CL 119/12


Council

Hundred and Nineteenth Session

Rome, 20 - 25 November 2000

Report of the Ninety-Fourth Session of the Finance Committee

Rome, 8 - 12 May 2000

Table of Contents



 

MATTERS REQUIRING ATTENTION BY THE COUNCIL

Report of the Ninety-fourth Session of the Finance Committee

Paragraphs

BUDGETARY MAT TERS

- Review of Support Costs

- Budgetary Transfers in the PWB 2000-2001 Arising out of the Conference Approval of the Budget at Lire 1,875

 

6 - 15

16 - 18

FINANCIAL MATTERS

- Financial Position of the Organization

- Programme of Work of the External Auditor - Biennium 2000-2001

 

19 - 21

29 - 31

PERSONNEL MATTERS

- Flexible Use of Education Grant Travel - Change in Staff Regulation 301.0334

 

36

WORLD FOOD PROGRAMME

- Report on WFP Chartered Flight KLV 3275 to Kosovo

 

42 - 43

 


REPORT OF THE NINETY-FOURTH SESSION OF THE FINANCE COMMITTEE

8 - 12 May 2000

INTRODUCTION

1. The Committee submitted to the Council the following report of its Ninety-Fourth Session.

2. The following representatives were present:

Chairperson: H.E. Aziz Mekouar (Morocco)
Vice-chairperson: Mr Anthony Beattie (United Kingdom)
Ms Ileana Di Giovan Battista (Argentina)
Ms Neela Gangadharan(India)
Mr Rho Kyeong-sang (Rep. of Korea)
Ms Ekhlas Fouad Eltom (Sudan)
Mr Rolf Gerber (Switzerland)
Ms Perpetua M.S. Hingi (Tanzania)
Ms Laurie J. Tracy (United States of America)

3. The Committee noted that Ms Ileana Di Giovan Battista had been designated to complete Argentina's term on the Finance Committee.

4. Mr Anthony Beattie (United Kingdom) was elected Vice-Chairman for 2000 by unanimous decision.

5. When adopting the agenda, the question was raised as to whether the Finance Committee could have private meetings with the External Auditor. The Legal Counsel drew the attention of the Committee to Article VII.5 of the FAO Constitution which provided that the Director-General or a representative designated by him shall participate in all meetings of the Governing Bodies of the Organization.

BUDGETARY MATTERS

REVIEW OF SUPPORT COSTS

6. The Finance Committee at its 93rd Session had reviewed a paper1 on the issue of Support Costs and had acknowledged the conceptual framework as a helpful basis for further development of proposals.

7. Following the request of the Members at their September session, the Secretariat had submitted a series of information papers as follows:

FC 94/4 a) Review of Support Costs - Current Profile of FAO's Field Programmes and Other Programmes Funded from Voluntary Contributions
FC 94/4 b) Review of Support Costs - Current Reimbursement Rates for Support Costs on Field Programmes and Other Voluntary Contributions
FC 94/4 c) Review of Support Costs - Methodology Used to Calculate the Cost of Supporting Field Programmes and Other Programmes Funded from Voluntary Contributions.

8. In addition the Committee considered a paper (FC 94/4(d)) on the Proposed Principles for Support Cost Reimbursement Rates for Field Programmes and Other Programmes Funded from Voluntary Contributions, which built on the conceptual framework which was developed at the last meeting of the Committee. The Committee was assisted in its deliberations by an extensive presentation.

9. The Committee recognized that the subject was both complex and important to the future of the Organization, particularly in the light of the attention given in the Strategic Framework, approved by the Conference in November 1999, to leveraging resources and the need for competitiveness. The Committee also emphasized the need to maintain the balance between normative and operational activities and noted the importance of extra-budgetary resources in contributing to this balance. Attention was drawn to capacity building for the application of regulatory frameworks (e.g. phytosanitary standards and CODEX) as an area that needed additional resources.

10. The Committee felt that its deliberations would benefit from further discussions within the Regional Groups and that it should aim to reach a conclusion on the issue of support cost reimbursement at its next session in September 2000. Notwithstanding the outcome of further discussion in September, it was able to reach a tentative conclusion in a number of areas. In particular, there was general support for the three immediate objectives and the resulting principles for the new support cost reimbursement scheme which were stated as being to:

11. The exclusion of fixed overheads was discussed at length and although some suggestions were made about possible adjustments (e.g. the treatment of Offices of Division Directors), the principle of their exclusion was seen as appropriate for the FAO environment.

12. The Committee agreed that the issue of "transparency" deserved consideration as a separate objective or principle and asked that this concept be expanded upon, in particular, in its application to the planning stage as regards the full disclosure of the expected level of indirect project support costs and their recovery as well as the extent of technical support services which were planned to be funded from the Regular Programme.

13. In examining the principle concerning alignment of charges to the actual costs incurred, several suggestions were made about possible approaches to the rate structure. However, there was agreement that a limited number of different rates should be defined for clearly specified circumstances and that, in the interests of transparency, the terms under which such rates could be adjusted should be explicit and clear.

14. In examining the cost measurement system and the underlying methodology used to calculate these costs, the Committee welcomed FAO's commitment to the on-going identification of support costs and the manner in which they were regularly reported to the Governing Bodies. Similarly, it felt itself in general agreement with the reporting patterns proposed although it re-emphasised the need for more explicit data at the planning stage.

15. In conclusion, the Committee requested the Secretariat to prepare, as soon as possible, a short document that addressed the outstanding issues raised by the Committee. In particular, this included discussion of causes of the gap between the costs and reimbursements and how it was proposed to further improve transparency at the planning stage.

BUDGETARY TRANSFERS IN THE PWB 2000-2001 ARISING OUT OF THE CONFERENCE APPROVAL OF THE BUDGET AT LIRE 1,875

16. The Committee recalled that the adoption of the 2000-01 budget at a weaker US Dollar/Lira exchange rate than the published Zero Nominal Growth (ZNG) scenario of the PWB 2000-01 (document C 99/3) allowed some re-programming of resources with consequent adjustments to the distributions by Chapter.

17. It recognised that the proposed application of the favourable adjustment was intended exclusively to restore, in part or in whole, funding to areas that had suffered reductions under the published ZNG scenario of the PWB 2000-01. It also noted that this approach was consistent with the priorities expressed by Member Nations before the adoption of the 2000-01 budget. In this connection, it was guided by the advice to the Governing Bodies of the intended application of these savings, as contained in the verbatim records of the 117th Session of the Council2. However, the Committee suggested that, in future, the directions of the Governing Bodies be more formally recorded, for example, in the reports adopted by the Council or Conference.

18. In accordance with Financial Regulation 4.5, the Committee endorsed the Director-General's request for approval of budgetary transfers between chapters. It also recognized that the revised appropriation would become the basis for financial and budgetary reporting in 2000-01 and would constitute the base budget for the Programme of Work and Budget 2002-03. It looked forward to receiving the first performance report or implementation report in May 2001, at which time it would also be provided with further clarification of the Finance Committee's role in approving changes to the budget under Financial Regulation 4.5.

FINANCIAL MATTERS

FINANCIAL POSITION AS AT 29 FEBRUARY 2000

19. The Committee considered the financial position of the Organization at 8 May 2000 and noted that 48.38 percent of current assessments had been received. Forty-two Member Nations had paid their current assessments in full while a further 21 Members had made partial payment whereas 117 had made no payment as yet towards their 2000 assessment. The Committee noted that the rate of receipt of contributions was basically in line with the same date over the past four years. The Committee expressed concern over the number of Member Nations with arrears. It was recalled that when the level of the budget was approved at the ZNG level by the Conference in November 1999, there was an expectation that a substantial portion of arrears would be paid early to ease the financial position of the Organization. This, however, had not happened. It was suggested that in future documentation on the resources position for the Finance Committee should reflect the efforts made by FAO in dealing with the issue of arrears payments.

20. Concern was also expressed over those countries whose arrears were at such a level as to jeopardize their right-to-vote. In this connection, the Committee recalled the problems encountered by the General Committee at the last Session of the Conference and considered it appropriate for the Finance Committee to take a more proactive role in the management and collection of arrears. It requested, therefore, that the Secretariat prepare a document for the consideration of the Committee at its September Session on the "Role of the Finance Committee in the Management of Arrears", listing the various options open to the Committee and giving the experience of other UN organizations in this field. The document should be circulated well in advance of the September Session in order to allow members of the Committee to consult at the regional level.

21. The Committee, furthermore, requested that the Secretariat give attention to different ways of presenting the financial information regarding the Financial Position of FAO in such a way as to highlight salient points that would give a clear indication to the Finance Committee on the state of health of the Organization's finances.

FINANCIAL OUTTURN OF THE 1998-1999 BIENNIUM

22. The Committee examined the unaudited accounts for the 1998/99 Biennium. Members discussed the contents and asked for explanations regarding certain assets, liabilities and income and expenditures including the treatment of support costs, the Technical Cooperation Programme, budget transfers, currency exchange accounting and the staff related schemes, Working Capital Fund and Special Reserve Account. Clarifications were provided by the Secretariat.

23. In response to a question from the Finance Committee, the Interim Director of Finance outlined some of the causes for optimism and pessimism in FAO's current financial situation. On the downside he noted that FAO continued to absorb charges against the Special Reserve Account and the General Fund that were not financed in the Programme of Work and Budget. Such charges financed outside of the regular appropriation were a cause for concern. On the side of optimism, FAO hoped to receive arrears reflows from the major contributor before long.

24. The Committee noted that the income and expenditure and assets and liabilities of the Organization as reflected in the unaudited accounts were as follows:

STATEMENT OF INCOME AND EXPENDITURE
AND CHANGES IN RESERVES AND FUND BALANCES

For the biennium ended 31 December 1999
(US$ `000)


    Notes

Funds

Total

     
General and 
Related

Trust and UNDP

1998-99   1996-97

INCOME              
Assessment on Member Nations 4 637,324   - 637,324   629,400
Voluntary contributions 5 33,458   430,820 464,278   358,700
Funds received under inter-organisational arrangement 6 4,745   57,358 62,103   101,100
Jointly financed activities 7 24,182   - 24,182   25,300
Services rendered   12,097   - 12,097   5,600
Miscellaneous 8 61,530   10,602 72,132   64,000
Sundry 9 (11,615)              - (11,615)   13,400
      761,721   498,780                1,197,500
EXPENDITURE              
Regular Programme   708,974   - 708,974   729,000
Projects               -   498,780 498,780   433,000
  10 708,974   498,780 1,207,754   1,162,000
EXCESS (SHORTFALL) OF INCOME OVER EXPENDITURE   52,747   - 52,747   35,500
Redeployment and separation costs 11 (10,587)   - (10,587)   -
Amortisation of after service liabilities 3 (21,143)   - (21,143)   -
Staff related schemes

20

(25,634)   - (25,634)    
Provision for contributions

12

(14,489)   - (14,489)   58,700
Deferred Income   (5,048)     (5,048)    
Transfer of Support Costs   -   - -   1,900
                                                      
NET EXCESS (SHORTFALL) OF INCOME OVER EXPENDITURE   (24,154)   - (24,154)   96,100
Transfers from/(to) Reserves              
Working Capital Fund 21 (23,700)   - (23,700)   700
Special Reserve Account 22 (889)   - (889)   1,400
Fund balances, beginning of period   27,600                - 27,600   (70,600)
                                                      
FUND BALANCES, END OF PERIOD   (21,143)               - (21,143)   27,600

 

STATEMENT OF ASSETS, LIABILITIES, RESERVES AND FUND BALANCES

As at 31 December 1999
(US$ `000)


  Notes
Funds

Total

   

General and
Related

 

Trust and
UNDP

1998-99   1996-97

ASSETS              
Cash and term deposits   100,626   193,176 293,802   256,900
Investments 13 163,463   - 163,463   152,200
Contributions receivable 14 169,409   - 169,409   154,000
Less: Provision for delays of contributions 12 (169,409)     (169,409)   (154,000)
Accounts receivable 15 51,137                51,137   39,500
    315,226   193,176 508,402   448,600
LIABILITIES              
Contributions received in advance 16 457   131,277 131,734   160,200
Unliquidated Obligations 17 39,177   71,004 110,181   59,400
Inter-fund balances 18 9,105   (9,105) -   -
Accounts payable 19 58,733   - 58,733   26,000
Staff related schemes 20 144,159   - 144,159   125,400
Deferred Income 23 60,215  
          -
60,215   50,200
    311,846   193,176 505,022   421,200
RESERVES AND FUND BALANCES              
Working Capital Fund 21 23,756   - 23,756   -
Special Reserve Account 22 767   - 767   (200)
Fund Balances, end of period

24

(21,143)              - (21,143)   27,600
    3,380              - 3,380   27,400
    315,226   193,176 508,402   448,600

REPORT ON INVESTMENTS 1999

25. The Committee noted the arrangements made for the investments of funds in connection with the Regular Programme and Trust Funds, the Compensation Plan Reserve Fund, and the Separation Payments Scheme.

26. The summary of investments held for the Compensation Plan Reserve and for the Separation Payments Scheme to December 1999 were as follows:

i) Compensation Plan Reserve Fund

COMPENSATION PLAN RESERVE FUND
SUMMARY OF INVESTMENTS TO 31 DECEMBER 1999

  COST   MARKET INCOME RECEIVED
1999
  31-Dec-99   31-Dec-99
  USD % USD % USD %
EQUITIES

USD
NON-USD

10,093,241
14,102,201
22.58
31.55
19,010,978
27,137,762
28.29
40.38
149,546
124,784
12.77
10.66
SUB-TOTAL 24,195,442 54.13 46,148,740 68.67 274.330 23.43
BONDS

USD
NON-USD

5,668,030
11,360,757
12.68
25.42
7,100,279
10,483,355
10.56
15.60
248,951
583,031
21.27
49.80
SUB-TOTAL 17,028,787 38.10 17,583,634 26.16 831,982 71.07
TEMPORARY
INVESTMENTS
3,474,299 7.77 3,476,114 5.17 64,368 5.50
GRAND TOTAL 44,698,528 100.00 67,208,488 100.00 1,170,6801 100.00

1 Not including US$396,293 of accrued income

 

ii) Separation Payments Scheme

SEPARATION PAYMENTS SCHEME
SUMMARY OF INVESTMENTS TO 31 DECEMBER 1999

  COST   MARKET INCOME RECEIVED
1999
  31-Dec-99   31-Dec-99
  USD % USD % USD %
EQUITIES

USD
NON-USD

26,900,202
35,770,775
22.93
30.49
49,867,409
68,823,091
28.43
39.24
405,244
315,229
13.19
10.25
SUB-TOTAL 62,670,977 53.42 118,690,500 67.67 720.473 23.44
BONDS

USD
NON-USD

14,215,323
29,159,774
12.12
24.85
18,529,184
26,906,347
10.56
15.34
650,641
1,529,564
21.16
49.75
SUB-TOTAL 43,375,097 36.97 45,435,531 25.90 2,180,205 70.91
TEMPORARY
INVESTMENTS
11,273,174 9.61 11,283,750 6.43 173,817 5.65
GRAND TOTAL 117,319,248 100.00 175,409,781 100.00 3,074,4951 100.00

1 Not including US$1,050,367 of accrued income

 

PROGRESS REPORT ON THE IMPLEMENTATION OF THE EXTERNAL AUDITOR'S RECOMMENDATIONS

27. The Committee reviewed the report on implementation of the External Auditor's recommendations and complimented the External Auditor on meeting its earlier request to include an extra column in the report with his own comments on the actions taken.

28. Members raised questions, and received clarifications from the Secretariat and the External Auditor, on the status of implementation of the recommendations.

PROGRAMME OF WORK OF THE EXTERNAL AUDITOR - BIENNIUM 2000-2001

29. The Director of External Audit introduced the document submitted to the Committee (FC 94/8) regarding the Programme of Work of the External Auditor for the biennium 2000-2001. He noted that this Programme had to be implemented in line with the principles laid down in Articles 12.3 to 12.6 of the Financial Regulations.

30. The Committee welcomed the initiative. It stressed the importance of the work of the External Auditor and appreciated his valuable contribution in helping it to assess the management of the Organization. The Finance Committee recalled that under Financial Regulation 12.6 it had the ability to request specific examinations, keeping in mind Financial Regulation 12.5. The Finance Committee reviewed the suggestions made in paragraph 6 of document FC 94/8 with respect to possible areas for examination in the thematic reviews of the External Auditor. The Committee did not consider the proposed review of WFP/FAO cooperation in the field programme to be of compelling or immediate interest. The Committee suggested that the External Auditor also include in the Work Plan for the current biennium a review of the FAO country offices.

31. Also, the Committee was informed of the current situation and difficulties met by the External Auditor in the audit of the 1998-1999 accounts. One of the problems encountered results from the late submission of the Financial Statements for audit. The Committee took note that these difficulties were likely to generate delays for the production of the opinion on the accounts and the related report when compared to the timetable of the previous biennia.

REQUEST TO THE EXTERNAL AUDITOR FOR SPECIFIC REPORTS CONCERNING THE EMERGENCY FARM RECONSTRUCTION PROJECT TO BE EXECUTED BY FAO ON BEHALF OF THE UNITED NATIONS INTERIM ADMINISTRATION MISSION IN KOSOVO

32. The Finance Committee considered document FC 94/9 regarding the request to the External Auditor of a specific examination of the Emergency Farm Reconstruction Project, for an approximate amount of US$25 Million financed through the World Bank, to be executed by FAO on behalf of the United Nations Interim Administration Mission in Kosovo (UNMIK).

33. The Finance Committee requested the External Auditor, in accordance with the provisions of Financial Regulation 12.6, to perform a special audit of the Project in accordance with the terms of reference as required by the World Bank. In this connection, the Committee noted that all costs arising from the special audit would be covered by the Project. The Finance Committee drew attention to the risks of a possible multiplication of similar requests and emphasized that special audits by the External Auditor should remain of an exceptional nature.

PERSONNEL MATTERS

ANNUAL REPORTS OF THE ICSC AND UN JOINT STAFF PENSION BOARD TO THE GENERAL ASSEMBLY, AND SUMMERY OF THE DECISIONS TAKEN

34. The Committee took note of the information provided in document FC 94/10 and the verbal information provided by the Personnel Division.

CHANGES IN SALARY SCALES AND ALLOWANCES

35. The Committee took note of the information provided in document FC 94/11 and the verbal information provided by the Personnel Division.

FLEXIBLE USE OF EDUCATION GRANT TRAVEL - CHANGE IN STAFF REGULATION 301.0334

36. The Committee took note of the information provided in document FC 94/12 and the verbal information provided by the Personnel Division. The Committee endorsed the proposal and decided to submit the suggested changes to the next session of the Council for approval.

ORGANIZATIONAL MATTERS

1999 ANNUAL ACTIVITY REPORT OF THE OFFICE OF THE INSPECTOR-GENERAL

37. The Inspector-General introduced the Annual Activity Report of the Office of the Inspector-General, explaining that this report was addressed to the Director-General, but that it had been made available to the Finance Committee for the last four years. He described the main contents of the report, pointing out that in response to a previous request of the Finance Committee the titles of audits were now listed in the annual report. He noted that the Charter for the Office of the Inspector-General, which had been reviewed by the Finance Committee at its previous session, was now enshrined in the regulatory framework of FAO in the Manual, and had been made available to all staff through a Director-General's Bulletin and the Intranet. He mentioned that while the annual report was for information, he was available to respond to questions on the report, the activities of the office and its role in FAO.

38. The Committee expressed its general satisfaction with the report itself and particularly with the Director-General's initiative in connection with the development of the Charter. The Committee noted the existence of the "whistle-blower" protection in the Charter and discussed the impact. It requested information on modalities for amending the Charter. The Legal Counsel clarified that the Charter was part of the administrative provisions of the FAO Manual which were issued by the Director-General. Having been referred to the Finance Committee for information before issuance, the same procedure should be followed with respect to any revision. The Committee also commented on the Year 2000 issue, the role of the Inspector-General vis--vis the Committee, the allocation of time resources in the Office of the Inspector-General, work done by the regional auditor in Cairo on the Oracle system and the costs of the Office of the Inspector-General.

LANGUAGE COVERAGE FOR REGIONAL CONFERENCES

39. The Committee recalled that a paper on Review of FAO Language Policy had been discussed at the Joint Meeting of the Programme and Finance Committees (May 1999) and at the Hundred and Sixteenth Session of the Council (June 1999), which requested that additional allocations be provided in each of the Programme of Work and Budget 2000-01 scenarios to address imbalances in the use of languages.

40. In response to the need for improved language balance in the activities of the Organization, the Committee noted that the Director-General had instructed that the Organization's Regional Conferences should be conducted in all the FAO languages of the participating countries. The Committee was informed of the additional costs to ensure compliance with this.

41. The Committee expressed satisfaction with these initial measures adopted regarding the use of all the Organization's languages, and looked forward to continued improvements in this regard.

WORLD FOOD PROGRAMME

REPORT ON WFP CHARTERED FLIGHT KSV 3275 TO KOSOVO

42. The Committee reviewed the report (FC 94/15; WFP/EB.1/2000/3/1) and obtained additional information on the status of the special account to date, the outcome of the French investigation, and insurance coverages. The need to respond immediately without formal approval was fully appreciated. Having noted that the report had been approved by the Executive Board in its first regular session in February 2000, the Committee fully endorsed post factum the recommendations of the Executive Director contained in paragraphs 7 and 9.

43. The Committee also paid tribute to the victims of the tragic accident and expressed appreciation to all staff of the World Food Programme and others for having managed sensitively and efficiently the tragic situation and for assistance provided to relatives and families of the victims.

OTHER MATTERS

DATE AND PLACE OF THE NEXT SESSION

44. The Committee was informed that the 95th Session was tentatively scheduled to be held in Rome from 25 to 29 September 2000. The final dates of the Session would be decided in consultation with the Chairperson.

___________________________

1  FC 93/4

2  Quote from CL/117/PV/1: Tony Wade (Director, Office of Programme, Budget and Evaluation) "In line with the priorities previously expressed by Member Nations, the Director-General advises that, in principle, he would first of all accelerate the recruitment of those technical posts which were underfunded in the zero nominal growth scenario - you will recall that in this scenario one way we have made savings is to underfund those technical posts that were vacant and were in the non-protected areas. We would release additional resources to fill those technical posts as quickly as possible. We would then reinstate in part, or in whole, the cuts made to consultants and travel resources, particularly under the technical programmes. Thirdly, we would apply amounts as necessary to allow the more measured implementation of the structural changes now envisaged in Headquarters and the regional offices. This may result in some adjustments between budgetary chapters. We are not quite clear of the extent to which it would, but if so the Director-General would make specific proposals by chapter to the Finance Committee next year for its approval, under Financial Regulation 4.5."