budgetary framework

Risk Assessment

15. Members have previously welcomed information on major risks to the achievement of the Programme of Work. This process has improved risk response decisions by management and governing bodies, for example in addressing exchange rate risks through the application of split assessment to the Organization’s assessed contributions. It has also contributed to a more open governance process, for example by anticipating the need for funding the After-service Medical Coverage liability and promoting the ensuing discussions in the governing bodies.

16. Furthermore, improvements continue to be made in the requisite financial management and accountability reporting to the governing bodies. The former include, for example, regular reports on financial highlights, budgetary performance, human resources matters and programme implementation reporting. Oversight, compliance and accountability processes include the work of the external auditors, local auditors, internal audit and inspection and the Joint Inspection Unit, as well as the auto-evaluation and independent evaluation process, which are themselves essentially based on a risk assessment of FAO’s operations. These mechanisms contribute to an effective internal and external monitoring of performance, including the requisite critical examination of any departure from expected results.

17. The increasing application of risk assessment to management at all levels of the Organization will assist in maximising the benefit to stakeholders from the resources made available to implement the 2006-07 Programme of Work.

18. “Risks” to conducting the Organization’s work stem from both internal and external factors, including evolving demands, expectations and institutional relationships. They impact upon the effective and efficient achievement of the Programme of Work through their influence on budgetary, financial and operational performance. This section anticipates some of the risks that the Organization faces in these areas and, where appropriate, the steps that are proposed to mitigate their impact through 2007.

Evolving demands and institutional relationships
19. At the present time, the Organization faces a challenging and evolving environment of considerable magnitude and scope which may influence its strategic and operating orientation. The Independent Evaluation of Decentralization provided a number of recommendations aimed at better responding to the needs of Members without increasing costs. Part of the answer to this dilemma lies in enhancing FAO's relationship with partners. There is a parallel need to address the Organization’s support to the implementation of the Millennium Development Goals and strengthen participation in UN country level processes, which calls for careful scrutiny of FAO’s future positioning in conjunction with the reform effort under way in the UN system. In addition, the proposed Independent External Evaluation of FAO could lead to strategic, programmatic and institutional measures, but not for the 2006-07 budget.

20. These important initiatives will, inter alia, feed into the review of the Strategic Framework due for consideration by the Conference in 2007. The Organization will need to progressively undertake a diligent analysis of the demands and institutional relationships, as further information from various initiatives becomes available, seizing those opportunities that it can act upon (e.g. streamlining of administrative processes). Therefore, flexibility in the methods for implementing the 2006-07 Programme of Work would be required, so that new thrusts, improvements and efficiencies can be incorporated as soon as practicable.

Budgetary risk management
21. FAO’s budgetary process encompasses a significant element of risk. The budgetary Appropriation for the biennium is not known until December of the preceding year, with no lead time for programme adjustments to be implemented if required due to an approved budget level different from that which is proposed. Unplanned or severe budget reductions, such as those for 2004-05, have to be largely managed through opportunistic savings. Such measures include, for example, a freeze on vacant posts or termination of contracts on agreed conditions - usually with insufficient resources available even for this purpose.

22. A recent Joint Inspection Unit (JIU) report on the implementation of results-based management in UN organizations recommended that member states “should focus on ... providing resources commensurate with the approved programmes, and/or giving clear guidance on programme and resource allocation priorities where sufficient resources cannot be provided.³” To facilitate this process to the extent possible, the Organization has prepared three resource scenarios for the 2006-07 budget, with less focus being placed on budgetary detail and more on programmatic results. The narratives in the Programme Budget Proposals as well as the sections below entitled Approach to Priority Setting and Impact of Resource Scenarios endeavour to link resource levels to programmatic priorities and results. Indeed, the Secretariat will continue to give careful attention to such linkages in the future.

23. The Secretariat continues to pursue efficiency savings, and the present measures are described in the Efficiency Savings section. However, the Organization’s tendency to set over-ambitious efficiency targets, as was the case in the PWB 2002-03, is an area of concern. The ensuing over-optimistic projections of efficiency savings in the PWB result in an under-budgeting of programmes during the biennial implementation cycle, with adverse consequences on the achievement of planned objectives. This risk must be managed through achieving a better balance between the need for establishing challenging efficiency targets on the one hand, and a realistic assessment of the timing and degree of efficiency savings on the other. Tentative and speculative analysis on the benefits to be achieved from complex future process changes will have to be scrutinised with particular caution.

24. Much of the continuing budget reductions which have been faced by the Organization over the last 10 years, has been absorbed by the efficiency savings referred to above. However, as it becomes increasingly difficult to find new ways of reducing costs while maintaining output, the need to reduce programmes in line with the priorities of the membership is heightened. As described below, the internal methodology, which exists and is applied, attempts to avoid fragmentation of programmes. There are, however, growing areas of the Programme of Work that are seriously under-funded if the demand for services is to be fully taken into consideration. Both the Secretariat and the Programme Committee, therefore, continue to seek a priority-setting methodology which responds to the needs of Members and the importance of maintaining a minimum critical mass of resources for each approved programme.

25. Capital Budgeting, which will be implemented in 2006-07, as approved by the Conference in 2003, allows more systematic planning for large expenditures on assets with a useful life of more than two years. It removes the need to absorb peaks in financial requirements for capital items within a single biennium, which in the past often led to delays and budgetary transfers from substantive programmes. However, its successful functioning in 2006-07 is dependent upon adequate resources in the Capital Expenditure Facility, particularly for institutional infrastructure and information technology. This is becoming increasingly difficult at the present budget levels, following the successive cuts of previous biennia. Despite the existence of an enhanced approach to planning and managing capital expenditure, the danger is that without adequate funding, essential investments will continue to be delayed, and viable investments that have already been initiated will fail to reach their full potential.

26. The system of receiving the Organization’s assessed contributions partly in US dollars and the balance in euro safeguards the programme of work from exchange rate risk to the extent that forecast euro requirements are matched by actual payments. The split assessments, introduced from 2004-05, protect programme implementation only from the impact of exchange rate fluctuations of the euro against the US dollar. The system does not provide protection for the approximately 20% of the Organization’s expenditures which is incurred in other currencies. The unfavourable impact on the budget of such fluctuations was significant in 2004, on account of a weakening dollar against some currencies in locations where the Organization has a substantial decentralized presence. Mechanisms for dealing with this risk are currently under review, and the outcome of this along with a report on performance of the split assessment arrangement will be submitted to the governing bodies in the latter part of 2005.

Financial risk management
27. The Secretariat actively monitors the financial health of the Organization, including a review of its equity and reserve accounts, and forecasts of expenditure and cash flow:

steps to reduce the accumulated deficit in the General Fund, as well as proposals for earmarked funding for the After-service Medical Coverage (ASMC) liability, are essential in this regard. As further outlined in the Financial Framework section, proposals have been put forward for consideration by the governing bodies;
in a worst-case scenario, eventual cash deficits in 2006-07 could lead to curtailment and forced under-delivery of programmes, despite the authority to spend granted through the budgetary appropriation. The Secretariat will continue to encourage prompt payment of assessed contributions, although the timing of such payments is in the hands of Members.

28. To safeguard internal controls, especially during a period of further streamlining of procedures and increased delegation, a robust financial controls unit in the Finance Division (AFF) will mitigate the risk of non-compliance with internal administrative and operational procedures. Accordingly, as recommended by the Finance Committee, the proposed budget for 2006-07 includes the reinstatement of five posts in AFF which were abolished to meet the reduced budget for 2004-05.

29. An area of expenditure that is difficult to predict and can have a significant impact on the Programme of Work is staff costs. FAO’s methodology for establishing standard rates, which are used for budgetary purposes, is sophisticated and results in unique budget rates for each grade level and location. However, even with refined projection methodologies, actual costs are difficult to predict with total accuracy. A mere 1% variance between actual unit staff cost rates and the standard staff cost rates that are planned up to two-and-a-half years before the costs are incurred, amounts to a forecasting error of US$ 5.5 million. When actual staff costs are higher than the budgeted standard rates, as is likely to be the case in 2004-05, the Organization is required to reduce its programmes, its products and services, to remain within the approved appropriation. Although the Special Reserve Account (SRA) can protect the Organization’s Programme of Work against the risk of unbudgeted extra costs that may arise during a biennium, the possibility of having to replenish the SRA through special assessments effectively limits its application in practice.

Operational risk management
30. The Organization must ensure that the working environment and processes in 2006-07 will be conducive to the achievement of its desired results.

31. The staff and assets of the Organization are under greater threat than ever before, and a safe working environment cannot be taken for granted. Improving safety goes hand in hand with increased security at headquarters and the field. To mitigate the security risk, FAO has introduced a number of additional measures at headquarters during 2004-05, including the application of shatter-proof film to windows, installation of road blocks at the main entrances, and hiring additional guards. In the field offices, FAO is taking measures to comply with the UN field security standards. However, the Organization perceives a need for a strengthened financial management framework for this increasingly visible and unpredictable area of expenditure. In 2006-07, the introduction of a separate Chapter of the budget, dedicated to security and safety of staff and assets is proposed to facilitate planning and management. This proposal is further outlined in the Security Expenditure Facility section below.

32. Another risk comes in the form of threats facing information resources and systems. With the active participation of FAO, the UN system High Level Committee on Management (HLCM) has recommended that every UN agency adopt a four-stage “road map” for managing information security. To initiate this process, FAO is undertaking an Information Risk Assessment to review both the technical and non-technical aspects of information security.

33. To improve its operational processes, the Organization carefully reviews recommendations arising from other reports or studies. For example, bearing in mind the interim report of the Independent Inquiry Committee which investigated the allegations against the Oil-for-Food Programme, FAO is reviewing operational modalities related to national execution.

34. The risks arising from a significant increase in FAO’s emergency work, coupled with the distinctive response needs of such operations, necessitates a critical review of the related internal controls, procedural constraints, coordination and management mechanism, budgetary, financial and administrative processes and operational support. This review is already under way, and salient policy matters, including a possible reassessment of the support cost rates for emergency operations, will be submitted to the governing bodies in due course.

35. A modern-day institution, especially one with a mandate to maintain itself as a centre of technical excellence, risks marginalisation if it is not continually examining and updating the skill profiles of its staff. The development of the new Oracle-based Human Resources Management System (HRMS), funded from arrears, is a recognition of this challenge. The HRMS will contribute to ensuring excellence by facilitating assessment and development of skills and competencies of FAO staff. Furthermore, in developing the biennial budgets, managers are required to set aside at least 1.35% of staff costs for staff development activities.

36. The assessment of uncertainties impacting upon FAO in 2006-07, summarised above, seeks to strike an optimal balance between the achievement of goals and related risks. Further information on management’s planned actions in response to the decentralization evaluation and on the Organization’s approach to priority setting are provided below and in separate papers submitted to the governing bodies. More details on the pursuit of efficiency savings and proposals for capital expenditure in 2006-07 are also provided below. Specific risk responses requiring guidance from the governing bodies include:

proposals to facilitate planning and management of security and safety of staff and assets, as presented below;
proposals that could contribute to structural improvements in the financial and cash flow position, as contained in the Financial Framework section.

Efficiency Savings

37. Efficiency Savings have been defined by the FAO Council as reductions in the costs of inputs without material negative impact upon the outputs. ⁴ The Finance Committee at its 108th Session received the document Progress Report on Efficiency Savings ⁵ which outlined the Organization’s current approach to the identification of, and the process for pursuing, efficiency savings. The Committee ... looked forward to receiving more detailed information, including on cost savings and timing, in the Summary Programme of Work and Budget 2006-07.⁶

38. The vigorous pursuit of efficiencies has been under way in FAO since January 1994 and applied in line with the decision of the 28th Conference which had stressed that the approach to dealing with eventually reduced resources should be directed to maximising efficiencies and reductions in the non-technical programmes, before reducing selectively technical and economic programmes as a last resort.⁷

39. In the implementation of this principle, much has been achieved to improve the Organization’s overall efficiency. As reported in the Programme of Work and Budget (PWB) 2004-05,⁸ efficiency savings over the previous five biennia are estimated at US$ 60 million per annum compared with 1994, arising from input-oriented measures (US$ 39 million per annum), process-oriented measures (US$ 19 million per annum) and cost-recovery measures (US$ 4 million per annum).

40. The search for efficiency savings remains an ongoing management process that is independent of the level of the FAO budget and builds on the economies already achieved. Further efficiency gains will focus more on changes in process and examination of more effective modalities of work, which can be operationalised through lower costs of inputs or higher recoveries. This will require cross-sectoral consultation, a longer-term implementation period, and sometimes involve transitional costs. It will recognise the need for realistic efficiency target setting as over-optimistic assumptions eliminate the lead-time required for planning programme adjustments. Furthermore, the Organization will continue to pursue efficiencies through enhanced quality and quantity of outputs for the same level of inputs.

Current process
41. In keeping with the policy-oriented nature of this document, key developments in the current process are described below, including quantified cost savings consistent with the FAO Council definition of efficiency savings. Wherever possible, comparisons are made with other organizations for benchmarking purposes and drawing upon comparable lessons learned. The full PWB 2006-07 will provide more details on the anticipated savings.

Business process reviews and streamlining of headquarters activities
42. Since 1994, FAO administrative and financial procedures have undergone extensive review, taking into account relevant findings of the External Auditor and the Inspector-General. This has resulted in the revision of a large number of procedures, many of which were implemented under the Oracle financial and administrative system. While it is difficult to quantify with accuracy the direct savings from these actions, previous reports have demonstrated the contribution of such action in significantly reducing the level of support staff since 1994.

43. The Organization is now reviewing its human resource management processes in connection with the development of the Human Resources Management System (HRMS), which will have Organization-wide implications. Efficiency savings are expected to come from the elimination of time-consuming steps in administrative processes and reduction of paper flows through, for example, on-line initiation of transactions by the requesting users directly in the system. They will also come from the availability of systems in support of processes which are currently manual or only partially automated, such as recruitment.

44. Efficiency savings in the servicing units, namely the MSS, OCDS, Regional MSUs⁹ and in parts of AFH and AFF¹⁰ will be progressively assessed and refined. This has started with a study to review the way human resource services are provided across the Organization, and in 2006 workflows will be more accurately defined before being put into operation. Once the new human resources servicing processes are implemented, reductions in the number of posts are expected in the servicing units after a period of transition and stabilisation.

45. The Organization has also been considering the outsourcing of administrative and information systems development and maintenance work to less costly locations or, alternatively, off-shoring them to staff located in a suitable lower cost Regional Office. The latter option is being pursued and a business case is now being prepared for off-shoring work to the Regional Office for Asia and the Pacific, in Bangkok, where the infrastructure in terms of office accommodation and management support is well established. The extent and timing of implementation of this off-shoring will depend on the results of the business case.

46. The mainframe computer environment was outsourced to the UN International Computing Centre (ICC) in Geneva in mid-January 2004, where FAO’s mainframe systems operate on a dedicated computer at the ICC at similar cost to previous arrangements. A project is now under way to move to a larger mainframe at the ICC, where FAO applications would share this resource with applications from other Rome-based UN agencies. The savings foreseen for 2005 will be utilised to fund the consolidation of activities, but from 2006 onwards, savings of approximately US$ 60,000 per year are anticipated.

47. Furthermore, the Organization is already examining possibilities for cost saving through the adoption of emerging voice and data communication technologies, especially Voice over Internet Protocol, at the expiry of the economic life of existing digital telephone exchange (PABX) equipment.

Document and publication management
48. Actions already taken to adjust the financial management and modalities of publications production, including the use of remote translation for the Regional Conferences, have realised savings of approximately US$ 6 million per year compared with 1994. The current review is focussing on the distribution and storage costs of all FAO publications.

49. Changes in printing technologies have reached a level of maturity whereby most of the distribution activity (i.e. handling, packing and labelling of publications) can be automated as is already being done in large private sector companies. The Organization is investigating whether a substantial portion of FAO publications could be produced and inserted into addressed envelopes directly by upgrading in-house printing facilities or by using properly equipped external printers.

50. In either case, FAO could reap savings of about US$ 500,000 per annum in handling, storing and intermediate shipping of publications, although this proposal may require some initial investment costs.

Registry management
51. The review of registries commenced in mid-2003 and resulted in significant changes to the methods of work with the introduction of digitisation. The FAO records management process now reflects the recommendations of the International Organization for Standardization (ISO) 15489 standard, which is an essential component of new accountability and quality management standards. In order to realise the full potential of efficiency savings in the registries, the Organization is currently analysing possible structural and staffing changes.

52. Net savings of US$ 222,000 per year were realised in the PWB 2004-05. It is anticipated that implementation of the next phase could yield further savings of US$ 365,000 per year in the 2006-07 biennium. However, this amount will be reduced by approximately US$ 105 000 required for software licensing.

Containment of travel costs
53. Until now, efficiency savings in travel were achieved mainly through adjustments in travel entitlements and through the use of non-endorsable airline tickets, wherever practical, producing annual cost savings of approximately US$ 2 million. However, changes in the travel market have heralded the virtual elimination of airline commissions which were being passed on to FAO as a discount on the ticket price. The cumulative effect of these new market conditions will be an increase in travel costs of some US$ 600,000 per year. To counterbalance this unfavourable change, the Organization is working with other UN system agencies to benefit from the UN’s overall bargaining power with airlines to negotiate competitive fares. In this case, therefore, the "efficiency" savings being sought are geared towards cost-containment.

Efficiencies and savings in governance
54. The Organization has benefited from support of the governing bodies in this area and considerable reductions in the costs of running meetings have been achieved with estimated savings of approximately US$ 2 million per annum compared with 1994.

55. Besides reducing the duration of the Conference from 9 to 7 days, as approved at the 32nd session of the Conference, the length of Committee on Commodity Problems (CCP) and Committee on Agriculture (COAG) sessions is reduced in 2005 as requested by the Council,¹¹ which should lead to savings. Furthermore, interpretation costs could be contained by critically reviewing the number of Regional Groups' meetings held. It may also be feasible to reduce the length of most meeting documents. The aim of the current initiative is to reduce by 10% the total volume of documentation for all governing body meetings, which, indeed, was one of the reasons for shortening this SPWB document. Achievement of the target is a shared responsibility with the governing bodies, who are the primary recipients of such documents. The governing bodies may, therefore, wish to exercise further selectivity in their requests to the Secretariat for additional information or new documents, and encourage the Organization to shorten existing meeting documentation.

56. In seeking to find innovative ways to generate further savings in governance, the Organization is also looking to best practices in other UN agencies. The elimination, or more efficient production of verbatim records, which are very expensive to produce, is one area of investigation. Other organizations using verbatim records are IFAD, ILO and UNESCO¹². However, recognising that verbatim records are a requirement of FAO’s Basic Texts, other less costly methods are being considered, such as audio/video recordings of governing body meetings. UNCTAD and WTO¹³ have experience in making such recordings available on their Web sites. It is estimated that the implementation of such measures will generate savings of approximately US$ 300 000 per annum. However, some of these savings will be required as an initial investment in technological infrastructure.

Streamlining of regional and country level administrative activities
57. It is recalled that the decentralization of some administrative functions since 1994 has yielded approximately US$ 2 million per year in savings due to the differential in salary rates for local staff in Rome versus other locations. Further initiatives will be examined in the context of the implementation of the recommendations of the Independent Evaluation of FAO’s Decentralization. These could directly lead to efficiency savings, although the extent or exact nature of these savings cannot yet be determined.

Improved support cost recovery
58. The Organization continues to seek means to recover costs incurred in providing administrative and operational support (AOS) services and technical support services (TSS) to extra-budgetary projects, thus minimising the burden on the Regular Programme budget.

59. The Organization will review the justification for, and feasibility of, increasing the percentage-based AOS rate for Technical Cooperation Programme (TCP) and emergency projects in accordance with the principles already approved by the FAO Council, and will seek to further improve recovery for technical services performed for extra-budgetary projects. This will require, inter alia, improved budget formulation practices and consultation with the governing bodies. In the case of TCP-funded projects in particular, increased recovery is being sought by simplifying the cost recovery procedures.

Conclusion
60. The expected savings which will crystallise in 2005, such as in the area of registry management, have already been accounted for in the current biennium. New initiatives will have initial investment costs, for example technological investments for documents and publications management.

61. The initiatives identified above will yield a satisfactory level of efficiency savings in 2006-07. Some US$ 1.2 million per year can be quantified at present for savings in mainframe computer services, publications and registry management, meetings documents and records. The implementation of HRMS, off-shoring and reforms in decentralization will increase this figure and a more accurate estimate will be available in the full PWB 2006-07.

approach to priority setting

62. The approach for overall planning and management of Regular Programme resources includes three areas of scrutiny:

in the first instance, efficiencies and economies in programme execution (including increased recovery of the cost of technical, administrative and operational support to field activities, where feasible and justified) are pursued for all areas of work, to release funds for the Organization’s programmes or to handle budget reductions;
every attempt is made to minimise the cost of delivering the non-technical programmes to optimise the cost effectiveness of servicing and back-office functions, particularly general policy, governance, administration and common services. The adoption of results-based principles in non-technical programmes and technical cooperation areas, which commenced in the Medium Term Plan (MTP) 2006-11, and the application of auto-evaluation to these programmes, will improve the capacity to identify areas for programme and resource adjustments. Initiatives addressing the cross-organizational strategy to improve the management process also contribute to this effort; and
with respect to the technical and economic activities, priorities first come into play at the resource planning phase, which occurs in the development of the Medium Term Plan, where criteria analysis is used to determine the priority to be accorded to the programme entities that will contribute to the achievement of the strategic objectives.

63. As noted in the Medium Term Plan 2006-2011¹⁴, the criteria for priority setting endorsed in the Strategic Framework fall into two categories:

those that can assist in determining the relative priority of a given entity in relation to others (relevance to the Strategic Framework; clear focus on Members’ expressed priorities and embodiment of FAO’s comparative advantage); and
those that more particularly address the quality of design of a programme entity (demonstrated means-ends causal links; clear indication of quality and utility; cost efficiency; likelihood of success and sustainability of results).

64. The three criteria in the first category are those more relevant to informing the process of allocating resources. Based on the scores of these three criteria, the entities and related planned resources were critically reviewed in the context of RG opportunities as well as within the constraints of ZRG and ZNG budget levels.

65. In developing the ZNG scenario, three differentiated priority levels were identified at the programme entity level when assigning resource reduction targets:

highest priorities considered as fully protected, i.e. keeping allocations to present levels, comprising the TCP and a few areas where commitments exist with third parties;
high priority areas, generally scoring high on the first category of priority setting criteria, which were partially protected; and
other priority areas, i.e. areas which were required to absorb a higher reduction than the preceding group.

66. At all resource levels, two other factors were taken into account by departments and offices in proposing changes to programme thrusts and resource allocations to entities:

activities that could be substantially reduced or eliminated were identified in order to limit programme fragmentation, drawing attention to the consequent impact. Other risks (or threats) were also identified which might affect programmes due to lack of critical mass at current resource levels or changes in the external environment; and
where appropriate, the results of recent independent programme and strategy evaluations and of auto-evaluations were used by managers in deciding on the future of individual entities. The results of the first auto-evaluations and their contribution to the priority setting process are presented to the Programme Committee¹⁵ at the same time as the SPWB.

67. Further changes are expected to be made based on the guidance to be provided by the governing bodies on programme and resource allocation priorities. It is, therefore, anticipated that programme managers will build on the outcome of the guidance and the internal results-based management process to prepare the full PWB.

impact of resource scenarios

68. At its 127th session the Council recognized that alternative scenarios for the next MTP and PWB would be necessary to enlighten the membership about the possible impact of alternative allocations, including Zero-Real Growth (ZRG), Zero-Nominal Growth (ZNG), and Real Growth .¹⁶

69. The Organization’s approach to overall planning and management of Regular Programme resources, described under Approach to Priority Setting, can be applied to any resource scenario and has been used to develop indicative budgetary allocations and programme budget proposals at ZRG, RG and ZNG resource levels. Thus, managers have prepared their scenarios by taking account of potential efficiencies and applying the priority setting criteria, focussing on the main thrusts and planned achievements approved in the MTP 2006-11, particularly the first biennium of the plan period, across all locations.

70. As noted under Risk Assessment, the programme of work proposals for 2006-07 have been framed in the context of evolving demands and rapidly changing external relationships compounded by an uncertain budgetary climate.

71. The substantive thrusts of the ZRG scenario, proposed RG increases and the impact of ZNG reductions are described in the Programme Budget Proposals section for each major programme. A summary of these implications is provided below.

Zero Real Growth Scenario – Outline of the substantive thrusts

72. ZRG is defined as the budget level needed to maintain purchasing power by providing for the estimated amount of cost increases in 2006-07. In developing the ZRG scenario, the current biennium was taken as the starting point, adjusted for the reinstatement of resources for the Finance (AFF) and Policy Assistance (TCA) Divisions (which were foreseen in the MTP to be redressed under RG). This is in accord with the budgetary adjustments requested by the governing bodies in 2004, which are expected to be funded from estimated efficiency savings to be achieved in 2006-07. However, following the significant reductions in the budget in 2004-05 of US$ 51.2 million (6.4%) in real terms, involving 232 abolitions in staff positions, some other areas remain under-funded and at risk under ZRG, in particular resources for escalating security costs, the FAO Representative (FAOR) network under Major Programme 3.4, and capital expenditure. The extent of coverage of these areas under ZRG will be primarily dependent upon the governing bodies' reaction to the management response to the decentralization evaluation and the achievement of hitherto unquantified efficiency savings.

73. It is clearly necessary to maintain continuity between the planned programme achievements articulated in the MTP within a results-based budgeting framework (as approved by the Council), and the budgetary proposals and biennial plans in the PWB. Therefore, adjustments to the programme structure at the PWB stage are exceptionally proposed. The following five areas of proposed adjustment, which are not yet reflected in the Programme Budget tables are highlighted:

The work on auto-evaluation will be funded from Regular Programme resources. In addition to technical support from the Evaluation Service, resources budgeted in the programme entities undergoing auto-evaluation will be transferred from the technical and administrative programmes to a new, centrally-managed programme entity under Programme 1.2.2: Evaluation. Catalytic funding will then be reallocated during the biennium to the divisions undertaking auto-evaluations;
Under Major Programme 2.1: Agricultural Production and Support Systems, the support to the Secretariat of the International Treaty on Plant Genetic Resources for Food and Agriculture (IT-PGRFA) will be provided by Programme 2.1.2: Crops, rather than from Programme 2.1.0: Intra-departmental Entities, once the first meeting of the governing body for the Treaty has taken place during the biennium;
Resources will be allocated in Major Programme 2.2: Food and Agriculture Policy and Development under a new programme entity to be established for follow-up action on the Voluntary Guidelines to Support the Progressive Realization of the Right to Adequate Food in the Context of National Food Security;
Building on the restructuring of Major Programme 2.5: Contributions to Sustainable Development, as approved in the MTP, two entities relating to education and extension will be shifted from Programme 2.5.1 to Programme 2.5.2;
In order to emphasise the country focus of FAO’s policy work, and to reduce programme fragmentation, some entities under Major Programme 3.1: Policy Assistance will be merged and refocused in the full PWB.

Real Growth Scenario – Summary of the import of proposals

74. The real growth of US$ 30.9 million before cost increases, equivalent to an increase of 2.4% in 2006 and 2.5% in 2007, corresponds to the average gross domestic product (GDP) growth expected among the major contributors. The MTP 2006-11, which indicated a budgetary increase of US$ 22.9 million for 2006-07, was used as the starting point for preparing the RG scenario for 2006-07, with some adjustment to rectify the under-funding for the decentralized structures. Of the additional US$ 8 million compared with the MTP, US$ 3.5 million would be provided for work on capacity-building in the application of international regulatory frameworks, US$ 2.5 million to Chapter 8: Capital Expenditure, and US$ 2 million to Chapter 9: Security Expenditure, as shown in Programme Budget Table 7.

75. Under Major Programme 2.1: Agricultural Production and Support Systems, RG would allow in particular to strengthen:

work on the International Treaty on Plant Genetic Resources for Food and Agriculture (IT-PGRFA) to build national and regional capacities and the implementation of the Global Plan of Action for PGRFA;
support to the Priority Areas for Inter-disciplinary Action (PAIAs);
water use efficiency and conservation activities (e.g. on-farm water control techniques, irrigation system modernisation and management);
the implementation of the International Plant Protection Convention (IPPC), by accelerating the harmonisation and standard-setting programmes and for technical assistance;
EMPRES,¹⁷i.e. to initiate work on other transboundary plant pests and diseases beyond the current focus on desert locusts;
work on critical animal health and production aspects (e.g. environmental and disease risk assessment and management, the Global Early Warning System for Transboundary Animal Diseases, pro-poor livestock development policies);
support to policy and institutional measures for private sector marketing, agribusiness development and agro-industry innovation;
the practical applications to solve specific development problems, as generated by the joint FAO/IAEA Division.

76. Under Major Programme 2.2: Food and Agriculture Policy and Development, real growth conditions would inter alia facilitate:

the design of national Food Insecurity and Vulnerability Information and Mapping Systems (FIVIMS) that specifically address institutional issues;
the capacity of the Codex Secretariat for information dissemination, as well as capacity-building in countries related to Codex activities;
the expansion of the modernised Corporate Database for Substantive Statistical Data (FAOSTAT) to countries through CountryStat;
the development of more efficient World Agricultural Information Centre (WAICENT) access tools for Members;
effective methodologies for Crop and Food Supply Assessments;
enhanced assistance to countries to implement trade agreements.

77. Under Major Programmes 2.3: Fisheries, the main benefits of RG would be in terms of:

enhanced information on fisheries (the “Strategy-STF”);
improved monitoring of marine ecosystems relevant to fisheries;
expanded capacity-building for small scale fisheries development.

78. Under Major Programmes 2.4: Forestry, RG would facilitate:

translating agreed concepts of sustainable management of forests into action and related sharing of experiences;
expanded advice related to the Kyoto Protocol;
comprehensive studies of forests and forestry for the 2030 horizon;
meeting the high demands for national forestry policy frameworks and institutional arrangements.

79. Regarding Major Programme 2.5: Contributions to Sustainable Development and Special Programme Thrusts, RG would allow to:

reinforce normative activities and policy assistance regarding the impact of HIV/AIDS and other diseases on household and national food security;
build capacities of decision makers in designing and implementing policies and best practices for Sustainable Agriculture and Rural Development (SARD);
increase the RP provision to support the Special Programme for Food Security (SPFS).

80. Under Chapter 3: Cooperation and Partnerships, RG would principally allow for:

assistance to countries in coping with new treaties, regional integration mechanisms and globalisation challenges;
responsiveness and capacity of service delivery by FAO Representatives at a more sustainable level.

81. Under Chapter 4: Technical Cooperation Programme, the RG net increase would clearly augment the capacity of the TCP Appropriation to meet requests from countries, including for emergencies.

82. Under Chapter 5: Support Services, real growth funding would be used to speed up the implementation by the Human Resources Management Division (AFH) of the Plan of Action for Human Resources.

Zero Nominal Growth Scenario – Summary of Impact

83. The ZNG resource level is defined as the programme of work that leads to the same nominal level of net appropriation for the next biennium as the current appropriation, which amounts to US$ 749.1 million in 2004-05. An appropriation of US$ 749.1 million to implement the 2006-07 programme of work, which is planned to continue to be collected through a system of split assessments to protect the budget from the effects of the dollar-euro exchange rate, therefore implies that the estimated cost increases (see section on Cost Increases), need to be “absorbed” by the Organization. This corresponds to an overall real reduction in resources of approximately US$ 43 million, or 5.7%.

84. The programme resource reduction targets were applied as described under Approach to Priority Setting and affect work at all locations. The financial implications of a ZNG budget on the Organization’s programmes is shown at the major programme level in Programme Budget Table 8, and the highly damaging impact is described in the Programme Budget Proposals section. Salient points arising under this scenario are summarised below.

85. In the first instance, ZNG reductions could entail abolition of at least 190 positions. Even assuming that such action is feasible immediately after the required 232 post abolitions in 2004-05, additional costs for redeployment and separation of staff, tentatively estimated at up to US$ 10 million, have not been “absorbed” in the ZNG proposals.

86. Under Chapter 1: General Policy and Direction, despite largely fixed costs, cuts in staff and non-staff provisions would be necessary in several offices (AUD, LEG, PBE, SAD)¹⁸, reducing support to the governance structures and results-based management, which would put at risk the governance, oversight and accountability framework.

87. Major Programme 2.1 would be affected in several ways, including:

less capacity-building activities and dissemination of policy experience and examples of good agricultural practices, as well as conservation agriculture;
delayed implementation of the programme of work of the Commission on Genetic Resources for Food and Agriculture (CGRFA);
reduced activities on land degradation and conservation, soil fertility and nutrient management;
elimination of support to the International Network of ex-situ collections of PGRFA;
lower participation of developing countries in IPPC standard setting and less IPPC outreach activities (information systems and technical assistance);
reduced support to countries in relation to integrated pest management, pesticide management, crop improvement and biotechnology;
delays for the interactive Global Livestock Production and Health Atlas (GLiPHA) and in the establishment of national and regional livestock policy negotiation platforms;
less work on good practices for addressing food-borne diseases and new measures for zoonoses control, and also lower support to the Programme Against Animal Trypanosomiasis (PAAT);
making work on early warning and disease control strategy design and implementation under EMPRES fully dependent on extra-budgetary funding;
elimination of technical support and information systems relating to farm power and mechanisation, and direct assistance for improving the business capacities of farmer organizations;
reduced policy and institutional guidance relating to agribusiness, supply chain management and commercial farming;
curtailment of outputs in the Joint FAO/IAEA Division of Nuclear Techniques in Food and Agriculture (AGE) on the use of the Sterile Insect Technique against the Mediterranean fruit fly, molecular characterisation of animal genetic resources and veterinary public health.

88. Under Major Programme 2.2, some telling examples of negative impact are:

the need to adjust the structure, duration of and documentation for Committee on World Food Security (CFS) meetings;
scaling down of FIVIMS objectives (reduced statistical data collection and analysis, technical assistance to countries, work on nutritional assessment and country nutrition profiles);
elimination of new entities proposed in the MTP, undermining FAO’s analytical capacity in fast-changing external contexts;
drastic reductions in work on food composition, less nutrition publications, capacity-building workshops and training activities; coupled with the elimination of six sessions of FAO/WHO Regional Coordinating Committees;
cancelled work on environmental statistics, as well as income and investment statistics, delays in the development of additional indicators for measurement of food security, and fewer new CountryStat countries;
impaired development of the WAICENT corporate framework and the Programme to Bridge the Rural Digital Divide;
reduced expenditures on promotion and dissemination of SOFA¹⁹ and other supportive analytical studies, providing the underpinning of Global Food and Agricultural Perspective Studies;
fewer projects formulated and submitted to the Common Fund for Commodities, and reduced documents and analyses for the IGGs.

89. As regards Major Programme 2.3, ZNG conditions would negatively affect data quality, timeliness and responses to requests for information. Work on fishing fleet statistics would be cancelled, impairing monitoring of implementation of the International Plan of Action (IPOA) on fishing capacity. Other areas which would have to be reduced include: the identification and cataloguing of commercial fish species; the assessment and monitoring of world marine fishery resources; guidelines for fishery resources assessments and fisheries management; national workshops/meetings for the promotion of sustainable aquaculture; projection of world fish consumption by 2020; technical meetings and publications; support to regional fishery bodies.

90. Concerning Major Programme 2.4, ZNG would imply much lower activities in Low Forest Cover Countries (LFCC), making them mostly subject to extra-budgetary funding. Support in combating desertification and implementing the UNCCD²⁰ would have to be severely reduced. One statutory body - Silva Mediterranea - could be eliminated. ZNG would force curtailment of support to countries in the prevention and control of forest fires and to forest fire networks. It would not be possible to initiate new regional forestry outlook studies and update previous ones. Work on forest products trade and environment would be eliminated. Planned activities to address inadequacies in forestry institutions as a result of the HIV/AIDS pandemic, especially in Africa, would be halted. Support to the United Nations Forum on Forests and other dimensions of the international arrangement on forests would be curtailed.

91. Under Major Programme 2.5, ZNG would imply reductions in:

support to environmental agreements and promotion of integrated environmental planning and management;
technology enhancement for Geographic Information System (GIS) and remote sensing data for early warning systems;
technical assistance and capacity building in biotechnology and biosafety;
support to networks among national research bodies and stakeholders;
follow-up to the UN Roundtable on Communication for Development and the forthcoming World Congress on Communication for Development (WCCD);
policy advice and technical assistance to countries in the context of the initiative on Education for Rural People (ERP);
policy materials and methodologies to strengthen national agricultural extension systems, including extension capacity for the prevention and mitigation of HIV/AIDS;
support to policies and practices for SARD, making work on the latter virtually dependent on extra-budgetary resources;
headquarters support to the UN System Network on Rural Development and Food Security;
support for up-scaling of the SPFS and to South-South Cooperation (SSC) agreements.
FAO’s financial support to the Consultative Group on International Agricultural Research (CGIAR) Science Council and its Secretariat, and technical assistance to National Agricultural Research Systems (NARS).

92. Under Chapter 3, ZNG conditions would force a return to cuts affecting policy assistance posts in the regions, impacting on FAO’s capacity to assist with the implementation of the Millennium Development Goals and the Organization’s capacity to assess field programme opportunities. Work with financial institutions other than the World Bank would be reduced by approximately 25 percent versus the current level of Investment Support Programme (ISP) work. The preparation of reports on field programme performance and the capacity to address problems related to field programme operations would be undermined. ZNG conditions would also compound the difficulties which already exist in managing the network of country offices under the present budget level. Appropriate measures to meet the reduction target still need to be identified. The coordination of activities related to cooperation with NGOs/CSOs²¹ and with the private sector, as well as the decentralized cooperation programme may also be affected.

93. Under Chapter 5, the General Affairs and Information Department would not be able to maintain the level of editorial and production quality of information materials, and would also need to reduce media services. AFF would need to eliminate posts, weakening internal financial controls, while the frequency of local audits in field offices would be reduced with self-evident impact. Among other things, the Information Systems and Technology Division (AFI) would be required to reduce significantly its information systems development services, while AFH would also reduce activities and services in key areas such as recruitment, post management and staffing services. The Management Support Service (MSS) in AFD would also have to eliminate critical Help Desk functions and other support to users throughout the Organization.

94. Under Chapter 6, the ZNG level would entail serious and short-term maintenance shortfalls on the premises which will lead to additional costs in the long term, and other reductions in common services at all locations.

decentralization

95. The Independent Evaluation of FAO’s Decentralization²² was given initial consideration by the Programme and Finance Committees at their sessions in September/October 2004. The Committees also had before them the Preliminary Management Response²³ which commended the report and generally supported the recommendations. It was agreed that a further response by management would be made available to the next sessions of the Committees in May 2005. A detailed implementation plan with assigned responsibilities and deadlines is provided to the Committees in a separate document.²⁴ The document also explores the areas in which there are significant budgetary implications, many of which have yet to be quantified.

96. A further complexity to the Evaluation of FAO’s Decentralization recommendations that needs to be taken into consideration is that the review of FAO’s contribution to the Millennium Development Goals (MDGs) raises issues concerning the adequacy of FAO’s capacity at the country level to meet not only the demand from Member Nations, but also to fully participate in country-level exercises such as Poverty Reduction Strategies (PRS), Common Country Assessments (CCA), United Nations Development Assistance Framework (UNDAF) or Sector-Wide Approaches (SWAps). In many cases, participation requires resource allocations for cost-sharing arrangements or even joint programmes, something which has been difficult to accommodate in a context of ever-diminishing resource levels.

97. While the report of the Evaluation of FAO’s Decentralization is excellent in its depth of detail and coverage, it includes some 50 plus recommendations which, even in the Executive Summary, obscure the overall picture. Thus, a recommendation-by-recommendation approach to the report, while being both essential and appropriate in terms of accountability, needs to be enhanced through a classification of the recommendations and consideration of each class as a whole as well as individually. The requirement for such an approach is made even more important by the need to also address the MDGs and UN country level reform, the combined effect of which is to cause some reconsideration of FAO’s future role and presence at country level.

98. As a result all of the recommendations have been classified under seven main headings that are described in more detail in document PC 93/7 - FC 109/26 and are as follows:

Demand and priorities for FAO services at country level;
Supply of FAO services, including country coverage;
Authority and delegation;
Human resources and staff management;
Budgetary issues;
Procedures, streamlining and efficiency; and
Partnership at the country and regional levels.

99. All of the recommendations have budgetary implications to varying degrees. For example, the recommendations relating to the demand for, and supply of, services at country level have a myriad of implications including the costs of expanding existing country offices to accommodate the “technical hubs” or Subregional Offices, the relocation of staff, etc. Other recommendations would lead to increased funding for FAOR salary costs to facilitate the proposed reduction in vacancies or more resources for staff development in a number of areas. It is hoped that much of this incremental cost can be offset by savings arising from various recommendations dealing with streamlining, efficiency savings and delegations. However, following the reductions implemented in the 2004-05 budget, the current Regular Programme resource constraints are such that it is increasingly evident that the decentralized network is financially stretched to the limit.

100. The feedback that will be received from the Committees on the detailed implementation plan and the evolving budgetary implications will be progressively incorporated into the full PWB 2006-07, recognising that this is an on-going process which is likely to impact upon the budgets for future biennia as well.

Capital Budgeting

101. Conference Resolution 10/2003 established a Capital Expenditure Facility to integrate capital expenditure planning into the existing budgeting and financial framework, by:

designating Chapter 8 of the Programme of Work and Budget for the purposes of defining and authorising capital expenditures; and
establishing a Capital Expenditure Account through the addition of Financial Regulation 6.10.

102. The Facility provides a systematic approach to managing and financing essential capital expenditures under Chapter 8 within the existing planning framework. The source of funds for the Account is the Regular Programme Appropriation approved by Conference, voluntary contributions, and recoveries from charges to users for the delivery of capital investment services.

103. Capital expenditure plans totalling US$ 6.6 million in the 2006-07 biennium and a tentative proposal for their funding were included in the Medium Term Plan 2006-11²⁵. The Finance Committee²⁶ welcomed the proposals and endorsed the cautious approach adopted by the Secretariat, in terms of the scope of eligible plans and level of funding.

104. The capital expenditure plans, which are summarised in Table 1 below and are entirely consistent with the proposals in the MTP 2006-11, were limited to the most indispensable projects for 2006-07, as the extent to which the capital expenditure plans can be implemented are dependent upon the level of expenditure financed under the Facility:

planned capital expenditure totalling US$ 6.6 million comprise the completion of investments that have already commenced (US$ 3.9 million for the Human Resource Management System (HRMS) implementation and post implementation activities), essential periodic investments for information and communication technology systems (US$ 1.7 million for corporate administrative and technical applications and telephony services), and US$ 1 million for overdue replacement of interpretation equipment in meeting rooms;
four possible sources of funding totalling US$ 6.9 million are proposed for the Capital Expenditure Account in 2006-07. The resources planned for 2006-07 would be authorised for expenditure in Chapter 8 through the Appropriations Resolution approved by the Conference.

105. The sources of funding are outlined below.

106. Carry-forward from Arrears at 31/12/2005 – US$ 2.9 million The Finance Committee at its 108th Session agreed to the proposal to carry forward to the Capital Expenditure Account the unspent balance on Resolution 6/2001 Use of Arrears. The Committee recognised that many items detailed in Resolution 6/2001 also fall under the definition of Capital Expenditure and that certain projects originally authorised under the Use of Arrears would run beyond 2005. Examples include the development of HRMS and Field Accounting System (FAS) administrative systems. A firmer estimate of the carryover will be provided in the full PWB.

107. Eventual 2004-05 under-spending transferred to Chapter 8 – US$ 1 million. It is not generally feasible to spend 100% of the Appropriation if the Organization is to avoid ever exceeding it. Therefore, surpluses of varying magnitude occur every biennium. The governing bodies may wish to transfer the amounts under-spent at the end of each biennium in Chapters 1 through 6 of the budget to Chapter 8, so as to permit the effective operation of the Facility.

108. Redirection of funds from Chapters 1 through 6 to Chapter 8 – US$ 2 million. The intention is to withhold a part of the Appropriation across the Chapters at the beginning of the biennium, to ensure a steady flow of income from the Appropriation to the Capital Expenditure Account. These transfers would preferably be in the form of efficiency savings to be achieved in 2006-07, but could also include resources that would have been budgeted by the concerned programmes for capital expenditure. This approach has not yet been reflected in the resource tables of the document, pending consideration of the best mechanism to calculate the hold back. The first Appropriation adjustment for US$ 2 million will be made as part of the full PWB 2006-07.

109. Transfers from other Chapters during implementation – US$ 1 million. Although the precise sources of funding have yet to be determined, possibilities could include charges for capital services, voluntary contributions, or one-time charges against specific programmes.

110. Table 1 summarises the inflows and the outflows for the Capital Expenditure Account to arrive at a tentatively projected balance in Chapter 8 of US$ 0.3 million at the end of 2006-07. Under Financial Regulation 6.10, this balance will be transferred to the Capital Expenditure Account for use in the subsequent financial period.

Table 1: Planned Movements in the Capital Expenditure Account (US$ 000)

	Carry forward at 31/12/05	2006-07 Biennium
PLANNED INFLOWS
Carry-forward from Arrears at 31/12/2005	2,900
2004-05 Under-spending Transferred to Chapter 8	1,000
Total Available Funds at 31.12.05 Carried Over to 2006-07	3,900	3,900
Redirection of funds from Chapters 1 through 6 to Chapter 8		2,000
Transfers from other Chapters during implementation		1,000
Total Additions in 2006-07 to Capital Account		3,000
TOTAL FUNDS AVAILABLE IN 2006-07		6,900

PLANNED CAPITAL EXPENDITURE
1. Telephone Services		150
2. Shared Data Services		1,545
3. IT Support to Meetings		1,000
4. Human Resources Management System		3,900
TOTAL PLANNED EXPENDITURE IN 2006-07		6,595

Closing Balance transferred to the Capital Expenditure Account		305

111. Since the Finance Committee has previously endorsed the restricted scope of eligible plans in preparing capital expenditure proposals, a single expenditure plan and a corresponding funding level has been prepared for the biennium. However, the compulsion for budgetary realism has precluded proposals for other essential investments in institutional infrastructure as it would not be feasible to support them without additional assessed or voluntary contributions. For the same reason, other strategic proposals that would contribute to improved efficiency and effectiveness in the medium-term, have also been left out, even though their desirability can be established through careful application of investment appraisal techniques. Details of viable, but unfunded capital expenditure initiatives could be provided in the full PWB so that the governing bodies are able to consider them.

Proposal for an FAO security expenditure facility

112. Security awareness worldwide has increased notably since 11 September 2001 and a safe working environment cannot be taken for granted. The United Nations system, including FAO staff, faced attacks against its premises in Baghdad in August 2003. The conclusions of the report of the Independent Panel on the Safety and Security of United Nations Personnel in Iraq pointed to severe failures in the UN security management, system and practices.

113. The Organization perceives a need for a strengthened financial planning, monitoring and accountability framework for security and safety of staff and assets, which has caused mounting and unpredictable expenditure in recent times. In this regard, guidance is sought from the governing bodies concerning the establishment of an FAO Security Expenditure Facility, which would ease financial management within a results-based context.

114. The primary responsibility for the security and protection of FAO personnel and property rests with the host government. However, within the framework of the United Nations Security Management System, the Director-General is ultimately responsible for the safety and security of FAO personnel and property. Providing a safe environment also requires adequate funding and Members have a collective responsibility in this regard.

115. The Organization must fund a variety of costly security provisions to protect both its personnel and assets in line with existing UN security policies, practices and procedures. In the light of recent events, decisive action has been taken to strengthen security at headquarters and field duty stations, including through the promulgation of a new FAO Field Security Policy issued in July 2003. Security provisions include inter alia the Organization’s cost-share of the newly established UN Department of Safety and Security (encompassing the ex-Office of the United Nations Security Coordinator - UNSECOORD); Minimum Operating Security Standards (MOSS) equipment and facilities for all field offices and staff; security training; and Minimum Operating Residential Standards (MORS) equipment.

116. The resources required for safeguarding staff and assets have risen dramatically since 2001. A budgetary provision for security of US$ 2.4 million in 2002-03 was increased in the PWB 2004-05 by US$ 7.6 million to US$ 10 million, while the actual cost incurred in 2004-05 is expected to rise to US$ 11.7 million. In 2006-07 it is estimated that the requirements will increase further to at least US$ 12.7 million as detailed in the following table, excluding the rising cost of headquarters building guards, amounting to over US$ 6.5 million in 2004-05. Most of these costs are recurrent and the significant amounts involved warrant revised modalities of security budget presentation and management.

Table 2: Security Resource Requirements (US$ 000)

Security Item	Estimated 2004-05 cost to be funded by FAO RP	Estimated 2006-07 cost
FAO share of ex-UNSECOORD	2,760	4,000
Malicious Acts Insurance Policy	300	300
MOSS equipment, GOE and related costs for FAORs	5,760	6,340
FAO Field Security Focal Point and Security Clerk	480	480
Residential security provisions	718	718
Miscellaneous including MOSS equipment and GOE for FAO Regional/Sub-regional Offices	350	350
Subtotal security items - field	10,368	12,188
HQ security services including installation of anti-ram barriers	805	500
Installation of blast-proof film on HQ windows	333	-
Other HQ expenditure	180	-
Subtotal security items - HQ	1,317	500
TOTAL	11,686	12,688

117. The budgets and expenditures for safeguarding staff and assets are currently spread among several chapters and organizational units. This weakens financial management and control of this important area of expenditure, hindering the formulation of a linked hierarchy of programmes and activities with clearly articulated objectives, and the alignment of resources to the programmes.

118. The financial management of security resources is also complicated by unanticipated costs and fluctuating cost estimates, particularly where they relate to FAO’s participation in United Nations system-wide arrangements, such as the Organization’s share in the costs of the UN Department of Safety and Security. These uncertainties are very much exacerbated by the fluctuating security situation at global, regional or country level. The requirement to reduce the substantive programme of work due to unplanned security expenditures, or the inability to carry forward under-expenditure on security from one biennium to the next, on account of delays that are entirely outside the control of the Organization, are serious constraints.

119. To address the present shortcomings, the governing bodies may wish to consider establishing a Security Expenditure Facility from 2006, as a multi-biennia funding mechanism that groups in a new dedicated Chapter of the PWB (Chapter 9) all costs that are directly related to headquarters and field security at FAO. The account could also be supplemented by voluntary contributions.

120. Unspent funds in this Chapter at the end of the biennium would be credited to an FAO Security Account and could be carried-forward to future biennia.

121. For the PWB 2006-07, resources required are estimated at US$ 12.7 million, excluding the cost of headquarters building guards, as tabulated above. US$ 10 million would be drawn from the existing provision for security budgeted in the approved PWB 2004-05, the majority of which is under Chapter 1 (US$ 6.3 million) and Chapter 3 (US$ 2.7 million) and the remaining budgetary requirements would be funded from within the appropriations in the 2006-07 budget, as for the other chapters.

122. The Security Expenditure Facility would improve financial management within a results-based context and give needed visibility to the efforts of Members and the Organization to ensure a safe and secure working environment.

³ JIU/REP/2004/5 paragraph 16a

⁴ CL 110/REP paragraph 24

⁵ FC 108/14

⁶ CL 127/15 paragraph 84

⁷ CL 110/REP paragraph 21

⁸ C 2003/3 paragraph 179

⁹ Management Support Service (MSS); Decentralization Management Support Service (OCDS); Management Support Units (MSUs)

¹⁰ Human Resources Management Division (AFH); Finance Division (AFF)

¹¹ CL 127/REP paragraph 23

¹² International Fund for Agricultural Development (IFAD); International Labour Organization (ILO); United Nations Educational, Scientific and Cultural Organization (UNESCO)

¹³ United Nations Conference on Trade and Development (UNCTAD); World Trade Organization (WTO)

¹⁴ CL127/7 paragraphs 183 to 192

¹⁵ PC 93/4 a)

¹⁶ CL 127/REP paragraph 56

¹⁷ Emergency Prevention System for Transboundary Animal and Plant Pests and Diseases

¹⁸ Office of the Inspector-General (AUD); Legal Office (LEG); Office of Programme, Budget and Evaluation (PBE); Special Advisers to the Director-General (SAD)

¹⁹ The State of Food and Agriculture

²⁰ United Nations Convention to Combat Desertification in those Countries Experiencing Serious Drought and/or Desertification, particularly in Africa

²¹ Non-governmental Organizations (NGOs) / Civil Society Organizations (CSOs)

²² PC 92/6 a) or FC 108/18

²³ PC 92/6 a) - FC 108/18 Sup. 1

²⁴ PC 93/7 - FC 109/26

²⁵ CL 127/7 paragraphs 624-645

²⁶ CL 127/15 paragraph 79