UNDP Lebanon Workshop March 2012 Management Support Center IPSAS Introduction UNDP Lebanon Workshop March 2012 Management Support Center

IPSAS Overview What are IPSAS? Adopting, Benefits and Impact? IPSAS: Management of Expenses IPSAS Overview What are IPSAS? Adopting, Benefits and Impact? What are the different accounting methods? What is the difference between UNSAS &IPSAS? What are the Key Accounting Changes? Impact of Fund Availability and Budget? Procure to Pay (P2P) Changes? Management and Project Reporting?

What are IPSAS? IPSAS: What are IPSAS IPSAS: Management of Expenses International Public Sector Accounting Standards are independently- developed financial reporting standards widely considered best practice for public sector organizations. They: Are or will be used by more than 50 Governments, NATO, UN, OECD, NGOs, etc. Impose clarity and transparency Are based on Full Accrual Accounting Were mandated by the UN General Assembly in 2006 to replace the current United Nations System Accounting Standards.

Beyond the basics: decision of adopting IPSAS While everyone in this room knows that as a part of the UN reform agenda, the General Assembly agreed that all UN entities should adopt IPSAS, it may be useful to reflect on some of the important triggers that may have guided this decision: Increasing complexity in the way in which business is conducted in the real world. Increasing focus on the quest for better accountability and transparency, particularly in a difficult world economic climate. Influence and impact of IFRS (private sector) to many countries, and accounting standard convergence. Partners’ sentiment, donors and programme countries alike, for the UN to keep up to these changes.

What are the benefits of IPSAS? Good financial management underpins sound decision-making, drives accountability, improves understanding, and enables UNDP to manage risk. IPSAS achieves this by providing: Accountability & transparency of financial and donor reporting Consistent, reliable, comparable, quality information Comprehensive cost information Clear presentation of assets and liabilities Strong internal oversight and control To illustrate this statement talk through the TV sales example I sell TVs… ask the group to provide the ways in which I could take payment for the TVs I sell. Draw up the various timelines on a flip chart – this will illustrate the problem with cash accounting - results would be different

IPSAS Impact on UNDP IPSAS: Impact on UNDP Establishment of new accounting policies, practices and guidance on main impacted areas – revenue management, expense management, asset management, employee benefits and financial reporting. Enhancement of IT Systems – changes to Atlas, including new modules and new processes Creation of the electronic document management system (DMS) Improving Internal Controls – new and revised controls Timeliness – real time processing necessary Financial performance/reporting - will look different

How does IPSAS Impact UNDP staff? IPSAS: Impact on UNDP staff How does IPSAS Impact UNDP staff? Mastering IPSAS’s policies and processes, UNDP staff effectively and efficiently meets and exceeds stakeholders expectations by: Closely monitoring collection of contributions Effectively planning procurement activities Timely receipting all goods and services Carefully managing assets, leases, inventory, pre-payments and annual leave Keeping pace with independent accounting standards

How does IPSAS Impact Donors? IPSAS: Impact on Donors How does IPSAS Impact Donors? There are no programme delivery changes, but… Donors must understand reporting changes: UNDP now records all revenue due in reporting period, not just the cash actually received Obligations (POs) are excluded in expenditures Donors encouraged to use standard contribution agreements Timely Donors should adhere to payment schedules and report changes in timely manner (revenue and accounts receivables reflected in UNDP’s financial statements) Carefully Donor Report offers comprehensive view of how contribution revenue is used and recorded for expenses, assets, and commitments

IPSAS: GSSC Recognizing that IPSAS increases workload and complexity in accounting globally, the UNDP Senior Management decided to establish the Global Shared Service Centre (GSSC). The GSSC will support COs and HQ units in detailed IPSAS accounting processes for: Revenue management Expenses management Property, Plant and Equipment Reduces the burden of IPSAS on COs and HQ units, and provides for greater business process standardization. With clearly defined Service Level Agreements, the GSSC to ensure timely processing and responses. GSSC started to be operational on 1 January 2012.

IPSAS: Accounting Methods Cash Basis Accounting: Is an accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Accrual Accounting: Is an accounting method that measures the performance and financial position of an organization by recognizing revenue when earned and expense when incurred rather than when cash is received or paid. Modified Cash: Is an accounting method that UNDP adopted that combine cash accounting with accrual accounting. Revenue is recognized when cash is received and expenses are recognized in full when commitments (POs) are created. To illustrate this statement talk through the TV sales example I sell TVs… ask the group to provide the ways in which I could take payment for the TVs I sell. Draw up the various timelines on a flip chart – this will illustrate the problem with cash accounting - results would be different

Definition of Accrual Basis in IPSAS 1 IPSAS: Accrual Basis Definition of Accrual Basis in IPSAS 1 “Accrual basis means a basis of accounting under which transactions and other events are recognised when they occur (and not only when cash or its equivalent is received or paid). Therefore, the transactions and events are recorded in the accounting records and recognised in the financial statements of the periods to which they relate. The elements recognised under accrual accounting are assets, liabilities, net assets/equity, revenue and expenses”. To illustrate this statement talk through the TV sales example I sell TVs… ask the group to provide the ways in which I could take payment for the TVs I sell. Draw up the various timelines on a flip chart – this will illustrate the problem with cash accounting - results would be different

Expense Recognition: Contracting Services IPSAS: UNSAS vs. IPSAS Expense Recognition: Contracting Services Modified Cash (UNSAS) Q1 Q2 Q3 Q4 Obligation/Expense $20,000 - Period of Contract Accrual Basis (IPSAS) Q1 Q2 Q3 Q4 Obligation/Expense $5,000 Period of Contract

Liability Recognition: Employee Benefit IPSAS: UNSAS vs. IPSAS Liability Recognition: Employee Benefit Modified Cash (UNSAS) Y1 Y2 Y3 Y4 Employee Benefit - $20,000 Period of Contract Accrual Basis (IPSAS) Y1 Y2 Y3 Y4 Employee Benefit $5,000 Period of Contract

IPSAS: Key Accounting Changes Key Accounting Changes under IPSAS Expenses are reported in the period in which they occur rather than in the period in which: The cash is paid or, The purchase order is approved and dispatched. Specifically, an expense is reported when UNDP receives goods or services have been rendered. This is the point at which UNDP is required to make a payment. This is at a later point than when the purchase order is approved and dispatched.   Expenses will only be accurate if goods and services are timely receipted. This change in accounting policy will impact when UNDP reports programme expenses. Better planning and coordination will be required to achieve delivery targets.

Budget management in Atlas: Impact of IPSAS on Budget and Resource Availability Budget management in Atlas: No change to ‘the basics’ as consequence of IPSAS implementation: Realistic planning and budgeting Finalizing full budgets of total expected resources per recognized revenue and multi-year ASLs (Multi-year budgeting) Funds available only upon receipt of cash Purchase orders reduce budget availability for full amount of purchase (including purchase of capital assets)

GL Account Code Description IPSAS: Budget Changes In light of the change in accounting for capital assets due to the introduction of IPSAS in 2012, there will also be a change in how budgets need to be set up for the full purchase costs of capital assets. See below table with an overview of the new set of budgetary accounts for capital assets, with corresponding detailed asset account codes Budget Account Code Budget Account Description GL Asset Account Code GL Account Code Description BA001 Land 18088 Land - Contra Asset BA002 Building 18089 Building - Contra Asset BA003 Leasehold Improvement 18090 Leasehold Impr-Contra Asset BA004 Vehicles 18091 Vehicles - Contra Asset BA005 Furniture 18092 Furniture - Contra Asset BA006 Heavy Equipment 18093 Hvy Equip Contra Asset BA007 IT&C 18094 IT&C - Contra Asset BA008 Security Equipment 18095 Security Equip - Contra BA009 Intangibles 18096 Intangibles - Contra BA010 Construct Fixed Asset 18097 Construct Fixed Asset - Contra BA011 Construct Intangible 18098 Construct Intangible - Contra BA012 Asset Transfer 18099

Impact of IPSAS on Budget and Resource Availability The Table below shows the impact of key transactions on resources and budget availability:

Procure to Pay Life Cycle - IPSAS Changes  Procurement Catalog UNDP vs. Non-UNDP Attach supporting documentation  Prepayment Offset Against A/P Voucher A/P Voucher Approval    Incoterms Physical Receipt Date Prepayments Attach supporting documentation   Timely Receipting Incoterms Attach supporting documentation Receipt Accrual Process Physical Receipt Verification  Reporting and Monitoring 

Management and Project Reporting Regional Resource Overview Office Resource Overview Fund Resource Overview Project Resource Overview Project Transactions Detail Project Budget Balance OTHER MANAGEMENT REPORTS Combined Delivery Report ExtraBudgetary Status Report Interim Donor Report

How does IPSAS impact donor reports? New IPSAS “revenue” represents the total value of contributions in the signed contribution agreement. UNSAS “income” represented only the cash received. The IPSAS opening balance represents revenue minus expenses; the UNSAS opening balance represented income minus expenditure Old

How does IPSAS impact donor reports? New The new report includes legally binding vendor contracts for goods or services that have yet to be delivered or received. The old report showed disbursements and committed expenditure, as a single figure. The new report includes goods delivered, services rendered, total employee benefits and depreciation of assets. The old report merely showed disbursements and committed expenditure as a single figure. Old

How does IPSAS affect CDR reports? Key Changes   New design provides comprehensive information related to programme delivery in accordance with IPSAS. UNDP Expenses column includes receipts and disbursements, and excludes obligations.   Encumbrances column—between UN Agencies and Total Expenses columns—is removed; only goods and services are recognized as expense under IPSAS. (Page 1)

B A How does IPSAS affect CDR reports? Fund Utilization This is a newly introduced section of the CDR report, which discloses utilization of project funds as of the reporting period. B This section reflects the expenses that are not categorized as delivery but projects funds have been utilized for it.

Questions:

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