Yesterday (April 24th) was the 95th anniversary of the Armenian Genocide, when the Ottoman Turks exterminated 1.5 million Armenians. The TV went on early in my family’s home and was tuned into a Yerevan station that showed a long all-day procession of people laying flowers at the Armenian Genocide Memorial in Yerevan. In Gyumri there was a procession with flower-carrying people through the city to the main square where the local government was providing transportation to a memorial site, about an hour out of the city, where Turks had pushed Armenians to their deaths over a cliff at the time of the genocide. At three in the afternoon, with my family, I watched an excellent Italian movie about the genocide, which was dubbed in Armenian. (I was a little lost!)
Two days ago Armenia announced that they were dropping out of the protocols that were supposed to lead to an agreement to open the Turkish border because the Turks are asking for many preconditions before the border opens, which are unrealistic at this time, and which were not part of the original agreement. It’s hard not to feel disappointed because I think that the border opening would bring many economic benefits to Armenia. My family appeared relieved at this announcement.
I returned a few weeks ago from a vacation in Turkey and have had to restrain what I would like to say to the Armenians about Turkey. Turkey is a country with many problems, so I can understand why the EU is not jumping at the opportunity to admit them as members. At the same time it has a lot to offer Armenia. I am not sure that even an apology from the Turks would suffice for the Armenians who can’t forget the horrors of 1915 and who spend a great deal of time assuring that their children don’t forget it either. It’s hard for me to see how the grounds for respect, which are necessary for a beneficial relationship, can be laid.
Accounting in Armenia
I have been working with an NGO, helping them to get a new accounting software package up and running. In a few weeks I will be working with another NGO, again training users on a new software package. This process has been one of my greatest challenges, ever.
I have years of experience with accounting software implementation from a $6 million implementation of Oracle down to QuickBooks and in all kinds of environments, from manufacturing and distribution to non-profits. But accounting software in Armenia is so different.
When Armenia was part of the Soviet Union with its top-down planned economy there was a mandatory chart of accounts (COA), used as a planning device, for all enterprises. Fourteen percent of the average enterprise’s resources were tied up in collecting data. Because everything was state controlled and state owned there was no accounting system as we know it and also because “profit” was not the motive, their system could not be used for a capitalist system. In 1991 when the Soviet Union fell apart, Armenia had to institute its own accounting system. Of course, it was modeled on the Soviet system. So the COA, which is the framework on which accounting transactions hang, is mandated by the government. The mandated COA is entirely inappropriate and insufficient for the particular NGO I am working with which receives donor funds and provides services through various programs to the needy, such as a child care center, a center for disabled children, home services to the elderly, etc. You can imagine that these were not services tracked by the Soviet system.
Three of my favorite accounts on this mandatory COA are “Depreciation of long-lived saplings”, “Grown and fattened cattle”, and “Expenses on irretrievably received assets”. In the late 90’s Armenia adopted International Accounting Standards (IAS) officially, but in fact neither the government, the banks, nor businesses actually used them. In 2002, USAID funded a project to place the standards in use which involved training trainers, major businesses, banks, and the government. In 2005 USAID funded a project to translate the International Financial Reporting Standards (formerly IAS) into Russian because in this way other former Soviet countries could use the books and there would be a basis for measuring and certifying accounting knowledge. So fourteen books were translated in Yerevan into Russian and for Armenia a fifteenth was added, The Armenian Chart of Accounts. The task was far more difficult than anticipated because the Russian language did not include many accounting terms and concepts used by the IFRS. (Neither does Armenian which means that many items that would have one word in English involve long descriptions in Armenian.) Under IFRS entities can adopt their own COA within certain parameters. But the Armenian government decided to maintain something similar to the old Soviet COA because of pressure from government entities and especially the tax collectors who thought the old way was just fine.
The NGO I’m helping essentially uses just three profit and expense accounts. (Grants related to assets, Administrative expenses, and Main production) All income or expenses are put into these three accounts. Sub ledgers are maintained for the breakdown within these accounts. It means that ratio analysis is very difficult as is that quick glance to see if all utilities are included, because all expenses related to the programs are lumped into main production.
USAID started their project because Armenian financial information is not comparable to anything in the European Union or the US, which makes it difficult for investors and donors to analyze information and to determine if money is spent as they require. As a result many beneficiaries have to keep two sets of books, the mandatory one and one for the out-of-country donors and investors. The goal of USAID was to improve the investing climate and provide some transparency. Though the Armenian government says that their goal is the same, the reality is seems quite different. (Armenia is currently 38 on the Index of Economic Freedom with Hong Kong at the top and North Korea at the bottom at 179. The US is at 8. This is a huge improvement for Armenia.)
I think that the only hope will come as the younger generation learns the IFRS standards, becomes certified and licensed, and attends continuing education classes, a whole new concept in Armenia. This process has only been in place for three years. Traditionally accounting was seen as a bookkeeping function, and when it was taught in the universities, only one class was offered. The current group of bookkeepers trained in Soviet times is incredibly resistant to change.
Because the COA is of little use for traditional accounting and analysis purposes, I have to be very creative in helping to set up sub-ledgers to track the information we need. It’s frustrating when I know that there is a much easier way that I cannot use.
I have years of experience with accounting software implementation from a $6 million implementation of Oracle down to QuickBooks and in all kinds of environments, from manufacturing and distribution to non-profits. But accounting software in Armenia is so different.
When Armenia was part of the Soviet Union with its top-down planned economy there was a mandatory chart of accounts (COA), used as a planning device, for all enterprises. Fourteen percent of the average enterprise’s resources were tied up in collecting data. Because everything was state controlled and state owned there was no accounting system as we know it and also because “profit” was not the motive, their system could not be used for a capitalist system. In 1991 when the Soviet Union fell apart, Armenia had to institute its own accounting system. Of course, it was modeled on the Soviet system. So the COA, which is the framework on which accounting transactions hang, is mandated by the government. The mandated COA is entirely inappropriate and insufficient for the particular NGO I am working with which receives donor funds and provides services through various programs to the needy, such as a child care center, a center for disabled children, home services to the elderly, etc. You can imagine that these were not services tracked by the Soviet system.
Three of my favorite accounts on this mandatory COA are “Depreciation of long-lived saplings”, “Grown and fattened cattle”, and “Expenses on irretrievably received assets”. In the late 90’s Armenia adopted International Accounting Standards (IAS) officially, but in fact neither the government, the banks, nor businesses actually used them. In 2002, USAID funded a project to place the standards in use which involved training trainers, major businesses, banks, and the government. In 2005 USAID funded a project to translate the International Financial Reporting Standards (formerly IAS) into Russian because in this way other former Soviet countries could use the books and there would be a basis for measuring and certifying accounting knowledge. So fourteen books were translated in Yerevan into Russian and for Armenia a fifteenth was added, The Armenian Chart of Accounts. The task was far more difficult than anticipated because the Russian language did not include many accounting terms and concepts used by the IFRS. (Neither does Armenian which means that many items that would have one word in English involve long descriptions in Armenian.) Under IFRS entities can adopt their own COA within certain parameters. But the Armenian government decided to maintain something similar to the old Soviet COA because of pressure from government entities and especially the tax collectors who thought the old way was just fine.
The NGO I’m helping essentially uses just three profit and expense accounts. (Grants related to assets, Administrative expenses, and Main production) All income or expenses are put into these three accounts. Sub ledgers are maintained for the breakdown within these accounts. It means that ratio analysis is very difficult as is that quick glance to see if all utilities are included, because all expenses related to the programs are lumped into main production.
USAID started their project because Armenian financial information is not comparable to anything in the European Union or the US, which makes it difficult for investors and donors to analyze information and to determine if money is spent as they require. As a result many beneficiaries have to keep two sets of books, the mandatory one and one for the out-of-country donors and investors. The goal of USAID was to improve the investing climate and provide some transparency. Though the Armenian government says that their goal is the same, the reality is seems quite different. (Armenia is currently 38 on the Index of Economic Freedom with Hong Kong at the top and North Korea at the bottom at 179. The US is at 8. This is a huge improvement for Armenia.)
I think that the only hope will come as the younger generation learns the IFRS standards, becomes certified and licensed, and attends continuing education classes, a whole new concept in Armenia. This process has only been in place for three years. Traditionally accounting was seen as a bookkeeping function, and when it was taught in the universities, only one class was offered. The current group of bookkeepers trained in Soviet times is incredibly resistant to change.
Because the COA is of little use for traditional accounting and analysis purposes, I have to be very creative in helping to set up sub-ledgers to track the information we need. It’s frustrating when I know that there is a much easier way that I cannot use.
Corruption
I was in a discussion meeting with a USAID (United States Agency for International Development) advisor and a group of mostly young people in Gyumri last week. The subject was corruption. The advisor listed several incidents of recent corruption in the US, starting with Rod Blancovitch, former governor of Illinois.
In Armenia people are affected by corruption from the day they are born. One young girl said that her mom told her that when she was born, she had to pay the nurses, who are salaried by the government, to care for her baby. Health care is provided by the government, but the reality is that people still have to pay for services that are supposed to be free. Doctors in Armenia are salaried at $200 a month which is difficult to live on and cannot provide the benefits to which they feel entitled. (I.e., car.) In addition they have most likely paid someone (the head hospital doctor) for the position they are in, money which they feel entitled to get back by charging patients for services that are supposed to be free. The additional amount that patients have to pay is not posted anywhere (because it is illegal), so the amounts charged to patients are inconsistent and are based on the doctor’s reputation and what he thinks the patient will pay. This is such a common practice that people do not even question it. I have heard my family discussing what they think they will have to pay for various services, and they chose the “cheap” doctor.
Teachers are also paid on the side by their students. Teachers often “pay” school directors to get their jobs. The school day is short. Teachers do not stay after school to help students, but they do tutor anyone who wants it for a price. The seventeen-year-old grandson who lives with my host family is currently paying three of his teachers for tutoring in hopes that he will get good scores on the university entrance exams in May. It is common practice for students to pay teachers for good grades. Some students at Yerevan State University posted a list of teachers and what you had to pay them for good grades last spring. It caused an uproar. University teachers are paid $200 per month as are many secondary teachers. The advisor asked those people at the discussion how they would feel about having heart surgery performed on them by a doctor who paid for his grades, and then paid for his job, so that there was no way of gauging his qualifications to do heart surgery. They were mute.
The Armenian government recently raised the salaries of police officers with the goal of reducing payoffs to the police by citizens stopped for “questionable” vehicle infractions. Everyone would acknowledge that they did not make a fair wage and these payments were the only way to make ends meet. People I talk to don’t think that this has been effective even though the government is threatening to prosecute policemen who take bribes.
The costs of doing business in Armenia are affected at all levels by corruption. The customs department has to be bribed to move imported goods into the country, the tax department can be paid off to look the other way, and people have to pay to expedite anything that the government has a hand in. Businesses keep two sets of books. Tax books for the authorities and another set of books that includes bribes paid and actual revenue, most of it paid in cash to escape the authorities who do not fairly tax businesses. Oligarchs and political friends of the government receive preferences. In Charentsavan last year a business which bottled water was shut down by the government for “tax” reasons though it was commonly known that the real reason was because the owner opposed an elected official. In Arzakhan where I lived last summer, a hot springs spa was shut down for tax reasons. The government said that the business owed $100,000 in back taxes. This was another political move. The government would not allow a successor owner to takeover the business unless the taxes were paid. The sum is ridiculous, which is obvious when you see the business, essentially an outdoors hot tub that accommodates about twenty people. But several people lost their jobs, and the community lost a minor tourist attraction. In the US an unrelated new owner would not be responsible for the debts of the prior owner and it would be in the government’s best interest to preserve the jobs and the revenue tax base.
Many businesses here hire relatives and friends who are not qualified for their jobs. Employees are not evaluated. Unrelated employees often have to pay to obtain their positions. Everything depends on who you know or who you can pay. This means that resumes have little value. Work experience is no reflection of whether or not you know what you’re doing. The work ethic is so lax that it is difficult to determine if a person is qualified for anything. Grades or a degree are not evidence of anything.
Armenia has been revising its school system over the past few years. A few years ago students were qualified for the universities after ten years of education. Then they spent four years at the university, which means that many students graduated from universities at 19 or 20 years. Medical school requires five years of higher education, so doctors graduate at 21 years. The system is now phasing in a requirement that students must attend twelve years of lower education, which is common in the European countries. Several reasons have been given for this change including a push from the European nations and the fact that students from Armenia are rarely qualified to study overseas for higher education.
Two years of military service is required for all Armenian males (though if you can stay in school until you are 28, you can get out of this requirement.) One of the volunteer’s was saying that her family was complaining because their son, who is in the military and who is paid approximately $25 per month for incidentals and cigarettes, ended up with very little at the end of the month because he had to pay commanding officers for supposed infractions.
I feel overwhelmed by the level of corruption in this country. I haven’t even touched the issue of the favouritism shown to oligarchs in this country. The last piece of news that stressed me out is that the amount of payments coming into Armenian from the Armenian Diaspora and foreign aid equalled what the oligarchs were investing outside the country in foreign real estate. They receive all these preferences and then do not reinvest in Armenia, which shows the lack of confidence they have in the Armenian economy. While corruption at the highest levels is a real problem, the fact that corruption is endemic at the lowest levels also makes the situation feel impossibly overwhelming. The USAID advisor suggested that in order to turn the ship around the young had to refuse to make the payments and participate in the corruption. But it was very obvious that they did not want to be sacrificial lambs and ruin their opportunities for jobs by doing so.
In Armenia people are affected by corruption from the day they are born. One young girl said that her mom told her that when she was born, she had to pay the nurses, who are salaried by the government, to care for her baby. Health care is provided by the government, but the reality is that people still have to pay for services that are supposed to be free. Doctors in Armenia are salaried at $200 a month which is difficult to live on and cannot provide the benefits to which they feel entitled. (I.e., car.) In addition they have most likely paid someone (the head hospital doctor) for the position they are in, money which they feel entitled to get back by charging patients for services that are supposed to be free. The additional amount that patients have to pay is not posted anywhere (because it is illegal), so the amounts charged to patients are inconsistent and are based on the doctor’s reputation and what he thinks the patient will pay. This is such a common practice that people do not even question it. I have heard my family discussing what they think they will have to pay for various services, and they chose the “cheap” doctor.
Teachers are also paid on the side by their students. Teachers often “pay” school directors to get their jobs. The school day is short. Teachers do not stay after school to help students, but they do tutor anyone who wants it for a price. The seventeen-year-old grandson who lives with my host family is currently paying three of his teachers for tutoring in hopes that he will get good scores on the university entrance exams in May. It is common practice for students to pay teachers for good grades. Some students at Yerevan State University posted a list of teachers and what you had to pay them for good grades last spring. It caused an uproar. University teachers are paid $200 per month as are many secondary teachers. The advisor asked those people at the discussion how they would feel about having heart surgery performed on them by a doctor who paid for his grades, and then paid for his job, so that there was no way of gauging his qualifications to do heart surgery. They were mute.
The Armenian government recently raised the salaries of police officers with the goal of reducing payoffs to the police by citizens stopped for “questionable” vehicle infractions. Everyone would acknowledge that they did not make a fair wage and these payments were the only way to make ends meet. People I talk to don’t think that this has been effective even though the government is threatening to prosecute policemen who take bribes.
The costs of doing business in Armenia are affected at all levels by corruption. The customs department has to be bribed to move imported goods into the country, the tax department can be paid off to look the other way, and people have to pay to expedite anything that the government has a hand in. Businesses keep two sets of books. Tax books for the authorities and another set of books that includes bribes paid and actual revenue, most of it paid in cash to escape the authorities who do not fairly tax businesses. Oligarchs and political friends of the government receive preferences. In Charentsavan last year a business which bottled water was shut down by the government for “tax” reasons though it was commonly known that the real reason was because the owner opposed an elected official. In Arzakhan where I lived last summer, a hot springs spa was shut down for tax reasons. The government said that the business owed $100,000 in back taxes. This was another political move. The government would not allow a successor owner to takeover the business unless the taxes were paid. The sum is ridiculous, which is obvious when you see the business, essentially an outdoors hot tub that accommodates about twenty people. But several people lost their jobs, and the community lost a minor tourist attraction. In the US an unrelated new owner would not be responsible for the debts of the prior owner and it would be in the government’s best interest to preserve the jobs and the revenue tax base.
Many businesses here hire relatives and friends who are not qualified for their jobs. Employees are not evaluated. Unrelated employees often have to pay to obtain their positions. Everything depends on who you know or who you can pay. This means that resumes have little value. Work experience is no reflection of whether or not you know what you’re doing. The work ethic is so lax that it is difficult to determine if a person is qualified for anything. Grades or a degree are not evidence of anything.
Armenia has been revising its school system over the past few years. A few years ago students were qualified for the universities after ten years of education. Then they spent four years at the university, which means that many students graduated from universities at 19 or 20 years. Medical school requires five years of higher education, so doctors graduate at 21 years. The system is now phasing in a requirement that students must attend twelve years of lower education, which is common in the European countries. Several reasons have been given for this change including a push from the European nations and the fact that students from Armenia are rarely qualified to study overseas for higher education.
Two years of military service is required for all Armenian males (though if you can stay in school until you are 28, you can get out of this requirement.) One of the volunteer’s was saying that her family was complaining because their son, who is in the military and who is paid approximately $25 per month for incidentals and cigarettes, ended up with very little at the end of the month because he had to pay commanding officers for supposed infractions.
I feel overwhelmed by the level of corruption in this country. I haven’t even touched the issue of the favouritism shown to oligarchs in this country. The last piece of news that stressed me out is that the amount of payments coming into Armenian from the Armenian Diaspora and foreign aid equalled what the oligarchs were investing outside the country in foreign real estate. They receive all these preferences and then do not reinvest in Armenia, which shows the lack of confidence they have in the Armenian economy. While corruption at the highest levels is a real problem, the fact that corruption is endemic at the lowest levels also makes the situation feel impossibly overwhelming. The USAID advisor suggested that in order to turn the ship around the young had to refuse to make the payments and participate in the corruption. But it was very obvious that they did not want to be sacrificial lambs and ruin their opportunities for jobs by doing so.
Albert's Dinner
Last night we had borscht soup, two salads (beet and greens) and then Emma gave me a plate of a grain pilaf with a chicken leg which had been cooked with the borscht. Then she gave Albert a plate of pilaf with a small head, which had been cooked with the borscht. It was not a chicken head. (He eats sheep heads regularly, by himself with vodka.) It appeared to be a cat’s head based on the size though the nose was too long and the teeth were too sharp. Albert’s eyes lit up like two candle flames as he contemplated his delicious meal. I decided not to ask what it was for fear I’d get sick. (Today I wish that I had asked.) This is when life gets difficult, as I hold onto my stomach and try to be culturally sensitive, and not express my inner emotions!
Postscript: Albert was eating a rabbit head.
Postscript: Albert was eating a rabbit head.
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