 4.1.6) covering the consideration of the accounts for the year The WMO Executive Council, at its fifty-ninth session in May 2007, requested the Secretary-General to present a detailed cost plan and options for the IPSAS project with a view of reducing budget requirements below the ceiling of CHF 4.0 million (Resolution 23 (EC-LIX)). At its sixtieth session in June 2008, the Council approved the resource requirements of CHF 3.8 million for the implementation of IPSAS during the fifteenth financial period (Annex 2 to Resolution 12 (EC-LX)). 3. The Secretary-General presented a progress report on the IPSAS project implementation to the Executive Council at its sixty-first session in June 2009 (Abridged Final Report with Resolutions of the Sixty-first Session of the Executive Council (WMO-No. 1042), general summary, paragraphs to ) and at its sixty-second session in June 2010 (Abridged Final Report with Resolutions of the Sixty-second Session of the Executive Council (WMO-No. 1059), general summary, paragraphs to ). At the sixty-first session, the Council took note of the change in project approach in order to mitigate risks and the update of the activities and milestones and revised budget. Progress reports have been submitted to the WMO Audit Committee in October 2008, March 2009, October 2009, March 2010 and April This document presents the IPSAS implementation report informing the Congress on actions taken. United Nations system-wide IPSAS implementation 5. In 2005, the Board of Auditors and Panel of External Auditors of the United Nations, the specialized agencies and the International Atomic Energy Agency considered that the IPSAS adoption would be a significant step forward to achieving the quality, consistency and comparability of United Nations system reporting. The proposal was considered in the context of deliberations of the United Nations 2005 World Summit. United Nations system accountants, managers and auditors have had concerns for several years about the continued viability of the existing United Nations System Accounting Standards (UNSAS). IPSAS was considered to represent international best practices for public sector and not-for-profit organizations accounting. In April 2006, the United Nations Chief Executive Board (CEB) approved the adoption of IPSAS throughout the United

2 Nations beginning on 1 January In August 2006, the United Nations adopted IPSAS (General Assembly resolution A/RES/60/283) which was soon followed by United Nations agencies. A jointly funded system-wide IPSAS project was established by the CEB United Nations High-Level Committee on Management (HLCM), under the United Nations Task Force on Accounting Standards, to support the IPSAS adoption throughout the system, including support for consistent interpretation and application of IPSAS requirements and effective United Nations system representation on the IPSAS Board. 6. The system-wide IPSAS Project Team produced several papers on accounting policies and guidance, set up a process to monitor and report on the progress of individual organizations and developed a common system-wide approach to training. The development of the training materials and training courses were completed by mid This included seven computer-based training courses and eleven instructor-led courses which have been completed and issued for use by all United Nations system organizations. 7. Focus Groups were established to review the papers issued by the Project Team and to exchange views on issues of common concern. Work included the maintenance of the existing set of accounting papers to adjust for revisions of IPSAS, development of further accounting policies and guidance to address new IPSAS and significantly amended standards. When necessary, meetings of the United Nations Task Force on Accounting Standards took place in order to consolidate comments and views and to ensure consistency in interpretation and application of IPSAS requirements. WMO participates in the United Nations Task Force on Accounting Standards and the Geneva Focus Group. 8. The World Food Programme (WFP) was the first organization to implement IPSAS effective 2008 and shared its experience with other organizations. The majority of the UN system organizations initially indicated that the 2010 implementation target was achievable; however, it subsequently became clear that this could not be realized. The main reasons for postponement and delays were inadequate Enterprise Resource Planning (ERP) systems to support IPSAS implementation, difficulties experienced in securing IPSAS implementation expertise, and the need for further consensus within the United Nations system. By early 2011, eight organizations were confident to present 2010 IPSAS compliant accounts, two organizations aiming for 2011, nine for 2012 and two for WMO presented 2010 IPSAS compliant accounts as initially planned and is among the first group of United Nations agencies to achieve this. The External Auditor provided an unqualified opinion. The move to IPSAS represents the successful culmination of a significant level of efforts. It also presents a change in the way WMO is run and is seen to provide tangible benefits to Members and management. Revisions to the WMO Financial Regulations 10. The adoption of IPSAS necessitated a revision of the WMO Financial Regulations to ensure compliance with the new standards. A review of the WMO Financial Regulations elaborated the necessary revisions under Article 7 (Appropriations), Article 10 (Other income), Article 13 (Internal control), Article 14 (The accounts), Article 15 (External audit) and Annex (Additional Terms of Reference governing External Audit). It was further determined that the adoption of IPSAS did not require a move to an annual budget cycle and that the current biennial budget cycle could be retained. To ensure IPSAS compliance and enhance transparency, the biennial budget would include a breakdown for each of the two financial years it covers to facilitate comparison of actual results with budgeted amounts. This issue was kept under close review during implementation of IPSAS to ensure coordination with other United Nations system organizations. 314

3 The External Auditor provided advice and support on the revisions to the WMO Financial Regulations. 11. The issue of revising the Financial Regulations was considered by the Fifteenth Congress which delegated to the Executive Council the authority to approve the necessary revisions and to report to Sixteenth Congress on the actions taken (Abridged Final Report with Resolutions of the Fifteenth World Meteorological Congress (WMO-No. 1026), general summary, paragraph ). The Executive Council approved the revisions to the WMO Financial Regulations proposed by the Secretary-General with effect from 1 January 2010, concurrent with the adoption of IPSAS. A report on the revisions of the Financial Regulations is being presented to the Sixteenth Congress (Cg-XVI/Doc. 9.1(2)). WMO project strategy and preparation 12. The WMO IPSAS project was launched in January 2008 with the establishment of the project team, led by a dedicated project manager. The project team consisted of the main stakeholders and project staff with representatives from the Finance Division, Information Technology Division, Budget Office, Human Resources Division and Common Services Division and the Director of Resource Management Department. The team met weekly to coordinate efforts and agree on major project decisions. The WMO Portal, on the WMO Intranet, was used as a communication tool to disseminate information on the background documents, IPSAS standards, the meetings of the WMO Project Team and the developments towards IPSAS adoption. 13. Following approval of the IPSAS project budget by the WMO Executive Council, at its sixtieth session in June 2008, preparatory work focused first on the development of accounting policies and guidelines based on IPSAS standards and guidance materials from the United Nations system-wide IPSAS Project Team. A policy guidance manual was issued in October 2009 to assist staff with regard to IPSAS adoption and implementation. A risk assessment of the project has been undertaken and the potential risks identified for an effective implementation as well as the approach to mitigate these risks. The advice and support of the External Auditors on these issues have been valuable and effective. 14. An analysis of major change areas and evaluation of the impact on WMO business processes and the WMO information system has been undertaken. A consulting firm was engaged to assess the alignment of IPSAS business processes with the WMO ERP architecture, the Oracle E-Business Suite. Recommendations included changes to Oracle functionalities and modules necessary to be IPSAS compliant. The high impact areas were: human resources (employee benefits), fixed assets (property, furniture, equipment), inventory, and reporting (financial statements and disclosure of notes to the accounts). 15. A risk assessment of the project strategy resulted in a major change by mid The WMO E-Oracle Business Suite system (version R 11) was to reach the end of its premium support life by the end of It was initially intended to upgrade to R12 and thereafter develop the functionalities and the configuration of the Oracle E-Business Suite for IPSAS compliance for availability in January After consideration of the potential risks relating to the upgrade of the WMO Oracle system to version R12, the project approach was modified. In order to mitigate the risks and to ensure that an IPSAS compliant system would be available by January 2010, the current Oracle Business Suite system (version R11) was first to be developed for IPSAS compliance. After this, the upgrade to R12 started at the end of The change in the project approach did not have any additional financial implications to the budget approved. At the sixty-first session, the Council took note of the change in project approach and the update of the activities 315

4 and milestones and revised budget (Abridged Final Report with Resolutions of the Sixty-first Session of the Executive Council (WMO-No. 1042), general summary, paragraphs to ). Development of IPSAS-compliant business processes and Oracle E-Business Suite (version R11) 16. The development of the Oracle E-Business Suite (version R11) to IPSAS compliance involved the implementation of new modules (fixed assets, inventory and human resources leave management). Based on this analysis, a Request for Proposal was issued and a consulting firm was selected for technical support services for the enhancement of the current Oracle system and the implementation of the new applications essential for IPSAS compliance. A consulting firm has provided technical support services for the development of the Oracle E-Business Suite, including the implementation of new applications essential for IPSAS compliance. In addition, a Systems Analyst with extensive experience in Oracle had been recruited by mid-2008 to ensure that WMO had the necessary technical expertise for the design and development of an IPSAS compatible accounting system in connection with the implementation of new modules and functionalities, as well as development of new financial reports. 17. Other activities included the preparation of the physical inventory of WMO assets and the uploading of data on fixed assets and inventories in the respective modules. The new modules were rolled-out to all staff in February Training and access were provided to the relevant key-users of the new modules. The training guides and materials for the three modules and the IPSAS computer-based training courses developed by the UN system-wide IPSAS Project Team have been made available on-line to the staff through the WMO portal. A briefing session to WMO staff on the implementation and requirements of IPSAS was held in March Discussion continued at the related task force of the United Nations High-Level Committee on Management (HLCM) on the need to introduce IPSAS compliant budget practices in parallel to the financial reporting. Whereas the need for consistency in financial reporting and budgeting has been highlighted, no United Nations entity has so far implemented a new budgeting approach. WMO also continued with the UNSASS modified accruals budgeting method for the sixteenth financial period ( ). As agreed at HCLM and in accordance with IPSAS requirements, United Nations entities introduced reconciliation in the notes to the financial statements explaining the differences between the financial statements and the approved budgets. As supported by the External Auditor, work will be carried out to present the budget for the seventeenth financial period in an IPSAS-compatible format. Preparatory work in this regard will be implemented already in the second half of With the progress achieved in developing IPSAS-compliant business processes and Oracle E-Business Suite, the position of full time IPSAS project manager was discontinued in early 2011 and follow-up responsibility transferred to the Chief of Finance, the Chief of the Information Technology Division and the Chief of the Budget Office. IPSAS compliant financial statements Preparation of the IPSAS compliant financial statements 2010 was launched in parallel to the final work on developing the IPSAS-compliant business processes and Oracle E-Business Suite. The change from modified accruals to full accruals including the recognition of assets and liabilities resulted in major changes in the basis of the financial reporting and the presentation of the financial statements of financial position, financial performance, changes in net assets/equity, 316

5 cash flow and a comparison of actual amounts and the approved budget. The major changes included the following: Restatement of the 2010 opening balances for IPSAS compliance, one of the critical tasks undertaken at the beginning of the go-live year 2010; Separation of funds from the WMO financial statements which are not fully or jointly controlled by WMO; Recognition and depreciation of capital assets such as the Headquarters building, vehicles and equipment (previously, capital assets were charged to expenditures in the year of purchase); Review of treatment and valuation of the land which was provided by the Swiss Government and the interest-free loan for the WMO Headquarters building; Valuation and recognition of inventories, contributions in kind and services in kind; Determination of fair value of employee benefit liabilities such as After-Service Health Insurance (ASHI), and other accruing compensatory benefits, e.g. annual leave and repatriation grants; Reporting of financial information by segments allocated to support WMO s major activities; Preparing a comparison between the approved UNSAS-based budget and IPSAS compatible expenditure as part of the 2010 financial statements; Development of a final model of new IPSAS financial statements and their accompanying note disclosures including additional information. 21. The work also involved the provision of continuous guidance by finance staff to technical departments. Those departments needed to take on a much more operational role as was previously the case when the year-end closing process was performed essentially as a central finance function. A dry run of six-month IPSAS financial statements (as at 30 June 2010) was prepared and reviewed by the External Auditor. Observations and recommendations on the format, completeness, proposed accounting policies and the restated opening balances was provided by the External Auditor. This important feedback provided the basis of the preparation of nine-month financial statements (as at 30 September 2010) for review by the External Auditor in October After both test runs, the final closing for the year 2010 could commence. The audited financial statements 2010 were reviewed by the WMO Audit Committee on 10 April 2011 and submitted to the FINAC and the Executive Council for review and approval (EC-XLIII/Doc. 5.6(1)). Oracle upgrade from R 11 to R After the development of the Oracle E-Business Suite (version R11) to IPSAS compliance, and as initially planned, work started on the upgrade from system version R11 to R12 to facilitate IPSAS compliant functionalities. This is being done in two steps. First a technical upgrade by the UN International Computing Centre (UNICC). This included hardware refresh, installation and configuration of upgraded operating systems, databases and appropriate software as recommended by Oracle. Four upgraded R12 environments were delivered: Production, Disaster Recover, Development and Test. The technical upgrade started in July 2010 and was completed by the end of March This technical upgrade was followed by the functional upgrade which started in January 2011 and will be completed in the first quarter of The scope of the project is to upgrade the modules from R11 to R12, facilitate the business processes, while keeping the configuration of the Oracle E-Business Suite without customization. This includes Oracle Financials (general ledger, accounts payable, accounts receivable, cash management, 317

6 I-procurement; purchasing), Oracle Human Resource Management System (including leave management, payroll), Oracle Fixed Assets, Oracle Inventory, Oracle Discoverer and Oracle Portal. The functional upgrade is implemented together with a contractor, selected following a bidding process. Budget situation and follow-up 24. Of the approved budget of CHF 3,800,000 for the current financial period as approved by the Executive Council at the sixtieth session (Annex 2 to Resolution 12 (EC-LX)) and revised by the sixty-first session (WMO-No. 1042, paragraphs to ). An amount of CHF 2,127,100 has been expended for 2008 to 2010, leaving a balance of CHF 1,672,900 for 2011 as indicated in the annex. Expenditure for 2008 to 2010 and budget plan for 2011 as compared to initial budget reflect underspending in developing IPSAS-compliance Oracle R11 and in the training to the endusers on the new Oracle modules and functionalities. Rather than through external provider, this training has been delivered through internal resources and e-learning. Funding was redeployed within the budget to reinforce staffing in the Finance Division, as recommended by the External Auditor, and to cover additional requirements relating to the Oracle upgrade to version R With the selection of the contractor for the functional upgrade, precise costs estimates are now available for 2011 and the remaining period of the project is well defined. The contractor functional upgrade consumes the largest share of the balance with CHF 893,800. Staff cost is estimated to amount to CHF 467,100. At this final stage of the project, it can be concluded that implementation is on target and will be within budget. Between October and November 2010, PricewaterhouseCoopers carried out a review of the Oracle E-Business enhancement project mandated by the Internal Oversight Office. The overall conclusion was that the enhancements have completed the existing Oracle accounting system and enabled IPSAS compliant reporting. 26. Whereas the Oracle R12 upgrade is the major remaining task, there are a number of follow-up works to the IPSAS implementation which require attention. Most of them are closely linked to the recommendations of the External Auditor and PricewaterhouseCoopers. After Congress and in the second half of 2011, a manual on the IPSAS closing process will be prepared and additional efforts will focus on staff training in connection with the closing of the 2011 accounts. This will involve, in particular, the substantive departments in order to embed the new IPSAS disciplines in the routine management functions of the Organization. Finally, the development of a mock IPSAS-compatible budget format in parallel to the approval and implementation of the UNSAS modified accruals budgeting for will be launched in the second half of 2011 to gain the necessary experience to prepare the budget according to IPSAS. Annex: 1 318

7 Cg-XVI/Doc. 9.1(4), APPENDIX B, p. 7 IPSAS IMPLEMENTATION PROJECT BUDGET UTILIZATION (in Swiss Francs) ANNEX Expenditure Difference Budget Expenditure Actual Estimated Total Budget/ Cost component Expenditure Staff (project leader, system analyst, staff support in Finance and Common Services Divisions) 1,557, , , , , ,100 1,693,700 (136,200) Consultancy services (specialist services on IPSAS and other technical areas) 240,000 26,620 21,300-19,300 63, , ,400 IPSAS-compliance of R11 Oracle Business Suite (purchase and implementation of new modules and functionalities and technical support services for transition and post-implementation) 917, ,236 16, ,800 50, , , ,300 Upgrade of Oracle Business Suite from R11 to R12 and streamlining of IPSAS related processes 700, , ,800 1,318,000 (618,000) Staff training on IPSAS roll out and new IPSAS related functionalities and procedures 215,000 1,400 1, ,000 53, ,600 Staff training on IPSAS procedure following Oracle upgrade to R12 100, ,500 57,500 67,000 33,000 Participation in United Nations system coordination and consultation 70,000 14,706 12,800 7,000 7,300 11,000 38,100 31,900 Total 3,800,000 1,191, , ,700 1,039,900 1,672,900 3,800,000 -