| FC 97/3
|
| FC 97/3
|
Ninety-seventh Session |
Rome, 17 - 22 September 2001 |
Programme and Budgetary Transfers in the 2000-01 Biennium |
1. Conference Resolution 2/99 on the Budgetary Appropriations for 2000-01 approved a budget of US$ 650 million, and Financial Regulation (FR) 4.1(a) authorises the Director-General to incur obligations up to the amount voted. Financial Regulation 4.5(b) requires transfers from one chapter to another to be approved by the Finance Committee. This document provides updated estimates of the chapter transfers foreseen in 2000-01, for approval by the Finance Committee.
2. At its 96th session in May 2001, the Finance Committee reviewed the Thirty-fourth Annual Report of Budgetary Performance and Programme and Budgetary Transfers1, which was subsequently endorsed by the Council at its 120th session in June 2001. The document tentatively indicated that transfers would be required principally in favour of Chapter 1 (US$ 0.4 million), Chapter 3 (US$ 2.3 million) and Chapter 5 (US$ 3.7 million). Resources would need to be transferred from Chapter 2 (US$ 6.1 million).
3. The Committee noted that the proposed transfers between chapters were consistent with information provided to the Joint Meeting at its September 2000 session2, and re-emphasised its position that resource transfers from technical programmes (Chapter 2) should be minimised to the extent possible. It also noted that the extent of the transfers would be influenced by factors including:
4. Some shifts in expenditure patterns have occurred as a result of these items, particularly the final one, as outlined below.
5. Support cost reimbursements are essentially earned in proportion to the actual expenditure on non-emergency trust fund projects and United Nations Development Programme (UNDP) projects implemented or executed by FAO. Previous forecasts of some further decline in UNDP project delivery in 2001 are expected to materialise, due to UNDP's new policy orientations which point to a diminishing role in project financing for agency execution or implementation. An overall shortfall versus budgeted support cost reimbursements of US$ 8.4 million is foreseen, which is in line with the previous forecast in the Thirty-fourth Annual Report of Budgetary Performance and Programme and Budgetary Transfers.
6. The additional funds approved for the Oracle development project3 are unlikely to be fully spent as planned. This is mainly due to delays in filling 11 additional professional positions approved under the new structure and consequent lack of adequate functional support for the necessary development work. It is planned that these funds, which were originally earmarked for the Finance Division (AFF), be used to anticipate the purchase of equipment and Oracle software maintenance under the Information Systems and Technology Division (AFI) Computer Pool Account. Such re-direction of resources would shift approximately US$ 1 million from Chapter 5 into the Computer Pool Account, which is distributed across the entire programme structure. As the expenditures involved were, in any case, planned for 2002, this will effectively allow the funds in question to be made available for Oracle development work in the next biennium.
7. During the biennium, all charges for staff costs against divisional budgets are made at standard rates that take account of the grade and duty station of the staff member. This ensures that allottees and programme managers are not held accountable for cost variations that are outside their control, such as exchange rate variations and changes in salaries and allowances determined by the International Civil Service Commission. Differences between the overall standard costs established for the PWB 2000-01 in July 1999 and actual Regular Programme costs incurred during the biennium represent the staff cost variance. The staff cost variance is charged in the financial accounts across all programmes in relation to the amounts incurred at standard rates.
8. Actual staff cost trends until mid-2001 reveal that a favourable staff cost variance of US$ 12 million may conservatively be estimated to arise for the biennium. This is equivalent to approximately 3 percent of total biennial standard staff costs.
9. This estimate is arrived at after adjusting for additional Headquarters costs deriving from increases of 12.2 percent effective July 2001 for professional and of 4.25 percent, retroactive to November 2000, for general service salaries, following the recent cost of living survey in Rome. The staff cost variance estimate also provides for some limited inflation adjustments in decentralized locations during the latter part of 2001.
10. With regard to the decentralized offices, the relationship of the US Dollar to the local currencies in the countries in which FAO has offices (i.e. Regional, Sub-regional, Liaison Offices and FAO Representations) is having a significant impact upon costs. The US Dollar exchange rate has fluctuated substantially against these currencies in the past two years. While this has been partially offset by high local rates of inflation, the overall impact on Dollar denominated costs has been favourable. For example, in Ghana, where FAO has its largest regional office, the local currency (Cedi) has depreciated by 66 percent against the US Dollar in the past two years and actual unit staff costs at that location are expected to be some 17 percent lower than the budgeted level. Similar, but less significant trends, are foreseen in all other Regional, Sub-regional and FAOR offices.
11. Downward adjustment for actual salary costs also includes the impact of the possible charges in 2000-01 for After Service Medical Coverage and terminal payments. The assessment of the Organization's liability for the periodic charges for these After Service Benefits4 is based on actuarial valuations. Under current accounting practice, these valuations are undertaken towards the end of every biennium, and completed after the biennium for retroactive application. While it is not possible to prejudge the results of the actuarial valuations, the current staff cost variance forecasts assume that the charges mandated by the 31 December 2001 valuation will be consistent with the results of the 31 December 1999 valuations. In this connection, the following observations are made:
12. Other favourable influences on actual staff costs versus the budget rates arise on account of the lower than expected increase in general service salaries at Headquarters effective November 1999 (1.55 percent versus 3 percent budgeted) and a downward revision for the impact of the International Labour Organization (ILO) Administrative Tribunal Judgement of January 1998 on the language factor.
13. The overall Staff Cost Variance amount could be higher than the current forecast if the benefits of a strong US Dollar against the local currencies where the Organization has large offices are not offset by equal and opposite inflationary increases. The final outcome is also dependent upon the results of the actuarial valuations of the After Service Benefit plans as at 31 December 2001, which will only be available in 2002.
14. As previously reported in the Thirty-fourth Annual Report of Budgetary Performance and Programme and Budgetary Transfers, the Director-General was obliged to curtail the allotments of the technical and economic programmes (Chapter 2) in particular to cover expected shortfalls in Support Cost reimbursements and to compensate for under-budgeted, high priority programmes in other chapters, such as Oracle. The favourable trends in staff costs allow some relaxation of this constraint and the technical departments have therefore been informed of increased flexibility in their spending targets, including provision for additional language coverage. This is expected to minimise the required transfer from Chapter 2.
15. Part of the favourable staff cost variance is also being re-directed to high-priority, under-budgeted items in other chapters including, in particular, one-time non recurrent costs for the overdue replacement of equipment in the FAORs and urgent one-off costs for the Wide Area Network and computer software upgrades.
16. Full utilisation of the 2000-01 Appropriation is indicated, and the 2000-01 transfers sought in this paper, and tabulated below, are broadly consistent with the amounts previously foreseen.
Chapter/Title |
2000-01 Appropriation |
2000-01 Forecasted Expenditure |
Surplus/(Deficit) |
|
| 1. | General Policy and Direction | 50.9 |
50.7 |
0.2 |
| 2. | Technical and Economic Programmes | 289.2 |
284.2 |
5.0 |
| 3. | Cooperation and Partnerships | 120.6 |
123.3 |
(2.7) |
| 4. | Technical Cooperation Programme | 91.5 |
91.5 |
- |
| 5. | Support Services | 57.3 |
59.8 |
(2.5) |
| 6. | Common Services | 39.9 |
39.9 |
- |
| 7. | Contingencies | 0.6 |
0.4 |
0.2 |
| Grand Total Regular Programme | 650.0 |
649.8 |
0.2 |
|
| 9. | Redeployment and Separation Costs | 9.0 |
8.4 |
0.6 |
17. The explanations of the required transfers by chapter were provided in the Thirty-fourth Annual Report of Budgetary Performance and Programme and Budgetary Transfers, which the Finance Committee reviewed in May 2001. A summary of the main influencing factors is provided below:
18. Chapter 1 - General Policy and Direction: under-spending is mainly due to staff vacancies in PBE which were not utilised for other inputs and a lower than expected financial contribution of the Organization to inter-agency coordination mechanisms.
19. Chapter 2 - Technical and Economic Programmes: as advised in the previous report to the Committee, these savings had already been generated in 2000 principally because of vacant posts and through savings on contractual services (e.g. for support staff in the Joint FAO/IAEA Division (AGE). Such savings had been intentionally set aside to cover increased costs elsewhere in the budget although the amount sought for transfer from Chapter 2 has now been reduced for the reasons stated above and in accordance with the stated wish of the Committee.
20. Chapter 3 - Cooperation and Partnerships: over 67 percent of the total support cost income in the PWB 2000-01 is allocated to Chapter 3 and the resulting impact of the expected support cost shortfall of US$ 8.4 million is approximately US$ 5.6 million. Any shortfall in support cost reimbursements must eventually be accompanied by a reduction in expenditures for administrative and operational support. However, most of the costs relate to salaries of staff and hence there is always a lag in the decline in expenditures versus income. However, substantial cost savings arising from the restructuring of field operations, including the restructuring of the Technical Cooperation Department and of the regional operations branches, are reflected in the forecast expenditure. Exchange rate gains in the FAOR offices, arising from the strengthening of the US Dollar against most currencies, have been reprogrammed into the country offices.
21. Chapter 5 - Support Services: expenditure beyond the total appropriation for Major Programme 5.2 for the Oracle development project6 is less than foreseen due to the delay in filling the additional professional positions approved under the new structure.
22. Chapter 6 - Common Services: although some favourable currency effects were recorded against Headquarters non-staff expenditure because of the stronger US Dollar versus the Lira, these funds are reprogrammed for high-priority infrastructure works.
23. Chapter 7 - Contingencies: Financial Regulation 4.5(c) (i) states that "the expenditure of any sum (or part thereof) which may have been voted in the budget to cover unforeseen contingencies may be effected by the Director-General." As previously indicated7, the Director-General will use contingency funds to partially offset incremental Oracle costs, or for incidental costs not covered by the Host Government for the emergency structural works currently being undertaken on the upper floor of the main building, such as the provision of catering facilities and relocation costs.
24. Chapter 9: at its November 1999 session, the Conference authorised the advance of funds from the Working Capital Fund up to an amount of US$ 9 million to cover redeployment and separation costs to complete restructuring pending the eventual receipt of assessed contributions in arrears from the major contributor8. Latest estimates indicate that these funds will be close to fully exhausted.
25. In accordance with FR 4.5, the Finance Committee is requested to endorse the transfer of up to US$ 5.2 million from Chapter 1, General Policy and Direction, and Chapter 2, Technical and Economic Programmes, to Chapter 3, Cooperation and Partnerships (US$ 2.7 million) and Chapter 5, Support Services (US$ 2.5 million).
26. The forecast budgetary performance and the required transfers are influenced by factors that are largely outside the Organization's direct control, including the outcome of the actuarial valuations for After Service Benefits, the US Dollar rate of exchange against the currencies of FAO's Regular Programme operations, and the level of UNDP and non-emergency trust fund delivery (on which AOS9 reimbursements are based). The precise amounts transferred can only be determined after the finalisation of the 2000-01 Regular Programme accounts in early 2002.
27. The Committee may wish to note that the estimate of staff cost variance, in particular, is sensitive to matters outside the Organization's direct control, and that there could be some variation to the proposed transfers specified at the present time. As per past practice, the Director-General will report to the Finance Committee, at its first session in 2002, the exact amounts transferred.
2 Document JM 2000/3, FAO's New Financial Systems and Procedures, refers
4 After Service Benefits consist of staff member entitlements which become payable at the end of service
5 Terminal Payments relate to payments of accrued leave, repatriation grant, termination indemnity, the cost of repatriation travel and the removal of household goods for all eligible staff.
