More Questions than Answers from the International School of Geneva

A note from petitioning parents at the International School of Geneva discusses, amongst other things, issues covered in the Report of the Statutory Auditor to the Governing Board on the Consolidated Financial Statements 2022-2023 (hereafter CFS-23), issued on 5 December 2023 is compared with the corresponding Report from the previous year, the Consolidated Financial Statements 2021-22 (hereafter CFS-22). Whistleblowers & whistleblower litigation is also discussed, with a focus on the Director of Finance and Administration, M Falvert.

The disappearing deficit

Twelve months ago, the Consolidated Financial Statements 2021-2022 (CFS-22) issued 6 December 2022 presented a net loss of CHF 2.1 million for the financial year 2021-2022. The Board had approved the accounts conditionally due to the insistence of some Board members who had cast doubts on the loss presented. The upshot was that, this alleged 2021-22 deficit brought the school’s continuing accreditation by the Council for International Schools (CIS) under severe stress.

However, last year’s financial statements have now been ‘re-stated’, and last year’s net loss is now recorded as a net profit of CHF 363,0002. This is a reversal of approximately CHF 2.5 million! The reason for this is set out in CFS-233, as follows (note ‘CDF’ is the Capital Development Fund):

“The CDF revenue is recognized upon utilization of the CDF for asset capitalization. Until last year, the income from CDF had been recognized as restricted income, while the unused portion of the CDF was held as Deferred Income under Non-Current liabilities. During ensuing discussions about the past accounting treatment of the CDF on the Balance sheet, it appeared that the accounting treatment based on the restrictive nature of recognized CDF revenue, both on the Consolidated Statement of Income and Expenses as well as on the Balance sheet, of CDF-specific unused funds did not comply any more with Swiss GAAP RPC, and led to a restatement of the financial statements.” (Emphasis added.)

In short, there seems now to be a belated recognition that last year’s financial statements may not have been fully compliant with Swiss accounting standards. This recognition is punctuated with the words ‘any more’ - but we are unaware of any specific changes made to the Swiss accounting standards during the past year, which may have led to the re-statement. In the absence of any such change to the standards, the rebuttable presumption must be that the accounting treatment and presentation for the CDF was incorrect for many years past, and that this error has now been corrected for 2021-22. We understand that this was queried at Board level when CFS-22 were issued. At that time and upon Board’s authority, the then new treasurer (currently the Board chair) together with another Board member (the current Treasurer) and the acting DG ensured that thi

1 Several steps are needed to find these Reports. First, log in to ‘MyEcolint’ then click on the three horizontal lines next to ‘MENU’ in the top left corner of the page. Then, under the heading ‘Beyond the Campus’ click on ‘The Foundation’. Next under ‘Strategic Plan’ click on ‘Governing Board’, then scroll down to ‘Annual Audit Reports’ and click on ‘2022-2023 Audit Report’ to find the latest one. Earlier years are also accessible.

2 CFS-23, page 5

3 CFS-23, page 8, NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES, under ‘Revenue recognition 2/ Capital Development Fund – Restatement’

anticipated correction was brought to the attention of the CIS. This assisted in the removal of the conditionality placed on Ecolint’s finances and assured Ecolint of continuing accreditation from the CIS. This correction has now appeared in the latest audited financial statements (CFS-23).

Furthermore, the latest consolidated statements show a net profit for 2022-23 of CHF 7.6 million. A substantial factor in this result “is linked to the reversal of the provision for donation to FPEI which had been accounted as exceptional expenditure in previous years.” You will recall that an amount of CHF 9.5 million had been hidden under short-term provisions for donation to a separate but wholly owned yet dormant foundation, the FPEI. The Board is now coming through on the promise made to the community of holding these funds as cash reserves internally for future use of the foundation.

See CFS-23, Notes 2, 8(b) and 12.

Other interesting revelations

The Statement of changes in equity for 2022-2023 shows a significantly higher level of retained earnings and total equity compared to that reported in the CFS-22. This is due to adoption of appropriate accounting (also noted above) for the CDF component of income and held reserves. The impact is discussed in Note 2 and disclosed fully in Note 9 to the latest statements.

There are several noteworthy changes to the Notes in CFS-23:

Note 2: SIGNIFICANT ACCOUNTING POLICIES

•       Considerably more detail is provided regarding depreciation schedules for intangible assets.

•       The note in CFS-22 stating “Unrestricted funds arising from the School's operations are available for use by management” does not appear in the 2022-23 Report. This appears to be due to the correction of CDF accounting on the profit and loss statement. Use of the CDF is restricted exclusively for capital development. This restriction remains and is linked to CDF revenue recognition as has always been the case. Under the P/L however, CDF revenue is no longer presented under the ‘restricted revenue’ column (which was the case until last year) for Ecolint. This helps not just in the accounting but also in budgeting.

•       There is a change in the note regarding donations. In last year’s Report the entry provides that donations received with respect to the extension of the International School are recorded in current liabilities as accruals “and are offset against the full cost of the related assets when they are brought into use”; in the latest Report the corresponding note replaces this with “until they are brought into use No further disclosures have been provided to understand the need for such a change.

Note 11 – RELATED PARTIES DISCLOSURE in the 2022-23 Report is new; there is no corresponding or comparable note in the consolidated Reports for any previous year. Points to note include:

•       The Director General of the Foundation is assisted by the Conference des Directeurs.

Together they comprise the Foundation’s key management personnel and are remunerated by the Foundation

•       The total FTE number of Directors (including the DG) rose from 13 in 2021-22 to 16 in 2022- 23

•       In 2022-23, the Director-General’s remuneration was CHF 417,736 plus a car allowance of KCHF 12

•       In 2022-23; total remuneration for the other 15 Directors was CHF 3.2 million; in addition a total of KCHF 304 was paid as severance pay for departing Directors.

• “Close family members are defined as close relatives of the individual or members of the individual’s immediate family who can be expected to influence, or be influenced by, that individual in their dealings with the entity. The close family members of key management personnel include spouses and children, whose aggregate remuneration including the post- employment benefits was KCHF 88 in 22-23 (KCHF 68 in 21-22)”. There is no disclosure of who these close family members of key management personnel are nor how long such

‘post-employment benefit’ payments (which are apparently not pension payments) have been made.

We hope to hear from the new Board on the reasons behind certain disclosures (or non-disclosures). We also hope to receive Board minutes approving the Consolidated Financial Statements 2022-23 and (as was the case last year) together with any ‘pending points’ with regards to the Board approval of the financial statements. As detailed in the foregoing discussion, the ‘pending points’ attached to the CFS-22 have now been corrected.

Finally, we would also urge the Board to inform the United Nations Office in Geneva of this turnaround and the changes in the previous financial statements to assure them of the financial strength of the institution.

Major non-financial matters

We congratulate the Ecolint Board on the remarkable progress it has made in addressing the community’s concerns about financial issues and satisfying CIS of the school’s robust financial standing. This has involved an enormous amount of pro-bono time and effort, particularly by some Board members.

We commend the initiative announced in the school newsletter on Friday 12 January, that the Governing Board has appointed an Ombudsperson who reports to the Board, is not part of the management structure, and has no formal power to make any decisions. The Ombudsperson will present anonymised reports twice a year to the Governing Board, the Director General, and the Commission Paritaire. The Board’s strategic intent is to socialise the Ombudsperson frameworks with staff in the first year, but to consider expanding further to include parents in the following year (2024-2025).

Beyond this, we have some outstanding concerns about slow progress on a number of non-financial issues, although it is unclear to what extent this is due to the division of roles and responsibilities as between management and the Board. These include:

•       The Review of whistleblower cases since 2012 promised by the then Board Chair at the CGA in May 2023

• Whether the school continues to fund litigation by management and/or former Board members against former members of staff, and if so why

• The status of the review of the Regulations of the Governing Board attaching to the Charter of the Foundation of the International School of Geneva

The re-appointment of the Director of Finance and Administration by the Director-General, advised to the staff of the school only and subsequent to the announcement to the entire school community of his pending departure. In his capacity as Director of Finance M Falvert played apivotal role in preparing previous years’ budgets, advising both the Finance Committee and the Executive Committee; his Budget Reportfor 2022-23 issued 25 January 2023 forecast a deficit of CHF3.7 millionfor 2023-24 (the fourth year in a row that his Budget Reports had predicted a deficit)and recommended a fee increase of1.5%.This advice was instrumental in the unilateral cancellation of the CCT. We understand that, in his capacity as Directo rof Administration, M Falvert has been intimately involved with past whistleblower cases and litigation which might present conflicts of interest in the continued litigation against whistleblowers