PC 91/INF/3 - FC 107/7|
Ninety-first Session of the Programme Committee and
Rome, May 2004
Oversight Framework for Extra-Budgetary Funds
1. During its 104th session, the Finance Committee “recalled that in the absence of a policy framework agreed by the Governing Bodies on the use of extra-budgetary funds, some member states had expressed concern about the scope of activities carried out with such resources. Accordingly, the Committee requested that a paper be prepared for the May 2004 session on an oversight framework for the use of extra-budgetary funds.1 It was noted that this paper should also be submitted to the Programme Committee.”
2. The mandate of the Organization, as set forth in Article 1 of the FAO Constitution, states, inter alia, that:
“It shall also be the function of the Organization:
a. to furnish such technical assistance as governments may request;
b. organize, in cooperation with the governments concerned, such missions as may be needed to assist them to fulfil the obligation arising from their acceptance of the recommendations of the United Nations Conference on Food and Agriculture and of this Constitution...” 2
3. Financial Regulation 6.7 in the Basic Texts enables the Director-General to accept voluntary contributions. This Financial Regulation provides that:
“Voluntary contributions, whether or not in cash, may be accepted by the Director-General, and Trust and Special Funds may be established by him to cover moneys made available to the Organization for special purposes, provided that the purposes of such contributions and moneys are consistent with the policies, aims and activities of the Organization.”3
4. In line with this Financial Regulation, “[t]he purposes and limits of any Trust and Special Funds shall be clearly defined”, and therefore each agreement is supported by a project document which defines the objectives of the project and the activities to be undertaken. Such contributions can be broadly classified into the following categories:
5. “The acceptance of any such contributions and moneys which directly or indirectly involves additional financial obligations for Member Nations and Associate Members shall require the consent of the Conference.” 4
This is assured by the general policies and procedures that apply to projects funded from extra-budgetary resources and which require that projects do not “involve additional financial obligations for Member Nations”:
6. “Trust and Special Funds and voluntary contributions shall be administered in accordance with the Financial Regulations of the Organization, unless otherwise provided for by the Conference.” 7
The financial administration of Trust and Special Funds is subject to all the financial regulations, rules and related procedures applicable to the General Fund, except for inevitable differences arising from the specific nature of the funds concerned.
7. “Trust and Special Funds shall be reported to the Finance Committee.” 8
Trust and Special Funds are reported along with the General Fund in the Organization’s biennial Financial Statements and are equally covered by the opinion of the External Auditor. (In addition, the Organization produces and provides to donors a booklet showing the balances and biennial receipts and expenditures for each project financed from Trust Funds.)
8. Extra-budgetary contributions are formally negotiated on behalf of the Organization by the ADG/TC, more specifically by TCA for contributions to normative and operational activities and by TCE for emergency activities. All contributions are subject to a formal agreement with the donor concerned, to which a project document describing in detail the activities to be undertaken is appended.
9. For each contribution, AFF opens a separate account in Oracle.9 Budget holders and organizational management monitor and manage the use of resources throughout the project cycle in accordance with the Organization’s rules and regulations. All related financial transactions and records are subject to the normal financial controls of the Organization and to audit by the External Auditor and Office of the Inspector-General.
10. For negotiations with donors for contributions in support of normative activities below US$150 000 in value, authority is delegated to the ADGs of the recipient departments, as governed by Administrative Circular 2001/8 and TC Procedure 2001/02.10 For these contributions the formal agreement can take the form of a Letter of Agreement.
11. Individual donations collected through the TeleFood appeal (coordinated by GI) are either sent to the TeleFood Special Fund account at FAO headquarters or paid directly into one of the TeleFood national bank accounts opened by AFF in a number of countries. The total amount received worldwide is certified at the end of each yearly campaign by AF. The approval for the use of the funds rests with TC, with delegation to TCOS for ensuring that projects are in line with TeleFood guidelines and, with support from relevant technical divisions, that they are technically sound.
12. FAO’s Strategic Framework 2000-2015 (SF), approved by the FAO Conference in 1999, and the associated programme planning process, guide the work of the Organization under all sources of funds.
13. The Strategic Framework defines five corporate strategies to address member countries’ needs, facilitated by six additional strategies covering cross-organizational issues (SACOIs). As the requirements for implementing the corporate strategies through normative and operational activities will generally exceed resources available from assessed contributions (Regular Programme), additional resources through voluntary contributions are often required to allow the programme to be fully implemented. In this context, the SACOIs create the conditions for the Organization to leverage extra-budgetary resources through effective targeting of support to priority areas in both the normative and field programmes by Broadening Partnerships and Alliances, Continuing to Improve the Management Process, and Leveraging Resources for FAO and its Members.
14. The rolling six-year Medium-Term Plan (MTP) operationalizes the Strategic Framework and provides the structure for the application of regular and extra-budgetary resources. It identifies opportunities for extra-budgetary support linked to specific programme entities. As such, it forms a basis for FAO’s cross-organizational resource mobilization effort and serves as an indication to donors regarding the areas where their voluntary contributions could be most productive within the framework of the approved set of medium-term priorities.
15. The two-year Programme of Work and Budget (PWB) provides the budgeted implementation plan for the first biennium of the rolling Medium-Term Plan. The Programme of Work is based on both Regular Programme resources and on Other Income. The latter is defined as “...voluntary contributions [as per FR 6.7] available to execute the Programme of Work because they are at the disposal of the Organization and/or are managed closely with the Regular Budget Appropriation.”11 In addition, expenditure estimates for field programme and emergency trust funds are given by region and by Programme, providing an indication of the demand from Members and of the likely level of support given donors’ policies.
16. The Organization applies a results-based approach to programme and project identification and design for all sources of funds. This implies the statement of clearly defined objectives, outcomes, outputs and performance indicators, implementation monitoring and a comprehensive evaluation regime. The planning and reporting processes apply to both Regular Programme resources and the associated supplementary extra-budgetary funding, and are an integral part of the oversight framework for the application of extra-budgetary resources in support of normative and operational activities of the Organization.
17. Organizational accountability is assured through the biennial Programme Implementation Report, which is a comprehensive and quantitative account of achievements against the biennial Programme of Work as defined in the MTP and PWB. Under Other Income and Trust Funds, it includes an analysis of expenditure of extra-budgetary resources in support of the Programme of Work.
18. The Field Programme Committee is a high-level committee that promotes, coordinates and monitors organization-wide activities and initiatives aimed at improving and expanding the field programme of the Organization in line with the Strategic Framework 2000-2015. In particular, the Committee provides policy guidance and oversight at programme level.
19. All FAO programme and project documents require definitions of long-term and immediate objectives, and their relation to national and/or regional strategies and priorities. They are formulated in accordance with guidelines and predefined formats which depend on the source of funding and the execution and/or implementation modalities. Three main formats are available in FAO, namely Trust Fund (GCP/UTF), TCP and UNDP, although it should be noted that many funding sources have their own formats (e.g. GEF, EC, etc.). Prior to submission for approval and signature by the concerned parties (i.e. donors, government), programme and project documents are subject to an internal review process, as outlined in Attachment 1.
20. The Programme and Project Review Committee (PPRC) is a high-level internal committee established to review programme and project proposals to ensure their compliance with the general orientation and policies of FAO. In particular, it ensures that the various projects implemented by FAO in a particular country are mutually supportive and possess real synergies in pursuing common objectives. The PPRC also ensures that proposed programmes and projects are in line with the following six guiding principles:
In addition, the PPRC ensures that all the programmes and projects it endorses contribute to the follow-up to the World Food Summit and are coherent with and, wherever possible, strengthen the Special Programme for Food Security (SPFS).
21. Project delivery and performance is monitored through the Oracle Data Warehouse; the Field Programme Monitoring Information System (FPMIS) through a system of delivery estimates; and the Quarterly Project Implementation Reports (QPIRs) which show quantitative delivery and plans in terms of in-kind inputs and activities. The work of project managers is reviewed and monitored at different levels: by budget holders, regional operations branches (where applicable) and TCOM. The control and oversight mechanisms during project implementation are described in Attachment 2.
22. The audit regime in FAO, as specified in FAO's Basic Texts, consists of External Audit provided by the Auditor-General (or person exercising an equivalent function) of a Member Nation appointed by the Governing Bodies of the Organization and reporting directly to them, and an internal audit function performed by the Office of the Inspector-General (AUD) located in the Office of the Director-General. AUD operates as an integral part of the Organization’s system of internal controls, following best practices, and under policies established by senior management. The annual reports of the Inspector-General to the Director-General, as well as any other reports deemed necessary, are communicated to the Finance Committee.
23. The audit strategy, scope and practice of AUD retain the concept of comprehensive auditing embodying financial, compliance, performance and ‘value for money’ features. Accordingly, the internal audit function addresses headquarters’ activities and programmes, focusing on such aspects as reliability and integrity of financial operations, compliance with the Organization's rules and regulations, and the proper safeguarding of assets. Audits of decentralized activities provide assurance that field operations are managed in an economical, efficient and effective manner, with emphasis on the most significant programme priorities. Special reviews, studies and investigations are also carried out to assess performance and value-for-money aspects, including instances of fraud or potential fraud.
24. In addition, the Internal Audit programme continuously assists management in improving the operations of the Organization, promoting control at reasonable cost, and actively following up on the implementation of audit recommendations. Advisory services are provided to units, and participation of internal audit is ensured in various internal committees and working groups, as required.
25. All extra-budgetary funding, which is fully integrated with that for the regular budget, is subject to a rigorous evaluation by the Evaluation Service. All individual projects with a budget of US$1 million or more, excluding emergency assistance, are currently subject to independent evaluation at least once in the project’s life. This applies both when projects are in support of the normative work of the Organization and when they are directly in support of member countries. Such evaluations are carried out by fully independent teams which represent the donor, the participating countries and FAO. Emergency assistance projects, field projects under US$1 million, and small projects which form part of a normative programme are also subject to independent evaluation, usually within the context of evaluation of an FAO strategic objective or programme, or through evaluation of FAO activities in a country or sub-region.
26. Evaluation criteria which are published in a number of Governing Body documents, in particular, Evaluation in the Context of the Strategic Framework and the New Programme Model (September 1999),12iare also available on the Evaluation Service Web site.13 Particularly important among these evaluation criteria is conformity to the Organization’s priorities as established by member countries and also to those of the individual countries benefiting from particular funding. It may be noted in this regard that no evaluations in recent years have found any divergence between the priorities to which extra-budgetary funding is being applied and those agreed for the Organization by the Governing Bodies.
27. The Programme Committee is consulted on the future programme of independent evaluations, including evaluations of strategies, programmes and themes with significant extra-budgetary components. In this way, the result of the application of extra-budgetary resources is fully integrated with that on the application of regular budget resources.
28. The Programme Committee receives a synthesis paper on the findings of field project evaluations14iiwhich are available in summary form on the Evaluation Service Web site. Oversight is further assured in the subsequent reporting by the secretariat to the Programme Committee on the follow-up actions taken as a result of the evaluation findings and recommendations.
29. In addition, an auto-evaluation process has recently been initiated which will comprehensively cover all programme entities. The process is carried out by FAO managers responsible for the entities and includes the application of extra-budgetary funds falling within the work of the entity. It is expected that the Evaluation Service will synthesize the results of these evaluations for consideration by the Governing Bodies.
Steps in the Extra-budgetary Project Review Process
Contributions up to US$150 000 in support of normative activities only
The technical departments (TD) concerned screen extra-budgetary (EB) contributions up to US$150 000 and ensure that that they are in direct support or in reimbursement of specific RP–funded activities. This first screening takes place at the time of negotiation with the donor and its results are documented in a Letter of Agreement (LoA) formalizing the Fast Track contribution. While the negotiation is carried out directly by the TD concerned, the LoA is signed by the ADG/TC.
Activities funded from Fast Track contributions are described in project documents, in accordance with TC Procedure 2001/2. This is done by the Technical Department (TD) concerned.
Technical and Operational Review
Based on the provisions of the Fast Track procedure the TD will ensure that the project is technically and operationally sound; in accordance with relevant financial regulations; and also that the correct PSC rate has been applied in line with current policy.
Prior to signature of the relevant LoA, TCA will ensure that the proposal has been duly prepared in accordance with the provisions of the Fast Track procedure, as per AC 2001/8 and TC Procedure 2001/2 (paragraph 10 above refers).
Contributions greater than US$150 000
TC screens all EB contributions and ensures that only activities are supported that are consistent with the Organization’s policies, aims and activities, and confirms that they should eventually be developed into extra-budgetary funded projects. This screening takes place at the time of negotiation with the donor and its results are documented in a communication of acceptance to the donor and a Letter of Agreement formalizing the EB contribution. For emergency projects this screening is performed by TCE, and for non-emergency activities by TCA.
Project formulation process
All contributions to normative and operational activities take the format of project documents which are prepared and/or cleared by the technical department concerned. TCA and TCE coordinate the project formulation process that is conducted in accordance with the Field Programme Circular on the Project Cycle. Fully formulated project agreements are subject to two separate but essential reviews.
Internal project review
All non-emergency projects are subject to an internal clearance and review process that is coordinated by TC. They are reviewed and cleared for: technical factors (by technical divisions); operational design and feasibility (by regional operations branches and TCO); consistency with financial regulations (by AFF); policy on Project Servicing Cost (by PBE); consistency with the recipient country’s request and priorities (by FAOR); and donor priorities/criteria (by TCA). When required, legal clearance is also obtained (LEG).
Emergency projects are subject to a similar review but coordinated by TCE under the responsibility of TC.
Corporate project review (PPRC)
All non-emergency projects are subject to review for compliance with the Organization’s policy directives in accordance with the DGB 2000/17 on the Programme and Project Review Committee, PPRC (paragraph 20 above refers) and as described in more detail in a Field Programme Circular on the Project Cycle (FPC 2003/04).
|Project Implementation Control and Oversight Mechanisms|
Rules and Regulations
All projects, regardless of their funding source or size, are subject to FAO’s rules and regulations governing the procurement of inputs, recruitment of personnel, and financial management and reporting.
Internal and External Audit
All projects, regardless of their funding source or size, are subject to audits by AUD and EAUD.
All projects, regardless of their funding source or size, are subject to evaluations in accordance with DGB 2001/33.
Field Staff Selection Panel (FSSP): approval of project professional positions of 12 months or more.
Human Resource Committee: approval of P5 plus Special Post Allowance and above.
Local Selection Panels: approval of project national positions / GS.
Senior FSSP: approval wherein positions have managerial responsibilities.
Performance appraisal: all positions at least annually; similar tool for short-term positions.
Procurement of Equipment and Services
Local Procurement Review Committees: They usually comprise the FAOR; any other authorized officer, national professional officer, CTA or national project director/coordinator; and a third party (such as the UNDP representative) and/or a locally contracted auditor. They review the quotations and select the suppliers for all procurement actions with a value in excess of US$5 000.
Procurement Committees: Also operational in subregional and regional offices, and at headquarters, as appropriate.
Budget and Finance Management and Control
Project budget and expenditures are monitored mainly through the Oracle Data Warehouse and FPMIS. In addition, project expenditures effected through the FAO Representative Imprest Account or through a project imprest account are subject to review by local auditors.
Field Programme Management Information System (FPMIS) includes records of all projects funded from extra-budgetary and RP resources; covers detailed project financial data (project financial statements, status reports, transaction listings); is available to all FAO staff with access to Intranet.
Allows tracking of projects not performing in order to plan and initiate corrective action through Project Task Force information.
Alerts BHs or technical officers to key deadlines (reports due), low delivery, etc. through automatic message system.
Includes all relevant project reports/documents for all projects, irregardless of their size, source of funding, purpose (also TeleFood projects): project document, budget revisions, mission reports, terminal statements or reports, QPIRs, etc.
Quarterly Project Implementation Report (QPIR)
To be submitted by budget holders: review of project performance during past three months, plan activities for next three months, identify issues or problems that might impede implementation. Posted in FPMIS to permit monitoring of project performance at country level by regional offices and headquarters, and provide support and guidance as required.
1 It should be noted that for the sake of this paper, the term “extra-budgetary resources” refers to those funds received in addition to the assessed contributions of members in support of the Organization’s normative and operational activities as outlined in the Programme of Work and Budget.
2 FAO. “Constitution” (Article I, point 3) in Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I – 2000 edition (Rome, FAO, 2001).
3 FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001).
4 FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001)
5 The extent of recovery versus the support costs incurred is subject to regular reporting to the Governing Bodies through the biennial Programme Implementation Report. (It should be noted that TeleFood projects are not subject to the levy of PSC in accordance with Conference resolution 3/97.)
6 MS 250.113.
7 FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001)
8 FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001)
9 Except for contributions not exceeding US$150 000 in value, made in direct refund of Regular Budget normative expenditure, for which no formal financial reporting is sought by the contributor (see procedures referenced in footnote 7).
10 AC 2001/8: “Procedure for the Treatment of Ad Hoc Extra-Budgetary Contributions in Direct Support or in Reimbursement of Regular Programme Funded Normative Activities (not exceeding US$150 000)”; TC Procedure 2001/2: “Special Procedure for the Receipt of ad hoc Extra-budgetary Contributions in Support of Normative Activities (not exceeding a total amount of US$150 000)”.
11 C 2003/3, Programme of Work and Budget 2004-2005, paragraph 154.
12 PC 82/4: see in particular paragraphs 5 and 11.
14 PC 83/4 (b) was the most recent of these papers in 2000.