ADMINISTRATIVE AND FINANCIAL MATTERS

Financial Matters

Financial Position of the Organization¹

¹ CL 59/PV/6.

(a) Status of Contributions

272. As shown in the following table, contributions due and payable at 22 November 1972 totalled $7,039,380 of which $880,761 represented arrears of contributions due for 1971 or earlier years. These figures excluded assessments totalling $234,299 due from certain Member Nations which, in accordance with various resolutions of the Conference, were payable in instalments in 1973 and future years.

^a Of which $2,893 payable in 1971 and $2,893 payable in 1972 in accordance with Conference Resolution 33/65.
^b Payable in 1972 in accordance with Conference Resolution 25/71.
^c Payable in 1972 in accordance with Conference Resolution 26/71.
^d This contribution was expected to be received shortly.

273. The Council noted with concern that there had been a considerable slowdown in the rate of payment by Member Nations of current assessments during the first eight months of 1972 and that this would have an adverse effect on Miscellaneous Income of the current biennium.

274. With regard to the contribution of the United States of America, the Council was informed that there would be no reduction in the assessed contribution from 31.52 percent to 25 percent during the 1972–73 biennium.

275. The Council appealed to Member Nations to comply with their contractual obligations and settle their outstanding contributions promptly and at the same time to arrange for payment of their 1973 assessments at an early date in the year, as called for under Financial Regulation 5.5 ¹, so as to avoid further serious difficulties in FAO's financial situation.

(b) Status of 1972–73 Expenditure

276. The Council noted that as at 31 October 1972 the cash expenditure ($28,904,027) and unliquidated obligations ($7,766,249) recorded in the books of the Organization in respect of the 1972–73 biennium, totalled $36,670,276 against the 1972–73 budget of $81,660,000 (as reduced by $4,338,000 in accordance with paragraph 2 of Conference Resolution 5/71 -Removal of Administrative and Operational Servicing Costs of UN Development Programme -Small Scale Projects).

(c) Working Capital Fund

277. The Council noted that in accordance with the recommendations made by its Fifty-Seventh Session, ² as endorsed by the Sixteenth Conference Session (Resolution 23/71) the Working Capital Fund had been reimbursed from the 1970–71 Cash Surplus for withdrawals made in 1968–69 and 1970–71.

278. The Council noted furthermore that the Director-General had not withdrawn from the Working Capital Fund the sum of $1m. authorized by Resolution 3/57 of the Fifty-Seventh Council Session and approved by the Sixteenth Conference Session ³ towards financing the unbudgeted increases in cost of staff remuneration and additional costs ensuing from changes in currency exchange rates in the 1972–73 biennium.

¹ Financial Regulation 5.5 provides that contributions shall be due and payable within 30 days of receipt of the Director-General's informing Member Nations of their obligations in respect of annual contributions to the Budget. In practice the Director-General's communications are dispatched during the first week of January.

² CL 57/REP, para. 113.

³ CL 71/REP para. 259.

279. As no withdrawal had been made, it had not been necessary to reimburse the Working Capital Fund and the full amount of the 1970–71 cash surplus of $1,404,710 was therefore withheld from distribution to Member Nations in accordance with the decision of Conference Resolution 23/71.

Financing of Unbudgeted Extra Costs and Impact on the Programme of Work and Budget¹

(a) Current Situation

280. The Council noted that the most recent estimates of unbudgeted extra costs for 1972–73 amounted to $6.5 million, of which $3.7 million would arise from currency exchange losses and $2.8 million from cost increases.

281. The Council was informed of the measures which had been taken by the Director-General to effect economies and adjust priorities, with the result that about $6.5 million would be available to meet the unbudgeted extra costs. The Council commended the Director-General for the quick and effective steps he had taken to overcome the financial crisis.

282. With regard to various suggestions which the Twenty-Seventh Session of the Finance Committee had requested the Director-General to explore with a view to finding savings, the Council expressed the desire that a continuing review and control be undertaken with respect to travel costs. In addition, concern was expressed over the rising costs of General Service salaries, resulting from the fact that increases were given every time the Italian wages/salaries index rose 5 percent. Apart from being among the major causes of FAO's budgetary difficulties this trend had resulted in a marked increase in the overlapping of General Service salary scales with those of Professional staff, whose wages moved with the cost of living, and tended to distort the criterion for payment of salaries on the basis of job responsibilities. The Council was informed that the Director-General, who had already initiated discussions with the Staff Council with respect to this matter, hoped to submit a report and recommendations to the Spring 1973 Session of the Finance Committee. The matter could then be dealt with by the Sixtieth Session of the Council. He hoped that the Council would be willing to hear a representative of the Staff Council on this matter at that time.

283. The Council requested the Director-General to provide its next Session with full details as to how the emergency measures had affected the redeployment of personnel with respect to the adjustment of priorities and grade structure.

(b) Future Biennia

284. As to measures that might be taken to protect the Organization in future against the impact of “Unbudgeted Extra Costs”, the Council supported the constructive suggestions contained in the Report of Twenty-Eighth Session of the Finance Committee. ²

285. The Council recognized that the problem was extremely complex, and concurred with the Finance Committee that the present financial crisis arose from two distinct and different causes, each calling for separate consideration:

1. the instability of the international monetary situation highlighted by the realignment of currency exchange rates in 1971; and

2. the strong trend of increased costs which had developed over the last two years.

¹ CL 59/PV/6, CL 59/PV/7 and CL 59/PV/20.

² CL 59/22.

286. The Council agreed that as similar situations could arise in the future, it was important to find remedies so that in succeeding biennia the impact of these external forces on the Organization's Programme of Work would be minimized.

(c) Unbudgeted Costs Due to Currency Realignments

287. The Council noted the recommendation of the Finance Committee that some kind of coverage should be provided against unbudgeted extra costs arising from changes in exchange rates and reviewed the three possibilities mentioned by the Finance Committee in its report:

1. Requiring Member Nations to pay an appropriate proportion of assessed contributions in the currency of the host country (at present the Organization received approximately 25 percent of its Budget in lire, while some 60 percent of its expenditures were in lire);

2. Requesting additional payments from countries whose currencies had been revalued upward vis-a-vis the US dollar (the currency in which the Budget and assessments were expressed);

3. Using the mechanism of Supplementary Estimates under Financial Regulation 3.9 with appropriate delegation by the Conference to the Council of authority to approve such Estimates.

288. Recognizing certain difficulties inherent in (i) above, the Council concentrated its attention on the two latter possibilities.

289. Some members held that countries which had revalued their currencies should be called upon to provide contributions additional to their dollar-expressed assessments, as they had benefited in terms of their national currency, to the detriment of FAO; others maintained that this would not be acceptable to the countries concerned because of other adverse effects of revaluation on their economic and budgetary positions.

290. Other members supported the use of the mechanism of Supplementary Estimates under Financial Regulation 3.9, with appropriate revisions of the Basic Texts to provide for delegation by the Conference to the Council of the authority to approve such Supplementary Estimates. This method of dealing with the problem would utilize the supplementary estimate procedure authorized by the Financial Regulation, and would spread the additional cost over all Member Nations.

(d) Unbudgeted Costs Due to Inflation

291. The Council concurred with the Finance Committee that the establishment of a Special Reserve to meet unbudgeted costs due to inflation, as suggested by the Director-General, was not advisable since it had the disadvantage of reducing incentives to find economies.

292. It was agreed that additional costs due to inflation, should whenever possible be met first and foremost from economies, although this should not lead to undesirable cuts in programmes. In this connexion, the Director-General stressed that the economies to be achieved in 1972–73 were of such magnitude that they could not be repeated in future biennia.

293. The Council recalled that the principles and practice of “full budgeting” followed the recommendations of the Ad Hoc Committee of Experts to Examine the Finances of the UN and Specialized Agencies, to provide the very best estimates for the future budgetary period for submission and approval by the Governing Bodies, and that the Consultative Committee on Administrative Questions (CCAQ) had reviewed these recommendations and agreed that their adoption was desirable.

294. The Council recalled that an attempt was made for 1972–73 to provide for “full budgeting” in the estimates of the Programme of Work and Budget covering such cost increases as were likely to occur. However, as a result of drastic changes in the international monetary situation in August 1971, the Conference had been informed in November 1971 that the amount provided in the estimates (i.e. $1 963 000) was insufficient and that the best estimate of additional unbudgeted costs was $3.6 million in addition to the amount provided.

295. The Council further recalled that the Programme and Finance Committee, in October 1972, had recommended the endorsement by the Council of a more realistic implementation of the “full budgeting” concept in the preparation of the 1974–75 Programme of Work and Budget, so as to enable Member Nations to see clearly the full estimated costs of the Programme which they were expected to approve. The Director-General fully agreed with this concept. However, it was emphasized that this must not mean that all potential cost increases should be allowed for in the budget estimates.

296. In considering the recommendations of the Finance Committee, some members of the Council felt that it might be preferable to adopt a system of “semi-full budgeting”, whereby only such increased costs as are expected to occur in the first year of the biennium (together with the second year's provision for such costs) would be included in the budget estimates. After adoption of the Budget by the Conference, any increased costs in addition to those provided for in the Budget would have to be submitted, in the form of Supplementary Estimates, to the Council for consideration and approval pursuant to authority delegated to the Council by the Conference¹.

297. One member suggested that it might be advisable to provide separately in a Reserve Chapter of the Budget for those cost increases which were expected to occur during the budgetary period, and only use the funds so provided after consideration and approval by the Finance Committee and the Council, when the events for which the budgetary provisions had been provided for actually occurred.

298. In conclusion, the Council requested the Finance Committee to re-examine the problems in the light of the Council's discussion, and to make recommendations to its Sixtieth Session. These should include a recommendation on the level of the Working Capital Fund which might need to be increased to permit financing of unbudgeted costs pending the receipt of additional contributions that would arise in the event the Council approved Supplementary Estimates under the proposed delegation of authority from the Conference. In this connexion, the Council noted that the level of the Working Capital Fund ($4.5 million) had been established by the Thirteenth Session of the Conference in 1965 and had not been increased since then even though the Budget level had since increased.

Audited Accounts²

(a) Vol. I - Regular Programme 1970–71

(b) Vol. II - United Nations Development Programme 1971

(c) Vol. III - World Food Programme 1971

299. The Council reviewed the above accounts and noted with satisfaction the reduction in size and format that had been made in consequence of the decision in principle, taken at its Fifty-Seventh Session, that wherever possible the volume of the documentation submitted to it should be reduced.

300. The Council noted with appreciation that in his reports the External Auditor had not confined his comments to accounting and financial aspects of the Organization's activities, but had also reported on the “value for money” aspect. In this respect it drew attention to the External Auditor's comment concerning problems encountered in a Ground Water Development Project. It requested the Director-General in consultation with UNDP to bear in mind the experience gained in this project for similar studies in the future, in particular by strictly applying careful criteria to the definition of objectives and questions of feasibility during project formulation missions. The Council stressed that it was necessary to take all possible steps to avoid management errors, leading to waste of funds.

¹ See para. 290 above.

² C 73/5, C 73/6, C 73/7 and CL 59/CW/REP.

301. The Council also expressed appreciation for the External Auditor's comment concerning the situation as regards contractual services in connexion with shipments of personal effects and removal of household goods. It agreed with the External Auditor that even if the quality of-service provided by the Organization's agents was entirely satisfactory, the Organization needed to satisfy itself from time to time by the process of competition, that prices charged were fair and reasonable.

302. As regards the Accounts of the World Food Programme (WFP) the Council noted the External Auditor's comments concerning the control of distribution and use of WFP commodities in a Highway Construction Project and in a Project for the Development of Floodlands for Fish Farming. The Council recognized the practical difficulties of WFP field staff in exercising local supervision, in view of the fact that the primary responsibility for project implementation rested with the recipient government. It stressed however that ways and means should be found to ensure greater influence by WFP staff in the control and distribution process of WFP commodities. The Council reaffirmed the request made by the Twenty-Second Session of the IGC that the Executive Director “consider the possibility of incorporating in this proposed study of WFP Field Organization the question of the role of WFP Field Staff in supervising WFP operations connected with the management of projects and the supply of commodities for their projects.”

303. The Council forwarded these Accounts and its report thereon to the Conference in accordance with the provisions of General Rule XXIV-3(b). An appropriate draft Resolution enabling the adoption by the Conference of these Accounts together with those for 1972, would be included in the 1973 pre-Conference Council report.

Amendment to Rule XXVII-7(o) of the General Rules of the Organization (GRO)

304. Pursuant to a question raised at its Fifty-Seventh Session ¹ the Council considered a draft amendment to General Rule XXVII-7(o) proposed by the Finance Committee.

305. The Council concurred with the proposal of the Finance Committee and accordingly recommended that the Conference amend Rule XXVII-7(o) (GRO) to read as follows [deleting words in square brackets]:

“7. The Finance Committee ............... shall have, in particular, the following functions:

...............
...............
...............
...............

o. to examine [and approve] the report of the external auditor and to report to the Council on matters involving policy issues”

306. The effect of the proposed amendment was to give better expression to the Finance Committee's responsibilities in the review of the Organization's Audited Accounts.

Personnel Matters²

Report of the Special Committee for the Review of the United Nations Salary System (Committee of Eleven)

307. The Council generally shared the views of the Finance Committee regarding the Report of the special Committee for the Review of the United Nations Salary System (Committee of Eleven), noting particularly the imprecision of the conclusions in the Report. It agreed with the need for an objective, independent International Civil Service Commission which would command the confidence of governments, management and staff. It noted that there would be opportunity at its Sixtieth Session to review the matter after action had been taken by the UN General Assembly at its current session. It requested, the Finance Committee, in collaboration with the Director General, to consider the results of that debate carefully.

¹ CL 57/REP para. 123.

² CL 57/5, CL 59/7, CL 59/22, CL 59/CW/REP and CL 59/PV/19.

Management/Staff Relations

308. The Council noted that of the numerous recommendations contained in the Reports from the Special Committee on Management/Staff Relations, study and implementation had been completed on 48, with 87 still in process of implementation (6 having proved unacceptable to the Director-General). While expressing satisfaction with this progress, the hope was expressed that as recommendations with programme and financial implications were implemented, they be brought to the attention of the Programme and Finance Committees and the Council, as appropriate.

309. The Council further noted that while the development of a comprehensive and planned rotation policy between Field and Headquarters staff had been deferred in view of the problems posed by the financial crisis of the Organization, it was essential that such a policy be developed. It requested the Director-General to submit an interim report to the Finance Committee on the problems encountered in shifting personnel between Headquarters and Field posts. It also noted that the recommendation for an Ombudsman, now under joint study with the Staff Council, involved financial and legal questions requiring study by both the Finance Committee, the CCLM and the Council.

Appointment of the Alternate Chairman of the FAO Appeals Committee¹

310. In accordance with Staff Regulation 301.111, the Council appointed H.E. Mr. Soemarjo Sosrowardojo (Ambassador of Indonesia to Italy) as Alternate Chairman of the FAO Appeals Committee, to replace H.E. Mr. H.N. Khan (Ambassador of Pakistan to Italy).

Recruitment of Field Personnel

311. The Council noted the progress made in the area of recruitment of field personnel and was informed about the language and educational requirements in vacancy announcements. It agreed that measures should be devised to accelerate the dispatch of vacancy announcements to Member Nations. It was also proposed that the maintenance of rosters of expert was a reasonable way to help expedite recruitment for field vacancies, and the Council requested the Finance Committee to examine and report on this. It also agreed that lists of projected needs should be developed to allow Member Nations to give greater assistance in the recruitment of staff.

312. The Council noted that for the 12-month period ending 30 September 1972 a total of some 350 vacancy announcements were issued, compared with approximately 130 for the preceding 12-month period. It also noted that during the period 1 October 1971 to 30 September 1972 a total of 650 field posts had been filled, of which 281 were by transfer of staff and 369 by new appointments.

Briefing of Field Personnel

313. The Council noted that substantial progress was being made toward effecting the Director-General's long-term plan for improving arrangements for field staff.

Staff Evaluation

314. The Council noted that a trial run of a new Staff Evaluation system was now being implemented in two Divisions, and some concern was expressed at the apparent cost and complexity of the scheme. It noted, however, that this was a controlled experiment with substantial potential for obtaining accurate evaluations and improved Management/Staff communications. Therefore, it favoured continuation of the experiment, with the understanding that results of the trial run would be reviewed by the Finance Committee and the Council.

¹ CL 59/LIM/5 and CL 59/PV/13.

Tenure of Appointment

315. The Council noted that the policy of limiting all appointments to fixed-term had been maintained and that in conformity with the request of the Fifty-Sixth Council Session ¹ the Director-General would, at a future session, present criteria for determining positions considered suitable for fixed-term and permanent appointments. It noted that the matter would be reviewed again by the Finance Committee after taking account of the Programme Committee's views. The Council further noted that the question of home-leave for fixed-term personnel would be examined at the next session of the Finance Committee.

¹ CL 56/REP para. 188.