CL 128/13




Council


Hundred and Twenty-eighth session

Rome, 20 – 25 June 2005

Report of the 109th Session of the Finance Committee
Rome, 9 – 13 May 2005


Table of Contents

Annex II

PROPOSED SCALE OF CONTRIBUTIONS 2006-2007


Matters requiring attention by the Council

Report of the Hundred and ninth Session of the Finance Committee
    Paragraphs
  FINANCIAL AND BUDGET REPORTS  
- Annual Report on Budgetary Performance and Programme and Budgetary Transfers 5 - 13
- Financial Highlights and Status of Current Assessments and Arrears 14 - 22
- Incentive Scheme to Encourage Prompt Payment of Contributions – Analysis of Impact of Zero Discount Rate 27 - 30
- Scale of Contributions 2006-2007 31
  OVERSIGHT MATTERS  
- Extension of the Appointment of the External Auditor 32 - 34
- Reports of the United Nations Joint Inspection Unit - Review of the Headquarters Agreements concluded by the Organizations of the UN System: Human Resources Issues Affecting Staff; - Joint Inspection Unit Reports on Managing for Results in the UN System; - Report on Follow-up to Joint Inspection Unit Recommendations 44
  FINANCIAL POLICY MATTERS  
- Funding of the After Service Medical Costs Liability 45 - 49
  BUDGETARY MATTERS  
- Summary Programme of Work and Budget 56 - 68
  ORGANIZATIONAL MATTERS  
- Follow-up to the Independent Evaluation of FAO’s Decentralization 84 – 89


Introduction

1. The Committee submitted to the Council the following report of its Hundred and ninth Session.

2. The following representatives were present:

Chairperson: Mr Roberto Seminario (Peru)
Vice-Chairperson: Mr Anthony Beattie (United Kingdom)
Members: Mr Aboubakar Bakayoko (Côte d’Ivoire)
  Mr Augusto Zodda (Italy)
  Ms Ryuko Inoue (Japan)
  Ms Lamya Ahmed Al-Saqqaf (Kuwait)
  Ms Adele Bryant (New Zealand)
  Mr Mohammad Saleem Khan (Pakistan)
  Ms Ana María Baiardi Quesnel (Paraguay)
  Mr J. Michael Cleverley (United States of America)
  H.E. Mary M. Muchada (Zimbabwe)

3. The Committee noted that Ms Adele Bryant had been designated to complete New Zealand’s term on the Finance Committee and that H.E. Mary M. Muchada had been designated to replace Ms Verenica Mutiro Takaendesa as the representative of Zimbabwe at this 109th session of the Finance Committee.

4. Mr. Anthony Beattie (United Kingdom) was elected unanimously Vice-Chairperson for 2005.

Financial and Budget Reports

ANNUAL REPORT ON BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS

5. In accordance with Financial Regulation 4.6, the Committee reviewed the Director-General’s Thirty-eighth Annual Report on Budgetary Performance and Programme and Budgetary Transfers, based on the 2004 unaudited accounts (see Annex I).

6. The Committee noted that the Regular Programme net spending during 2004 of US$360.5 million (including full 2004 TCP project expenditure) represented 48.1% of the US$749.1 million biennial appropriation, and that full utilization of the appropriation was foreseen for the biennium.

7. The Committee further noted that the biennial performance was affected by the significant forecasted unfavourable staff cost variance, estimated at US$16 million. The main elements contributing to the unfavourable variance included the impact of the strengthening of local currencies against the US dollar in decentralized offices, a change in methodology for the actuarial valuation of staff related liabilities and an increase in premiums of staff medical schemes.

8. The secretariat clarified that staff medical premiums had increased over the past three years in the order of 12 to 15% per annum. The major contributing factor was the weakening of the US dollar, the currency in which the insurance contract was denominated, against the Euro, the currency in which a substantial percentage of the plan's expenditures were effected. Furthermore, medical inflation of approximately 10% per year over the past three years had contributed to the increase of the plan's expenditures in real terms and consequently the increase in premiums.

9. Concern was expressed about the escalating medical premiums and the resulting cost to the Organization. The Committee inquired as to the comparability of the increase in premiums of the FAO medical insurance plan with other similar UN plans, and requested the secretariat to prepare, for its September session, a paper showing the recent trends in premiums of similar UN system medical insurance plans, including an analysis of the impact of the principal factors affecting the medical insurance plan premiums.

10. The Committee recalled that at its May 2004 session, it had approved the setting aside of US$4.1 million from the one-time expenditures funded from arrears for possible use in covering one-time costs related to redeployment and separation of staff, and for security infrastructure. The Committee noted that total costs for redeployment and separation charged to the arrears were currently estimated at US$4.0 million, implying that close to the full contingency would be required for these costs. The secretariat reported that it had used vacant posts, retirements and redeployment opportunities to minimize the separation costs charged. Of the net 232 posts abolished in the Adjustments to the Programme of Work and Budget 2004-05 (FC 107/14), 83 posts had been vacant and 60 posts had been occupied by incumbents reaching retirement age in the biennium. Of the remaining 89 incumbents on abolished posts, about 58 had been redeployed and 31 had received agreed terminations to date.

11. The secretariat informed that the standard agreed termination package was essentially composed of the termination indemnity foreseen under the FAO Staff Regulations (Staff Regulation 301.15.1) which was based on the number of completed years of service with the Organization. Under this scheme, a staff member with 15 years or more of seniority was entitled to twelve months of net base salary. Under Staff Regulation 301.15.2, this amount might be supplemented by an additional amount of up to 50%, when the staff member's appointment was terminated by mutual consent in the interest of the good administration of the Organization. Accordingly, the maximum amount payable as termination indemnity in the context of an agreed termination was 18 months of net base salary. In addition, staff members might be offered payment in lieu of the advance notice foreseen in the FAO Staff Rules in case of termination, which was three months for staff members with a continuing appointment and one month for staff members serving under a fixed-term appointment. Finally, the package might include other accrued entitlements that were anyway due to the staff member involved, such as unused annual leave or payment due under the Separation Payment Scheme to staff members serving in the general service category.

12. The Committee noted that the other main unbudgeted expenses to be incurred during 2004-05 concern security costs currently estimated at approximately US$2 million for the biennium. The Committee noted that further details on this issue would be presented by the secretariat in conjunction with the Summary Programme of Work and Budget (SPWB).

13. The Committee took note of the tentatively forecast transfers between budgetary chapters for the biennium, from Chapters 1, 2 and 5 in favour of Chapters 3 (US$5.5 million) and 6 (US$0.65 million). It noted that the formal request for transfers between chapters would be submitted at its next session in September 2005, based on updated information, and endorsed the report for transmission to the Council.

FINANCIAL HIGHLIGHTS AND STATUS OF CURRENT ASSESSMENTS AND ARREARS

14. The Committee reviewed the paper on Financial Highlights and Status of Current Assessments and Arrears, which showed the results of operations for the first year of the 2004-05 biennium, and a working paper on the status of assessed contributions at 6 May 2005. The Committee noted several key messages to be drawn from the discussion of the papers.

15. The General Fund deficit at 31 December 2004 had remained at the same balance as of the end of 2003, at US$90 million. While the Committee noted that this deficit represented only an interim result at this stage in the biennium, the salient points of the results reported were:

    1. There was a net increase of US$9 million of unpaid contributions from members in 2004 as only 89% of current assessments had been received. While this was the same percentage of contributions received in 2003, it represented a decline in the percentage of collections of Regular Programme assessments compared to 2002 and prior years, a trend with serious implications for the Organization’s cashflow.
    2. The persistently high level of arrears of contributions from member nations amounted to US$58 million at 31 December 2004 and had increased sharply to
      US$83 million and €12 million at 6 May 2005.
    3. Regarding the arrears allocation for one-time expenditure in accordance with Conference Resolution 6/2001, of the amount of US$41.4 million brought forward from 2003, US$16.1 million had been spent in 2004, leaving a balance of
      US$25.3 million to be expended in the current year.
    4. With regard to the other components of the Organization’s reserves, the Working Capital Fund (WCF) balance of US$25 million remained at the same level as in 2003 while the Special Reserve Account (SRA) balance had decreased by
      US$7.3 million to US$15.6 million during 2004 due to the effect of the negative variance on Euro salaries arising from the generally weaker US$ exchange rates this year compared to the budget rate.
    5. Both the WCF and SRA balances had to be advanced in full to the General Fund in September and October 2004 due to delays in receipt of contributions, and the Organization was further obliged to resort to external borrowing of
      US$15 million for two weeks in October 2004 to satisfy cashflow requirements. The bank loan was fully repaid on receipt of contributions from a major donor.

16. Funding of staff related liabilities had improved due to the following factors:

    1. the long-term investment portfolio performed well in 2004, earning
      US$21.4 million.
    2. the After Service Medical Coverage (ASMC) liability amortization component had been partially funded for the first time by an amount to US$7 million per year from additional member nation assessments, as approved by the Conference in 2003. The Committee noted that the investment of funds actually received for ASMC would be made before the end of the biennium based on the percentage of total 2004-05 contributions received.

17. Looking forward, the Committee noted that the General Fund deficit was forecast to increase to US$114 million by the end of the 2004-05 biennium due to the net provision for unpaid contributions and the amortization charge for ASMC amounting to US$30 million, which exceeded the approved funding of ASMC for this biennium of US$14.1 million. This matter would be further considered by the Committee under another agenda item.

18. The liquidity of the Organization would continue to be seriously impacted by the General Fund deficit and other pressures including the impact of any further delays in payment of member nations’ contributions and disbursements of the US$25.3 million of arrears allocations for one-time expenditure.

19. Delay in receipt of contributions and the persistently high level of arrears were again identified as being the most significant factors undermining the financial health of the Organization. The Committee noted that while in the first months of 2005 there had been an improvement in the rate of payment of current assessments by member nations - as of the end of April 2005, almost 33 percent has been paid, compared to 29 percent in 2004 and 21 percent in 2003 - the improvement was accompanied by a sharp increase in arrears and would not be enough to postpone recourse to internal borrowing unless significant payments of contributions were made.

20. Based on 2005 expenditure forecasts and in particular the requirement to meet monthly operating costs, the Committee was informed that in the absence of the receipt of a significant level of outstanding contributions from member nations the Organization would be forced to borrow up to US$40 million from external sources during the period August 2005 to October 2005. Initially minimum amounts would be borrowed and these would rise incrementally, with a peak borrowing requirement forecast at the end of September 2005. The estimated total interest cost on this borrowing would amount to approximately US$150 000, to be charged to investment income in the Miscellaneous Income component of the Regular Programme.

21. Fully recognizing that only through timely receipt of contributions could FAO meet operating cash requirements without recourse to statutory reserves or to external borrowing, the Committee discussed various alternative measures which could be introduced to improve collections and requested the secretariat to consider and report on these to the next session of the Finance Committee. Specific areas that the secretariat was requested to consider were:

    1. efforts should be increased to contact all contributors with amounts outstanding to seek settlement of contributions due, and in particular by communications from the Office of the Director General;
    2. periodic reports on the status of discussions with member nations regarding payment of large amounts outstanding should be prepared and presented to the Finance Committee.
    3. issues relating to the acceptance of local currency from developing countries in payment of assessed contributions should be studied and presented to the Finance Committee for consideration at its September 2005 session.

22. The Committee again urged all member nations to make timely payment of assessed contributions to ensure that FAO could meet the operating cash requirements for the programme of work.

REPORT ON INVESTMENTS 2004

23. The Committee reviewed the Report on Investments for 2004, noting the positive results in the year for FAO’s short-term and long-term investments. As requested by the Committee in 2004, comparative information on portfolio structures and investment performance of organizations with similar staff-related liabilities was presented, showing that FAO’s holdings were comparable and results were amongst the best.

24. The Committee was informed of the key measures taken in 2004 by FAO’s Treasury, in consultation with the Advisory Committee on Investments, to further reduce risk, restructure the portfolios and enhance investment monitoring capacity. The steps included:

25. The Committee discussed the underfunding of the Organization’s staff-related liabilities and was concerned that shortages in operating cash experienced so far in the biennium had delayed the transfer of the additional 2004-05 assessment for ASMC funding of $14.1 million to the long-term investment portfolio. The Committee endorsed the secretariat’s proposal to effect a transfer to the portfolio before the end of the biennium based on the actual percentage of total 2004-05 assessments received.

26. The Committee noted that previous estimates of the level of ASMC liability at end-2005 were likely to be increased due to the strengthening of the Euro against the US dollar. The actual results of the next valuation of ASMC liability would be available in early 2006 and be included in the official accounts as at 31 December 2005, for submission to the External Auditor. The Committee decided to review the impact of the timing of actuarial valuations when discussing the agenda item on Funding of the ASMC Liability.

INCENTIVE SCHEME TO ENCOURAGE PROMPT PAYMENT OF CONTRIBUTIONS – ANALYSIS OF IMPACT OF ZERO DISCOUNT RATE

27. The Committee reviewed document FC 109/6, which had been prepared at the Committee’s request to provide an analysis of the effect of the zero discount rate applied to the incentive scheme for members’ payments during the first quarter of 2005, and to assist the Committee in its discussions in relation to measures which could be introduced to improve collection rates.

28. The Committee noted that the rate of collections had actually increased from 20.80% to 24.86% despite the zero rate but felt that the analysis did not provide a sufficient basis for concluding whether the incentive scheme had any real impact in encouraging prompt payment by member nations. In order that the effect of the zero discount rate on members’ timing of payments could be analysed over an extended period of time, the Committee recommended that the rates of discount to be credited against 2006 contributions in US dollars and Euro remain at zero.

29. The Committee also requested that the secretariat extend the analysis of the subject to include a survey of member nations on the range of issues that influence the timing of payments of individual members.

30. The Committee resolved to review this analysis at its May 2006 session with a view to making a comprehensive recommendation to the November 2006 session of Council. In the meantime, the Finance Committee reiterated to all member nations that only timely payment of assessed contributions could ensure that FAO could meet the operating cash requirements for the programme of work.

SCALE OF CONTRIBUTIONS 2006-2007

31. The Committee reviewed and accepted the proposed Scale of Contributions for the biennium 2006-2007 (see Annex II) set out in document FC 109/7 and endorsed the following draft resolution for transmittal to Council and Conference:

THE CONFERENCE

Having noted the recommendations of the Hundred and twenty-eighth Session of the Council;

Confirming that as in the past, FAO should follow the United Nations Scale of Assessments subject to adaptation for the different membership of FAO;

Decides that the FAO Scale of Contributions for 2006-07 should be derived directly from the United Nations Scale of Assessments in force during 2005;

Adopts for use in 2006 and 2007 the Scale as set out in Appendix __ of this report.

Oversight Matters

EXTENSION OF THE APPOINTMENT OF THE EXTERNAL AUDITOR

32. The Committee noted that, at its 120th Session in June 2001, the Council had appointed the Comptroller and Auditor General of India as External Auditor of the Organization for a period of four years, commencing with the year 2002, and that this initial term would expire at the end of the current biennium.

33. The Committee further noted that at its 107th Session in May 2004 it had confirmed the appropriateness of the External Auditor being appointed for a period of four years with possible extension for a further two year period, following which the contract for external audit would require to be retendered.

34. The Committee considered the option to extend the appointment of the Comptroller and Auditor General of India as External Auditor of the Organization for a further two year period and endorsed the following draft resolution for transmittal to Council.

Noting that, at its hundred and Seventh Session (10-18 May 2004), the Finance Committee considered the issue of the limitation of the term of office of the External Auditor and confirmed the appropriateness that the External Auditor be appointed for a period of four years (two biennia), with possible extension for a further two year period (one biennium), following which the appointment for External Auditor must be retendered;

Expressing its concurrence with the above arrangements;

Decides to renew the appointment of the Comptroller and Auditor General of India, as External Auditor of the Organization, for a further period of two years, commencing with the year 2006.

2004 ANNUAL ACTIVITY REPORT OF THE OFFICE OF THE INSPECTOR-GENERAL

35. The Committee took note of the information provided in document FC 109/9.

APPOINTMENT OF THE AUDITOR GENERAL OF A MEMBER NATION AS EXTERNAL AUDITOR (FINANCIAL REGULATION 12.1)

36. At its 108th session, the Committee discussed the question of whether the invitation to bid for the external audit of FAO could be extended, not only to Auditors General of all member nations, but also to large private sector audit firms, and suggested that, in view of the intrinsically inter-agency nature of the subject, the Director-General might wish to refer the matter to the United Nations System Chief Executives Board for Coordination (CEB) for additional information.

37. The Committee noted that the Organization had submitted the matter to the High Level Committee on Management (HLCM), which manages similar matters on behalf of the United Nations System Chief Executives Board for Coordination. The HLCM had discussed the matter at its session in April 2005, noting that one of the organizations currently used a private firm as its external auditor, while several other organizations advised that private firms had been used for various project specific audits or that their external auditors subcontracted elements of audits to private firms. The HLCM further indicated that nothing would preclude an organization’s governing bodies from taking a decision, through amendment to its financial regulations or as otherwise appropriate, to allow also private sector firms to participate in the bidding process along with Auditors General of member states.

38. In this regard, many members did not agree to amend the Organization’s Financial Regulations, noting that opening bidding to private sector audit firms for the external audit of FAO would make it less likely that an external auditor from a developing country would be nominated, as the private audit sector was often not sufficiently developed in these countries.

39. Other Committee members believed that an extension of the invitation to bid for the external audit also to private sector auditors would not create a disadvantage for developing countries as the tender process could be designed to privilege bidders who ensured significant participation from firms from developing countries or with staff from developing countries. Furthermore, increasing the number of bidders would increase competition and provide access to wider skills. The tender process would still apply, with the Finance Committee recommending selection of the best bidder.

40. The Committee agreed to discuss the matter further at its session in September 2005 and requested that the secretariat prepare a paper providing further information on the advantages and disadvantages of extending the invitation to bid for external audit also to private sector audit firms.

PROGRESS REPORT ON IMPLEMENTATION OF THE EXTERNAL AUDITOR’S RECOMMENDATIONS

STRUCTURE OF THE FAO AND WFP INTERNAL AUDIT COMMITTEES

41. The Committee took note of the information provided in the above-referenced documents (FC 109/11 and FC 109/12).

INTERNAL CONTROLS REPORTING

42. The Committee considered the matter of the introduction of formal internal control reporting and noted that, while the issue was being discussed in the United Nations system, none of the organizations surveyed by FAO had implemented such reporting. The Committee further noted that formal internal control reporting would be onerous and that a careful evaluation of the costs and benefits would have to be performed before a decision could be taken to propose the introduction of such reporting in the Organization.

43. The Committee agreed to discuss the matter further at its September 2005 session and requested that the secretariat prepare a paper providing further information on the issue, in particular on the alternative approaches to formal internal control reporting which could be considered and the estimated costs involved in implementing such reporting in the Organization.

REPORTS OF THE UNITED NATIONS JOINT INSPECTION UNIT
- REVIEW OF THE HEADQUARTERS AGREEMENTS CONCLUDED BY THE ORGANIZATIONS OF THE UNITED NATIONS SYSTEM: HUMAN RESOURCES ISSUES AFFECTING STAFF;
- JOINT INSPECTION UNIT REPORTS ON MANAGING FOR RESULTS IN THE UNITED NATIONS SYSTEM AND
- REPORT ON FOLLOW-UP TO JOINT INSPECTION UNIT RECOMMENDATIONS

44. The Committee took note of the information provided in the above-referenced documents, and of the comments provided by the Director-General.

Financial Policy Matters

FUNDING OF THE AFTER SERVICE MEDICAL COSTS LIABILITY

45. Recalling the extensive discussion at its 108th Session of the increase in the After Service Medical Coverage (ASMC) liability, the Committee reviewed document FC 109/17 and considered further funding options for the ASMC liability1, in order to recommend to Council the amount of funding to be included in the 2006-07 budget appropriation.

46. The Committee also recalled that the After Service Medical Coverage liability was a significant financial challenge faced by the Organization and noted that FAO was among the few organizations within the UN system which had made progress in both recording and funding such liability.

47. Noting that the actuarial valuation was performed at the close of each biennium for the purpose of providing figures for the official accounts to be audited by the External Auditor, the Committee was concerned that the amount of US$30 million indicated for 2006-07 funding was derived from 2003 data while funding requirements could now be higher than previously estimated due to the strengthening Euro.

48. Noting the importance of making recommendations regarding funding level decisions on the results of an up-to-date actuarial valuation, based on the latest demographic assumptions and exchange rates, the Committee requested that the Organization engage its specialized firm of actuaries to undertake another valuation as soon as possible so that the results and recommended biennial funding amount for 2006-07 could be reported to the September 2005 session of the Finance Committee.

49. The Committee agreed to continue its review of ASMC funding in September, and to base its recommendation to Council for 2006-07 funding on the latest actuarial valuation.

STATUS REPORT ON HLCM WORKING GROUP ON ACCOUNTING STANDARDS

50. The Committee took note of the information provided in the above-mentioned document.

LIABILITY OF THE ORGANIZATION AND ITS MEMBER STATES FOR STAFF PENSIONS

51. The Committee considered the information it had requested in the September 2004 session regarding the liability of the Organization and its member states towards the United Nations Joint Staff Pension Fund.

52. The Committee was informed that the United Nations Joint Staff Pension Fund operated as a defined benefit plan administered by a tri-partite Board, with a structure replicated in the FAO Staff Pension Committee (i.e. Conference appointees, Director-General representatives and participants representatives). The Committee further noted that all Pension Board recommendations were presented to the UN General Assembly for review and resolution.

53. The Committee noted that while the Pension Fund assets were in the name of the United Nations, they were kept separate from the assets and funds of the United Nations. It noted that a biennial actuarial valuation was conducted by the Fund for the purpose of determining the sufficiency of the present and future assets of the Fund to meet liabilities. The Committee further noted that the last several actuarial valuations had demonstrated a surplus and was reassured by the fact that the Fund had considerable scope to regularly review and adjust benefits and contribution rates to deal with any eventual actuarial deficiency that might arise. The Committee was further reassured that the actuarial assumptions were conservative and that the demographic factors were updated regularly by the actuaries.

54. The Committee noted the reasons FAO referred to International Accounting Standards (IAS) in disclosing the pension liabilities in the audited accounts. The Committee was further reassured by the External Auditor’s statement that the disclosure in the FAO financial statements on this matter was adequate in view of the structure of the United Nations Joint Staff Pension Fund as well as its actuarial situation.

55. The Committee requested to be informed on a regular basis about the financial situation and the audited financial statements of the United Nations Joint Staff Pension Fund as well as the biennial actuarial valuations and investment reports as they were made available.

Budgetary Matters

SUMMARY PROGRAMME OF WORK AND BUDGET 2006-2007

56. The Committee reviewed the proposals for the Summary Programme of Work and Budget 2006-07 (SPWB), contained in document CL 128/3, concentrating its consideration on the budgetary framework, the financial framework, and the proposals for Chapters 5 (Support Services) and 6 (Common Services).

57. The Committee greatly appreciated the policy-oriented focus of the document and its approach. It considered the enhanced risk assessment framework as a sound basis for identifying internal and external factors that would affect financial, budgetary and operational performance and welcomed the manner in which this analysis was related to financial, budgetary and programmatic aspects of the biennial plan. It requested the secretariat to pursue this methodology in the full Programme of Work and Budget (PWB).

58. The Committee strongly encouraged efforts to significantly reduce the length of the PWB 2006-07 and further shorten future SPWBs. A view was expressed regarding the complexity of the present PWB structure and the need for future consideration regarding budget structure and chapter composition of FAO with a possible comparative study among UN agencies.

59. The Committee underlined the importance of ensuring a safe and secure working environment for FAO staff and the need to strengthen the financial management framework for this increasingly complex and significant area of expenditure. It was informed that the budgetary provision in 2004-05 was spread across Chapters 1, 3 and 6 of the regular budget and acknowledged the generous participation of the host government in security matters. It recognized the need for consolidated and comprehensive coverage for security costs within a single budgetary provision, and the requirement for financial flexibility through a multi-biennium funding mechanism that could be supplemented by voluntary contributions. It therefore supported the Director-General’s proposal to establish a Security Expenditure Facility as a means of grouping all staff and non-staff costs that were directly related to headquarters and field security in a new Chapter 9 of the PWB. Many members expressed their concern that meeting the increasing costs of security should not be at the expense of the substantive work of the Organization and asked that funding be provided from extra-budgetary resources. Others expressed a view that security planning and implementation should not be jeopardized by any budget scenario that might be adopted.

60. The Committee recognized the difficult cash flow situation of the Organization, which was evidenced by the requirement to borrow externally in October 2004 and the likelihood of borrowing externally again in 2005. It also acknowledged the deteriorating accumulated deficit under the General Fund. Many members expressed support for the Director-General’s proposal to require member nations to pay their contributions without deduction of forecast of miscellaneous income, as a means to help address these difficulties. It was informed that this would require a derogation of Financial Regulation 5.2(a) and was advised that derogations of the Financial Regulations had been approved in the past by Conference.

61. The Committee noted that the SPWB included presentation of three scenarios, Real Growth (RG), Zero Real Growth (ZRG) and Zero Nominal Growth (ZNG), which, in accordance with established practice, were stated before the provision for cost increases, and appreciated the comparative information provided. Many members requested that a higher RG scenario be provided in the full PWB.

62. Cost increases for 2006-07 were tentatively estimated to be 3.6 percent per annum (US$45.7 million) at ZRG. The Committee reviewed the methodology adopted by the secretariat for calculating cost increases and considered the calculations to be consistent with the agreed methodology. It recognized that a significant portion of the cost increases resulted from the “biennialization” of staff costs, which related to events that had occurred or would shortly occur during the current biennium, and were therefore not the subject of long-range estimates. It expressed concern about the significant increases in the cost of the Organization’s share of medical premiums and urged the secretariat to make efforts to contain them.

63. The Committee recalled that the pursuit of efficiency savings had been underway since 1994. It was assured that efficiency savings would continue to be sought with the same vigour irrespective of the budget level, and that the use of benchmarking techniques would continue. Recognizing that savings estimated at US$60 million per annum compared with 1994 had already been achieved, several members acknowledged the difficulties in achieving further savings. Some members urged the secretariat to revitalize its efforts in this regard and seek economies in operations beyond the figure of US$2.4 million estimated for 2006-07, highlighting the high cost of organizing FAO meetings as an example of where additional savings could be sought. With a view to containing the costs of travel for attendance of sessions of the applicable Governing Bodies, some members encouraged those members that could do so to consider paying for their own travel.

64. The Committee supported the review of the support cost rate charged to emergency projects and the principle of ensuring that assessed contributions did not subsidize such projects. It looked forward to receiving a proposal from the secretariat at the September 2005 session.

65. Some members noted the recommendations of the Independent Evaluation of FAO’s Decentralization to strengthen FAO country presence and questioned how this could be incorporated under a resource scenario other than Real Growth. Others referred to the need to avoid programme fragmentation and ‘across the board' reductions through targeting of less viable programmes.

66. The Committee was generally satisfied with the Chapter 5 and 6 programme and budgetary provisions but stressed that internal financial controls should not be weakened at any budget level.

67. The Committee took note of planned capital expenditure and resource inflows under the Capital Expenditure Facility. It looked forward to considering more detailed proposals in the full PWB.

68. Some members pointed out that consideration of the budget level should also take account of the capacity of members to pay.

Human Resources Matters

REQUIREMENTS TO COMPETE EFFECTIVELY FOR A POST IN FAO

69. The Committee considered the issues presented by the paper.

70. The Committee asked whether a portion of the Associate Professional Officer (APO) programme could be used to provide experience for nationals of developing countries so that they could benefit from the scheme. The secretariat clarified that some donors already funded the costs of APOs from developing countries. The Committee invited the secretariat to look into the possibility of extending such provisions in the APO scheme. Some members requested the secretariat to consider establishing an APO scheme for candidates from developing countries using Regular Programme resources.

71. The Committee was informed that the organization’s contractual tools for professional staff were mainly of two kinds (fixed-term and continuing), which followed the general guidelines currently under discussion at the ICSC. The Committee also noted that, in addition to an annual system of performance appraisal for its staff, performance appraisals were undertaken at the time of conversion of appointment or of confirmation of appointment.

72. The Committee recalled that the language policy of the organization was to require a working knowledge of English, French or Spanish and a limited knowledge of one of the other two. The Committee was informed that there were some variations to the language policy in specific cases (e.g. when language coverage for a specific region was required).

73. The Committee was informed that with rare exceptions all professional positions were advertised externally and that both internal staff and external applicants were invited to compete for those positions. The Committee noted that vacancy announcements were distributed to all Permanent Representatives, country offices and Ministries of Agriculture and were advertised electronically on the FAO website.

74. On the issue of geographical distribution, the Committee noted that a country was considered equitably represented when the number of regular programme posts encumbered by a national of the country fell within a pre-determined range calculated for that country.

75. The Committee noted that the Director-General made the final decision on professional positions, upon the recommendation of the Professional Staff Selection Committee.

76. The Committee requested detailed information from the secretariat on the number and category of posts filled through internal promotions and external appointments, on appointments to fixed-term positions made from the rank of consultants and on the number of appointments of Permanent Representatives to FAO posts since January 2002. The Committee invited the secretariat to present a paper on the issues it has raised during its discussion for review at its next session.

ISSUANCE OF WORK PERMITS FOR EXPATRIATE SPOUSES AT HEADQUARTERS

77. The Committee took note of the detailed information contained in documents FC 109/22, FC 109/22- Add.1 and FC 109/22-Add.2 on the question of the issuance of work permits for expatriate spouses at headquarters, on the basis of a brief presentation by the Legal Counsel. The Committee noted, in particular, that further to the request made at its 108th Session, the Organization had approached formally the Permanent Representation of Italy to the United Nations organizations in Rome and that the Italian authorities had promptly expressed their full willingness to start negotiations on the matter in cooperation with the ministerial departments concerned.

78. The Committee appreciated the response of the Italian authorities and looked forward to a successful outcome of the negotiations in the near future. Meanwhile, the Committee asked to be kept informed of the evolution and outcome of the negotiations at subsequent meetings.

DECISIONS OF THE GENERAL ASSEMBLY ON INTERNATIONAL CIVIL SERVICE COMMISSION AND UN JOINT STAFF PENSION BOARD (INCLUDING CHANGES IN SALARY SCALES AND ALLOWANCES)

79. The Committee took note of the information provided in document FC 109/24.

STATISTICS ON HUMAN RESOURCES

COMPARATIVE STUDY OF GENERAL SERVICE AND PROFESSIONAL STAFFING IN OTHER UN ORGANIZATIONS

80. The Committee took note of the two reports (documents FC 109/23, Statistics on Human Resources and FC 109/25, Comparative Study of General Service and Professional Staffing in other UN Organizations) and expressed appreciation to the secretariat for the well presented information.

81. The Committee noted that the provision of a range of useful information and statistics were provided as in previous years. The Committee also welcomed the additional information on the number of contracts of short-term staff and non-staff human resources during the past year, including the number of staff at headquarters and established offices by nationality, grade and gender.

82. The Committee noted with satisfaction FAO’s efforts made in the enhancement of the gender representation in the Organization. It noted that in recent years the percentage of professional women has been steadily increasing and now reached 32% verses 22% in 1996. However, the Committee was disappointed that women occupied posts mainly at entry level professional grades (P-1/P-3). The Committee stressed the need for FAO to continue efforts to improve the gender balance, especially in senior professional and managerial positions.

83. The Committee requested the secretariat to explore the possibility of advertising short-term professional vacancies and general service vacancies and report further on this issue at the next session. The Committee noted that, in addition, the secretariat would report on a range of other human resources management issues at the September session.

Organizational Matters

FOLLOW-UP TO THE INDEPENDENT EVALUATION OF FAO’S DECENTRALIZATION

84. The Committee had a lengthy discussion on the document prepared on this subject by the secretariat. It welcomed the presence of the two leaders of the Independent Evaluation team,
Mrs Chinery-Hesse and Mr Sands Smith. The Committee was advised by the secretariat at the outset that the present follow-up report was to be seen as work-in-progress and that the complexity of the issues meant that a more substantial progress report would be prepared for the September 2005 session, reflecting Management’s commitment to translate the findings and recommendations from this important exercise into strengthened FAO action and presence at field level.

85. The Committee expressed disappointment with the report, as it had expected to see a better expression of the underlying strategic vision, more progress on implementation and a costed time-bound implementation plan. However, the Committee recognized that the complexities inherent in the follow-up to the recommendations of the Independent Evaluation had precluded the presentation of such a full exposition at this stage.

86. The Committee acknowledged that progress on implementation was constrained by the need to first accurately identify country level demand in terms of the types of service (i.e. policy, technical and operational) by discipline before new decentralized staffing models could be developed and compared to the existing skills mix in decentralized offices. In this regard, the Committee was informed that a questionnaire had just been addressed to all member nations and that, inter alia, it sought this information. The response to this survey would provide necessary data to support further analysis of the demand for FAO services in countries and regions. For this reason it was not realistic to commit to presentation of a full time-bound implementation plan by September.

87. The Committee appreciated the informative presentation of the Independent Evaluation team leaders and took note of the clarifications provided by the secretariat. In expectation of a more thorough presentation and discussion at its next session, it highlighted several key areas requiring action by FAO, including: national priority frameworks, as a fundamental building block of a decentralization vision; appropriate geographical coverage giving emphasis to areas with greatest needs to reduce hunger; flexibility in staff skill mix and mobility in and across regions as country needs evolved over time; adequate resources for staff travel to ensure timeliness of response by FAO technical services to beneficiary countries; more direct reporting relationships for decentralized technical officers; measures to assess and manage risks that would allow for increased delegation of authority for FAO country offices; and an appropriate balance of resources and technical staff between countries, Regional Offices and headquarters units.

88. The Committee noted that some of these recommendations, such as delegations of authority to larger country offices, might not involve significant additional costs and, if so and subject to the necessary safeguards, asked the secretariat to give serious consideration to their implementation as soon as possible. In addition, the Committee emphasized the importance of developing partnerships in the context of country priority frameworks, and of ensuring a high level of competency among the decentralized staff.

89. In conclusion, the Committee looked forward to receiving a more thorough follow-up report at its next session. It expected that this report would present a clearer vision of the strategy that the Organization wished to follow in the implementation of the action plan for decentralization, including the identification of the main obstacles, time frames and, to the extent possible, cost implications in the short and medium term.

PROGRESS REPORT ON ADMINISTRATIVE INFORMATION SYSTEMS

90. The Committee reviewed the report on progress with administrative information systems that covered Oracle Financials, Programme Planning Implementation Reporting and Evaluation Support System (PIRES), and Oracle Human Resources Management System (HRMS).

91. In reply to a question from the Committee, the secretariat explained that these systems would be funded in 2006 by carry forward of unspent arrears funds into the Capital Expenditure facility, and therefore were partially protected. However, under the ZNG scenario outlined in the Summary Programme of Work and Budget 2006-07, there was a serious adverse impact on the key support divisions, including Finance Division, Human Resources Management Division and Information Systems and Technology Division.

92. In reply to an inquiry on the possibility of increases when project costs were revised, the secretariat reported that the Organization was actively looking at mechanisms to reduce project costs, including actions aimed at using corporate training funds, offshoring development work to a lower cost geographic location, and the re-use of development work undertaken by the International Labour Organization.

93. The Committee requested further information regarding the Human Resources Management Model, and the secretariat provided information on its background, scope, progress and benefits.

94. The Committee inquired on the impact of administrative information systems on decentralization. The secretariat affirmed that the availability of a robust human resources management system and financial control system was essential for effective decentralization. The improved telecommunications facility for decentralized offices had provided the opportunity to further enhance the Field Accounting System (FAS), and this was a key prerequisite for the decentralization. However, these initiatives could be adversely affected in the ZNG scenario.

95. The Committee noted the considerable importance and impact of administrative information systems on how the Organization operated, and its internal controls and efficiency. It expressed concern regarding the projected negative impact of the ZNG scenario on administrative information systems projects and key support divisions. The Committee considered that administrative information systems were not an optional extra, but a fundamental part of an effective Organization, and stressed the importance of successful completion of these projects regardless of the budget scenario.

96. It asked the secretariat to provide further information on the scope, benefits and revised cost estimates, with breakdown, of the HRMS project for the September session of the Finance Committee.

REVIEW OF THE PAYMENT OF THE EUROPEAN COMMUNITY TO COVER ADMINISTRATIVE AND OTHER EXPENSES ARISING OUT OF ITS MEMBERSHIP IN THE ORGANIZATION

97. The Committee recalled that at its 108th Session it had been advised by the European Commission (EC) of its intention to seek the agreement of other members to certain changes in the methodology used in the calculation of its contribution to FAO, covering administrative and other expenses arising out of its membership of the Organization2.

98. The Committee took note of the current methodology, whereby the lump-sum
(of US$500 000) fixed by the 26th Conference in 1991 was adjusted biennially for the budget cost increase coefficient and for movements in the euro/dollar exchange rate from one budget to the next. It further noted that the 32nd Conference in 2003 fixed the sum to be paid for the 2004-05 biennium in euro (€ 577 835)3.

99. The Committee noted the secretariat’s support for the proposal to revise the methodology so that the biennial adjustment to the EC’s contribution reflected the official cost of living increases in the euro area or in the host country. It was advised that the revised methodology would bring the adjustment formula in line with the system of split assessment and would not have a material impact on the biennial adjustment to the EC’s contribution to the Organization.

100. The Committee had no objection in principle to the proposal. It endorsed the revision to the methodology on the condition that the higher rate of the official cost of living increase in the euro area or in the host country would be used to adjust the EC’s contribution for any given biennium.

TRANSLATION SERVICES IN FAO

101. The Committee reviewed document FC 109/29, Translation Services in FAO, and welcomed the useful information that it provided. It expressed its satisfaction with the secretariat’s efforts to ensure that all documentation for the session had been delivered in time in all the languages and encouraged the secretariat to continue its work in that direction.

102. The Committee noted the established practice whereby documentation for the governing bodies was concurrently made available in all FAO languages and stressed the need to extend this practice to all technical documentation. It therefore invited the secretariat to take measures to ensure appropriate language coverage for all types of documents.

103. The Committee recognized the importance of translation services in the Organization and recommended that the secretariat provide further information on the funding of these services and on the financial mechanisms in place to ensure optimum results for members. It expressed concern that budgetary limitations could impact negatively on allocations for translation services.

104. In order to facilitate a further review of this topic at its next session in September, the Committee requested that the current backcharging mechanism be assessed and compared with centralized funding, taking into consideration the practice and experience of similar UN agencies and the need for the translation services to be properly managed and funded.



World Food Programme

MATTERS THAT HAVE BEEN CONSIDERED AT THE FIRST MEETING OF THE WFP EXECUTIVE BOARD (31 JAN. – 2 FEB. 2005)

- BUSINESS PROCESS REVIEW: WORKING CAPITAL FINANCING
– FINANCIAL FRAMEWORK FOR STRATEGIC PRIORITY 5 IMPLEMENTATION
– FUNDING ARRANGEMENTS FOR UN STAFF SAFETY AND SECURITY
- DEFINITION OF SPECIAL OPERATIONS
- PROPOSED PROGRAMME OF WORK OF THE EXTERNAL AUDITOR FOR THE 2004-2005 BIENNIUM
- REPORT OF THE EXTERNAL AUDITOR ON FINANCIAL REPORTING STANDARDS FOR THE WORLD FOOD PROGRAMME
- FOLLOW-UP ON THE RECOMMENDATIONS OF THE EXTERNAL AUDITOR
- UPDATE ON THE WFP MANAGEMENT PLAN FOR 2004-2005

MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING OF THE WFP EXECUTIVE BOARD (6-10 JUNE 2005)

- CONSOLIDATED FINANCIAL REPORT
- BUSINESS PROCESS REVIEW: PROGRESS REPORT ON IMPLEMENTATION
- FOLLOW-UP ON THE RECOMMENDATIONS OF THE EXTERNAL AUDITOR
- STRATEGIC PLAN 2006-2009
- REPORT OF THE EXTERNAL AUDITOR ON THE UPGRADE OF THE WFP INFORMATION NETWORK AND GLOBAL SYSTEM
- UPDATE TO THE WFP MANAGEMENT PLAN FOR 2004-2005

105. The Committee took note of the information on financial matters that had been or would be presented to the WFP Executive Board in the above-referenced documents. It expressed concern and dissatisfaction that two of the documents had not been presented on time and that one (the WFP Strategic Plan 2006-2009) had not been submitted at all. It encouraged the WFP secretariat to submit its documents on a timely basis.

Other Matters

DATE AND PLACE OF THE HUNDRED AND TENTH SESSION

106. The Committee was informed that the Hundred and tenth Session was tentatively scheduled to be held in Rome from 19 – 23 September 2005. The final dates of the session would be decided in consultation with the Chairperson.

BRIEFING ON SECURITY ARRANGEMENTS AND RELATED COSTS AT FAO

107. Presentations were made on security arrangements at headquarters and in the field. The Director, AFS, reported on inter-agency consultations on security arrangements at headquarters locations and on the Headquarters works undertaken and planned. The Director, OCD, in his capacity as the Organization’s Field Security Coordinator, elaborated on the UN system field security framework and FAO’s participation in it; the Organization’s field security structure and arrangements; and the current security situation at FAO field duty stations. The Director, PBE, elaborated on the related budgetary implications.

108. The Committee noted the substantial increase in security costs from US$2.4 million in the 2002-03 biennium compared to US$11.7 million in 2004-05. The Committee also recognized that the additional funding had come from Regular Programme resources.

109. The representative of the host government expressed the readiness of his government to continue to contribute to the security infrastructure at headquarters. The Committee acknowledged that the host government was willing to meet its responsibilities for security
vis-à-vis
the Organization and expressed its appreciation to the host government for these efforts.

110. The Committee took note of the information provided and requested that a presentation on security be made to the Permanent Representatives.


Annex I

ANNUAL REPORT ON BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS

Highlights

The 2004 Regular Programme net spending in the accounts of the Organization of US$ 360.5 million (including full TCP project expenditure) represents 48.1% of the US$ 749.1 million Appropriation for 2004-05. This expenditure is incurred with staff costs charged at the standard rates established for the 2004-05 budget.

The 2004 performance has mainly been impacted by a hold-back of funds to cover:

  • a significant forecasted unfavourable staff cost variance which is currently estimated at US$ 16 million for the biennium; and,
  • unbudgeted security provisions (currently estimated at approximately US$ 2 million).

Full utilization of the Appropriation of US$ 749.1 million is foreseen for the biennium.

Transfers between budgetary Chapters for the biennium are tentatively forecast to be from Chapters 1, 2 and 5 in favour of Chapters 3 (US$ 5.5 million) and 6 (US$ 0.65 million). In accordance with the Financial Regulations, a formal request for transfers between Chapters will be submitted at the next session in September 2005 based on updated information.

Introduction

1. Financial Regulation (FR) 4.6 requires the Director-General to manage the appropriations so as to ensure that adequate funds are available to meet expenditures during the biennium, and calls for the Finance Committee to review annually the Director-General's implementation of this regulation. In accordance with this requirement, this Thirty-eighth Annual Report on Budgetary Performance summarises, for information and discussion, the budgetary aspects of the Regular Programme performance for 2004.

2. Financial Regulation 4.5 (a) calls for the Finance Committee to be notified of certain transfers between divisions and Financial Regulation 4.5 (b) requires transfers from one chapter to another to be approved by the Finance Committee. This report provides some advance notice of the likely magnitude of budgetary transfers arising from the implementation of the programme of work. A formal request for transfers between chapters will be submitted at the next session in September 2005.

Overall Biennial Regular Programme Financial Projections

3. Conference Resolution 7/2003 on the Budgetary Appropriations for 2004-05 approved a budget of US$ 749.1 million, which comprises the approved Programme of Work less Other Income4. Financial Regulation 4.1(a) authorises the Director-General to incur obligations up to the amounts voted.

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

5. Table 1 summarises the overall budgetary performance versus the Appropriation approved by the Conference. The 2004 performance is based on the actual expenditure in the interim unaudited accounts of the Organization, and the 2005 figures present the latest Regular Programme financial projections.

Table 1. Overview of 2004-05 Regular Programme Performance (US$ 000)

  2004 2005 Total
Budgetary Appropriation      
Programme of Work 421,209 419,802 841,011
Less Other Income 45,956 45,955 91,911
“Calendarized” Net Budget / Approved Appropriation 375,253 373,847 749,100
Net Expenditure 360,456 388,044 748,500
Expenditure vs. Net Appropriation 14,797 (14,197) 600

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

7. The Organization projects to fully spend the 2004-05 Appropriation of US$ 749.1 million (with the possible exception of the contingency funds of US$ 0.6 million). Any unspent balance of the TCP appropriation for the current biennium would be charged against the 2004-05 budget and made available in 2006-07 as per Financial Regulation 4.3.

8. In 2004, expenditure is US$ 14.8 million lower than the "calendarised" net budget5, which implies an overall delivery of 96.1% of this budget.

9. The under-expenditure is partly due to shifts in the implementation of programmes and/or the accounting of expenditures to early 2005. The under-expenditure against the appropriation is also impacted by the required hold back at the 2004 allotment setting stage, mainly to cover additional security costs and the forecasted unfavourable staff cost variance (explained further below) which is only reflected in the accounts of the Organization at biennium-end.

Staff Cost Variance

10. During the biennium, all charges for staff costs against divisional budgets are made at standard rates that take account of the grade and duty station of the staff member. The standard rates are established for the PWB 2004-05 in July 2003.

11. Most of the underlying causes of difference between the actual and standard unit costs of staff, such as exchange rate fluctuations in decentralized offices or decisions of the International Civil Service Commission, are beyond the control of the allottees or indeed, the Organization. The monitoring of the staff cost variance is, therefore, done centrally and any surplus or deficit is charged at the end of the biennium across all programmes in proportion to the staff costs incurred at standard rates.

12. Based on actual staff cost trends until end 2004, an unfavourable staff cost variance of approximately US$ 16 million is estimated for the biennium. This is equivalent to approximately 2.7% percent of total biennial standard staff costs. This type of unbudgeted cost can have a significant negative impact on programme implementation. Mechanisms for dealing with this risk are currently under review, including the possible expanded use of the SRA.

13. At the time of setting the standard rates in July 2003, a number of cost increase assumptions and provisions were made on the basis of the information available. The following deviations have mainly contributed to the estimated unfavourable variance:

14. To remain within the biennial appropriation for 2004-05, the impact of the estimated unfavourable staff cost variance has been taken into consideration in the allotment setting for each year, so that offsetting reductions in programme expenditure could be managed in a planned fashion. The actual variance will be distributed in the accounts at biennium-end.

Other Income

15. The outturn for Other Income versus budgeted levels for 2004 is summarised in Table 2, and shows an overall excess in Income earning versus the budgeted level of US$ 2.0 million, or 105.5% of the total budget.

Table 2. 2004 Budgetary Performance of Other Income (US$ 000)

Description Budget Actual Variance Actual as % of Budget
Trust Funds and UNDP Support Cost Income (15,949) (16,316) 367 102.3%
Jointly funded investment activities, technical support services and other reimbursements (21,169) (22,838) 1,669 107.9%
Total Income (37,118) (39,154) 2,036 105.5%

16. Support cost reimbursements are essentially earned in proportion to the actual expenditure on non-emergency Trust Fund projects6 and United Nations Development Programme (UNDP) projects implemented or executed by FAO. After several biennia of shortfalls versus budgeted support cost income, which required corresponding reductions in expenditure, 2004 earnings are in line with budgeted amounts. The current alignment has arisen after the progressive reduction of budgeted support cost income over the last several biennia, from US$ 36.9 million in the PWB 2000-01 to US$ 31.9 million in the PWB 2004-05, aided by a recent improvement in technical cooperation delivery.

17. Reimbursements for Jointly Funded Investment Activities relate to the work of the Investment Centre Division (TCI) in support of lending activities for the agricultural/rural sector under cost sharing arrangements from the World Bank and other multilateral financial institutions. Other external income includes: fees for technical support services; income from terminal project reports; Government Counterpart Cash Contributions to FAOR offices; earnings from sale of surplus property; and other sundry income. In 2004, the aggregate recovery for these income types exceeded the amounts foreseen in the budget by US$ 1.7 million. The over-recovery of income in this category is partly due to ad-hoc extra-budgetary contributions in direct support of Regular Programme funded normative activities.

2004-05 Budgetary Projections and Forecast of Budgetary Transfers between Chapters

18. The 2004-05 budget level approved by the last Conference resulted in the need to identify resource cuts totalling US$ 51.2 million (i.e. a 6.4% average reduction) from the ZRG scenario presented to the Conference.

19. The second operative paragraph of Resolution 7/2003 requested the Director-General “to make proposals to adjust the approved Programme of Work, bearing in mind the expression of priorities by Council and Conference as well as the criteria for priority setting .... to the next meetings of the Programme and Finance Committees and to their Joint Meeting for their approval.”

20. The Adjustments to the Programme of Work and Budget 2004-057 were presented to the Programme and Finance Committees at their May 2004 session. The Committees gave their broad endorsement to the proposed adjustments, thus allowing the Secretariat to proceed with the implementation of the Programme of Work, as adjusted8.

21. It is recalled that, following the decision of the Joint Meeting of the Programme and Finance Committees in May 2004, the approved transfers between budgetary chapters, and the current distribution of the budget by chapter is as follows9:

Table 3. Approved Budget Level (US$ 000)

Chapter Conference Resolution Revised Budget approved by Joint Meeting Transfers approved by FC 107
1. General Policy and Direction 60 521 67 355 6 834
2. Technical and Economic Programmes 332 762 329 137 (3 625)
3. Cooperation and Partnerships 147 155 140 772 (6 383)
4. Technical Cooperation Programme 101 310 103 027 1 717
5. Support Services 60 465 59 415 (1 050)
6. Common Services 46 287 48 794 2 507
7. Contingencies 600 600 0
Total 749 100 749 100 0

22. The year 2004 actual expenditure and the estimated requirements for 2005 tentatively indicate that a number of further budgetary Chapter transfers would be required for the 2004-05 biennium from those already approved, as shown in Table 4 below.

Table 4. 2004-05 Forecasted Budgetary Performance by Chapter (US$ 000)

  Chapter/Title 2004-05 Revised Appropriation 2004-05 Forecasted Expenditure Balance vs. Appropriation
1 General Policy and Direction 67 355 66 655 700
2 Technical and Economic Programmes 329 137 324 607 4 530
3 Cooperation and Partnerships 140 772 146 252 (5 480)
4 Technical Cooperation Programme 103 027 103 027 0
5 Support Services 59 415 58 515 900
6 Common Services 48 794 49 444 (650)
7 Contingencies 600 0 600
  Grand Total Regular Programme 749 100 748 500 600

23. Although a number of specific issues contribute to the individual Chapter performances, funds across the programme structure were held back at the allotment setting stage to cover mainly:

24. Based on these early estimates of biennial performance, resources may need to be transferred from Chapters 1 (US$ 0.7 million), 2 (US$ 4.5 million) and 5 (US$ 0.9 million), in favour of Chapters 3 (US$ 5.5 million) and 6 (US$ 0.65 million).

25. The distribution of the estimated unfavourable variance is anticipated in the forecasted biennial budgetary performance figures above; it is noted that some further variation is possible as, for example, the exact impact and amount by staff category is difficult to predict.

26. The transfers into Chapter 3 and 6 are mainly required to offset the substantial unbudgeted security costs which are foreseen for the biennium. In Chapter 3, unbudgeted costs are being incurred for vulnerability equipment and general operating expenses for the country offices in security phase duty stations (estimated at US$ 3.5 million for the biennium). Additional Chapter 6 security expenditures include funds for a security risk assessment study and protective film for windows. Furthermore, adding to the Chapter 3 over-expenditure, is the significant impact of the forecasted unfavourable staff cost variance on this chapter. The TCP net appropriation for project expenditures falls under the provisions of Financial Regulation 4.3, which makes the balance of the 2004-05 appropriation available for obligations during 2006-07. It is therefore anticipated that the Chapter 4 appropriation will be fully spent10.

27. It is recalled that, with the introduction of Split Assessments, changes in purchasing power as a result of US dollar/euro exchange rate fluctuations are minimized, as expenditures in euro are translated at the biennial rate of exchange established by the Conference for the budget. Thus, budgetary reporting at the end of the biennium will be based on the US dollar/euro exchange rate established in the PWB 2004-05 of 1.19 (the budget rate).  Any difference arising from the translation of euro expenditures at the budget rate versus the UN rate of exchange (i.e. the actual rate used for accounting purposes) is monitored throughout the biennium and will be reflected as an adjustment figure in Statement IV of the final 2004-05 accounts of the Organization. The forecasted biennial performance figures in the table above are reflected at the budget rate of exchange11; some variations may occur if the final percentage of expenditures in euro differs significantly from the assumptions used in the budget.

28. A formal request for transfers between chapters will be submitted at the next session in September 2005, based on updated information.

Transfers between Divisions within the Same Chapter

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

30. The Secretariat of the Consultative Group on International Agricultural Research (CGIAR) Science Council was transferred within Major Programme 2.5 from the Research, Extension and Training Division (SDR) to the Office of the Assistant Director-General of the Sustainable Development Department (SDD), which included a transfer of budgeted non-staff expenditures of US$ 1.6 million for the biennium. The related posts are accounted outside the Regular Programme accounts of the Organization.

Use of Arrears

31. It is recalled that in approving the Budget Resolution 7/2003, the Conference invited the Director-General to make proposals to the Finance Committee for the reallocation of arrears to cover one-time redeployment and separation costs associated with the implementation of the adjusted budget. At its May 2004 session, the Finance Committee approved the setting aside of an amount of US$ 4.1 million being 10% of the unexpended balance of arrears at the end of 2003, for possible use in covering one-time costs related to redeployment and separation of staff and security infrastructure, on the understanding that the Organization would make every effort to absorb these costs within the Regular Programme12.

32. The Secretariat is pleased to inform the Committee that security infrastructure costs are expected to be fully absorbed within the Regular Programme, while total costs for redeployment and separation are currently estimated at US$ 4.0 million, implying that close to the full contingency will be required for these costs. Almost all of the 89 eligible redeployment cases (including FAOR posts) have been resolved at this time.

33. At its May 2004 session, the Committee noted that some arrears resources under Resolution 6/2001, particularly those related to the Human Resources Management Systems project, would most likely not be fully spent by the end of 2005 given the current timeframe for that project. At its September 2004 session, the Committee approved in principle the proposal to carry forward any unused balance of arrears as at 31 December 2005 to the Capital Expenditure Facility.

Conclusion and Action for the Committee

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


Annex II

PROPOSED SCALE OF CONTRIBUTIONS 2006-2007

(2003-2005 Scale shown for comparative purposes)

  Proposed Scale Scale  
Member Nations 2006-7 13 2004-5 14 2003 14
  % % %
Afghanistan 0.002 0.00904 0.00905
Albania 0.005 0.00301 0.00302
Algeria 0.078 0.07034 0.07039
Angola 0.001 0.00201 0.00201
Antigua and Barbuda 0.003 0.00201 0.00201
Argentina 0.975 1.15460 1.15543
Armenia 0.002 0.00201 0.00201
Australia 1.624 1.63493 1.63611
Austria 0.876 0.95161 0.95230
Azerbaijan 0.005 0.00402 0.00402
Bahamas 0.013 0.01206 0.01207
Bahrain 0.031 0.01809 0.01810
Bangladesh 0.010 0.01005 0.01006
Barbados 0.010 0.00904 0.00905
Belgium 1.091 1.13450 1.13532
Belize 0.001 0.00100 0.00100
Benin 0.002 0.00201 0.00201
Bhutan 0.001 0.00100 0.00100
Bolivia 0.009 0.00804 0.00805
Bosnia and Herzegovina 0.003 0.00402 0.00402
Botswana 0.012 0.01005 0.01006
Brazil 1.554 2.40165 2.40338
Bulgaria 0.017 0.01306 0.01307
Burkina Faso 0.002 0.00201 0.00201
Burundi 0.001 0.00100 0.00100
Cambodia 0.002 0.00201 0.00201
Cameroon 0.008 0.00904 0.00905
Canada 2.870 2.57046 2.57232
Cape Verde 0.001 0.00100 0.00100
Central African Republic 0.001 0.00100 0.00100
Chad 0.001 0.00100 0.00100
Chile 0.228 0.21303 0.21319
China 2.095 1.53947 1.54058
Colombia 0.158 0.20198 0.20213
Comoros 0.001 0.00100 0.00100
Congo 0.001 0.00100 0.00100
Congo, Democratic Rep. of 0.003 0.00402 0.00402
Cook Islands 0.001 0.00100 0.00100
Costa Rica 0.031 0.02010 0.02011
Cote d'Ivoire 0.010 0.00904 0.00905
Croatia 0.038 0.03919 0.03922
Cuba 0.044 0.03015 0.03017
Cyprus 0.040 0.03819 0.03821
Czech Republic 0.187 0.20399 0.20414
Democratic People’s Republic of Korea 0.010 0.00904 0.00905
Denmark 0.733 0.75265 0.75319
Djibouti 0.001 0.00100 0.00100
Dominica 0.001 0.00100 0.00100
Dominican Republic 0.036 0.02311 0.02313
Ecuador 0.019 0.02512 0.02514
Egypt 0.123 0.08140 0.08145
El Salvador 0.022 0.01809 0.01810
Equatorial Guinea 0.002 0.00100 0.00100
Eritrea 0.001 0.00100 0.00100
Estonia 0.012 0.01005 0.01006
Ethiopia 0.004 0.00402 0.00402
Fiji 0.004 0.00402 0.00402
Finland 0.544 0.52454 0.52492
France 6.152 6.49751 6.50220
Gabon 0.009 0.01407 0.01408
Gambia 0.001 0.00100 0.00100
Georgia 0.003 0.00502 0.00503
Germany 8.838 9.81660 9.82369
Ghana 0.004 0.00502 0.00503
Greece 0.541 0.54163 0.54202
Grenada 0.001 0.00100 0.00100
Guatemala 0.031 0.02713 0.02715
Guinea 0.003 0.00301 0.00302
Guinea-Bissau 0.001 0.00100 0.00100
Guyana 0.001 0.00100 0.00100
Haiti 0.003 0.00201 0.00201
Honduras 0.005 0.00502 0.00503
Hungary 0.129 0.12059 0.12067
Iceland 0.035 0.03316 0.03318
India 0.430 0.34266 0.34291
Indonesia 0.145 0.20098 0.20112
Iran, Islamic Republic of 0.160 0.27333 0.27352
Iraq 0.016 0.13666 0.13676
Ireland 0.357 0.29543 0.29565
Israel 0.477 0.41702 0.41732
Italy 4.984 5.08943 5.09310
Jamaica 0.008 0.00402 0.00402
Japan 19.862 19.61084 19.62501
Jordan 0.011 0.00804 0.00805
Kazakhstan 0.026 0.02814 0.02816
Kenya 0.009 0.00804 0.00805
Kiribati 0.001 0.00100 0.00100
Korea. Republic of 1.832 1.86002 1.86136
Kuwait 0.165 0.14772 0.14782
Kyrgyz Republic 0.001 0.00100 0.00100
Lao 0.001 0.00100 0.00100
Latvia 0.015 0.01005 0.01006
Lebanon 0.025 0.01206 0.01207
Lesotho 0.001 0.00100 0.00100
Liberia 0.001 0.00100 0.00100
Libya 0.135 0.06733 0.06738
Lithuania 0.025 0.01708 0.01710
Luxembourg 0.079 0.08039 0.08045
Madagascar 0.003 0.00301 0.00302
Malawi 0.001 0.00201 0.00201
Malaysia 0.207 0.23615 0.23632
Maldives 0.001 0.00100 0.00100
Mali 0.002 0.00201 0.00201
Malta 0.014 0.01507 0.01508
Marshall Islands 0.001 0.00100 0.00100
Mauritania 0.001 0.00100 0.00100
Mauritius 0.011 0.01105 0.01106
Mexico 1.921 1.09129 1.09208
Micronesia 0.001 0.00100  
Moldova 0.001 0.00201 0.00201
Monaco 0.003 0.00402 0.00402
Mongolia 0.001 0.00100 0.00100
Morocco 0.048 0.04421 0.04425
Mozambique 0.001 0.00100 0.00100
Myanmar 0.010 0.01005 0.01006
Namibia 0.006 0.00703 0.00704
Nauru 0.001 0.00100 0.00100
Nepal 0.004 0.00402 0.00402
Netherlands 1.724 1.74647 1.74773
New Zealand 0.226 0.24217 0.24235
Nicaragua 0.001 0.00100 0.00100
Niger 0.001 0.00100 0.00100
Nigeria 0.043 0.06833 0.06838
Niue 0.001 0.00100 0.00100
Norway 0.693 0.64915 0.64962
Oman 0.072 0.06130 0.06134
Pakistan 0.056 0.06130 0.06134
Palau 0.001 0.00100 0.00100
Panama 0.019 0.01809 0.01810
Papua New Guinea 0.003 0.00603 0.00603
Paraguay 0.012 0.01608 0.01609
Peru 0.094 0.11858 0.11866
Philippines 0.097 0.10049 0.10056
Poland 0.470 0.37984 0.38012
Portugal 0.480 0.46425 0.46459
Qatar 0.065 0.03417 0.03419
Romania 0.061 0.05828 0.05832
Rwanda 0.001 0.00100 0.00100
Saint Kitts and Nevis 0.001 0.00100 0.00100
Saint Lucia 0.002 0.00201 0.00201
Saint Vincent and the Grenadines 0.001 0.00100 0.00100
Samoa 0.001 0.00100 0.00100
San Marino 0.003 0.00201 0.00201
Sao Tome and Principe 0.001 0.00100 0.00100
Saudi Arabia, Kingdom of 0.727 0.55670 0.55710
Senegal 0.005 0.00502 0.00503
Serbia and Montenegro 0.019 0.02010 0.02011
Seychelles 0.002 0.00201 0.00201
Sierra Leone 0.001 0.00100 0.00100
Slovakia 0.052 0.04321 0.04324
Slovenia 0.084 0.08140 0.08145
Solomon Islands 0.001 0.00100 0.00100
Somalia 0.001 0.00100 0.00100
South Africa 0.298 0.40999 0.41028
Spain 2.571 2.53102 2.53285
Sri Lanka 0.017 0.01608 0.01609
Sudan 0.008 0.00603 0.00603
Suriname 0.001 0.00201 0.00201
Swaziland 0.002 0.00201 0.00201
Sweden 1.018 1.03175 1.03250
Switzerland 1.221 1.28021 1.28113
Syria 0.039 0.08039 0.08045
Tajikistan 0.001 0.00100 0.00100
Tanzania 0.006 0.00402 0.00402
Thailand 0.213 0.29543 0.29565
The Former Yugoslav Republic of Macedonia 0.006 0.00603 0.00603
Timor Leste 0.001 0.00100  
Togo 0.001 0.00100 0.00100
Tonga 0.001 0.00100 0.00100
Trinidad and Tobago 0.022 0.01608 0.01609
Tunisia 0.033 0.03015 0.03017
Turkey 0.380 0.44214 0.44246
Turkmenistan 0.005 0.00301 0.00302
Tuvalu 0.001 0.00100  
Uganda 0.006 0.00502 0.00503
Ukraine 0.040 0.05326  
United Arab Emirates 0.240 0.20298 0.20313
United Kingdom 6.251 5.56298 5.56699
United States of America 22.000 22.00000 22.00000
Uruguay 0.049 0.08039 0.08045
Uzbekistan 0.014 0.01105 0.01106
Vanuatu 0.001 0.00100 0.00100
Venezuela 0.175 0.20901 0.20916
Viet Nam 0.022 0.01608 0.01609
Yemen 0.006 0.00603 0.00603
Zambia 0.002 0.00201 0.00201
Zimbabwe 0.007 0.00804 0.00805
       
  100.000 100.00000 100.00000

1 CL 127/15 paras 57 to 61

2 FC 108/26(c)

3 C 2003/REP paragraph 132

4 Other Income is further described in paragraphs 15 through 17.

5 The breakdown of the approved budget between 2004 and 2005 takes account of the timing of the Regional Conferences and the FAO Conference in the first and second year of the biennium respectively. In addition, in the 2004-05 budget a number of posts were funded for the first part of the biennium and then abolished upon retirement of the incumbent.

6 Emergency projects constitute a substantial share of delivery. FAO earns Direct Operating Costs from emergency projects, which are excluded from the tabulated support cost reimbursement figures as these reimbursements are accounted under a Trust Fund and current policy for reimbursement covers the full variable indirect cost of the project as incurred by the Emergency Operations and Rehabilitation Division (TCE) and, where possible, identifiable incremental costs incurred by other units.

7 PC 91/3 – FC 107/14 – JM 04.1/2

8 CL 127/8 Report of the Joint Meeting of the Ninety-first Session of the Programme Committee and the Hundred-and-seventh Session of the Finance Committee, paragraph 6.

9 CL 127/14 Report of the 107th Session of the Finance Committee, paragraph 76.

10 TCP expenditure against the 2004-05 appropriation of US$ 98.6 million amounted to US$ 21.9 million in 2004. Spending towards projects of the 2002-03 appropriation amounted to US$ 49.2 million against the deferred income balance of US$ 62.0 million.

11 The adjustment of expenditure to the budget rate is done at the end of the biennium, and is therefore not yet reflected in the 2004 figures.

12 CL 127/14, para 79.

13 Derived directly from the UN Scale of Assessments for 2004-2006 as adopted by General Assembly Resolution 58/1B of 23 December 2003.

14 Derived directly from the UN Scale of Assessments for 2001-2003 as adopted by General Assembly Resolution 55/5B of 22 December 2000.