The Hindu Business Line : Intellectual property in a whirl of a swimming pool!

THE latest press release from the Geneva-based World Intellectual Property Organisation (WIPO) informs that the second audit has found `no fraud or dishonest acts' in the organisation.

The first audit was by WIPO's `external auditor' — the Swiss Federal Audit Office. The second auditor, Ernst & Young (E&Y), is reported to have made, in its report to Dr Kamil Idris, WIPO's Director-General, a number of recommendations.

"We cannot conclude that certain employees of WIPO and third parties concerned might have committed any fraud or dishonest acts," E&Y stated in WIPO's press release.

WIPO notes that it has implemented the suggestions of `the United Nations Joint Inspection Unit on practices in respect of staff matters' and of the external auditor on project management. It declares that the E&Y report "brings to an end the recent allegations and unfounded attacks on the Organisation that have appeared in a few news media."

WIPO is said to be different from many UN bodies because it is "seen as more of a technical body than the domain of career diplomats who are expert at political wrangling," notes a June 2005 posting on www.ip-watch.org, the site of Intellectual Property Watch.

It cites Le Temps, a Swiss newspaper, to inform about the alleged involvement of the WIPO building director in the construction of a personal swimming pool for Idris. "The swimming pool was purchased in France in 2003 and paid for in cash by the building director, who worked frequently on the project site in his personal capacity sometimes during office hours," the story had said. An April 2005 report by Judith Miller on www.nytimes.com also cited Le Temps for informing about an investigation into a top official of WIPO, who had acknowledged having received 325,000 Swiss francs, from the building consultant.

Quite ominously it was on September 11, 2002 that WIPO (www.wipo.int) had informed, `Member States Recommend Construction of New Building for WIPO'. The press release had said, "The new administrative building provides a minimum of 560 working places and 280 underground parking spaces, with a construction budget of 157.5 million Swiss francs. Completion of the new construction is expected in 2007. WIPO currently rents office space in nine different buildings in Geneva." Funding would be without resorting to external borrowing and without increasing fees or contributions, the release had stated. "WIPO is a largely self-financed Organisation, generating the bulk of its income from a series of services provided to the private sector," it had added.

"For many years WIPO enjoyed a healthy financial situation with income growing significantly due to the high numbers of applications received under the Patent Cooperation Treaty (PCT) system. Unused resources accumulated in the reserve reached a peak of 353 million Swiss francs in 1998. As a result, the General Assembly in 1998 reduced PCT fees and approved using the reserve for the construction of new premises," narrates `Review of Management and Administration in WIPO: Budget, Oversight and Related Issues,' by M. Deborah Wynes and Victor Vislykh of the UN's Joint Inspection Unit (www.unsystem.org).

"WIPO faces problems today because of the way the budget has been approached in the past, that is, adjusting the fees to secure income to finance existing and projected levels of expenditures, rather than on a detailed human and financial resources needs assessment, which itself would be based on the deliverables that each unit in WIPO must produce to assist the organisation in discharging its various mandates," states the review.

A 10-page document prepared by the WIPO Secretariat in March 2005, is titled `Options Concerning the New Construction', and speaks of a revised project costing 660 Swiss francs per cubic meter. A bar chart shows the new cost to be "lower than the costs of other corporate and UN agencies' buildings in Geneva." The number-savvy may like the extensive crunching in this document.

Don't miss the August 2005 report of K. Grüter, Director of the Swiss Federal Audit Office, as a follow-up of the 2004 audit. "Having discovered weaknesses in the method of managing construction projects within the WIPO Secretariat, I recommended as long ago as in 2002, in my report on the evaluation of the construction project, that one should `have a project management entity... to carry out the coordination, management and verification that are essential to any project as extensive and as complex in terms of its execution as this one.

"A body external to WIPO would be in a better position to respond effectively to the demands of the project and its representative'," reads a snatch of history.

Grüter concludes that `the positive action taken recently by WIPO in relation to the setting-up of an external project management entity' are not completely sufficient. He suggests that the WIPO "advertise a competition for the services to be provided by the external project management entity". Contracting procedures should be defined and applied immediately to the invitations to tender, to introduce the necessary transparency into these processes, he insists.

Looks like an avoidable mess that WIPO has got itself into, and managed to extricate from.

Compliance cost climbs down

The word `INTEGRITY' tops Merriam-Webster's online dictionary lookup, informs http://accounting.smartpros.com, so we can put faith back in that word. But let me take you to another recent story on the site, which is about `Sarbanes-Oxley Section 404 Costs and Implementation Issues: Survey Update'.

You can download the report (dated December 8) from www.crai.com, the site of CRA International, which was hired for the task by accounting biggies Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers.

But, first, what is Section 404? SmartPros explains: "Section 404 of the Sarbanes-Oxley Act governs internal controls of financial reporting. It requires management of a public company and the company's independent auditor to issue (1) a management report on the effectiveness of the company's internal control over financial reporting and (2) an independent auditor's report that includes both an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting."

The 13-page CRA report says that Section 404 implementation costs for `smaller companies' (market capitalisation between $75 million and $700 million) are expected to decline an average of 39 per cent in the second year from $1.5 million to $900,000. For `larger companies' (Fortune 1000 clients with market capitalisation over $700 million), 404 costs are set to decline "an average of 42 per cent in the second year from $7.3 million to $4.3 million."

How much does the auditor make out of the 404 implementation costs? Approximately 35 per cent for `smaller companies' and 26 per cent for the larger ones, in year one. Other findings of interest are that in year two, `the number of key controls tested' is to decline; that independent audit engagement teams are expected to rely more heavily on the work of others; and that cost declines are primarily attributable to first-year documentation that is not expected to be repeated in year two, benefits of experience and reduced control remediation requirements.

We may need such a cost-of-compliance survey for FBT too.

Any takers for this question?

A WAG asks if, as people who elected representatives, we should now insist that independent auditors be appointed to uncover the money trail in the now-showing money-for-questions scandal. Any suggestions?

AccountSpeak@TheHindu.co.in

D. Murali

More Stories on : Accountancy | Account Speak

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Yoga nidra for BPOs

Open with caution

Intellectual property in a whirl of a swimming pool!

For a smooth dissolution of company

No `creditable' calls

More gains in cartels than Free Trade Zones

Does the RBI need revamping?

Infrastructure investment to reap demographic dividends