icrc-annual-report-2013

Financial accounting systemThe financial accounting system consists of a number of modules(general ledger, payroll, accounts payable, accounts receivable,stocks, fixed assets). Information recorded in the peripheralmodules is stored within the main module, the general ledger, andincorporated into a balance sheet and a profit-and-loss statement.As financial accounting does not provide information about theorigin of and the reason for costs, it does not in itself serve to assessresults. In other words, it does not provide the information neededfor reporting purposes. This task is performed by cost accounting.Cost or analytical accounting systemThe cost accounting system allocates all costs in two differentways: to the cost centre, which explains the origin of the costs, andto the cost units, which indicate the reason for or the objective ofthe costs. Thus it not only explains the type and origin of costs(e.g. salary, purchase, communications, etc.), but also creates alink between the internal service supplier (operations, management,warehouse, logistics, administration, etc.) and the beneficiary,thereby providing reliable and meaningful information forboth internal and external performance assessment and reporting.COST TYPE ACCOUNTINGFinancial accounting and cost categoriesThe accounting model comprises three dimensions (e.g. in fieldoperations: the organizational unit, target population and programmes)that serve to allocate costs between cost centres and tocost units accounting.Cost centre accountingAny unit (department or unit at headquarters or delegation inthe field) within the organization generates costs as it consumesgoods and services. It is important to identify the initiator of thesecosts and to specify his or her responsibility for the type, qualityand dimension of the transactions concerned. This is the purposeof the cost centre accounting system. The cost centre reflects thestructure of the unit to which the costs incurred within a givenperiod are initially charged. The person who is answerable for theorigin of the relevant costs always manages the cost centre.Cost units accountingCost units accounting responds to the information requirements ofmanagement and donors, providing greater insight into the financialresources consumed. It is an essential tool for managementsince it describes the reason for or purpose of the costs. Cost unitsaccounting and reporting is based on the operational objectivesdefined using the PfR methodology and gives a clearer indicationof the purpose for which the costs were incurred.To make it possible to produce all the reports required, a threedimensionalcost units structure is used. The three dimensions,outlined below, are independent from one another. Set togetherthey are the parameters of the PfR system. The total costs foundin cost unit accounting are equal to the total costs found in costcentre accounting. In all three of the dimensions described thereare different levels of aggregation in order to monitor activitiesadequately.a) Financial “organizational unit” dimensionThe financial “organizational unit” reflects the hierarchy of theorganization in terms of responsibility for operational results. Asmost ICRC field operations are designed for and implemented in aspecific geographical area, the organizational unit dimension alsoreflects the geographical structure of field operations. It serves todetermine the costs and income of a delegation, region or geographicalzone and to compare those costs and that income withthe pre-defined objectives and results to be achieved.At headquarters, the organizational unit dimension correspondsto directorates, departments and units.b) Headquarters service and field programme dimensionsAt headquarters, services (see “Services at headquarters” above)contribute to achievement of the aims outlined in one or moreof the ICRC key success factors (see “Key success factors/areas ofrisk” above).In field operations, programmes are slices of institutional objectivescut along the lines of the ICRC’s core activities. They thereforerepresent the ICRC’s areas of competence translated into productsand services delivered to the beneficiaries (see “Programmedescriptions” above).c) Target populations dimensionWith the introduction of the PfR methodology, it has becomenecessary to identify target populations as relevant cost units andhence to incorporate them into the project dimension (for thedefinition of target populations, see “Target populations” above).Objectives and plans of actionThe objectives are a general statement of intent used for planningpurposes on a timescale of one to several years. Via plans of action,this process clearly identifies a result or a measurable change for atarget population.CONCLUSIONThe ICRC has an ambitious accounting model that has implicationsnot only for financial and data-processing procedures butalso for the organization and working methods of the relevantsupport units. In this connection, it has started to work on performanceindicators which aim to enhance the financial informationobtained with operational key indicators.INTERNAL CONTROL SYSTEMFaced with increasingly complex environments, over the yearsthe ICRC has progressively and pragmatically adopted an internalcontrol and compliance approach based on three pillars: theInternal Control and Compliance Unit, a financial controller, andthe Compliance and Quality Assurance Centre in the Philippines.The Internal Control and Compliance Unit is responsible forensuring that the ICRC’s internal control system complies withthe requirements of Swiss legislation and with the ICRC’s internalrules. The unit is mandated by the Directorate to update the“zone-wide” control document which sets the tone for the entireorganization with regard to the control environment the ICRCaims to create. This unit is the focal point for the external auditorfor any matter related to the internal financial control system.The above-mentioned unit also coordinates the financial controllerwho, through field and headquarters missions, checks on theimplementation of financial, administrative, human resourcesand logistics procedures. Over the coming years, the scope of thefinancial control will be extended to fraud risks.22 | ICRC ANNUAL REPORT 2013