CFO Meeting – Budget Implementation

1. CFO Meeting – Budget Implementation

2. Table of Contents Slide SAP Background and Education 3 Issues and Pain Points in the Current State 18 Key Design Assumptions 19 IPSAS Impact 20 To-Be Design – Overview 22 To-Be Design – Areas of Focus 23 Benefits of the To-Be State 32 Open Issues 33

3. FM • Master Data • Commitment Accounting • Budgetary Controls • Budgetary Basis Reporting • Forecasting & Rolling Budget • Period End Closing • Performance Reporting SAP Background and Education

4. SAP Background and Education: Master Data Signifies that the mappings are still being discussed on that master data Signifies the point of origin of that master data but available in other module

5. SAP Background and Education: Proposed mapping of UN BAC to SAP’s Coding Block

6. SAP Background and Education Master Data • Master Data are various dimensions of characterizing a transaction. These can typically answer: • What are we spending on  Commitment Item • How the expenditure is funded by  Fund • By whom the spending is done  Fund Center • For what purpose is the spending done  Funded Programme • What is the higher level purpose of the expenditure Functional Area

7. SAP Background and Education: Commitment Accounting • Funds Management support modified cash-based commitment accounting • Funds Management ledger is designed to accept simultaneous posting generated from events in other modules/ledger: • Purchase Requisition/Purchase Orders from Purchasing • Travel Requests from Travel Management • Salaries and benefits from Payroll • Journal Vouchers from Finance • Funds Management also allows manual posting of Funds Reservations to reserve funds in advance for large upcoming expenditure • Different business rules for recognition of commitments based on type of transactions, e.g.: Fixed Assets, Inventory (Fuel, Rations) • Re-evaluation of encumbrances at the next event of the transaction chain

8. SAP Background and Education: Commitment Accounting Simultaneous ledger postings in FI, FM and CO/PS Ledgers Process Steps FI FM CO / PS Pre-encumbrance No Posting 1. Purchase Requisition No Posting No Posting 2. PO from Req. Encumbrance No Posting DR Expense CR GR/IR Clearing Actual 3. Goods Receipt Expense with GR status Update expense if required DR GR/IR Clearing CR Vendor 4. Invoice Receipt Expense with Invoice status 5. Payment DR Vendor CR Cash/Bank No Posting No Posting

9. FI C/F SAP Background and Education: FI, CO, GM & FM relationships - Actual Posting Payroll HCM New G/L GM All FI entries Overhead Salary Encumbrances Revenue, Expenses* SD CO/PS FM Billing Revenue and A/R Revenue, Expenses CO Allocations GR & IR Revenue, Expenses* and Overhead SCM Requisitions & PO

10. SAP Background and Education: Budgetary Control • Budgetary control in SAP is completely automatic and is done in background along with posting from other modules • Three major ways of budgetary control are: • Operating Budget (e.g. Procurement of consumable/ services) • Capital Budget (e.g. Procurement of Fixed Asset) • Personnel Cost (Salary & Benefit) • Budgetary control can be done using different types of messages during transactions: Warning, Warning with email and Error (Hardstop) • Use of derivation tool to populate coding block based on pre defined relationship 10

11. SAP Background and Education: Budgetary Basis for Reporting • Funds Management holds the transaction data for entire cycle of expenditure: Pre-encumbrance to Encumbrance to Expense (different status) from all transactional modules • FM is the central repository for all budget data: RB, XB & PK • FM provides tracking of Final Budget as compared to Original Budget • FM provides real-time reporting views of Budget Consumption and Budget Availability at any combination of FM Master Data • Budget Consumption = Pre-encumbrance + Encumbrance + Expense • Budget Availability = Final Allotment – (Pre-encumbrance + Encumbrance + Expense) • FM provides real-time reporting views of Budget Performance (= Final Budget – Expense – Encumbrance) at any combination of FM Master Data

12. SAP Background and Education: Budgetary Basis for Reporting Real Time View of Budget Consumption and Availability Human Resources Funds Management Travel Management Available Budget Vacant Positions (future months) Pre-Encumbrances Travel Requests Encumbered Positions (current & future months) Encumbrances Travel Authorizations Actual Payroll expenses (past months) Expenses Travel Completed Purchasing General Ledger Contracts Expenses Requisitions Purchase Orders (Not Received) Simultaneous Posting Purchase Orders (Received) Periodic Payroll Run Periodic Position Budget Control Run 12

13. SAP Background and Education: Reporting Strategy • All master and transactional data are within a single integrated SAP system • Scheduling of data interfacing to Business Intelligence (BI) can be done periodically based on the type of data and reporting requirement • Use of standard BI info-cubes to allow multi-dimension analysis • Availability of various reporting options depending on who needs access to what level of information • Availability for several analytical tools e.g. Multiple level of Filter, Sort, Changing layout etc.

14. SAP Background and Education: Design of Reporting Strategy Financial Statement Management Reporting performance Reporting Reporting System Layer Budget Planning & Formulation Consolidation Data Warehouse Corporate Performance Financial Management & Accounting Transaction System Layer General Ledger Controlling Funds Management Multiple Sub-Ledgers Multiple Sub-Ledgers Core Business Transaction System Layer Purchasing Sales & Distribution Production Planning Asset Management Travel Management Human Resource

15. SAP Background and Education: Period End Closing Month and Year end Closing – Overall design Preparatory steps for Month end closing Steps for Year End Closing Steps for Month end closing Update Exchange rates Review any pending AR Review any pending AP Post Parked G/L Document Process the recurring entries Settle project tasks to AUC Post Depreciation Open the new month Create accrual postings GR/IR Clearing for last month Reverse the accrual document in new month AR/AP/GL – Open new fiscal year CO - Open new fiscal year MM - Open new fiscal year FM - Open new fiscal year AA- Open new fiscal year AA – Closing last fiscal year FM – Liquidate open items (PO, Funds Reservation) FM- Carry forward open Obligation & associated budget FM – Carry forward residual budget/Return unused budget AR/AP/GL – Carry forward balances 15

16. SAP Background and Education: Period End Closing • Month-end closing: • Open/ Close periods. Month-end closing will be controlled by other modules (e.g. FI, MM etc.). • Year-end closing: • Preparation: review open pre-encumbrances and encumbrances • Pre-encumbrances: manual Carry Forward of pre-encumbrances without budget and automatic Close Out of all remaining • Current Period Encumbrances: manual Close Out of open encumbrances which are not valid and manual carry fwd. of selected encumbrances with budget and Automatic Carry Forward of all remaining encumbrances without budget • Prior Period Encumbrances: Automatic Close Out of all open prior period encumbrances (except for Member States encumbrances) 16

17. SAP Background and Education: Period End Closing (contd.) • Year-end closing (contd.) • Return of “residual” budget (=Appropriation – (Encumbrance + Expense)) • Any residual budget can be returned to the source • This can be tracked by specific document type • Carry forward of “residual” budget • Residual budget can be carried forward to the next FY, where applicable (e.g. first year of RB biennium to second year) • This can be done either for all or for specific Fund, Fund Center, Commitment Item, Funded Programme, Functional Area or any combination of these

18. Issues and Pain Points in the Current State • Two distinct budgetary cycles for RB and PK • Multiple financial systems resulting an arduous effort to consolidate information for reporting on budget execution an arduous work-effort • Over-reliance on obligating funds during a financial period • Budgeting is undertaken in United States dollars while budget execution can be substantially in other currencies • Confusion over roles and responsibilities of Certifying Officers & Authorizing Officer • Multiple non-integrated business intelligence solutions implemented throughout the Secretariat and used for budget performance reporting

19. Key Design Assumptions • Harmonized coding structure across fund types. • Alignment of responsibility for budget formulation and budget implementation • Automated transfer of approved budget to implementation (no re-entry) • Flexibility to sub-allot by the individual programme managers • Establish Tolerance Profile to generate early warning for budget consumption • Budget control: • Payroll will consume the budget with no hard stop on overrun • Non-payroll will consume the budget with hard stop at 100% • Support for fund redeployment from request to approval • Reporting of financial performance based on budget vs. actual

20. IPSAS Impact • Budgets will remain on modified cash basis for now. • For the biennial Regular Budget, the budget will be constructed separately for each year for the purpose of IPSAS-compliant reporting. • At the end of the second year of the biennium, there will be a one year actual vs. budget comparison (based on the second year of the biennium) as well as a two year actual vs. budget comparison. • Variance analysis will compare actual amounts to FINAL budget amounts. • An explanation of material variances and explanation of changes from original to final budget will be included in the annual financial statements.

21. IPSAS Impact (contd.) • The ERP system will be configured to track the differences between expenditures/expenses recorded against the budget and those recorded on an accrual basis and will support the IPSAS 24 required reconciliation • A special report for reconciliation of accrual-based financial accounting and modified cash-based budget consumption will be developed

22. IPSAS Impact (contd.) • IPSAS 24 requires public sector entities with approved and publicly available budget(s) to present the following information: • A comparison between the actual amounts with amounts in the original or final budget. • Variance analysis on material differences between budget and actual amounts. • An explanation of changes between original and final budget. • A reconciliation of actual amounts on a budget basis with actual amounts in the financial statements, if bases differ. COMPARISON VARIANCE ANALYSIS EXPLANATION RECONCILIATION

23. To-Be Design Overview: Context Model Programme Planning and Management Performance Reporting Programme Planning Budget Formulation Start End Funds management Budgetary Control Maintain Budget Budetary Control (Capital Budget) Budget Redeployment Logistics and HR Transfer to Implementation Budget Close Financial Accounting Budgetary Control (Operating Budget) Budget Supplement and Return Funds Reservation Financial Forecast & Rolling Budget

24. To-Be Design: Areas of Focus -Transfer to Implementation for Assessed Fund

25. To-Be Design: Areas of Focus -Transfer to Implementation for Trust Fund • Trust Funds will be handled in Grants Management (GM) module by Grant and by Sponsor • The Grant master will be integrated with Fund. Fund will be mapped to each Grant master • The development and control of budget for trust funds will be done in GM module • The budget will be transferred from GM to Funds Management automatically

26. To-Be Design: Areas of Focus – Budgetary Control: Capital Budget

27. To-Be Design: Areas of Focus – Budgetary Control: Operational Purchase

28. To-Be Design: Areas of Focus – Funds Reservation

29. To-Be Design: Areas of Focus – Re-Deployment

30. To-Be Design: Areas of Focus – Forecasting & Rolling Budget

31. To-Be Design: Areas of Focus – Forecasting & Rolling Budget

32. To-Be Design: Areas of Focus – Budget Close (Year End)

33. Benefits of the To-Be State • Enhanced reporting capabilities through harmonized expenditure classification across secretariat • Improved reporting and forecasting abilities from having one data source • Audit trail for any changes to the master data and transaction data • Automated and auditable process for issuance of allotment • Automated fund re-deployment via work flow with necessary approvals embedded in the system • Instantaneous budget control via integration with HR, Purchasing, Travel and Financial Accounting • Early warning to the owner of responsibility center on budget consumption to facilitate proactive actions

34. Open Issues • Monthly re-evaluation of open encumbrances (obligation) • Harmonize coding structure (nature of expenditure) independent of fund types • Review of the delegation of authority and align it with responsibility for financial management and programme delivery