FINANCE COMMITTEE

Table of Contents

INTRODUCTION

OVERALL BIENNIAL REGULAR PROGRAMME FINANCIAL PROJECTIONS

OTHER INCOME

2000 BUDGETARY PERFORMANCE BY CHAPTER

2000 BUDGETARY PERFORMANCE BY EXPENDITURE CATEGORY

2000-01 BUDGETARY PROJECTIONS AND FORECAST OF BUDGETARY TRANSFERS BETWEEN CHAPTERS

TRANSFERS BETWEEN DIVISIONS WITHIN THE SAME CHAPTER

EXPENDITURE INCURRED OUTSIDE THE 2000-01 APPROPRIATION

OTHER MATTERS

CONCLUSION AND ACTION FOR THE COMMITTEE

ANNEX I

INTRODUCTION

1. Financial Regulation (FR) 4.6 requires the Director-General to manage the Appropriations so as to ensure that adequate funds are available to meet expenditures during the biennium, and calls for the Finance Committee to review annually the Director-General's implementation of this regulation. In accordance with this requirement, this Thirty-fourth Annual Report of Budgetary Performance summarises, for information and discussion, the budgetary aspects of the Regular Programme performance for 2000.

2. Financial Regulation 4.5(a) calls for Finance Committee to be notified of certain transfers between divisions, and Financial Regulation 4.5(b) requires transfers from one chapter to another to be approved by the Finance Committee. This report also provides some advance notice of the likely magnitude of budgetary transfers arising from the implementation of the Programme of Work. A formal request for transfers between chapters will be submitted at the next session, in September 2001.

OVERALL BIENNIAL REGULAR PROGRAMME
FINANCIAL PROJECTIONS

3. Conference Resolution 2/99 on the Budgetary Appropriations for 2000-01 approved a budget of US$ 650 million, and FR 4.1(a) authorises the Director-General to incur obligations up to the amounts voted.

4. The Director-General manages the Appropriations via annual Regular Programme allotments issued by the Office of Programme, Budget and Evaluation (PBE) to allottees. The allotments include financial provision for under-budgeted activities, where appropriate, and are adjusted during the implementation cycle to take account of emerging requirements. They constitute spending limits for allottees, by programme heading.

5. The Appropriations comprise the approved Programme of Work less Other Income¹. Table 1 summarises the management of the overall budgetary Appropriations. The 2000 performance is based on the actual expenditure in the interim unaudited accounts of the Organization, and the 2001 figures present the latest Regular Programme financial projections.

Table 1. Overview of 2000 Regular Programme Performance (US$ 000)

6. The following points are made regarding the performance indicated in the preceding table.

• In 2000 there was a shortfall in expenditure of US$ 22.8 million compared with the "calendarised" net budget², which implies an overall delivery of 91.9% of this budget (excluding TCP projects). The reported 2000 surplus is considerably larger than that in 1998 (US$ 6.4 million). However, this is partly due to internal changes in management of the biennial budget on account of streamlining actions including, in particular, an automatic carry-over of divisional under-spending, through the allotments, into the second year of the biennium.
• Every department has confirmed that their 2001 work programme will exhaust available spending targets, including the carry-over of the surplus funds, and budget holders are finalising their financial plans in this regard. Therefore, full implementation of the 2000-01 net budget of US$ 650 million is foreseen.
• The TCP net appropriation for project expenditures (Major Programme 4.1) amounts to US$ 89.1 million. This falls under the provisions of Financial Regulation 4.3, which makes the balance of the 2000-01 Chapter 4 appropriation available for obligations during 2002-03. In past biennia, the TCP appropriation has been fully spent, and this assumption has been made for 2000-01, thus excluding the TCP project appropriation from the budgetary performance table above. In 2000, US$ 43.5 million has been earmarked for approved projects and US$ 7.0 million had been spent.

OTHER INCOME

7. In accordance with FR 4.1(a), shortfalls in Other Income versus the budgeted levels require corresponding reductions in planned expenditure during the biennium to remain within the approved budgetary Appropriation of US$ 650 million. The outturn for 2000 is summarised in Table 2, and shows an overall shortfall of US$ 0.9 million, or 97.7%, of the total budgeted income as having been earned. As this outcome was foreseen, corresponding reductions in the Programme of Work (i.e. expenditure) could be managed in a planned fashion.

Table 2. 2000-01 Budgetary Performance of Other Income³

8. Support cost reimbursements are essentially earned in proportion to the actual expenditure on non-emergency Trust Fund projects⁴ and United Nations Development Programme (UNDP) projects implemented or executed by FAO. The shortfall versus budgeted support cost income totals US$ 4.2 million. This is a result of a further decline in 2000 in UNDP project delivery, which fell by 30% to US$ 17 million, while non-emergency Trust Fund delivery failed to rise beyond the overall levels achieved in 1999.

9. Reimbursements for Jointly Funded Investment Activities relate to the work of the Investment Centre Division (TCI) in support of lending activities for the agricultural/rural sector under cost sharing arrangements from the World Bank and other multilateral financial institutions. An over-recovery of US$ 3.6 million emerged in 2000. This is due to a timing difference in the processing of expenditure and income of the World Bank Cooperative Programme, where FAO and the World Bank follow a different fiscal year (the World Bank's fiscal year is from July to June)⁵. It does not affect net performance as timing differences occur equally in income and expenditure.

10. Other external income includes: fees for technical support services; income from terminal project reports; reimbursements for administrative services to the World Food Programme (WFP); and Government Counterpart Cash Contributions to FAOR offices. In 2000, a minimal shortfall has occurred (US$ 0.3 million) versus the budgeted income. It is recalled that the 2000-01 budget for this category of income was reduced by approximately 30% since 1998-99, in order to bring the provision more in line with actual reimbursements.

2000 BUDGETARY PERFORMANCE BY CHAPTER

11. Table 3 summarises the Regular Programme budgetary performance by major programme. It compares the Appropriation as revised⁶ pertaining to 2000 with the corresponding net expenditure and describes the main reasons for the variances against the programme budget.

Table 3. 2000 Budgetary Performance by Major Programme (US$ thousands)

Chapter 1: General Policy and Direction

12. General Policy and Direction utilised 87.7% of its 2000 Appropriation. Under-spending arose in Major Programme 1.2, Policy, Direction and Planning, due to a carry forward to 2001 of a 2000 instalment payment to External Audit, and due to professional staff vacancies in PBE which were not utilised for other inputs. Under-spending in Major Programme 1.3, External Coordination and Liaison, was the result of a delay in receipt of accounting documentation to permit processing of payments of the Organization's financial contribution to inter-agency coordination mechanisms, and rental payment for the premises of one Liaison Office. Funds are expected to be utilised in 2001.

Chapter 2: Technical and Economic Programmes

13. Technical and Economic Programmes were under-spent by US$ 13.7 million, utilising 90.6% of the Appropriation.

14. Approximately US$ 3.1 million of the under-spending can be explained by the planned reduction to the allotments, implemented on the basis of vacant professional posts, and the reduction to certain non-staff components. These cuts were required to cover expected shortfalls in Support Cost Income and to compensate for under-budgeted, high-priority programmes in other chapters.

15. The remaining under-spending was mainly incurred under Major Programmes 2.1, Agricultural Production and Support Systems, and 2.2, Food and Agriculture Policy and Development:

• Under Major Programme 2.1, this arose from delays in filling of vacant professional posts; postponement until 2001 of the regular session of the Commission on Genetic Resources for Food and Agriculture; and delayed recording in the accounts of non-staff field expenditure associated with the Emergency Prevention System for Transboundary Animal and Plant Pests and Diseases (EMPRES). Savings were also realised on contractual services for administrative support staff in the Joint FAO/IAEA Division (AGE).
• Under Major Programme 2.2, under-spending is mainly due to expenditure associated with the Joint FAO/WHO Food Standards Programme (Codex Alimentarius) not yet being reflected in the interim Regular Programme accounts, and postponement to 2001 of some activities aimed at improving language coverage.

Chapter 3: Cooperation and Partnerships

16. Cooperation and Partnerships utilised 93.8% of the 2000 Appropriation, due to under-spending mainly in Major Programmes 3.2, Support to Investment, and 3.4, FAO Representatives. In both major programmes, some of the under-spending can be attributed to 2000 non-staff costs being posted against the 2001 financial accounts. Furthermore, in Major Programme 3.4, staff cost savings were incurred due to exchange rate gains on non-staff costs, as the dollar strengthened against most currencies where FAOR offices are located.

17. Major Programme 3.3, Field Operations, has undergone the restructuring anticipated, but not fully developed in the Programme of Work and Budget (PWB) 2000-01. This entails abolition of the Regional Operations branches and transfer of project operational responsibility to country offices and technical officers, as well as related restructuring of the Technical Cooperation Department (TC). While this work is proceeding according to plan, it is recalled that over 40% of the total support cost income in the PWB 2000-01 is allocated to Major Programme 3.3 and the resulting impact of the support cost shortfall of US$ 4.2 million is approximately US$ 1.8 million.

Chapter 5: Support Services

18. The restructuring of AFF was completed in 2000, but the division has faced difficulty in filling 11 additional professional positions approved under the new structure. Notwithstanding the surplus against the Chapter 5 Appropriation in 2000, it is recalled that substantial expenditure beyond the total Appropriation for Major Programme 5.2 is foreseen in 2001 for the Oracle development project⁷.

Chapter 6: Common Services

19. Expenditure of 94.4% of the Appropriation in Chapter 6 arises from under-spending in the Administrative Services Division (AFS) where outstanding work orders for buildings maintenance work were not processed at year-end, and some favourable currency effects were recorded against Headquarters non-staff expenditure because of the stronger US Dollar versus the Lira.

2000 BUDGETARY PERFORMANCE BY
EXPENDITURE CATEGORY

20. There is no constitutional constraint as regards spending by expenditure category; the Organization is free to choose the most effective inputs to fulfil the approved Programme of Work. However, a review of spending by account can provide useful indications of cost fluctuations and trends. A review of the Regular Programme expenditure in 2000 (excluding TCP projects), by account and a brief description of trends emerging in the 2000-01 biennium, is covered in Annex I.

2000-01 BUDGETARY PROJECTIONS AND FORECAST OF BUDGETARY TRANSFERS BETWEEN CHAPTERS

21. The year 2000 actual expenditure and the estimated requirements for the second year of the biennium, tentatively indicate that transfers will 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). Funds transferred from Chapter 2 amount to less than half of the 2000 under-spending for that chapter.

Table 4. 2000-01 Forecasted Budgetary Performance by Chapter (US$ million)

22. The transfer into Chapter 1 is mainly required for the funding of temporary administrative posts in the Office of the Director-General, several of which are proposed to be regularised in the PWB 2002-03. The transfer into Chapter 3 is necessitated by the substantial effect of the deficit on support cost reimbursements (currently estimated at US$ 7.7 million for the biennium) on this chapter. Finally, the transfer into Chapter 5 is required due to incremental costs associated with the Oracle project and AFF restructuring. The amount is consistent with information provided to the Joint Meeting at its September session⁸.

23. Half of the approved budget for Chapter 7, which provides US$ 600 000 for Contingencies, is planned to be spent. As stated in Financial Regulation 4.5(c) (i), "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." The contingency funds will be used to help offset some incremental Oracle costs in Chapter 5.

24. The level of transfers may yet be influenced by:

• the scope and extent of Oracle development work in 2001, as staff capacity constraints, in AFF and the Information Systems and Technology Division (AFI) in particular, are slowing down expenditure flows for this work;
• progress in reversing the decline in UNDP and non-emergency Trust Fund project delivery and, consequently, support cost reimbursements;
• the implementation of field programme restructuring, including the extent of one-off costs incurred such as training and information technology infrastructure to enable FAORs and technical officers to take on project operational responsibility; and
• exchange rate effects, in particular, the trend of the US Dollar against the Lira and other major currencies of expenditure in FAO, which can have a significant impact on Headquarters non-staff expenditure and non-Headquarters staff and non-staff expenditure charged against the fixed US Dollar budget.

25. A formal request for transfers between chapters will be submitted at the next session in September 2001.

TRANSFERS BETWEEN DIVISIONS WITHIN THE SAME CHAPTER

26. Financial Regulation 4.5(a) requires certain transfers between divisions within the same chapter to be reported.

27. In this connection, it is noted that, during 2000, in order to better align technical expertise in the decentralized locations:

• a P-4 Information Officer was transferred from the Regional Office for the Near East (RNE) to the Liaison Office for North America (LOWA); and
• a P-5 Senior Meat Officer post was transferred from the Animal Production and Health Division (AGA) to the Regional Office for Latin America and the Caribbean (RLC).

28. As intimated to the Conference in 1999, further transfers between divisions are foreseen in the context of restructuring of the TC Department, to strengthen its capacity to develop, coordinate and monitor the field programme and reverse the current declining trend in non-emergency field activities funded from external sources. The restructuring will primarily affect the Field Operations Division (TCO) and the Office of Assistant Director-General (TCD), but may also extend to the Policy Assistance Division (TCA) in the latter part of 2001. The proposals will be reflected in the Programme of Work and Budget 2002-03.

EXPENDITURE INCURRED OUTSIDE THE
2000-01 APPROPRIATION

29. 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 contributor⁹.

30. Major restructuring actions in 2000-01 include the abolition of the Management Support Units at Headquarters and the creation of a centralised Management Support Service (MSS); the implementation of new arrangements for the field programme (affecting both Headquarters and decentralized offices); and the restructuring of AFF.

31. Based on current estimates, some 243 staff members are potentially eligible for incurring redeployment and separation costs under the US$ 9 million authority. However, 129 cases have been settled at no cost to the authority, essentially through placements to budgeted posts. Consequently, a total of 114 cases will need to be resolved at some cost to the US$ 9 million authority.

32. Of these 114 cases, 86 were resolved in 2000. A sum of US$ 3.6 million has been charged to the US$ 9 million authority in 2000, mainly in salary costs for staff members awaiting redeployment, in addition, termination indemnities amounting to US$ 1.2 million have been settled, bringing the total redeployment and separation costs for cases resolved in 2000 to approximately US$ 4.8 million.

33. In view of the foregoing, funds provided under the US$ 9 million authority are expected to be almost fully exhausted in 2000-01.

OTHER MATTERS

34. At its May 2000 session, the Finance Committee enquired whether, under the terms of Financial Regulation 4.5(b), it could take the initiative of proposing transfers from one chapter of the budget to another¹⁰.

35. Following advice from the Legal Counsel, it is noted that transfers between chapters of the budget are effected upon proposal by the Director-General and that, while the Finance Committee and the Council have the power to approve those transfers, Financial Regulation 4.5(b) is not intended to confer upon the Finance Committee any power of initiative on the matter. A power of initiative of the Finance Committee on the matter would extend beyond its prerogatives of control over the financial administration of the Organization and conflict with the management authority of the Director-General to direct its work, including the execution of the budget. This arrangement is in line with the financial procedures and practices of other organizations of the United Nations system, for example, with Financial Regulation 4.5 of the United Nations and Financial Regulation 4.5 of the World Health Organization.

CONCLUSION AND ACTION FOR THE COMMITTEE

36. This report is submitted for information purposes. The Committee is requested to:

• take note of the overall Regular Programme budgetary outturn for 2000;
• make its observations on the tentative projected transfers between chapters; and
• endorse the report for transmission to the Council.

EXPENDITURE BY ACCOUNT

 Table 5. 2000 Regular Programme Expenditure Summary (excluding MP 4.1)
(US$ 000)

Staff Costs

37. From 2000, all charges for staff costs against divisional budgets have been made at standard rates that take account of the grade and duty station of the staff member. This ensures that allottees are not held accountable for unit cost variations that are outside their control, arising from matters such as changes in salaries and allowances determined by the International Civil Service Commission (ICSC) and exchange rate variations.

38. Differences between the overall standard costs and actual Regular Programme costs are monitored by the Office of Programme, Budget and Evaluation and will be charged in the financial accounts over all programmes in proportion to the amounts incurred at standard rates. Based on current trends, the actual costs incurred in the biennium should be lower than the standard rates applied against the budget. However, this forecast is tentative and will need to be monitored in the light of exchange rate movements during 2001, and the results of Headquarters salary surveys of professional and general service staff which are due shortly.

39. The total staff appropriation, which includes professional and general service staff costs, was underspent by approximately 8.5% (US$ 19.7 million) in 2000, principally reflecting professional staff vacancies. Some of staff savings were necessary to compensate for the reduced levels of External Income. Other savings were generated, via reduced allotments, for application of resources to under-budgeted programmes and activities.

Non-staff Components

40. Approximately 96% of the non-staff appropriation was spent in 2000, reversing the trend of the past biennium when non-staff expenditure exceeded the appropriation. This is likely to be due to the introduction of the automatic carry-over of divisional under-spending, via the allotments, into the second year of the biennium, which has reduced the pressure on allottees to commit funds in the final two months of the year in favour of spreading their expenditure plans into the first part of 2001.

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1  Other Income is further described in paragraphs 7 through 10.

2  The breakdown of the approved budget between 2000 and 2001 takes account of the timing of the Regional Conferences and the FAO Conference in the first and second year of the biennium respectively, and assumes that all other programmes incur expenditures evenly throughout the biennium.

3  In arriving at the 2000 Appropriation for Other Income, adjustments have been made for those elements that are accounted as Trust Funds in the accounts of the Organization. This is necessary to provide a comparable basis of relating the Appropriation with the expenditure reported in the audited accounts of the Organization.

4  Emergency projects are carried out by the Special Relief Operations Service (TCOR). They have shown a substantial rise in delivery due to the Oil for Food programme in Iraq. FAO earns Direct Operating Costs from emergency projects, which are excluded from the tabulated support cost reimbursement figures as the policy for reimbursement of cost is that they should cover TCOR’s direct costs.

5  It is recalled that in the 1998-99 accounts, an under-recovery of US$ 3.9 million was recorded under jointly financed investment activities.

6  The Appropriation as revised constitutes the approved budget by chapter following re-programming of resources to reflect the adoption of the budget at an exchange rate of Lira 1875 to the US Dollar (document FC 94/5 refers).

7  Document JM 2000/3, FAO’s New Financial System and Procedures, refers.

8  Document JM 2000/3 refers.

9  Conference Resolution 3/99 refers.

10  Financial Regulation 4.5(b) reads as follows:

    4.5(b) (ii) Transfers from one chapter of the budget to another, other than those for which the Finance Committee has authority, may be effected by the Director-General after having obtained the approval of the Council.