FOLLOW UP REVIEW OF THE AFF REORGANISATION AND STAFFING

Objectives, Scope and Method of the Audit

240. – As indicated in the introduction, a follow-up review of the AFF reorganisation and staffing was conducted during the 2000-01 biennium to determine the changes made, if any, since my previous report [paras. 197 to 209]. Furthermore, as announced at the September 2000 Session of the Joint Programme and Finance Committee, the Organization was to conduct a review of AFF staffing. At the time of writing this report, the consulting firm, which was contracted out to provide an expert’s opinion, had not finalised its report yet. Nevertheless, my staff were able to review the preliminary and revised drafts.

AFF Organisation

241. – As a result of the organisational changes made in January and July 1999, the AFF division was composed of the following at the beginning of the 2000-01 biennium:

• the Central Accounting Service (AFFC) with the General Ledger, Financial Analysis and Reporting Group (GL), the Decentralized Accounting Group (DAG) and the Project Accounting Group (PAG);
• the Receipts, Payments and Treasury Service (AFFR) with the Accounts Receivables Group (AR), the Accounts Payable Group (AP), the Payroll Group, the Travel Group, and the Treasury Operations Group; and
• the Controls Branch in charge of accounting control, systems control, disbursement confirmation and control and accounting manuals.

242. – No major changes were made to the organisation during the 2000-01 biennium. However, a lot of temporary changes were made to management responsibilities at the service or unit/group Chief levels. According to the FAO, they were needed to take advantage of different skill levels and to better address problem solving. As already pointed out in my previous report, this affected, in particular, the Controls Branch, whose staff was diverted to other units with critical assignments (temporary supervision of the AR Group for instance).

AFF Staffing

Approved Staffing

243. – For the 1998-99 biennium, the authorised AFF staffing amounted to 97 posts plus seven temporary posts, which were established five years before, following the transfer of imprest accounting work and staff from the TC Department. For the 2000-01 biennium, the AFF authorised staffing was reduced to 87 posts since ten posts were cancelled as a result of the loss of the WFP income (six for treasury income and four for the expected loss of payroll income). Furthermore, the seven ex-TC posts, covered in the past by a yearly allotment, were not included in the budget. In my previous report, I had commented on the reduction in staffing. I argued that the centralisation into AFF of many functions previously performed by the departmental Management Support Units (MSUs), combined with the necessity for the division to be involved in the system control, assurance and analysis, should have normally led to an increase in the staffing rather than a decrease, at least before the actual Oracle implementation and in its initial stages.

244. – It should be noted, however, that at the time of adopting the PWB for 2000-01, the Conference was informed that “further restructuring requirements were being contemplated [...]. These involved in particular the strengthening of the Finance Division (AFF) and would also be duly reported to the Finance Committee.¹³” In September 2000, the Director-General’s decision on this matter was presented to the Joint Programme and Finance Committee for approval¹⁴. The following was indicated: “A number of factors combine to make it essential that the AFF structure be reviewed and strengthened at the present time. These include:

• the demand for specific technologically advanced skills to take best advantage of Oracle’s facilities;
• the revised work flows arising from the restructuring of the departmental [MSUs] and the creation of a centralised Management Support Service [MSS];
• the increase workload in AFF arising from the demand for enhanced internal control (e.g. disbursements control, local audit reviews, etc,); and
• the significant budget cuts to AFF during the recent period of severe budgetary constraint (declining by 27% since 1992-93)”.

Taking into consideration these elements, the Director-General decided on the abolition of a further general service post and the establishment of 11 additional professional posts on a temporary basis for a period of up to three years. A review of AF staffing needs would, however, be conducted “in time for the results to be reflected in the PWB 2002-03”.

245. – As detailed in the paragraphs that follow, a consulting firm was selected for the staffing review but began its work in 2002 only. For the 2002-03 biennium, the approved staffing amounted to 96 posts as detailed in table 15 that follows, or one post less than initially proposed.

Actual Staffing

246. – In my previous report, I had commented on the insufficient actual staffing of the AFF division. At the time of writing the report, 15 posts were still vacant (10 for the professional and five for the general service staff, respectively, with three posts of the latter being held to use the funding for consultants). To alleviate part of the burden, the division had an increased use of consultants from 1999 onwards. It was, however, not sufficient to bring the level of the division’s resources into line with its needs. As recapitulated in table 16 that follows, the same situation continued up to the time of writing this report. Out of 96 established posts, only 79 were filled, in May 2002, with nine and eight vacancies for director/professional and general service staff, respectively. There were, however, 18 consultants and 21 temporary staff. In total, 118 persons were working in AFF.

247. – It should be noted, however, that two important positions had been finally filled. As already mentioned a senior Finance Officer (P-5) was appointed, on 1 July 2002, as Chief, Treasury. On the same day, another appointment was made to fill the key position of the division Director (D-2), which had been filled since March 1997 by a consultant on an “interim” basis. As already pointed out in my previous report, I am not in agreement with this practice of consultants working as substitutes for permanent staff members and performing essential duties for the FAO on a continuous basis.

Staffing Review

248. – As previously mentioned, a consulting firm was contracted out to conduct a review of AFF staffing and advise on the appropriate levels. The selection was duly conducted through a competitive process. In total, the contract, which was signed on 27 December 2001 (FAO) and 7 January 2002 (consulting firm) amounted to US$300,000 (including a small amendment for US$2,600) and covered a staffing review of both AFI and AFF.

249. – The consulting firm examined in detail the AFF staffing requirements. I noted that the comments made on specific units/groups were largely similar to the ones I had already made. For instance, the following was noted:

• Regarding the Controls Branch, the firm pointed out that although its creation and strengthening was a strong indication of FAO’s commitment to a strong control environment, “the reality over the past few years is that the staff within this Branch has been largely used for other tasks to cope with the problems following the Oracle implementation. These fire-fighting duties of the Branch have deflected its attention away from strengthening the control environment.”

• For the DAG, they recalled the numerous problems caused by the Field Accounting System (FAS) [paras. 184 to 190 of my previous report]. “The main problems remaining from this period [were] the outstanding clearing account problems to be resolved and the quality of data still being received from the field via the FAS system”. Like I did, they observed, though, the progress made in clearing the backlog of unreconciled items.

• They also stressed the importance of providing accurate and timely project information to donors. As already mentioned in para. 209 of my previous report, they commented that the FAO was not in a position to deliver the desired level of service in this regard.
• For AR, they noted that the entire process between budget holders, PAG, GL and AR Groups did not seem to be functioning smoothly and the impact was felt mostly in the areas of Trust Fund receivables, with a large amount of outstanding receipts not matched with invoices.

• For AP, they commented on the time-consuming verification process of invoices not supported electronically for the field payments (six staff on checking and verification alone). They also noted the problems created by insufficient supporting documentation and inaccurate or insufficient data for suppliers, which caused the rejection of bank transfers and delays in payments.

• As for the Travel Group, they pointed out the recurrent staffing problems [para. 207 of my previous report] and the inadequate process and system. Although accessible to budget holders in Headquarters, the travel system (Atlas) lacked the capacity to trace a transaction from beginning to end.

250. – As detailed in table 17 that follows, the consulting firm was of the opinion that the optimal staffing numbers in AFF, within its current mandate, was 107 persons. The largest reduction in staffing concerned the PAG. It could be achieved, though, only if the FAO would succeed in convincing donors to accept simplified rules for projects’ budget revisions. A second improvement needed was related to the Budget Maintenance Module (BMM), which held the data relating to project budgets. Should the enhancement presently envisaged be successfully implemented, the processing of budgets and successive revisions could be done without the need for PAG’s intervention. Altogether, these changes could lead to some reduction of PAG staffing.

251. – In many instances, transfers of specific functions were suggested. For instance, they recommended that the bank reconciliation, partly done by the Controls Branch, be conducted by a reinforced Treasury Unit (with the corresponding decrease/increase of three posts in each unit). Likewise, they recommended the transfer to the Treasury Unit of the field banking functions presently carried out by the DAG (one post concerned). To address the remaining issues (improving field accounting controls and systems), the DAG should however have more professional staff.

252. – The consulting firm also pointed out that if the objective were to reduce staffing levels, the FAO would have to reconsider the current mandate given to AFF. The areas of reallocation and reengineering suggested were related, in particular, to functions relating to travel (suggested transfer to the Human Resources division), donor reporting (suggested transfer to TC) and field support (suggested transfer to the MSS). However, the viability, the quantitative and qualitative cost-benefits and internal control implications of these suggestions would need to be further substantiated through detailed fact finding and analysis.

253. – On several human resources management aspects, the consulting firm raised the same issues I had raised previously [paras. 104 to 134 of my previous report], namely the delays encountered in the recruitment process, the extensive use of consultants and the lack of a performance appraisal system. In this regard, the following was indicated:

• “An average time for recruitment of one year creates inflexibility in the ability of FAO and AFF managers to fill the posts and to react to increases in workload. This contributes to a situation where a significant amount of Non Staff Human Resources (NSHR) is employed to deal with a workload which has increased substantially over the past few years (currently about a third of AFF’s staff are NSHR).

• Consulting contracts are typically for one year and can only be extended by 6 months. This can lead to discontinuity in the knowledge of AFF as the consultants become more knowledgeable about FAO’s financial systems and processes and then have to leave if they are not recruited into a staff position. Also some consultants are performing senior or key roles [...] increasing the risk of disruption to these functions.
• Another general problem within FAO is the limited ability to reward good performance and remove people who are not performing correctly. To a certain extent this derives from a rigid UN Common System, but also from the lack of a credible performance review system within FAO. Over the long term this has led to competent people being demotivated and incompetent people remaining in their post but not performing at an acceptable level.”

The inadequacy of training was also commented upon with the conclusion that competence of existing and new staff were not being adequately maintained.

254. – In view of the above, I recommend that on the basis of the final report of the consulting firm, a detailed action plan on how to address the unresolved issues faced by the AFF division be prepared and that its implementation be closely monitored through the regular issuance of progress reports.

FOLLOW UP REVIEW OF THE IMPLEMENTATION OF THE SPFS

Objectives, Scope and Method of the Audit

255. – As indicated in the introduction, a follow-up review of the implementation of the SPFS was conducted during the 2000-01 biennium. Out of the ten countries visited by my staff, the SPFS was either operational, formulated or under formulation in eight of them: three in Africa, three in Asia and two in Latin America. It was, however, at various stages of advancement in the different countries. Extension of Phase I was in process in only in one of them at the time of my staff’s visit. In three countries, the Programme was in Phase I. In two others, field activities had not started yet and in the remaining two, the SPFS was still under formulation.

256. – The audit included an examination of existing documents relating to the SPFS for the countries under review. Additional information was obtained from the FAORs on the basis of a standard questionnaire sent prior to the missions and interviews with SPFS staff during the visits. For all the countries where the programme was operational, interviews with officials from host governments, donors and other FAO partners were also organised. Furthermore, the visits of project sites gave the opportunity to meet with some beneficiaries. However, taking into consideration the existence of an External Evaluation, the audit approach was deliberately limited to the follow-up of my previous observations and recommendations [paras. 142 to 166 of my previous report].

Background Information on the SPFS

257. – The SPFS, called at that time the “Special Programme for Food Production in Support of Food Security in Low-Income Food-Deficit Countries (LIFDCs), was endorsed by the FAO Council at its 106^th Session in June 1994. As recalled in the 2000-2001 PWB, its objectives were as follows: “assisting the Low-Income Food-Deficit Countries to increase food production and productivity on a sustainable basis; reduce year-to-year variability of production; and improve access to food, and by implication: increasing net incomes of small farmers, generation of rural employment, and reduction of poverty with due consideration to social equity and gender sensitivity”. All FAO member countries meeting the criteria of an LIFDC are considered eligible for assistance under the SPFS. It has also been agreed that the SPFS may be extended to non-LIFDCs with alternative sources of funding from the RP. At the time of writing this report and according to the information available on the FAO Intranet, the SPFS was operational in 68 countries of which 63 were LIFDCs. It was formulated and awaiting start-up or under formulation in a further 17 countries.

Evaluation of the SPFS

258. – One of the recommendations contained in my previous report was related to the need to conduct an evaluation “in the first 15 countries where the SPFS has been initially launched” in order to identify notably the key success factors. This recommendation was endorsed by the Organization. As mentioned in the Progress Report on the Implementation of the External Auditor’s Recommendations, which was examined by the Finance Committee at its 97^th Session in September 2001¹⁵, the following was indicated: “the Director-General, in line with the request of the Governing Bodies, has directed that an evaluation be carried out of the SPFS using a team of independent experts.”

259. – The evaluation was carried out in 2001 and early 2002 by a representative team of nine senior external consultants. The Evaluation Team visited FAO ROs and 12 countries where the SPFS was operational: six in Africa, three in Asia and three in Latin America. They were selected by the Evaluation Team from a short-list prepared by the FAO of 18 countries, where work had been on-going in the field for at least three years and with at least three of the four components of the SPFS. With one exception, all the countries reviewed were different from the ones visited by my staff in 2001 and 2002.

260. – The report from the Evaluation Team was examined by the Programme Committee at its 87^th Session in May 2002¹⁶. As indicated in its report to the Council, the Committee “welcomed this important evaluation, which it felt had been fully independent, thorough and objective, providing balanced and constructive criticism to strengthen the SPFS”. Although the Committee acknowledged that “the evaluation had been costly” (around US$600,000), it “suggested that independent external evaluations of other, selected FAO programmes could be useful”. It also welcomed “the commitment evidenced by management to use the recommendations of the evaluation team to strengthen the SPFS and its approach”. Finally, it “requested a follow-up report at its May 2003 session on progress made in implementing the SPFS and in introducing the many positive changes that management had referred to in its responses to the report.”

Programme Design and Implementation

Programme Formulation

261. – As detailed in the “Guidelines for the Formulation of the Phase I of the SPFS”, the formulation process, which starts with a country’s request to participate in the programme, normally unfolds as follows:

• Upon receipt of the request, FAO designates a country core team and makes a preliminary assessment of national food security strategies and of the possible components of the programme.
• Formulation of the programme is a national responsibility, supported as necessary by the FAO, through either the FAOR or an exploratory mission. The output of the formulation process consists of a National Programme Document (NPD) and one or more project documents.

262. – According to the Guidelines mentioned above, the formulation process is to be founded on three fundamental principles, which are namely: national ownership, stakeholder participation and quick action. Another important key success factor of the SPFS was its integration into national policies on food security. In all countries visited, the Programme seemed to be in line with the existing national policies. As pointed out by the Evaluation Report, what made a difference, however, was whether the national policies had been in existence prior to the SPFS or not. Where a national policy already existed, the countries usually took a greater initiative in the formulation stage of the programme. This was indeed the case for only two of the countries reviewed by my staff.

Programme Implementation

263. - As originally conceived the SPFS had two phases, Phase I and Phase II, also called pilot phase and expansion phase, respectively. Phase I provided an opportunity to demonstrate and refine proven and promising technologies and approaches to increasing agricultural production and rural incomes, before applying these on a much larger scale. It usually consisted of the following four components:

• water control through, in particular, small-scale water harvesting; irrigation and drainage systems and simple lifting devices;
• crop intensification with the introduction of widely accessible technologies combined with functional marketing and credit schemes and improved support service delivery systems;
• diversification of production systems, which included aquaculture, fisheries, small animal husbandry (poultry, sheep, goats, pigs, etc.) and tree crops; and
• constraints analysis and resolutions to identify any problems or obstacles that prevented farmers from increasing their productivity and made it impossible or difficult for them to adopt new technologies and management practices.

264. – At the time of writing this report, none of the countries had entered Phase II. In fact, considering that the time initially planned for the pilot phase was too short (two or three years) and the number of demonstration sites too small to have any major impact, the necessity to extend Phase I was recognised at an early stage. This extension was done by increasing the number of activities at existing sites, and by adding to the number of sites.

265. – As far as the implementation of the SPFS was concerned, my staff’s observations concurred with the ones of the Evaluation Team.

• For the water control component, the demonstration of improved techniques was highly appreciated by the farmers. However, pumps were still needed at several sites in one of the countries visited and only one site was operative in another, at the time of the review, due to lack of funding and absence of micro credit.
• It was only in two of the countries visited that the results of the crop intensification component could be really assessed. In one country, no data were available. In another, data were collected by the districts and sent to the province and then to the Ministry and to the National Coordinator after each harvest. However, it was not possible to make comparisons because the data were not complete and thus unreliable.
• The diversification component was not implemented in two of the countries visited and only partially in another. In the fourth country, tangible results could have been achieved at the 290 sites dedicated to livestock, bees, food processing, fishery, horticulture and agro-forestry. However, owing to the absence of demand or commercial network, the production often remained unsold especially in the most remote areas.

South-South Cooperation

266. – The South-South Cooperation (SSC) initiative was launched, in 1996, within the framework of the SPFS to enhance an effective solidarity among the developing countries and to allow the recipient countries to benefit from the relevant experience and expertise of more advanced developing countries in food production. The technical assistance provided consisted of a combination of experts and technicians with strong practical field experience in agriculture who were expected to work directly with farmers in the rural communities involved in the SPFS.

267. - For the countries visited, the SSC was only in place in two of them.

• For the first one, the 100 experts/technicians, to be provided as per the agreement concluded on 19 November 1996, were effectively in place at the time of my staff’s visit and represented the largest SSC organised.
• For the second one, the SSC concluded was more recent (22 August 2000). At the time of my staff’s visit, there were only four experts who had arrived in November 2000 while the 16 technicians were still expected (four subsequently arrived in January 2002 and three more in May/June 2002).

OTHER MATTERS

Writes-Off

268. – As provided by Financial Regulation 12.4, “the Director-General may, after full investigation, authorize the writing-off of losses of cash, supplies, equipment and other assets, other than arrears of contributions. A statement of all such losses written off during the financial period shall be submitted to the External Auditor with the final accounts”. I was indeed provided with such a statement, on 4 April 2002, which listed three items written-off for a total amount of US$459,701. They were related to the following:

• a theft of goods from the Money and Medal Programme for an amount of US$175;
• an irrecoverable tax advance for an amount of US$3,142 to a former staff member who had died; and
• accounting adjustments totalling US$456,384, the need for which was identified during a review of old items in suspense and clearing accounts following the change in accounting systems from Finsys to Oracle.

Cases of Fraud or Presumptive Fraud

269. – Pursuant to item 6 (c) (i) of the Additional Terms of Reference Governing External Audit, my staff requested, on 21 March 2002, information pertaining to cases of fraud or presumptive fraud known to the Organization for the 2000-01 biennium. On 2 May 2002, they were provided with a list of four cases, which were relating to the following:

• irregular claims under the rental subsidy scheme by one UN staff member on secondment to the FAO;
• tentative to procure an official vehicle at an artificially inflated price in one FAOR;
• misrepresentation of educational qualifications from a staff member who had been promoted from the general service to the professional category on that basis;
• fraudulent medical claims by six staff members working in one FAOR.

270. – For the first case, the irregular subsidy payments were recovered but, given the imminent return of the staff member to the UN, no disciplinary action was taken by the FAO, which reported, however, the instances of misconduct to the UN. In the second case, the disciplinary measure of dismissal for misconduct was imposed on the staff member on 7 August 2001. In the third case, the staff member was dismissed from service, on 20 February 2002, after having been reclassified to the general service category. Action was taken to recover the difference in salary and related remuneration between what was earned since the promotion to the professional category and that, which would have been earned up to the date of separation at the G-6 level. However, the former member had appealed against this decision. For the last case, my staff were informed that the disciplinary measure of dismissal for misconduct was imposed in May 2002 on five of the staff members involved and on the sixth staff member in July 2002.

271. – In my opinion, appropriate actions and sanctions where taken, where applicable. In the last case, though, delays occurred before the disciplinary action was taken. It was on 25 October 2000 that the Organization’s medical claim processor reported that it had investigated the authenticity of a number of claims submitted by six members working in the same FAOR. A local audit firm conducted an investigation but it was only in March 2002 that the audit findings were brought to the attention of the staff members concerned. My staff were informed that the delays were due to the necessity of completing the investigation conducted locally in order for disciplinary action to rest on established and receivable evidence.

272. – My staff also requested, on 21 March 2002, follow-up information pertaining to cases of fraud or presumptive fraud reported in my previous report. On 3 May 2002, they were informed that an amount of US$15,385.50 relating to private telephone calls charged to the Organization had been recovered. However, for the falsification of cheques amounting to US$74,480 mentioned in paragraph 211 of my previous report, there was no possibility of recovering the stolen funds given the insolvency of the two persons concerned.

273. – In paragraphs 214 and 215 of my previous report, I had indicated that a maintenance agreement with a firm contracted out by the FAO had been terminated but that the matter was still sub judicial at the time of writing my report. On 5 May 2002, my staff were informed that an arbitration award was issued on 4 December 2001 but not officially notified to the FAO. In my staff’s opinion, the case under arbitration should have been disclosed in Note 23 to the financial statements that relates to contingent liabilities. The Organization argued that it was not able to do so because the amount involved was not quantifiable at the time the accounts were prepared. At the time of writing this report, my staff were informed that the liability plus legal fees amounted to € 280,000.

Action Taken in Response to Previous Reports

274. – As indicated in the introduction, comments on actions taken in response to recommendations contained in previous reports have usually been incorporated in the section where they belong. The present paragraph addresses only those, which were not covered previously.

• Regarding the use of other human resources, I recommended that the conditions of services and contracts be standardised and that a control and monitoring system over the corporate use of external collaborators be put in place [para. 119 of my 1998-99 report]. At the time of writing this report, my staff were informed that the envisaged new contractual arrangement called “Personal Services Agreement”, which would replace four previous types of contracts, and would be implemented in October 2002.
• In my 1996-97 report, I had commented on the proliferation of support costs of various types and recommended that a comprehensive but much simplified framework for support cost arrangements be prepared. Following extensive reviews by the Finance Committee at its 94^th and 95^th Sessions (May and September 2000), the Council endorsed the proposed policy on reimbursement rates at its 119^th Session in November 2000. I noted the progress made but I am of the opinion that support costs could be further streamlined. In this regard, I think that the FAO could benefit from the review of indirect support costs recently conduced by the WFP that includes a comparison with other UN organisations.

Acknowledgements

275. – I wish to record my appreciation of the cooperation and assistance extended by the Director-General and FAO staff during the audit.

François LOGEROT
Premier Président de la Cour des Comptes
de la République Française
External Auditor

August 2002

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¹³ Cf. C99/Rep paragraph 92.

¹⁴ Cf. JM2000/3 paragraph 23.

¹⁵ Cf. document FC97/12.

¹⁶ Cf. document PC87/4 a) entitled “Independent External Evaluation of the Special Programme for Food Security".