FC 100/7 (iii) |
Hundredth Session |
Rome, 9 – 13 September 2002 |
Audited Accounts – FAO Commissary 2001 |
Attached for the information of the Finance Committee Members are the FAO Commissary’s Financial Statements for 2001
I have examined the accompanying financial statements, as stated on the attached pages 1 to 10, comprising the income and expenditure statement, the balance sheet, the statement of cash flow and the notes to the statements of the Food and Agriculture Organization’s Staff Commissary Fund for the year ended 31 December 2001. These financial statements are the responsibility of the Staff Commissary’s management on behalf of the FAO Director-General. My responsibility is to express an opinion on these financial statements based on the audit.
The audit was conducted in accordance with the Common Auditing Standards of the Panel of External Auditors of the United Nations, the Specialised Agencies and the International Atomic Energy Agency. These standards require that the audit be planned and carried out to obtain reasonable assurance that the financial statements are free of material mis-statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and evaluating the overall financial statement presentation.
As a result of my audit, I am of the opinion that the financial statements present fairly the financial position of the Staff Commissary Fund as at 31 December 2001 and the results of its operations for the period then ended, that they were prepared in accordance with the stated accounting policies and that the transactions were in accordance with the financial regulations and legislative authority.
10 July 2002
Submitted by: | Approved by: |
…………………………………. | …………………………………. |
C.I. Denny | D. Alhéritière |
Commissary Manager, AFSCM | Director, AFS |
10 July 2002 |
|
2001 | 2000 | |
Sales | 22,674,747 | 21,449,162 |
Less: Cost of Goods Sold (notes 1c and 12) | 18,667,539 | 17,808,636 |
Gross Trading Surplus | 4,007,208 | 3,640,526 |
Less: Operating Expenses | ||
Personnel (note 2a and 2b) Guard Services (note 2c) |
3,119,725 48,000 |
2,923,993 46,000 |
Support Cost Reimbursement to FAO (note 3) | 132,750 | 132,750 |
General Operating Expenses | 213,598 | 191,238 |
Depreciation | 129,436 | 162,465 |
Provision for Terminal Emoluments (note 4) | (22,375) | 12,199 |
3,621,134 | 3,468,645 | |
Operating Surplus/(Deficit) | 386,073 | 171,880 |
Add: Other income (note 5) | 177,105 | 72,734 |
Less: Contribution to Staff Welfare Fund (note 6) | 226,747 | 214,492 |
Net Surplus/(Deficit) | 336,431 | 30,122 |
Transfers (To)/From Reserves | ||
(To)/From Working Capital Fund (note 7) | (159,326) | (93,886) |
(To)/From retained Surplus (note 8) | (177,105) | 63,764 |
Notes 1 to 13 form an integral part of these accounts
2001 | 2000 | |
CURRENT ASSETS | ||
Cash at Bank and in Hand (note 9) | 1,631,281 | 1,556,988 |
Stocks (note 10) | 3,283,664 | 2,791,830 |
Sundry Debtors | 80,809 | 43,447 |
FIXED ASSETS (note 11) | 124,330 | 233,409 |
TOTAL | 5,120,084 | 4,625,674 |
Less | ||
CURRENT LIABILITIES | ||
Creditors | 1,318,857 | 1,142,758 |
Payable to Staff Welfare Fund (note 6) | 70,747 | 66,492 |
1,389,604 | 1,209,250 | |
LONG TERM LIABILITIES | ||
Terminal Emoluments Reserve (note 4) | 357,873 | 380,248 |
TOTAL | 1,747,477 | 1,589,498 |
NET ASSETS | 3,372,607 | 3,036,176 |
Represented by: | ||
Working Capital Fund (note 7) | 2,947,717 | 2,788,391 |
Retained Surplus (note 8) | 424,890 | 247,785 |
3,372,607 | 3,036,176 | |
Notes 1 to 13 form an integral part of these accounts
2001 | 2000 | |
Net Cash Inflow/ (Outflow) | ||
from Operating Activities (note 13a) | (14,556) | 134,179 |
Return on Servicing of Finance | ||
Interest Received Exceptional Income ( note 5 ) |
108,407 800 |
96,665 |
Investing Activities | ||
Payments to Acquire Tangible Fixed Assets | (20,358) | (32,069) |
Increase/ (Decrease) in Cash (note 13b) | 74,293 | 198,775 |
Notes 1 to 13 form an integral part of these accounts
1. | Summary of Significant Accounting Policies | |
(a) | Accounting Convention | |
The accounts have been prepared on an accrual basis under the historical cost convention. | ||
(b) | Depreciation | |
Depreciation is calculated using the straight-line method to write off the cost of fixed assets over their estimated useful life of five years. The first year’s depreciation of new assets is based on the actual number of months the asset has been in service. | ||
Note: Recognising that the Organisation estimates a useful life of four years for all computer equipment, all of the Commissary's computer equipment has been depreciated using a four-year straight-line method in 2001. | ||
(c) | Cost of goods sold and stocks | |
Stocks are stated at the lower of cost and net realisable value. Cost is comprised of cost of goods, write-offs, transportation, customs clearance and insurance premiums. The cost of stocks is determined using the first-in, first-out (FIFO) method. | ||
(d) | Foreign currencies | |
Assets and liabilities in currencies other than Italian Lira have been translated at the UN operational rate of exchange at 31 December 2001. Income and expenditure items have been recorded at the rate of exchange in effect at the date of transaction. Any eventual differences arising when payment is made are reflected under the income and expenditure statement. | ||
2. | Cost of Personnel | |
(a) | The accounts reflect payroll cost as charged by FAO. Provisions for terminal emoluments are made separately as explained in Note 4. |
Payroll cost includes compensation for Commissary staff including two General Service staff members dealing with car import privileges. Their cost is absorbed by mark-ups on petrol coupons, ensuring thereby that Commissary customers not entitled to petrol do not subsidise the services of the Car Import Office. | ||||
In line with their existing job descriptions, both the Commissary Manager and the Assistant Commissary Manager spend some time with the supervision of the FAO catering operations. | ||||
It should be noted that personnel costs increased 8.3% in 2001, despite any increase in the size of the Commissary’s workforce. These increases were attributed to firstly to After Service Medical Plan accruals that were communicated to the Commissary in late 2001 and early 2002. And secondly, Commissary Management decided to set-up an GS staff language factor accrual pending a decision by the ILO’s Administrative Tribunal | ||||
(b) | Following is a breakdown of staff costs | |||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
FAO Commissary Staff | 2,328,467 | 2,256,538 | ||
Accrual FAO /After Service M.P. | 103,861 | -------- | ||
Accrual GS Staff Language factor | 108,947 | -------- | ||
FAO TAP Staff | 288,496 | 338,113 | ||
COASE Staff | 337,954 | 329,342 | ||
Balance at 31 December | 3,167,725 | 2,923,993 | ||
(c) |
The Operating Expenses include a FAO back charge of Lit. 48,000,000 for guard services received in 2001. | |||
3 | Support Cost Reimbursement to FAO | |||
At the Twenty-fifth session of the FAO Conference held on 11 – 30 November 1989, it was decided that the Commissary should reimburse FAO in respect of all services provided to the Commissary and that the related actual costs should be charged to the Commissary on an estimated basis henceforward. The Support Cost Reimbursement to FAO was made up as follows: | ||||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Electricity | 20,580 | 20,580 | ||
Cleaning | 24,220 | 24,220 | ||
Water | 4,400 | 4,400 | ||
Heating | 3,070 | 3,070 | ||
Garbage Collection | 4,430 | 4,430 | ||
External Audit | 25,350 | 25,350 | ||
Internal Audit | 50,700 | 50,700 | ||
Total | 132,750 | 132,750 | ||
4 | Terminal Emoluments Fund | |||
At the Eighteenth session of the Committee on Financial Control on 17 – 22 May 1954 it was decided to create a Reserve for costs for terminal indemnities. Further to this, at the Sixty-first session of the FAO Finance Committee held on 14 – 25 September 1987, it was decided that the level of the Terminal Emoluments Reserve should represent 75 percent of the calculated expenses for repatriation grants and unused annual leave. At the Seventy-fourth session of Finance Committee held on 14 – 22 September 1992 it was decided, as the Commissary is a self-sufficient unit and is requested to operate without cost of the Organisation, to accrue in full for known liabilities in accordance with generally accepted accounting principles applicable to commercial concerns. | ||||
The movements in the Terminal Emoluments Reserve during the year were as follows: | ||||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Balance at 1 January | 380,248 | 368,049 | ||
Annual Charge | (22,375) | 12,199 | ||
Balance at 31 December | 357,873 | 380,248 | ||
5 | Income | |||
Other Income | ||||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Bank Interest | 100,612 | 78,167 | ||
* Exceptional Income | 800 | ------ | ||
Profit/(Loss) on Exchange | 75,693 | (5,433) | ||
Total | 177,105 | 72,734 | ||
* Trade-in value for exchanged salesroom equipment | ||||
6 | Staff Welfare Fund | |||
In accordance with Conference Resolution 18/93, effective with the year ending 31 December 1992, the equivalent of 1 per cent of total sales of the Staff Commissary is paid to the Staff Welfare Fund. | ||||
The composition of the account payable to the Staff Welfare Fund at 31 December 2001 and its movement for the year then ended were as follows: | ||||
2001 | 2000 | |||
Lit.‘000 | Lit.‘000 | |||
Balance at 1 January | 66,492 | 65,270 | ||
Add: Contribution to Staff Welfare Fund | 226,747 | 214,492 | ||
293,239 | 279,762 | |||
Less: Amount paid during the year | 222,492 | 213,270 | ||
Balance at 31 December | 70,747 | 66,492 | ||
7 | Working Capital Fund | |||
At the Sixth session of the FAO Conference held from 19 November – 6 December 1951 it was decided that the Commissary should establish a fund for the purchase of stocks for the Commissary, the fund to be reimbursed from the proceeds of sale of such stocks. | ||||
At the Ninety-second session of the Council held from 3 – 5 November 1987 it was decided that the Working Capital Fund should be maintained at a level of 12 percent of annual turnover. Subsequently at the Seventy-second session of the Finance Committee held from 16 – 26 September 1991, it was decided that the level of the Working Capital Fund should be increased from 12 percent to 13 percent of turnover. | ||||
The movements in the Working Capital Fund during the year were as follows: | ||||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Balance at 1 January | 2,788,391 | 2,694,505 | ||
Transfer To/(From) Working Capital Fund | 159,326 | 93,886 | ||
Balance at 31 December | 2,947,717 | 2,788,391 | ||
8 | Retained Surplus | |||
The movements on the retained surplus during the year were as follows | ||||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Balance at 1 January | 247,785 | 311,549 | ||
Transferred To/(From) Retained Surplus | 177,105 | (63,764) | ||
Balance at 31 December | 424,890 | 247,785 | ||
9 | Cash at Bank and in Hand | |||
Cash at bank and in hand are made up as follows | ||||
2001 | 2000 | |||
Description | Lit. ‘000 | Lit. ‘000 | ||
Cash at bank, current account | 1,263,295 | 1,374,813 | ||
Cash in hand | 367,986 | 182,175 | ||
Total | 1,631,281 | 1,556,988 | ||
10 | Stocks | |||
Stocks are made up as follows: | ||||
2001 | 2000 | |||
Description | Lit. ‘000 | Lit. ‘000 | ||
Goods | 2,804,595 | 2,490,357 | ||
Petrol/Oil coupons | 479,069 | 301,473 | ||
Total | 3,283,664 | 2,791,830 | ||
11 | Fixed Assets | ||||||||
Figures in Lit. ‘000 | |||||||||
Cost: |
Improvements of Premises |
Furniture | Equipment | Motor Vehicles | Total | ||||
At 1.1.2001 | 112,730 | 317,168 | 893,372 | 212,163 | 1,535,433 | ||||
Additions | 20,358 | 20,358 | |||||||
Disposals | (17,120) | (17,120) | |||||||
At 31.12.2001 | 112,730 | 317,168 | 896,610 | 212,163 | 1,538,671 | ||||
Depreciation: | |||||||||
At 1.1.2001 | 96,568 | 310,826 | 716,617 | 178,013 | 1,302,024 | ||||
Charges for year | 16,162 | 1,942 | 97,672 | 13,660 | 129,436 | ||||
Disposals | (17,120) | (17,120) | |||||||
At 31.12.2001 | 112,730 | 312,768 | 797,169 | 191,673 | 1,414,340 | ||||
Net Book Amount | |||||||||
At 31.12.2001 | 4,400 | 99,441 | 20,490 | 124,331 | |||||
At 31.12.2000 | 16,162 | 6,634 | 176,755 | 34,150 | 233,409 | ||||
12 | Write – Offs | |||
The composition of the write-offs account at 31 December 2001 was as follows: | ||||
2001 | 2000 | |||
Lit.’000 | Lit.’000 | |||
Goods write-offs | 15,337 | 13,296 | ||
Total | 15,337 | 13,296 | ||
As of 31 December 1999, the write-offs have been included in the cost of goods sold as per Audit’s recommendation. | ||||
13 | Statement of Cash Flows | |||
(a) | Reconciliation of Operating Surplus to Net Cash Inflow/(Outflow) from Operating Activities | |||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Net Operating Surplus | 386,074 | 171,880 | ||
Contribution to Staff Welfare Fund | (226,747) | (214,492) | ||
Depreciation Charges | 129,436 | 162,465 | ||
Profit/(Loss) on Exchange | 75,693 | (5,433) | ||
(Increase)/Decrease in Stock | (491,834) | 252,755 | ||
(Increase)/Decrease in Debtors | (45,157) | 10,976 | ||
Increase/(Decrease) in Current Liabilities | 180,354 | (256,171) | ||
Increase in Provision for Terminal Emoluments | (22,375) | 12,199 | ||
Total | (14,556) | 134,179 | ||
(b) | Analysis of Changes in Cash | |||
2001 | 2000 | |||
Lit. ‘000 | Lit. ‘000 | |||
Cash at 1 January 2001 | 1,556,988 | 1,358,213 | ||
Net inflow | 74,293 | 198,775 | ||
Cash at Bank and in Hand at 31.12.01 | 1,631,281 | 1,556,988 |
1. The FAO Staff Commissary was established in 1951 to facilitate duty free importation of goods by international staff under Article XII, Section 27 (j) (ii), and Annex D of the Headquarters' Agreement between the Government of the Italian Republic and the FAO. Access to the Commissary was given to all FAO staff members as of 1 December 1971, following an exchange of letters with the Italian Government, which stated that the agreed quantities of goods to be imported would be computed according to the total number of FAO staff.
2. Although the Commissary is part of the FAO, its accounts are not consolidated with the ones of the Organization for the biennium. They are in fact reported separately on a yearly basis and are presented in Italian Lire (Lit.) for the last time. These financial statements are the responsibility of the Staff Commissary’s management on behalf of the FAO Director-General. My responsibility is to express an opinion on these financial statements based on the audit carried out in accordance with the Common Auditing Standards of the Panel of External Auditors of the United Nations, the Specialised Agencies and the International Atomic Energy Agency.
3. In 2001, the Commissary had a turnover of Lit.22.6 billion, which represented an increase of Lit.1.2 billion, or 5.7% compared to last year.
4. Personnel operating expenses amounted to Lit.3.1 billion in 2001, which represented an increase of 8.3% compared to 2000. As disclosed in Note 2a to the financial statements this was not due to an increase of the Commissary’s workforce, but to accruals of expenditures. As disclosed in Note 2b, Lit.103,861 thousands were accrued for After Service Medical Plan and Lit.108,947 thousands for the General Service Staff Language Factor. These accruals accounted for 87% of the total increase in personnel operating expenses.
5. As last year, Assets are presented in terms of decreasing liquidity, which is in line with the United Nations Accounting Standards (UNAS). They amounted to Lit.5.1 billion as at 31 December 2001, which represented an increase of Lit.0.5 billion compared to last year.
6. Stocks amounted to Lit.3.28 billion at the end of 2001 and represented 64% of total assets. The physical stock count as at 31 December 2001 disclosed that the actual stock was Lit.23.4 million below what it should have been according to the permanent inventory. The stock losses in 2001 remained approximately the same as that of 2000 (Lit.23.5 million).
7. In 2001, operations resulted in a net surplus of Lit.336.4 million. As the working capital fund had to be credited with Lit.159.3 million in 2001, to be maintained at a level of 13% of the annual turnover, according to a decision of the seventy-second Session of the Finance Committee, the transfer from the retained surplus amounted to Lit.177.1 million. As a result, the retained surplus reserve increased from Lit.248 million as at 31 December 2000 to Lit.425 million as at 31 December 2001.
8. Since the 1994-95 biennium, the FAO financial statements consolidate all the operations of the Organization regardless of their funding (Regular Budget or voluntary contributions). The FAO accounts are, however, not fully consolidated since the non-main stream activities of the Commissary (and the Credit Union) are still reported separately. I have not raised the issue previously because I considered that there were more pressing priorities for the Organization. It was raised by the Internal Audit, in 2001, that considered it sufficient to show a disclosure in FAO’s financial statements stating that the accounts of the Commissary (and the Credit Union) have not been consolidated and are reported separately. I concur with such a recommendation, which should be implemented for the 2000-01 FAO accounts.
9. For the future, however, I am of the opinion that the accounts of the Commissary (and of the Credit Union) should be consolidated with the ones of the FAO in order to produce truly consolidated financial statements. It was argued that the accounting principle of substance over form would justify a separate financial reporting for the non-main stream activities of the Organization. In my opinion, however, the Commissary is an integral part of the FAO. Subsequently, the final responsibility in case of its failure rests with the Organization. In my opinion, it would justify the consolidation of the Commissary accounts with the ones of the FAO.
10. My position was not shared by the Commissary management. The following was notably argued:
In my opinion, the decision to consolidate the account or not remains, however, with the Governing Bodies. I would, therefore, recommend that the advice of the Finance Committee be sought on this matter.
11. I wish to record my appreciation for the cooperation and assistance extended by the Director-General and the staff of the Organization during my audit.
10 July 2002