|FC 92/4 |
Rome, 3-7 May 1999
ANNUAL REPORT OF BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS
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 requires the Finance Committee to review annually the Director-General's implementation of this regulation.
2. In accordance with these requirements, the Thirty-second Annual Report of Budgetary Performance to Member Nations is submitted herewith to the Finance Committee. Any comments the Committee may wish to make will be submitted to the Council at its forthcoming session together with this Annual Report, which is appended to the Report of the Committee.
3. FR 4.5(a) requires transfers within the same chapter of the budget from one division to another to be reported to the Finance Committee where the funds that are moved exceed a specific sum, currently established at US$ 10 000. FR 4.5(b) requires transfers from one chapter to another to be approved by the Finance Committee.
4. Accordingly, this report also provides some advance notice of the likely magnitude of budgetary transfers arising from the implementation of the programme of work, and the Committee is requested to take note of the forecast requirements in this regard. A formal request for transfers between chapters will be submitted at the next session in September 1999.
5. Conference Resolution 7/97 on the Budgetary Appropriations for 1998-99 approved a budget of US$ 650 million, and FR 4.1(a) authorizes the Director-General to incur obligations up to the amounts voted.
6. Table 1 summarizes the management of the overall budgetary appropriations. The appropriations comprise the approved programme of work less Other Income1. The 1998 expenditure is based on the actual expenditure in the interim unaudited accounts of the Organization and the 1999 figures represent the latest Regular Programme financial projections. In arriving at the planned net expenditure, Other Income earned in 1998 and the projected earnings in 1999 have been subtracted, so that the budgetary appropriations and planned expenditure are comparable.
Table 1: Overview of 1998-99 Regular Programme Performance
*This figure excludes internal income transfers of US$ 6.5 million for the biennium, representing TCP AOS charges levied on TCP projects, giving a TCP net appropriation of US$ 87.3 million.
7. It may be noted from the preceding table that:
8. It is recalled that a US$ 12 million authority was established by the 1997 Conference to cover redeployment and separation costs in 1998-99. At its Ninetieth Session in September 1998, the Finance Committee was advised that approximately US$ 10.5 million is expected to be charged to the authority. In 1998, US$ 9.1 million was charged to this authority. In line with Conference Resolution C 97/7 on the 1998-99 budgetary appropriations, this expenditure is not chargeable against the US$ 650 million budget.
9. The September 1998 Joint Meeting of the Programme and Finance Committees approved the use of the Special Reserve Account for up to US$ 5 million or such lesser amount as may prove necessary to cover the unbudgeted extra costs arising from the award of the ILOAT with respect to general service salaries in Rome. A substantial transfer to the SRA is foreseen and is excluded from the planned expenditure figures above. The Director-General will make every effort to absorb this unbudgeted cost to the extent that he can do so without impairing the implementation of the approved programmes. However, the current forecast of staff costs (see below) suggests that there will not be much scope for savings in the current biennium. An estimate of the amount chargeable to the SRA will be provided to the Programme and Finance Committees at their sessions in September 1999.
10. The 1998-99 programme of work, for the first time, includes the projected availability of resources from Other Income, which comprises voluntary contributions that are largely at the disposal of the Organization, and/or resources that are managed closely with the Regular Budget Appropriation. Income is shown separately from total expenditure in Table 2, to arrive at the net expenditure3. In accordance with FR 4.1(a), shortfalls in income recovery versus the budgeted levels require corresponding reductions in planned expenditure during the biennium to remain within the approved budgetary appropriation of US$ 650 million.
Table 2: 1998 Budgetary Performance of Other Income
11. Support Cost income, comprising Project Servicing Cost levied on non-emergency Trust Fund projects and reimbursements for Administrative and Operational Support services on UNDP projects, is budgeted at US$ 21.5 million per annum.
12. Extra-budgetary Field Programme delivery has shown a steady rise between 1996 and 1998, and the overall 1998 delivery is consistent with the levels budgeted. However, the following factors have contributed to a US$ 3.9 million 1998 shortfall in Support Cost income versus the budgeted amount:
13. The Support Cost income performance in 1999 is not expected to show an upturn from the levels achieved in 1998. Consequently, a substantial shortfall of Support Cost income versus the levels budgeted is foreseen in 1998-99.
14. Reimbursement under cost sharing arrangements from the World Bank and other multilateral financial institutions relates to the work of TCI in support of lending activities for the agricultural/rural sector. A shortfall of US$ 0.8 million has emerged in 1998, primarily due to a decline in the reimbursements from the World Bank, because the 1998-99 budgetary projections foresaw additional income over and above the governing Memorandum of Understanding for the FAO/World Bank Cooperative Programme, which has not materialized.
15. Other external income includes: fees for technical support services; income from terminal project reports; reimbursements for administrative services to WFP; and other items.
16. A shortfall of US$ 2.5 million has emerged in 1998 versus the budgeted level, primarily as a result of the following:
17. The overall performance under Other Income in 1999 is expected to show an improvement, due to a projected increase in the level of reimbursement for technical support services provided to projects and additional receipts of government counterpart cash contributions for the FAORs. However, reimbursements for administrative services performed for WFP are expected to decline, due to the cessation of treasury services provided by the Finance Division (AFF) to that organization.
18. There is no constitutional constraint on the budgetary appropriations as regards spending by budget component. Although the Organization is free to choose the most effective inputs to fulfil the approved programme of work, an analysis of spending by budget component versus the appropriation provides useful indications of income and cost trends and required corrective action, where appropriate. The Regular Programme expenditure in 1998 (excluding TCP projects), by budget component, is summarized in Appendix A.
19. Staff Cost Variance (SCV) is the difference between staff cost at standard rates reflecting the approved budget and what is actually incurred on general service staff at Headquarters and all professional staff. SCV is accumulated for the biennium and therefore the 1998 expenditure details in Appendix A do not include any SCV. At the end of the biennium, any adverse or favourable balance (excluding currency effects, which are charged or credited to the SRA) is distributed over all programmes in proportion to the amounts incurred at standard rates.
20. In general, the first year of the biennium should close with a positive SCV, with the second year showing a negative variance, on account of gradual cost of living adjustments, to break even for the biennium. However, 1998 incurred a US$ 4.4 million deficit, which is mainly due to the following factors:
21. The SCV is expected to deteriorate further in 1999, with the items noted above continuing to contribute to the unfavourable outturn for the biennium. It is foreseen that there will be an unfavourable SCV for the biennium, making a transfer of up to US$ 5 million to the SRA both likely and necessary (see also paragraph 9 above).
22. Table 3 below summarizes the budgetary performance by major programme. It compares the portion of the approved 1998-99 net budget pertaining to 1998 with the corresponding net expenditure.
23. Support Cost income cannot be assigned directly to specific programmes of the Organization. To arrive at the budgetary appropriations for 1998-99, the allocation of Support Cost income was based on the historic distribution of the related expenditure. An improved methodology for distributing Support Cost income is being considered. However, as the introduction of variations in the method of distributing the actual and budgeted Support Cost income by Programme for 1998-99 would be confusing, the method adopted in the PWB 1998-99 has been consistently applied in Table 3.
Table 3: 1998 Budgetary Performance by Major Programme
24. General Policy and Direction utilized 96.6% of its 1998 calendarized appropriation. Under-spending occurred mainly in Major Programme 1.3, External Coordination and Liaison, as a result of staff vacancies in the newly created Liaison Offices and savings on general service staff costs arising from currency gains. Moreover, some financial contributions to inter-agency coordination mechanisms have not been committed in 1998 due to the non-receipt of the related invoices.
25. Over-spending under Programme Management (Major Programme 1.9) arises from the existence of some temporary administrative and personnel posts.
26. The rate of expenditure in this chapter is expected to increase in 1999 as vacancies in the Liaison Offices are filled and the biennial Inter-agency Contributions are committed, with the result that the full appropriation will be exhausted or indeed exceeded.
27. Chapter 2 under-spent its calendarized appropriation by US$ 7.9 million, utilizing 94.6% of its 1998 appropriation. Therefore, Chapter 2 accounts for the overall under-spending in 1998 of US$ 6.4 million, reported in Table 3. Part of the under-spending against the appropriation is the result of a planned US$ 3.7 million reduction to the Professional Staff allotments which was taken against this Chapter at the beginning of 1998 in order to fund programmes, the cost of which has been under-budgeted, while a further US$ 3.5 million of under-spending materialized during 1998 at the request of budget managers, who found the need to shift the financial implementation of their programmes into 1999.
28. The largest percentage under-expenditure in Chapter 2 is under Major Programme 2.3 (Fisheries) and Major Programme 2.5 (Contributions to Sustainable Development and Special Programme Thrusts). In the case of Fisheries, the under-expenditure versus the calendarized appropriation is the result of the non-completion of work that commenced during 1998, and will require some US$ 0.8 million of additional funds in 1999 to achieve the related programme objectives. Major Programme 2.5 is particularly affected by the Special Programme on Food Security which is expected to incur increased costs in the second half of the biennium and has thus carried over approximately US$ 1.3 million to 1999.
29. The rate of expenditure under Chapter 2 is expected to be higher in 1999 due to the above-mentioned carry-over of funds and a lower rate of professional vacancies amongst technical positions at both Headquarters and the decentralized offices. At this stage, it is foreseen that the biennial surplus under Chapter 2 may remain close to the 1998 under-spending of US$ 7.9 million.
30. Chapter 3 expenditure amounted to 100.9% of the annualized 1998 appropriation, with Major Programmes 3.3 (Field Operations) and 3.5 (Cooperation with External Partners) contributing to the 1998 net over-spending as described below.
31. The PWB 1998-99 allocated nearly 60% of Support Cost income to Major Programme 3.3, with the result that the annualized budgetary appropriation for Major Programme 3.3 amounted to only US$ 1.8 million, despite a corresponding annualized programme of work of US$ 20.2 million. Although expenditure (i.e. the programme of work) has been curtailed under this major programme in 1998, the resulting net expenditure is nevertheless US$ 1.2 million above the calendarized appropriation due to the allocation to this major programme of a share of the overall shortfall of US$ 3.9 million in 1998 Support Cost income.
32. Major Programme 3.5 exceeds the calendarized appropriation primarily because it is affected by the support cost income deficit. It also incurred some additional expenditure because of under-budgeted costs of approved programmes, including World Food Day Special Events and FAO's contribution to the UN Non-governmental Liaison Service.
33. Expenditure in 1999 is expected to continue to be higher than the calendarized appropriation, for similar reasons.
34. Expenditure patterns under Support Services (102.9%) were affected by two items in 1998. One item - which lowered expenditure against the appropriation - was the transfer of staff and non-staff costs for maintenance and provision of voice and data services from Major Programme 5.2 (Administration) to Chapter 6 (Common Services). This arose because costs that were budgeted under AFI in Major Programme 5.2 in anticipation of the AFS/AFI restructuring, were transferred to AFS under Chapter 6 (US$ 1.1 million). Due to the technological convergence of telecommunications systems and information technology, deliberations on the AFS/AFI restructuring are ongoing, with a view to consolidating the responsibilities within a single division. The results of these deliberations are as yet unknown and may result in further transfers between Chapters 5 and 6, and between AFI and AFS, which will be brought to the attention of the Committee.
35. Offsetting the above transfer, Major Programme 5.2 has received an additional allocation of approximately US$ 2.6 million to cover the higher than expected costs for the Oracle Project.
36. Expenditure patterns are expected to be similar in 1999, with the exception of the allocation of funds for Oracle which will start to level out in 1999.
37. Expenditure of 106.4% of the calendarized Chapter 6 appropriation arises mainly from the transfer of staff and non-staff costs from Major Programme 5.2 for the AFS/AFI restructuring, as noted above. In addition, US$ 0.8 million was allotted to cover unbudgeted arrears for gas consumption at Headquarters, which arose as a result of a persistent misreading of the main gas meter by the utility supplier.
38. The biennial deficit under this Chapter is expected to rise as a result of further under-budgeted costs, particularly in relation to an imminent relocation of the Regional Office for Africa to a new building.
39. The expenditure pattern of the first year of the biennium and the estimated requirements for the second year of the biennium tentatively indicate that transfers will be required principally in favour of Chapter 1 (estimated US$ 1 million), Chapter 3 (estimated US$ 4 million) and Chapter 6 (estimated US$ 3 million). The resources would be transferred from Chapter 2, and amount to the approximate level of Chapter 2 under-spending already incurred in 1998.
40. The extent of the transfers may yet be influenced by changes in accounting policies resulting from the implementation of Oracle, the impact of which have not yet been fully examined, as well as initial Oracle roll-out costs and year 2000 compliance costs. The transfers required into Chapter 6 will also depend upon the modalities and timing of the transfer of telecommunications functions from AFS to AFI, as described in paragraph 34 above.
41. The Director-General will keep the Committee informed of further developments and will formally submit the request for transfers to the next session, as required by FR 4.5(b).
42. As a matter of practice, the need to report a transfer of resources from one division to another within the same chapter of the budget, as required by FR 4.5(a), is rare. At this stage, no transfers between divisions are foreseen, but should they materialize, they will be reported in the next Annual Report covering the full biennium 1998-99.
ANNUAL REPORT OF BUDGETARY PERFORMANCE TO MEMBER NATIONS
1. The Regular Programme expenditure in 1998 (excluding TCP projects), by budget component, is summarized below4. Significant factors that have affected the actual 1998 performance by budget component, and a brief description of trends emerging in the 1998-99 biennium, are described below.
2. The total staff appropriation, which comprises Professional Staff Costs, General Service staff costs and Temporary Assistance, was underspent by approximately 10% in 1998. This is primarily the result of professional staff vacancies at the beginning of the biennium. Organizational units with high professional vacancy rates during 1998 included some of the decentralized offices (particularly RAF and SNEA), ESA, ESS, TCI and AFF. The Regional, Sub-regional, Liaison and FAOR offices are also under-spent due to lower rates for general service staff than was foreseen during the PWB 1998-99 preparation stage in July 1997, on account of favourable exchange rates.
3. Some of the staff savings arising from vacant posts were necessary to compensate for the substantially reduced levels of Other Income. Other savings are being, and will be, applied to fund high priority or essential programmes, the cost of which has been under-budgeted, such as one-time costs of decentralization, essential investment in information technology and the replacement of FINSYS with Oracle.
4. Staff cost expenditures in 1999 are expected to be higher than in 1998, as professional recruitment procedures have been accelerated and vacant professional posts are being gradually filled. For example, most of the Regional and Sub-regional Offices, which had relatively high vacancy rates at the beginning of 1998, expect to be staffed at budgeted levels by the latter part of 1999. Continued savings are expected against general service staff costs in the decentralized locations, but the effect will be less pronounced in 1999 as some local currencies where FAO has a substantial presence are now strengthening against the US dollar (e.g. Thai Bhat). Moreover, large unbudgeted general service salary increases have been promulgated by the ICSC in some decentralized locations (e.g. Accra and Bangkok).
5. Several divisions such as RAF, SNEA, ESA, ESS, TCI and AFF have applied savings under Professional Staff costs to this budget component, hiring consultants to fulfil programme objectives. In addition, an unbudgeted amount of US$ 1.2 million related to the Oracle project has been incurred under this budget component.
6. A positive balance against this budget component is seen in 1998, as many divisions have experienced some delays in finalizing publications which were initiated in 1998 and have requested the relevant funds to be carried over to 1999. However, above-average expenditure is expected in 1999.
7. Expenditure against this component comprises the cost of the Information Systems and Technology Division (AFI), representing the services provided to the Organization in the fields of information technology infrastructure, network services and computerized applications. This budget component has incurred additional spending as a result of a transfer of resources between AFS and AFI in relation to the ongoing restructuring of telecommunications services. It has also incurred some unbudgeted costs to support corporate computer training needs and related hardware costs.
8. Divisions have re-programmed much of the savings incurred under other budget components (in particular Professional Staff costs) to GOE. Several Headquarters divisions have used the savings to upgrade their information technology infrastructure, while many Regional and Sub-regional offices have covered higher than expected ongoing general operating expenses. In addition to the re-programmed savings, funds were provided under this budget component to AFI and the Regional Offices for unbudgeted equipment requirements for Oracle and for set-up costs incurred in some Regional Offices, such as RAF, in anticipation of their substantially augmented staffing complement.
1 Other Income is described in paragraphs 10 through 17.
2 The breakdown of the approved budget between 1998 and 1999 takes account of the timing of the Regional Conferences and the FAO Conference in the first and second year of the biennium respectively, and assumes that other programmes incur expenditure evenly throughout the biennium.
3 In arriving at the calendarized 1998 appropriation for Other Income, adjustments have been made for those elements that are accounted as Trust Funds in the accounts of the Organization. This is necessary to provide a comparable basis of relating the appropriation with the expenditure reported in the interim unaudited accounts of the Organization.
4 In arriving at the calendarized 1998 appropriation, adjustments have been made to the budgeted expenditure for those elements that are accounted as Trust Funds in the accounts of the Organization. This is necessary to provide a comparable basis of relating the appropriation with the expenditure reported in the interim unaudited accounts of the Organization. Regular Programme staff secondments to TCP and SPFS projects have been netted off against staff costs.