Wipo - Draft ML - 2013 - 3 With Exec Summary

Executive Summary
1.
WIPO is in the path of institutionalizing an Enterprise Risk Management Programme as a part of their SRP. Our review revealed inadequacies in the existing risk management and internal control framework of the Financial Services. Though the external Consultants are at work towards this end, considering the expected time for completion of this task, we recommend that Financial Services should review the existing framework in place to make it up-to-date and develop suitable risk registers and internal controls, particularly in case of those units where such framework does not exist or exists partially. (Ref 10.1) para
2. Full integration does not exist between Asset Management and General Ledger of AIMS. Review the AIMS system with reference to the integration that exists among various modules and also carry out necessary reclassification of assets in line with the declared accounting policies. (Ref para 10.1.2 and 10.1.3)
3. WIPO does not have a formal Treasury and Cash Management policy. We noted instances of payment of avoidable bank and commission charges coupled with weak (non-forward looking) cash flow forecasting system. This needs a review of the system in place to consider adopting an appropriate Treasury and Cash Management policy to address the issues pointed in this regard. Management accepted various suggestions in this regard. We recommend that Management may set a time frame for implementing these and closely monitor the progress. (Ref para 10.2 and 10.3.1)
May 2013- Management Letter- Audit of Financial Statements of WIPO for the Year 2012 Page 1
4. Only nine out of 68 accounts are subject to independent verification of bank reconciliation statements. Institutionalize a system of independent verification of bank reconciliation statements. (Ref para 10.2)
5. Accounts maintained with regard to Funds in Trust were fraught with the risk of avoidable exchange losses and more reimbursements than due. We recommend a periodical review of the dormant accounts and close them where necessary. Review the ambiguities in the contractual obligations leading to more reimbursements than due. (Ref para 10.3) 6. In the event of WIPO going in for any borrowings for creation of an asset, the cash flows on interest which would be capitalized need to be classified as investing activity. Necessary modification to this effect may be carried out in the WIPO IPSAS guidance manual. (Ref para 10.4.1)
7. We noted differences in the PCT revenue recognized and deferred in the data maintained in AIMS and the concerned interface (BibAdmin). Though the quantum of differences varied between the results of audit analysis and the results of analysis carried out at Management level consequent on audit query, unexplained differences persists. To ensure conformity with the declared accounting policy and IPSAS requirements, the Management should identify the sources of the differences in deferral and recognition. As agreed to, the approach recommended by audit should be tested during 2013. (Ref para 10.4.2.3 (a)) 8. WIPO does not book any accruals into AIMS on a monthly basis and they are booked into AIMS at the year-end which defeats the very spirit of accrual concept. Set a system of entering accruals into AIMS as they accrue. (Ref para 10.4.2.3 (b))
9. Revenue from assessed contributions was not being recognized as soon as WIPO gains control of resources (date of invoices sent in the beginning of the year to all the Member
States) in line with IPSAS 23 and rather the revenue was being spread proportionately over throughout the year. We recommend that assessed contributions are recognized in accordance with the Accounting policy espoused in the financial statements or IPSAS 23 (para 29) or the policy adopted by WIPO to recognize revenue on the due date of invoices sent to Member States for each year of the financial period. (Ref para 10.4.2.3 (c)) 10. Re-evaluation of accounts and attendant controls need a re-look to set a mechanism for reviewing these re-evaluations independently from time to time, particularly during the year end procedures. (Ref para 10.4.2.5)
11. Assets each with value over CHF 5000, constitute only 14.46% of the total number of items valuing 59% of the total assets. Nevertheless, they are verified once in two years. These being low in volume, but high in value, for a better control, classify the inventory to switch over to annual stock taking of high value assets. (Ref para 10.5.1) 12. IPSAS stipulate separate presentation for current-and non-current assets, and current and non-current liabilities. The current portion of the Repatriation Grant and Travel was misclassified in the financial statements. Set a system of verification of these calculations independently by setting appropriate threshold limits. (Ref para 10.5.4)
1. Introduction 1.1 The audit of the Financial Statements of the World Intellectual Property Organization (WIPO) for the period ended 31 December 2012 was conducted by an Audit Team consisting of Dr. Sadu Israel (Team Leader), Ms. Sudha Rajan, and Mr. Ramanathan Krishnamurthy between 7th April 2013 and 3rd May 2013 at WIPO Headquarters, Geneva. 2. Background 2.1 WIPO was established in 1970, as a specialized agency of United Nations (UN). It is expected to promote the protection of IP throughout the world, through cooperation among the Member States and in collaboration with other international organizations. Major activities of WIPO include: Administering multilateral treaties and working with Member States to support the evolution of the international legal framework for IP; Providing global IP services that make it easier and more cost-effective to obtain protection internationally for new inventions, brands and designs; and Providing arbitration, mediation and other alternative dispute resolution services.
3. Financial Performance 3.1 The Organizations results for 2012 showed a surplus for the year of 15.7 million Swiss francs, with total revenue of 337.0 million Swiss francs and total expenses of 321.3 million Swiss francs. This can be compared to a deficit of 32.2 million Swiss francs in 2011, with total revenue of 293.2 million Swiss francs and total expenses of 325.4 million Swiss francs. 3.2 WIPOs capital consists of its accumulated surplus and working capital funds which form part of its net assets. The capital is managed in accordance with the Policy on Reserve Funds and principles applied in respect of the use of reserves adopted by the Assemblies of the Member States of WIPO at its 48 th series of meetings in 2010. The policy establishes a target level for accumulated surplus equal to a percentage of estimated biennial expenditures for each of the Unions forming the Organization. In addition, each of the treaty agreements of the respective Unions establishes a level for the working capital funds. Funds equal to the target level for accumulated surplus and the working capital funds are set aside to maintain sufficient levels of liquidity and to cover operational deficits should they occur. Accumulated surplus funds in excess of the target may be made available by the Assemblies to finance capital improvements or other priorities in accordance with the policy on the Utilization of reserves established by WIPOs Assemblies. 4 Progress of IPSAS implementation 4.1 Application of these standards gives a more accurate picture of WIPOs real
financial position, as its assets and liabilities are covered more exhaustively and priority is given to the economic reality of transactions rather than their legal appearance. WIPO adopted IPSAS in 2010. During the year 2012, WIPO adopted IPSAS 31 on Intangible Assets. As a result of adoption of IPSAS, the net result of all adjustments is a deficit of 26.6 million Swiss francs. 5 Authority for Audit
5.1 The audit of the World Intellectual Property Organization (WIPO) was assigned to the Comptroller and Auditor-General of India for the financial years 2012 to 2017 in terms of approval of WIPO General Assembly Fortieth (20th Ordinary) Session, Geneva, September 26 to October 5, 2011. 5.2 The scope of the audit is in accordance with Regulation 8.11 and Annex II of the Financial Regulations and Rules (FRR). The audit is conducted in accordance with the International Standards on Auditing.
Audit Objectives, Scope and Coverage Our audit is designed primarily for the purpose of providing an opinion on the Financial Statements for the period ending 31 December 2012. As a part of this exercise, we conducted an audit of the Statement of Financial Position as at 31st December 2012 and Statement of Financial Performance for the period ended 31 st December 2012 and the related notes to Accounts and Appendices annexed thereto. This also included a review of the restated figures of the closing balances as on 31 December 2011 as a result of adoption of new IPSAS (IPSAS 31), related disclosures, examination of compliance with other earlier adopted IPSAS, internal controls that informs our assessment of the risk of material misstatement in the Financial Statements arising out of fraud or error etc. Further we also reviewed the action taken and assurances provided relating to the issues raised during the interim audit of the financial statements to the end of September 2012.
6.1
Audit Methodology 7.1 An entry conference was held by the Audit team with the Chief Finance Officer
(Controller) along with the Head, Financial Services on 8th April 2013. Audit involved examination of Financial Statements and related documents, working papers, generating reports from Peoplesoft/AIMS and selected interfaces, issue of audit enquiries, conducting interview with concerned officials etc. The purpose of these checks was to
ascertain that the expenses recorded in the financial statements were consistent with the approved budgets, that revenue and expenses had been recognized in accordance with the Financial Regulations and, lastly, that the financial statements presented fairly the financial position as at 31 December 2012. Audit findings were discussed in an Exit Conference held on 3rd May 2013 with the Chief Finance Officer (Controller) whose remarks have been taken into account where appropriate. 8 Acknowledgment 8.1 We express our appreciation for the assistance and co-operation extended to the
audit team during audit.
Purpose of the Management Letter 9.1 This Letter summarizes the results of the audit of the financial statements for the
period ended 31st December 2012, conducted at WIPO Headquarters Office, Geneva. It is intended to draw the attention of the Management to our findings and recommendations on issues which we believe merit attention of the Management. These issues may also be considered for inclusion in the Reports for submission to the Program and Budget Committee (PBC). 9.2 We discussed the issues and the recommendations with the Chief Finance Officer We were provided with
Director (Controller) and the Head, Financial Services. Letter. 10 Significant Audit Issues and Recommendations 10.1 Risk Management and Control Framework
Management responses to the issues which have been considered appropriately in the
10.1.1 Financial Services
Setting appropriate internal controls and risk management framework for better governance has been an area of concern to both oversight bodies and WIPO Management as evident from the focus of the recommendations made by the auditors and IAOC and compliance thereof. Expectedly, setting and strengthening on internal control systems and appropriate risk management framework has been a focus area of the Strategic Realignment Programme (SRP), a flagship programme of WIPO. Consequently, efforts were made to prepare appropriate risk registers and internal controls by various functional wings, including Financial Services. There were documented process flows and risks involved for various operational units of the Financial Services Division. In some cases internal controls were indicated in the process flow itself. In this backdrop, considering that the strength of the risk management framework in place will have a bearing on the quality of financial information, we reviewed the risk management and internal control documentation in place in case of Financial Services. The results are discussed below: a) Need for risk management and internal control framework We noted from a review of the process flow charts and risks and internal controls developed for the three (Income, Expenditure and Investment) sections of the Financial Services that there exists well documented risk registers and internal controls in respect of 6% of the operational units. In 66% of the operational units (Expenditure- Manage office wings, manage FIDES; Investment-Manage Treasury, Member States, and Manage petty cash) the framework exists but the same was incomplete as either the relevant risks or the internal controls were not defined in certain cases. In 28% of the operational units (Income-Customer vendor; Expenditure- Manage payroll, Short term gains and losses) there was a need for documented risks and internal controls. b) Inadequacies in the framework in place We noted that even in respect of those units where risks and internal controls were documented either fully or partially, the documented risks and/ or controls were either
not up to date or not in line with the operational procedures in place. The following table gives a list of such cases which is only illustrative but not exhaustive. Sr. No 1. Operational unit wise risks and controls not documented Bank Reconciliation Out of 68 bank accounts WIPO maintains, consequent on reconciliation, information in respect of 9 accounts is only sent to an independent section (Income) for verification and in other cases no independent verification is carried out. Linking accounts for re-evaluation to prevent differences in valuation of foreign currency account. Manage petty cash Long pending differences exist in the cash balances of overseas office which need to be monitored and resolved from time to time 3. PCT IB/RO There exists a system of periodical reconciliation of income data with the data maintained in BIBADMIN, an interface with AIMS for PCT revenue. Risks and controls associated with this important activity had not been documented. 4. Payroll There exists a system of reconciling payroll data between SIGAGIP and AIMS systems. Risks and controls associated with this important activity had not been documented.
2.
We are aware that WIPO Management is committed for institutionalizing an appropriate risk framework and a risk management process that had been incorporated into the annual work planning cycle and inputs for the 2013 cycle. We were also informed that discussions were on with a Consultant to develop a Risk Management framework for the Financial Services wing on a pilot basis. The Management replied that the Risk Management framework was being developed by an external consultant and Finance would adopt this framework once it is finalized. While
indicating that the work done so far to document internal controls and risks falls within the framework envisaged, the Management added that at the current rate of progress, the work will take at least two years to complete. Concerning the review of Internal Controls in place, it was stated that a system for reviewing the documentation which covers risks and internal controls will be introduced once all of the initial documentation has been completed. (Refer AQ no.22)
10.1.2 Peoplesoft/AIMS Peoplesoft/Administrative Integrated Management Systems (AIMS) is an ERP System which had an interface with several other systems used for various purposes such as revenue from PCT and fees from other Unions, payroll, etc. during the testing of accounting records maintained in the AIMS, we noted the following issues which point out the following inadequacies. a) Reconciliation between General Ledger and Asset Management In an ideal scenario, there should be an automatic reconciliation of the transactions among various modules of the same ERP system in which case there shouldnt be a room for any differences. We noted from a review of the data received on disposals made during the year 2012 that there existed a discrepancy of CHF 30000 between the GL and AM and the GL entry which was made with accounting date of December 2012 instead of January 2013 (when the asset was actually retired). This error had resulted in the overstatement of the Disposal and connected depreciation by CHF 30000 and the understatement of Gross block and Depreciation by the same amount in Note 6. Since the Net Book Value of the asset as per asset register is nil, there was no impact on the statement of Financial performance. Had the same error happened for an asset which was not fully depreciated, there would have been an impact on the results also.
Reconciliation of the GL and AM balances is one of the year end procedures. We note from the item no. 59 of the year end procedure that this item was shown as acted upon, but the case in question point towards the effectiveness of the year end procedures. While stating that they take a note of the discrepancy between the GL and AM concerning the date of retirement of the asset, the Management stated that they would review the existing GL and AM reconciliation procedures to ensure asset retirement dates are the same in both the GL and AM. Regarding the suggestion concerning the review of items beyond certain threshold limits, it was stated that the Management would expect to address this in their proposed work to develop a Materiality Framework. (Refer AQ no.28) 10.1.3 Assets Depreciation A review of the balances available in the Fixed Assets Detailed Report maintained in AIMS in comparison with the accounting policy and values disclosed in the financial statements indicated various discrepancies such as differences in asset values, differences in the revaluation amounts of Investment property, appearance of low value assets in the assets register, discrepancies in the useful life of assets etc., In their reply the Management attributed the discrepancies to various reasons such as additions in 2011 and 2012 and are contained within the cost figure on the Fixed Assets Detailed Report, non-reversal of the adjustment for the increase in fair value in the GL which was to be added to the asset in the asset management (AM) module, a series of cost adjustments made and technical problems in AIMS, and maintained that they would not have any impact on the financial statements. The above discrepancies noted in the AIMS system point towards a need for review of the integration that exists among various modules. Failure on this account, if any, could have an impact on the reliability of the accounting information generated from such systems. We recommend that;
i) Notwithstanding the ongoing endeavors to set in place an Enterprise Risk
Management Framework as a part of the SRP, considering the nature of the control weaknesses noted and commented in this Letter, the Financial Services should review immediately the existing risk management framework in place to make it up-to-date and develop suitable risk registers and internal controls in case of those operational units where they do not exist or exist partially. ii) Effective Internal Control, no matter how well designed, has inherent limitations-including the possibility of circumvention-and therefore can provide only reasonable assurance. Furthermore, because of changes in the work procedures, the effectiveness may vary over time. Therefore, institutionalize a system of reviewing the framework set at periodical intervals. iii) The Management should take up a review of the AIMS system with reference to the integration that exists among various modules and also carry out necessary reclassification of assets in line with the declared accounting policies. (Refer AQ no.11) 10.2 Treasury and Cash Management System
Appropriate treasury and cash management system assists an entity in better cash flow forecasting, investment appraisal, cash and liquidity management, besides better governance. WIPOs treasury and cash management functions are primarily governed by the Financial Regulations and Rules in place and the Investment Policy. As such there is no separate Treasury and Cash Management policy. In this backdrop, we reviewed the system in place for treasury and cash management and the results are discussed below: i) Opening of bank accounts: WIPO maintains 68 bank accounts with various banks. According to FR104.2 concurrence of Controller is required for opening a bank account. We noted through a separate test that WIPO had opened 6 accounts during the year 2012. In response to a separate query that sought whether there exists approval of the Controller for the 6
new accounts opened, the Management while stating that the accounts pointed out by audit were sub-accounts, added that if a bank account was opened at a bank with which the Organisation did not have any current banking relationship, approval of the Controller was obtained. With regard to the accounts opened in respect of new Trust Funds, the Management replied that the Controller approves the contract with the donor, which stipulates the opening of a separate bank account for the new fund. Concerning the accounts opened with Credit Suisse (in SGD on January 18, 2012), Management replied the Controller was informed of the need to open this account and approved its being opened but no record has been kept of this approval. The reply given needs a review in line with FR104.2 which stipulates that the approval of the Controller is required for opening a bank account. The practice followed doesnt flow from the provision in question. Concerning opening of accounts for FITs, we believe that the practice may need a review as in this case too explicit approval of Controller is required. The same holds good for Credit Suisse (in SGD on January 18, 2012) account too. ii) Reconciliation of bank accounts: Financial Rule 104.9 provides that every month all financial transactions, including bank charges and commissions, must be reconciled with the information submitted by banks in accordance with Rule 104.2. This reconciliation must be performed or validated by an officer playing no actual part in the receipt or payment of funds. We noted that there exists a system of independent verification of bank reconciliations. However, out of 68 bank accounts of WIPO, bank reconciliation statements of 9 accounts are sent for independent verification (to Income Section) and in other cases they are reviewed internally by the bank reconciliation unit. iii) Cash flow forecasting:
One of the key advantages of managing treasury and cash management function is to ensure seamless flow of liquidity and planning investments. We noted that there was no system of cash flow forecasting in real sense, (but investment section obtains information from the concerned sections at periodical intervals) which is supposed to be a forward looking exercise. Presently, cash flow reports were being prepared for the previous period which doesnt serve the intended purpose. iv) Reporting on key activities: There was no system of monthly report on treasury activities on key financial risks of WIPO which could be a part of the key risk indicators. There was no system of generating exception reports to be provided to senior management, especially relating to policy breaches. As pointed out at para 10.3 of this Letter, we raised concerns on account of avoidable commitment charges and interest paid on borrowings. Considering the procedures and practices in place with regard to treasury and cash management, we suggested the following: i) Follow the provisions given in the FRR for opening the bank accounts, be it for general accounts or FITs. If there are any anticipated operational problems, appropriate delegation levels may be considered and approvals are always documented, ii) Institutionalize a system of independent verification of bank reconciliation statements. Review the present practice of sending the statements to Income section as there could be issues on account of conflict of interest, iii) Introduce a system of generating periodical/exception reports on treasury and cash management for submission to appropriate level of senior management, iv) Review the present system of cash flow forecasting to make it a forward looking exercise, and
v) Consider adopting a treasury and cash management policy that would provide for addressing the issues on account of liquidity management, investments, besides better governance. (Refer AQ no.25) The Management replied that they had taken a note of the recommendation that all bank account openings are to be explicitly approved by the Controller and will work toward a procedure that takes this into consideration, possibly involving a delegation of power from the Controller.
Regarding the independent verification of bank reconciliations, the Management stated that they propose to have these reconciliations approved by a colleague who does not make accounting entries in AIMS, nor by the Head of the Investment Section who initializes cash management bank transfers. In this case, Management sought to know whether there would be any conflict if the colleagues who do not make accounting entries in Aims are bank signatories.
We recommend that considering the likely conflict that could arise with bank signatories, and the existing segregation of duties among the staff of Finance Services, Management may consider getting these verifications done through the staff not working in Finance Services.
Concerning the recommendation on cash flow forecasting, the Management stated that they were planning to establish it on quarterly basis.
About the need for a treasury and cash management policy, the Management stated that a planned treasury study that will be carried out during the course of this year would address this issue.
About the suggestion for exception reporting, Management sought the nature of exception reports that could help them in monitoring the system. We suggest that the following reports may be considered.
i. ii. iii. iv. v. vi.
Non- Compliance with stipulated limits and authorizations, Individual transactions above threshold limits, Loss making transactions (Foreign Exchange) above threshold limits, Payments and transactions that are not in line with the trend based on past history, Pending bank reconciliations, Identify bank accounts with balances in excess of the operational needs.
10.3 Financial Management 10.3.1 Borrowings As per the financial statements Cash and equivalents of WIPO are 408.1 Mn CHF (in which unrestricted balances are 244.8 Mn CHF), return on the same is 1.335 Mn CHF for 2012. The average rate of interest earned on interest bearing accounts and investments held with the Swiss National Bank was 0.375 per cent in 2012 [1.24 per cent in 2011].
Borrowings represent the Foundation for Buildings for International Organizations (FIPOI) loan (23.6 million Swiss francs) and the BCG/BCV New Building loan (126.1 million Swiss francs).The interest paid on the BCG loan was 3.31 million CHF for the year 2012 (average 2.62 percent). In addition a commitment charge of 0.15 percent annually (0.05 Million during 2011) is payable on unutilized loan. In view of the above, as the interest paid on borrowings and the commitment charges were significantly higher than 0.375 per cent which was the return on the investment of the Organization, it was sought to clarify whether WIPO had considered the option of repaying the loan along with the reasons for repeated non- utilization of loan which is leading to payment of commitment charges. It is pertinent to mention here that WIPO had paid commitment charges to the tune of CHF 45,833 in 2011 and CHF 60,000 in 2012. It was replied that the possibility of repaying the loan had not been formally discussed but the intention had always been to have this possibility available on a periodic basis. For this reason, the loan was drawn down in 3 slices: 5 years, 10 years and 15 years. It was further stated, among others that for the time being they were of the view that they should avoid financing a large long term investment with short term cash; as this could be risky if the financial situation deteriorates. Regarding the loan facility on the conference hall, it was stated that they were planning to ask the bank to postpone the drawdown of the loan for one year or more. As mentioned at 10.2 of this Letter, in absence of a formal Treasury and Cash Management policy the risk of payment of avoidable higher interest and commitment charges would continue to persist. Therefore, we recommend that such issues be brought under a suitable Treasury and Cash Management policy for review from time to time. (Refer AQ no.6) 10.3.2 Provision for Commitment charges
Note no: 15 of WIPOs financial statements for the year ended 2012 on Borrowings provides the following in relation to the borrowing arrangement from BCGE. In October 2010, an amendment to the loan agreement was approved by the Banque Cantonale de Genve, the Banque Cantonale Vaudoise and WIPO providing an additional amount of 40.0 million Swiss francs to be used to finance part of the cost of the construction of the New Conference Hall and available for use during the period March 31, 2011 to March 31, 2014. The interest rate has also been fixed at the Swiss franc Swap LIBOR for up to 15 years, plus a margin of between 0.30 per cent to 0.70 per cent dependent on the length of the term as determined by the Organization. The contract again provides for an annual repayment of principal equal to 3 per cent of the total amount borrowed, to begin on March 31, 2015 for the loan of 40.0 million Swiss francs. As at December 31, 2012 the Organization had not drawn down the additional amount of 40.0 million Swiss francs. It is noted that the Organization pays an annual commission of 0.15 per cent on undrawn loan amounts during the period of availability. A review of the bank statements provided for the loan account and the ledger in AIMS for the account (74341 BK Charges New Construction) indicated that an amount of CHF 3314218.95 had been accounted for the Fiscal year 2012. This amount corresponds to the amount of interest amount debited as per the bank statements. Apart from the interest, WIPO was liable to pay as per the agreement an amount of CHF 60,000 (0.15 percent on 40 Million CHF undrawn loan) towards commission. We noted that an amount of CHF 60000 was debited in the bank statement by BCGE on 09.01.2013. In this regard it was sought to clarify as to whether the provision and accounting entry for the amount of CHF 60,000 had been made in relation to the Fiscal year 2012 in compliance with the accrual concept of accounting as detailed in IPSAS 1 which states Accrual basis means a basis of accounting under which transactions and other events are recognized 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 recognized in the financial statements of the periods to which they relate. The elements
recognized under accrual accounting are assets, liabilities, net assets/equity, revenue, and expenses. It was replied by the Management that they had noted that no accrual was recorded in the 2012 financial statements relating to commission of CHF 60,000 for undrawn loan amounts. It was further stated that 2012 was the first year for which a full year of commission charge was paid, and this was directly debited from the WIPO BCGE bank account in January 2013. While stating that in 2011, a commission charge was applied for nine months of the year and this was paid by the Organization during 2011, the reply added that they had updated their year-end closing procedures to ensure that in future this charge is correctly accrued for as necessary. We believe that transactions such as these should be provided for in accordance with the accrual concept as a matter of routine. Therefore, we recommend institutionalizing a system of reviewing such contractual obligations leading to accruals, independently. (Refer AQ no.18) 10.3.3 Funds in Trust
In addition to the income and expenditure recorded in its financial statements, WIPO is responsible for providing fund administration services to multi-donor Funds in Trust (FITs). In that role, WIPO is responsible for receiving contributions from donors, disbursing funds to participating United Nations organizations, and providing consolidated reporting to donors. This is represented as funds in trust in the financial statements of WIPO. A review of management of these accounts revealed the following. 10.3.3.1. Dormant Accounts
WIPO maintains about thirty three (33) Funds in Trust Accounts pertaining to funds received from different donor nations. 22 funds are maintained in CHF and the remaining are maintained in other currencies (USD and Euro). Each of these Trusts carries a specified amount to be donated over a predefined time schedule. These funds have been opened between periods ranging from 1995 to 2012.
From the data on open accounts it is seen that there were four (04) FITS accounts which have been lying dormant, without any contribution or any activity for a long period of time. These four accounts pertain to Finland (WFINL), Finland (WFICR), Costa Rica (WCORI) and El Salvador (WELSA).
We learnt that in respect of the WFINL and WFICR accounts pertaining to Finland, some activity was expected shortly in one of the funds and that subsequent to this activity being completed, these funds would be merged in 2013. The funds pertaining to El Salvador and Costa Rica remained open.
Scrutiny of these accounts indicated the following: a) WCORI account: This account was created in June 1995. In terms of the agreement an amount of USD380,000 was to be made available through this fund. The last activity recorded in this fund was in 2005. In 2008, WIPO had informed the concerned official regarding the existence of an unused balance of USD 31993 and sought advice on whether the fund could be closed and the unused balance returned. The concerned official had responded stating that the balance would be used shortly. It was, however, seen that there had been no movement in the fund during the last five years. b) WELSA account: This fund came into existence in June 1998 and the Government of El Salvador was to pay WIPO USD 200,000 which was to be made effective within a specified time schedule. It was observed that this fund had also not seen any activity since 2005-06. In October 2012, WIPO Management had informed the concerned Programme Manager that since there was no activity in these funds, it could be considered if the funds could be closed and the balance returned. The Programme Manager has responded that the fund need not be closed. In this case too there hadnt been any activity recorded during the last seven years.
Management replied that Finance carries out an annual regular review of all FITs, including those which are dormant, and added that they contact the Program Managers concerned with the detailed financial situation of the FITs for a review and closure where necessary. Concerning the case of El Salvador (WELSA) and Costa Rica (WCORI) it was stated that they were in contact with the concerned Programme Managers and would follow up. We note that maintenance of these accounts is fraught with the risks of continued exchange losses, besides payment of bank charges for maintaining these accounts at higher rates than what interest accrues on the balances. Given the fact that these funds have not had any activity for long period of time, we recommend that Management should review these plus other such accounts, if any, with minimal or no expenditure and request respective donor to review and close the funds where possible. (Refer AQ no.29) 10.3.3.2 Management of Funds Annex III of Financial Statements for the year ended December 31, 2012 depicts the Special Accounts by Donor Contributions. Analysis of the reimbursements/transfers made out of these funds indicates that there are two funds (WESPA (Spain) and WUGAY (Uruguay)) with negative balances. While the amount reimbursed was not significant in case of WUGAY account, in case of WESPA account (Donor-Spain) CHF 91753 was reimbursed to the donor leading to a negative closing balance of CHF 64474. Details of this account are as under: Opening balance 9318.26 Income -1956.96 Expenditure 82.64 Reimbursement 91753.55 Closing balance -64474.49
In these cases we sought to know whether the loss on account of this transfer was recognized in the books of accounts since the fund had been closed and there was no
possibility of payment by the donor. We also sought the circumstances that led to the transfer and the control system in place in this regard The Management replied that the loss on this account appears alongside the corresponding Fund in Trust (FIT) and reflects a series of exchange losses that have occurred during the lifetime of the FIT but which have not been accounted for correctly. It was also stated they had identified the reason for these accounting errors and would review the procedures in place in order to ensure that such a situation does not arise in the future with regard to this kind of FIT; namely, a FIT based in a currency other than the Swiss franc. With regard to FIT ESPA, it was stated that it would be impossible to reclaim the monies which had been transferred to a new fund at the request of the donor. We recommend that these accounts be reviewed at periodical intervals for their completeness and correctness. Also, carry out a review of any issues emerging on account of ambiguities in contractual obligations and address the same. (Refer AQ no.12) 10.4 Main Accounting Points Arising
In this section, we present the results of review of Financial statements, accounting records and the procedures followed in maintaining the accounting information. Though there were no material individual misstatements, the issues brought out would assist the Management in reviewing and strengthening the systems and procedures in place. 10.4.1 Statement IV- Cash flow Statement
Cash flows from interest and dividends or similar distributions received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as operating, investing, or financing activities (para 40 of IPSAS 2) Scrutiny of Statement II Statement of Financial Performance and related Note 23 indicated that a sum of 1,335,000 CHF was shown to have been received as interest on account of investments made by WIPO. Documents furnished to External auditors on
Borrowings from BCGE also indicated payment of Interest. The details of the same were not depicted/shown separately in the Statement of Cash Flows. While accepting the observation, the Management modified the Cash flow statement and also provided for necessary cross-reference to the note in which the details are available and details of interest expended in the Note 15 relating to borrowings in the amended statement at the instance of audit. A suitable modification to the model Cash Flow statement given in the WIPOs IPSAS Manual was also carried out. While noting the modifications carried out in cash flow statement, we believe that in the event of WIPO going in for any borrowings for creation of an asset, the cash flows on interest which would be capitalized need to be classified as investing activity. We recommend that necessary modification to this effect may also be carried out in the WIPO IPSAS guidance manual. (Refer AQ no.1) 10.4.2 Significant Accounting Policies Capitalization of software as Intangible Asset
10.4.2.1
Period of Capitalization: Note 2 of the financial statements states in accordance with the effective date of IPSAS 31 Intangible Assets, WIPO has fully applied this standard for the first time in its 2012 financial statements. As such, externally acquired software and internally developed software costs have been capitalized as assets of the Organization from January 1, 2012. However, being the first year of implementation, the review of the capitalizations was conducted only during the last quarter (as per information furnished during Interim Financial Audit in November 2012). In view of this, it was suggested to review the words from January 2012 suitably to reflect the true date of capitalization. The Management had agreed to this and the words during 2012 were substituted with from January 2012.
Retrospective application: Para 128 of IPSAS 31 provides, an entity that has previously recognized intangible assets shall apply this Standard retrospectively in accordance with IPSAS 3. As a result of this requirement, on initial adoption of IPSAS 31 an entity would be required, among others, to recognize intangible assets which were not recognized under the entities previous basis of accounting based on the recognition criteria of IPSAS 31. Considering that WIPO had already recognized the Surface Rights on the WMO land as an Intangible asset in 2011 financial statement (note 8), there was a need for disclosing the departure from IPSAS 31 and the need for such a departure. While stating that a suitable modification was carried out to the Note 8, the Management added that in the previous WIPO financial statements prepared in accordance with IPSAS, IPSAS 31 was applied on an exceptional basis to land surface rights held by the Organization and they do not retrospectively apply IPSAS 31 to other intangible assets as this was considered impracticable. (Refer AQ no.5) 10.4.2.2 Fixed Assets
Note 2 Significant accounting policies-Fixed assets states that Fixed Assets are depreciated on a straight line basis over the estimated useful lives. However, the Accounting Policy was silent regarding the period of charge of depreciation on Fixed Assets owned by the organization for part of the year i.e., assets purchased/disposed/retired from use during the year. Therefore, a need for Accounting Policy in this regard was pointed out. While accepting the recommendation, Management proposed to include the wording, where fixed assets are only in use for part of the year (due to acquisition, disposal or retirement during the year), depreciation is charged only for the months during which the asset was in use to the Note 2 of the Financial Statements. (Refer AQ no.7)
10.4.2.3
Revenue
a) Recognition and deferral of Patent Co-operation Treaty Revenue Total revenue of WIPO for 2012 was 337.0 million francs, representing an increase of 14.9 per cent compared to 2011 total revenue of 293.2 million Swiss francs. The largest source of revenue during 2012 was PCT system fees, accounting for 73.7 per cent of the total revenue. Revenue from PCT increased by 20.1 per cent from 2011. In the IPSAS financial statements, revenue from applications is only recognised on publication of the application. Data regarding PCT revenue is maintained in an IT system, known as BIBADMIN which acts as an interface with AIMS system which is the source for generating financial statements. Similar such interfaces exist for revenue from other systems like Madrid, Libson and The Hague. This arrangement presupposes a robust mapping between the parameters of the interface and the main system to prevent loss of financial data integrity. In this backdrop, we obtained data maintained in BIBADMIN from Data Development Section, Economics and Statistics Division which was analyzed independently and compared with the data used for deferral of revenue in PCT System maintained by the Income section which is reflected in the Financial Statements as required by IPSAS. Results of analysis indicate certain differences in the PCT revenue deferred (CHF 500000) and recognized (CHF 3.8 millon). The issue was discussed at length with the Head, Income section as well as IPSAS specialist. IPSAS specialist, following his analysis replied that there exist non-significant differences of 36,627 Swiss francs, corresponding to adjustments and corrections (for example refunds) recorded in AIMS but not reflected in BibAdmin. The differences were attributed to the differences in the dates of data captured by Economic and Support Unit from where audit captured the data. However, we note that though the magnitude of differences had undergone a change, the differences continue to persist. During exit conference while stating that the procedure being followed WIPO had been tested and audited earlier too, the Management added that though the reasons for the differences could not be readily identified and reconciled,
the approach recommended by audit would be tested during 2013 for adoption based on the results. To ensure conformity with the declared accounting policy and IPSAS requirements, the Management should identify the sources of the differences in deferral and recognition. As agreed to during the exit meeting, the approach recommended by audit should be tested during 2013. (Refer AQ no.8) b) Interest Revenue IPSAS 9 Revenue from Exchange Transactions provides that revenue arising from the use by others of entity assets yielding interest, royalties, and dividends or similar distributions shall be recognized using the accounting treatments set out in paragraph 34 when it is probable that the economic benefits or service potential associated with the transaction will flow to the entity; and the amount of the revenue can be measured reliably. It further states that interest shall be recognized on a time proportion basis that takes into account the effective yield on the asset. We noted that WIPO had undertaken an investment with Socit Gnrale in EURO combined with a currency swap during 2012 by converting CHF into EURO and make a EURO deposit with a guaranteed coupon of 2.25 %. According to this, at the end of the deposit period, convert the EURO capital back into CHF by means of a forward contract taken out at the time the deposit is made (trade date).The EURO interest is paid to WIPOs EURO account with a value date of 31/12/12. The interest is credited and the loss on the currency swap is debited to WIPOs EURO account at the end of 2012. The investment would be made for one month at a time. Audit noted that the account code 65010 INTEREST CURR. A/C & DEPOSITS had postings for the interest and expenditure (loss on currency swap) for the entire period of investment (from 1/8/2012 to 17/12/2012) during the month of December 2012. Since the details of the premium on currency swap (expenditure) and gain due to interest was
known on a monthly basis (when the agreements were renewed), the same should have been recognized on a monthly basis in compliance with IPSAS 9 and the accrual concept of accounting. In compliance with IPSAS and credible internal reporting for quarterly Financial statements (for internal consumption), the interest as well as the expenditure (premium on currency swap) should be recognized on a monthly basis. It was replied that as a general principle WIPO does not book any accruals into AIMS on a monthly basis and added that accruals are only booked into AIMS at the year end. Considering that the practice in place defeats the very spirit of the accrual concept, we recommend that monthly accruals are calculated and adjusted amounts entered into AIMS. (Refer AQ no.16) c) Assessed Contributions WIPOs Financial Statements for 2012 (Note 2: Significant accounting policiesReceivables) states, assessed contributions are recognized as revenue at the beginning of the financial year. An allowance for non-recoverable receivables is recorded equal to the assessed contributions frozen by action of the General Assembly plus contributions receivable from Member States that have lost the right to vote in accordance with Article 11 of the Convention establishing the World Intellectual Property Organization. Further, Clause 29 of IPSAS 23- Revenue from Non Exchange transactions indicates, an entity will recognize an asset arising from a non-exchange transaction when it gains control of resources that meet the definition of an asset and satisfy the recognition criteria. In line with the spirit of the cited provisions, WIPO as per para 17.2.4 of their IPSAS manual decided the point of recognition for assessed contributions for each year of the biennium as revenue on the due date of invoices sent to Member States for each year of the financial period. Accordingly, invoices are sent to member states during the month of November every year.
Review of the system of revenue recognition from assessed contributions revealed the following: i) Deferment of revenue despite meeting revenue recognition criteria: Audit noted from the Peoplesoft/AIMS that for the year 2012, revenue (CHF 17,435,383) was recognized on 1.1.2012, but on the same day the entry was reversed and the income was recognized in a deferred manner on the ground that full recognition of the total revenue from assessed contributions at the start of the year would lead to an unusually high surplus appearing in the statement of financial performance of the interim financial statements. This methodology does not stem either from the Accounting policy espoused in the financial statements or IPSAS 23 (para 29) or the policy adopted by WIPO to recognize revenue on the due date of invoices sent to Member States for each year of the financial period. ii) Recognition of revenue despite repeated default: At the time of preparation of Financial Statements for the year 2012, WIPO had a membership of 185 member countries. A review of the invoices issued and contributions received indicate that about 23 member countries have been defaulting for the last three years. To illustrate, for the year 2012, CHF 4,46,257 was due from various defaulting member countries out of the total assessed contribution of CHF 17.5 million. Audit is aware of the fact that this amount, which was being depicted in the provisions, gets netted off to Accounts Receivables at the year end. However, for the sake of initial recognition, WIPO continues to recognize this amount too which doesnt meet the revenue recognition requirement stipulated in Clause 29 of IPSAS 23. The above issues indicate a need for reviewing the methodology being followed for initial recognition of assessed contributions in line with the spirit of IPSAS 23 and WIPOs IPSAS manual.
In response, the Management stated that the deferral of revenue from assessed contributions was an accounting entry which only impacts the accounts prepared during the year for the first, second and third quarters for internal management purposes only, and the deferral of revenue in this way allows management to understand the performance of the Organization during the year and maintained that this would not impact the financial statements which are prepared for the full year, as there is no deferral of revenue from assessed contributions at year-end in accordance with both IPSAS 23 and WIPOs IPSAS Policy Guidance Manual. Concerning recognition of revenue despite repeated default, it was stated that WIPO policy was to recognize an allowance against the carrying value of its receivable from member states equal to the amount due from Member States that have lost the right to vote at the Assemblies under WIPOs Treaties and from least developed countries which have been frozen by action of the Assemblies. Quoting that about 86 percent of contribution relates to Member States who have not lost voting rights, the Management maintained that WIPO policy in this area is in accordance with IPSAS 23. We do not agree with the above cited practices in place as they were not in line with IPSAS. The practice of spreading over the revenue which is to be recognized as soon as the invoices were issued (gains control of resources) and then correcting this treatment at the year-end is not in line with IPSAS 23 (para 29). Similarly, though the contribution amount is not significant, the practice of recognizing revenue despite default (has not gained control over resources) does not flow from IPSAS 23 (para 29). We recommend that assessed contributions are recognized in accordance with the Accounting policy espoused in the financial statements or IPSAS 23 (para 29) or the policy adopted by WIPO to recognize revenue on the due date of invoices sent to Member States for each year of the financial period. (Refer AQ no.9)
10.4.2.4
Prior Period Errors
The Policy Guidance Manual for International Public Sector Accounting Standards 2012 edition states that Errors discovered in the current year are corrected before the financial statements are authorized for issue (para 3.2.1) and material errors in the preparation of the financial statements of one or more prior periods may be discovered in the current year. These errors are corrected retrospectively and prior period financial statements are restated (para 3.2.12) However, the Financial Statements and the notes thereon did not mention about WIPOs policy related to treating prior period items and the threshold value set for an item to be considered material. The Management replied that WIPO had not currently set a threshold value for prior period items or other materiality decisions with regard to the preparation of the financial statements. It was also stated that Management proposes to develop and apply a Materiality Framework which would apply the definition of materiality per IPSAS 1, and would meet the requirements of IPSAS 3 concerning relevant and reliable information. (Refer AQ no.13) 10.4.2.5. Reconciliation/re-evaluation of Bank Balances in Foreign Currency Accounts WIPO Financial Regulations and Rule 106.5 (a) stipulate that the Controller shall establish the operational rates of exchange between the Swiss franc and other currencies which shall be derived from the operational rates of exchange and shall be used for recording all WIPO transactions. Verification of WIPO bank balances with the Bank Reconciliation Statements and the Bank Correspondences including the conversion to base currency indicated that as against the approved UN operational rate of 1.341, Investment wing of Financial Services had adopted an exchange rate of 1.326 in respect of the balance in Credit Suisse account number 487080-82-11 Singapore Dollar to CHF (base currency) leading to an overstatement of amount recognized in the Financial Statements by CHF 1057.64.
Reportedly, the account had not been integrated for re -evaluation since beginning of creation of the account which led to the difference. Though the amount in question is not significant, the issue noted indicates a need for reviewing the system of the linking of accounts opened for re-evaluation and attendant internal controls in place. While stating that this fact should have been noticed during the closure review of the accounts being revalued, the Management added that the account had been set to be revalued and suitable action would be taken to prevent recurrence of such anomalies in future. Considering the serious nature of the anomaly, we recommend that the system in place for re-evaluation of accounts and attendant controls be reviewed and also that a mechanism be set for reviewing these re-evaluations independently from time to time, particularly during the year end procedures. (Refer AQ no.10) 10.4.3 Disclosure Issues 10.4.3.1 Disclosure of Complementary and Supplementary Fee
Note 13 Transfers Payable of WIPOs Financial Statements for the year 2012 states that Madrid Union Complementary and Supplementary fees: In accordance with the Madrid Agreement [Article 8(2) (b and c)] and the Madrid Protocol [Article 8(2) (ii and iii)] the Organization collects complementary and supplementary fees of 100 Swiss francs per application or renewal on behalf of the contracting parties. The funds are transferred annually at the beginning of the year following the reporting date. We noted that the transfers had been partially completed (in April 2013) and the remaining would be completed shortly. Considering the factual position of the transfer (not completed even till April 2013), the information provided to the stakeholders through the note needs to be suitably modified to reflect the actual position.
While accepting the suggestion the Management proposed to carry out an amendment to the text of Note 13 Transfers Payable as Madrid Union Complementary and Supplementary fees: In accordance with the Madrid Agreement [Article 8(2) (b and c)] and the Madrid Protocol [Article 8(2) (ii and iii)] the Organization collects complementary and supplementary fees of 100 Swiss francs per application or renewal on behalf of the contracting parties. The amount due to each contracting party varies based upon the services provided by the party (examination undertaken). Funds are transferred annually in the first half of the year following the reporting date. (Refer AQ no.30) 10.4.3.2 Surface rights acquired at no cost
WIPO discloses the rights acquired without cost as given below: i) Part of Note 2 relating to Intangible asset: The rights to use property granted by the Canton of Geneva acquired without cost, that revert back to the Canton at the end of the grant, are not valued in the financial statements. ii) Note 8 Intangible assets: The land on which the A. Bogsch and G. Bodenhausen buildings are located is the property of the Republic and Canton of Geneva which has granted the Organization surface rights including the right to construct buildings for a period of 60 years with an option exercisable solely by the Organization of an extension for an additional period of 30 years. These surface rights were acquired by the Organization at no cost and no value has been recognized, as the Organization does not have the right to dispose of the rights which revert to the Republic and Canton of Geneva unless renewed. The United Nations System Task Force on Accounting Standards in its Submission on the Consultation Paper: Consultation on IPSASB Work Program 2013-2014 states that the issue of accounting and reporting of donated rights to use
assets where nominal or no rent is paid, including cases where the asset is shared by multiple entities, is a common occurrence in the public sector which should not be overlooked. The Task Force encourages the IPSASB to consider this issue either as a potential new project or to add it to the scope of existing potential project (for example, within the Improvements to IPSAS 23 Non-Exchange Revenues). WIPO follows the option as detailed in 59. Decision paper - joint premises under OP 3 Disclosure: Disclosure of information about the resource in the Notes. As per IPSAS 1 Definitions Notes contain information in addition to that presented in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and cash flow statement. Notes provide narrative descriptions or desegregations of items disclosed in those statements and information about items that do not qualify for recognition in those statements. Based on the sense in which the word information is used in IPSAS 1, and in the options given in the guidance paper by the UN Task Force1, we believe that the present disclosure in the Financial Statements as cited is insufficient considering that the financial impact of the fair rental value of the service in kind with materiality has not been given. Therefore we suggested that WIPO may consider taking up the accounting treatment of expense/revenue based on fair value or at least convey the financial impact of the service in kind received in their notes in compliance with para 109 of IPSAS 23 which provides that The disclosures required by paragraphs 106 and 107 assist the reporting entity to satisfy the objectives of financial reporting, as set out in IPSAS 1, which is to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it. The Management responded that they would look into the possibilities for valuing the benefit derived from the land surface rights acquired at no cost. It was also stated that they shall examine the most appropriate disclosures concerning these arrangements for inclusion in the Organizations future financial statements prepared in accordance with
1
59. Decision paper - joint premises -OP 3 Disclosure: Disclosure of information about the resource in the Notes May 2013- Management Letter- Audit of Financial Statements of WIPO for the Year 2012 Page 33
IPSAS. Stating that the UN Task Force continues to state that a range of accounting options are acceptable for donated/free-to-use land or premises, it was added WIPO will monitor any changes in this position. (Refer AQ no.21) 10.4.3.3 Investment Property
The existence and amounts of restrictions on the reliability of investment property or the remittance of revenue and proceeds of disposal is to be disclosed as per para 86 (g) IPSAS 16. This indicates the need for details of restriction in case of existence of restrictions as also the need for a negative assurance if no such restrictions exist. As the existing disclosure in Note 7 does not cater to the needs of this para, details of restrictions or negative assurance about their existence may please be incorporated in the disclosure in compliance with IPSAS 16. The Management replied that the note was modified suitably to include that the Organization was not aware of any restrictions on the realizability or remittance of revenue from the investment property. (Refer AQ no.23) 10.4.3.4 Amortization of Non-Current Asset
Note 10: Other Non-current Assets of WIPOs Financial Statements for the year ended 2012 states in 1991 the Organization entered into an agreement with the International Centre of Geneva Foundation (FCIG) related to the construction of a building on rue des Morillons in Geneva, Switzerland at a total cost of 20.4 million Swiss francs. The agreement provided for the Organization to advance the sum of 11.0 million Swiss francs, with the balance of the construction cost covered by a mortgage between FCIG and the Cantonal Bank of Geneva. At that date the Organization also entered into an agreement to lease the building from FCIG. The lease agreement was renewed for a period of seven years from January 1, 2012.
Under the current lease agreement between the Organization and FCIG, both parties have the right to terminate the agreement at any point through mutual consent formalized in writing. The annual amount of rent payable by WIPO is equivalent to the annual repayments (interest plus repayments of the principal) on the mortgage between FCIG and the Cantonal Bank of Geneva. The current rate of interest, fixed through to December 31, 2018, is 1.48 per cent. From January 1, 2012, WIPO also recognizes an annual amortization charge of 188,679 Swiss francs against the 10.0 million Swiss francs of its 11.0 million Swiss francs loan to FCIG. Upon vacating the premises, WIPO is to be repaid the balance of the loan after amortization. FCIG will also retain 1.0 million Swiss francs of the 11.0 million Swiss francs loan for restoration of the building to its original condition. We suggested that the amount of principal outstanding, loan repayment and interest payment on the Mortgage may also be included in the note for a clearer depiction of the arrangement. In reply, the Management, while accepting the suggestion for additional disclosures stated that they would disclose the amount of rent paid in 2012 by WIPO which is equivalent to annual interest and principal payments on the mortgage between FCIG and the Cantonal Bank of Geneva. (Refer AQ no.20) 10.4.3.5 Leases-disclosure in Contingent Assets and Liabilities
Note 19 of WIPOs Financial statements on Leases- WIPO as Lessee states the Organization has a number of leases providing additional space, storage and specialized facilities in Geneva. In addition, the Organization leases space for its liaison offices in New York, Rio de Janeiro, Singapore and Tokyo. The majority of these leases are cancellable by the Organization subject to notification periods specified in the agreements. The Organization leases space for its New York liaison office under the terms of a non-cancellable lease agreement which has outstanding payments to the end of the lease period as follows:
The details of outstanding payments on account of the non-cancellable lease are contractual commitments which also need to be included in the disclosure for contingent assets and liabilities (Note 18) in compliance with IPSAS 19. While accepting the recommendation, the Management stated that they propose to add WIPO had contractual commitments relating to non-cancellable lease arrangements and they were detailed in Note 19 Leases WIPO as Lessee to Note 18 of the financial statements. (Refer AQ no.19(2))
10.5 Other Issues 10.5.1 Physical verification of assets Rule 105.33 of WIPOs Financial Rules and Regulations states that Officers responsible for the management of the property of the Organization shall perform periodic physical inventories of non-expendable equipment for the purpose of ensuring that the accounting records of fixed assets are accurate. WIPO follows a biennial policy for its inventory tracking and recording assets. From the Physical Inventory Audit report for the Biennium 2010-2011, it was seen that the net of inventory items considered as an asset and physically tracked amounted to CHF 19218382. Of these 792 (14.46%) items amounting to CHF 11250685 (59%) are of value greater than CHF 5000. Further, according to para 12.2.7 b) sub-clause 2 of WIPO IPSAS Manual, WIPO recognizes individual items of value of CHF 5000 or more as assets. We noted that the practice in vogue tracks 59% of the assets each with value over CHF 5000, once in two years, though they constitute only 14.46% of the total number of items. These being a low volume but high value items, for a better control, the practice in place may warrant a review. Appropriate classification of the existing assets would be the first
step towards regular and better control. Thereafter, annual stock taking of high value assets may be considered. We also noted that there was no practice of taking stock of the assets of the WIPO offices located at New York, Rio, Singapore and Tokyo. It was replied during the exit conference that the Management had a plan to get their assets verified by an external agency in future. If the proposed arrangement is expected to take time for its fructification, we recommend that in the intervening period; classify the existing assets based on their value and conduct annual stock taking of high value assets. (Refer AQ no.19) 10.5.2 Accounts receivable WIPOs External office in Rio de Janeiro is operating from a leased premise from March 01, 2011. The Rental agreement with Dijon Business Centre provides that a security of R$ 55,650 (two installments) be lodged with the Grantor by WIPO (Grantee) which will be refunded thirty days after the end of the agreement. A review of the accounting entry indicated that WIPO made payment in USD instead of in Brazilian Reals (BRL) as was provided in the agreement. The amount of the security which is an asset (account receivable) for WIPO is available in account code 13290 in the payment currency (USD) instead of the agreement currency (BRL). Since the agreement clearly provides for repayment in BRL, maintaining the balance in USD over a period of three years (being the lease period) spanning more than one financial period, will lead to differences in recognition of Exchange gains or losses due to revaluation of balances at the year end. In the absence of any written agreement with a bank or the grantor for payment in USD instead of BRL, the balance may be maintained in BRL and the necessary entries may be passed in the interest of true and fair depiction of this item in the books of accounts.
Stating that they were not aware of any separate written agreement that would require the lease grantor to reimburse the security deposit in USD rather than BRL, the Management stated that they propose to amend the currency of the security deposit in their accounting records to BRL in 2013 and would record exchange gains/losses on the basis of CHF/BRL going forward. (Refer AQ no.26) 10.5.3 Revaluation of land on which New Building is situated Note 9: Land and buildings states the land upon which the New Building was constructed was acquired by the Organization at a cost of 13.6 million Swiss francs in 1998 and was revalued to fair value based on International Valuation Standards as determined by an independent appraiser at December 31, 2009 at 28.6 million Swiss francs. The net result of the revaluation of 15.0 million Swiss francs is included in the revaluation surplus which forms part of WIPOs net assets. Market value was estimated by capitalizing at an appropriate investment yield the future potential income stream from the property. The potential income is based on comparable rentals in the market and takes into account the quality of the spaces as well as the location. The yield has been selected by reference to the perceived quality and duration of the income and the potential for further rental growth and is cross-referenced by the evidence provided by comparable sales. Prevailing market conditions do not indicate a need to perform a revaluation of the land as at December 31, 2012. The basis on which the decision of not revaluing the land for 2012 had been reached was sought. It was replied that based on discussions with the external expert CBRE, it was concluded that prevailing market conditions did not indicate a need to perform a revaluation of the land as at 31/12/2012, as this would not lead to a material change in the land value. Quoting that ILO, which is situated in close proximity to WIPO, did proceed with a revaluation of its land held at fair value as at 31/12/2012 and this resulted in no change in
the value of land owned by ILO, the Management maintained that they would continue to monitor the situation on annual basis. (Refer AQ no.3) 10.5.4 Employee benefits An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its statement of financial position as per para 70 of IPSAS 1. Further para 1.2.8 of WIPO IPSAS Manual 2102 version provides that WIPO would use current and non-current classifications when preparing financial statements where the term current applies to the 12 months following the reporting date (i.e. 12 months following 31.12.200x). A review of the actuarial valuation for employee benefits conducted by Mercer on 6 th March 2013 indicates the current service cost and interest cost of the liability on account of repatriation grant at CHF 1158410 (CHF 970,411 and CHF 187,999 respectively) for the year 2013. Expectedly, this amount should form the basis for depiction of the current portion of the liability for the year ended 31.12.2012. It was, however, seen from the financial statements and notes forming part of the accounts (Note 12) that the current portion of the Repatriation Grant and Travel for the year ended 31.12.2012 has been depicted as CHF 1394 thousand, instead of CHF 1158 thousand which has resulted in an error in classification of non-current liability as current to the extent of CHF 236 thousand which needs rectification in the interest of compliance with IPSAS. The Management replied that they had corrected the classification between current and non-current for the repatriation grant. It was also stated they had amended the other tables including the Statement of Financial Position as necessary and would process this change in AIMS.
Considering the serious nature of the issue, we recommend that current and noncurrent classifications be checked independently by setting appropriate threshold limits. (Refer AQ no.17) 10.6 Information on cases of frauds and presumptive frauds Analysis of the information on fraud/presumptive fraud provided by the office of the Director, Internal Audit and Oversight Division indicate that 21 new cases of fraud/presumptive fraud were registered in 2012. There were 16 investigation cases which had been carried forward from 2011. A total of 25 cases of investigation were closed during 2012 and as on 31 st December 2012, the IAOD had 12 cases from 2012 and the previous years which will still being investigated. The IAOD had also recommended in November 2012 the recovery of an amount of CHF4, 636, 80 from a staff member in one particular instance. IAOD informed audit the recovery was being affected. 11. Review of Management Action on Past Recommendations
11.1 The status of implementation of the External Audit Recommendations by WIPO is enclosed as an Annexure to the Management Letter. The action taken by WIPO was verified during the course of the Financial Audit and where the status is ongoing, it has been commented upon in the Management Letter along with necessary recommendations. 12. 12.1 Disclosures by Management Write-off of losses of cash, receivables and property The Management informed that in accordance with financial regulation 6.4, Financial Rule 106.8, losses of CHF 97883 had been written off during the year 2012.

Wipo - Draft ML - 2013 - 3 With Exec Summary

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Wipo - Draft ML - 2013 - 3 With Exec Summary

Uploaded by

Copyright:

Available Formats

Executive Summary

audit team during audit.

10.1.1 Financial Services

i) Notwithstanding the ongoing endeavors to set in place an Enterprise Risk

i. ii. iii. iv. v. vi.

Prior Period Errors

You might also like