| FC 95/2
Rome, 25 - 29 September 2000
PROGRAMME AND BUDGETARY TRANSFERS IN THE 1998-99 BIENNIUM AND ANNUAL REPORT OF BUDGETARY PERFORMANCE TO MEMBER NATIONS
|ANNEX I :||COMPARISON OF FINAL EXPENDITURES TO APPROVED APPROPRIATION FOR 1998-99|
|ANNEX II :||EXPLANATORY NOTE ON THE STATUS OF THE RESERVES AND FUND BALANCES OF THE GENERAL FUND|
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. In accordance with this requirement, this Thirty-third Annual Report of Budgetary Performance summarizes, for information and discussion, the budgetary aspects of the Regular Programme performance for the 1998-99 biennium.
2. 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.
3. The 1998-99 programme of work, for the first time, included the projected availability of resources from Other Income1, which comprises voluntary contributions that are largely at the disposal of the Organization and are managed closely with the appropriations. The appropriations comprise the approved programme of work less Other Income. Table 1 summarizes the overall budgetary performance for 1998-99. The net expenditure figures are based on Statement IV of the latest draft accounts for the biennium ended 31 December 19992.
Overview of 1998-99 Regular Programme Budgetary Performance
|Programme of Work||367,595||368,865||736,460|
|Appropriation adopted by Conference Resolution C 97/7||324,304||325,696||650,000|
|Less Technical Cooperation Programme (Chapter 4)||44,727||44,720||89,447|
|Net Expenditure (excluding TCP)||273,171||286,214||559,385|
|(Over)/Under Expenditure vs. Appropriation||6,406||(5,238)||1,168|
A surplus balance of only US$ 1.2 million (0.2%) remains against the 1998-99 appropriations of US$ 650 million3. In fact, of this amount, US$ 0.6 million relates to Contingencies, provided under Chapter 7 of the approved budget, against which no expenditure was incurred in 1998-99.
4. Shortfalls in Other 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 as required by Financial Regulation 4.1(a). The outturn for 1998-99 is summarized in Table 2, and shows an overall shortfall of US$ 16.9 million, or 19.6% of the total budgeted. The shortfall was consistent with the unfavourable trends emerging since the beginning of the biennium and previously reported to the Finance Committee4. Corresponding reductions in the programme of work (i.e. expenditure) could therefore be managed in a planned fashion.
Table 2. 1998-99 Income5
|Trust Fund support cost income||31,771||28,072||3,699||88.4%|
|UNDP support cost income||11,300||4,745||6,555||42.0%|
|Sub-total Support Cost Income||43,071||32,817||10,254||76.2%|
|Investment activities with World Bank||20,480||17,648||2,832||86.2%|
|Investment activities with other institutions||7,623||6,534||1,089||85.7%|
|Sub-total jointly financed investment activities||28,103||24,182||3,921||86.0%|
|Technical support services and other reimbursements||15,286||12,523||2,763||81.9%|
5. Support cost income is essentially earned in proportion to the actual expenditure or "delivery" against non-emergency Trust Fund projects6 and UNDP projects implemented or executed by FAO. The shortfall versus budgeted support cost income totals US$ 10.3 million, consisting of US$ 3.7 million under the former and US$ 6.6 million for the latter.
6. In the case of non-emergency Trust Funds, the decline of 12% was broad-based affecting the Government Cooperative Programmes, Unilateral Trust Funds and Associate Professional Officers Scheme.
7. UNDP project delivery in 1996-97 was US$ 84.4 million, and had been budgeted to rise to US$ 112.7 million in 1998-99. Instead, UNDP delivery has declined by 56% to an unprecedented low of US$ 49.2 million. This is due to a faster than anticipated growth in national execution leading to a decline in share of execution and implementation of the UNDP programme by the "Big Five" UN agencies7, including, in particular, FAO. As a consequence of the above, UNDP support cost earnings, which were budgeted at US$ 11.3 million, amounted to only US$ 4.7 million for the biennium.
8. Reimbursements under cost sharing arrangements from the World Bank and other multilateral financial institutions relate to the work of the Investment Centre Division in support of investment project preparation activities for the agricultural/rural sector. A shortfall of US$ 3.9 million has emerged in the 1998-99 biennium.
9. Reimbursements are sought only after the related expenditure has been processed in the accounts of the Organization. Over US$ 1 million of the shortfall is estimated to be due to a change in accounting practice concerning travel commitments and field authorizations, which delays the recognition of related expenditure and income in the accounts. In addition, the 1998-99 budgetary projections foresaw income over and above the governing Memorandum of Understanding for the FAO/World Bank Cooperative Programme, which did not materialize. Finally, reimbursements claimed from the African Development Bank and Asian Development Bank have fallen compared with the actual levels achieved in the previous biennium.
10. Other external income includes: fees for technical support services; income from terminal project reports; reimbursements for administrative services to the World Food Programme (WFP); and Government Counterpart Cash Contributions.
11. A deficit of US$ 2.8 million has emerged versus the budgeted income. This was on account of a shortfall of US$ 1.2 million against the US$ 2 million budgeted earnings from terminal project reports, and US$ 0.3 million in reimbursements to FAO's Finance Division from WFP following the cessation of treasury services provided to that organization. The remaining shortfall was due to fees from technical support services to Trust Fund projects being below budgeted levels.
12. In the 1998-99 biennium, the budget component structure underwent significant change when the conversion from FINSYS to Oracle took place. Consequently, the budget component structure used to establish the 1998-99 appropriation differs from the new accounting structure, making a detailed comparison of non-staff expenditure versus appropriation by budget component difficult.
13. However, Table 3 summarizes the 1998-99 Regular Programme expenditure (excluding TCP) in the groupings of staff cost and non-staff cost expenditures.
1998-99 INCOME AND EXPENDITURE (excluding TCP)
|Staff Costs (including staff cost variance)||468,406||437,989||30,417||93.5%|
14. In 1998-99, the total staff cost appropriation, which comprises Professional and General Service staff costs, was underspent by approximately 6.5% . This underspending was primarily due to professional staff vacancies, particularly at the beginning of the biennium. In addition, savings on general service staff were incurred in the decentralized locations due to lower costs for general service staff than was foreseen during the PWB 1998-99 preparation stage in July 1997, on account of favourable exchange rates. Some staff savings were necessary to compensate for the substantially reduced levels of Other Income, while other savings were applied to fund non-staff expenditure, as described below.
15. 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. At the end of the biennium, any adverse or favourable balance is distributed over all programmes in proportion to the amounts incurred at standard rates. A staff cost variance charge of US$ 5.3 million is included in the 1998-99 financial performance in Table 3, out of which US$ 3 million is estimated to be due to an unbudgeted general service salary increase, described further below.
16. The September 1998 Joint Meeting of the Programme and Finance Committees approved the use of the Special Reserve Account (SRA) for up to US$ 5 million to cover the unbudgeted extra costs arising from the retroactive 4% general service salary increase for Rome-based staff awarded by the ILO Administrative Tribunal. The Director-General was committed to make every effort to absorb this unbudgeted cost to the extent that this could be done without impairing the implementation of the approved programmes. Out of the estimated total additional, unbudgeted cost of US$ 4.9 million, US$ 3 million was absorbed by the Regular Programme. The balance of US$ 1.9 million was transferred to the SRA and as such is excluded from the expenditure figures in this report.
17. The primary causes of the remaining staff cost variance totalling US$ 2.3 million were: an upward revision in the current service requirements for recognizing after service medical benefits for active staff; and an increased annual expense in respect of the Staff Compensation Plan following the transfer in 1996-97 of its US$ 14.2 million excess assets to the General Fund, partially offset by miscellaneous savings.
18. Some of the savings under staff costs were applied to non-staff expenditures against under-budgeted high priority programmes such as equipment and contractual services required for the replacement of FINSYS with Oracle, including funds required in the Regional Offices for equipment and infrastructure requirements related to Oracle. In many cases, divisions with high professional staff vacancies used the savings to hire consultants to fulfil programme objectives. Finally, several Headquarters divisions have used the savings to upgrade their information technology infrastructure, while offices in the decentralized locations have covered higher than expected ongoing general operating expenses.
19. Such transfers between budgetary components are part of the budgetary flexibility accorded to managers who are expected to choose the most effective inputs to fulfil the approved programme of work.
20. Table 4 below summarizes the budgetary performance by Chapter, comparing the original 1998-99 appropriation, the required budgetary transfers and the corresponding net expenditure8.
Table 4. 1998-99 Budgetary Performance by Chapter
1998-99 BUDGETARY PERFORMANCE BY CHAPTER
1998-99 Original Appropriation
Balance vs. Final Appropriation
|1.||General Policy and Direction||50,359||(800)||49,559||49,535||24|
|2.||Technical and Economic Programmes||292,906||(6,600)||286,306||285,962||344|
|3.||Development Services to Member Nations||118,029||3,600||121,629||121,626||3|
|4.||Technical Cooperation Programme9||89,447||-||89,447||89,447||-|
|GRAND TOTAL REGULAR PROGRAMME||650,000||-||650,000||648,832||1,168|
21. The Thirty-second Annual Report of Budgetary Performance to Member Nations (FC 92/4) submitted to the Finance Committee at its May 1999 session, provided 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 was submitted at the Committee's session in September 1999 (FC 93/3, Programme and Budgetary Transfers in the 1998-99 Biennium, refers).
22. While regretting the need to transfer resources from the technical programmes, the Committee recognized the reasons for the proposed transfers and approved them, noting that variation to the figures was possible:
23. It may be noted from Table 4 that the final 1998-99 budgetary transfers are more favourable than the levels approved, in that the required transfer out of Chapter 2 was considerably lower, and no transfer to Chapter 1 proved to be necessary. The final transfers are US$ 0.8 million from Chapter 1 and US$ 6.6 million from Chapter 2, into Chapter 3 (US$ 3.6 million), Chapter 5 (US$ 1.5 million) and Chapter 6 (US$ 2.3 million). These transfers are therefore within the amounts previously proposed and approved.
24. Annex I to this report summarizes the budgetary performance by major programme and describes significant factors that have affected the overall performance.
25. The impact of the 1998-99 budgetary performance together with financial transactions outside the budgetary appropriations on the equity/reserves of the General and Related Fund, is provided in Annex II.
26. The Committee is invited to note that the effective budgetary transfers required in 1998-99 were within the limits already approved by the Finance Committee at its September 1999 session and to endorse the report of budgetary performance for 1998-99 for transmission to the Council.
1 Other Income is further described in paragraphs 4 through 11.
2 At the time of going to print, the 1998-99 audited accounts of the Organization are still under audit. Accordingly, the accounting figures in this document make use of the Draft Accounts published internally on 4 July 2000.
3 A US$ 12 million authority was established by the 1997 Conference to cover redeployment and separation costs in 1998-99. Such expenditure is not chargeable against the budget and amounted to US$ 10.6 million, in accordance with the amount previously projected and reported to the Finance Committee in September 1998 (document FC 90/5 refers).
4 Annual Report on Budgetary Performance and Programme and Budgetary Transfers (document FC 92/4) refers.
5 In arriving at the 1998-99 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 audited accounts of the Organization
6 FAO earns Direct Operating Costs from emergency projects, which are excluded from the support cost reimbursement figures as they are applied to cover the direct costs of the Special Relief Operations Service (TCOR) which operates all emergency projects.
7 The agencies concerned were FAO, UNDESA, UNIDO, UNESCO and ILO.
8 In arriving at the appropriation, support cost income was allocated to programmes using the same method as that used in the PWB 1998-99, to avoid any discrepancies arising solely as a result of the distribution methodology.
9 The Technical Cooperation Programme (TCP) appropriation falls under the provisions of Financial Regulation 4.3, which makes the balance of the 1998-99 Chapter 4 appropriation available for obligations during 2000-01. Thus, in line with the presentation in Statement IV of the accounts, the unspent balance of TCP appropriation for the reporting biennium is excluded from the budgetary performance
This Annex tabulates the Regular Programme budgetary performance by major programme and describes the main reasons for the budgetary transfers and the variances against the original programme budget.
1998-99 BUDGETARY PERFORMANCE BY MAJOR PROGRAMME (US$ 000)
|Chapter/Major Programme||1998-99 Original Appropriation||1998-99 Expenditure/ Commitments||Balance vs. Original Appropriation||% Original Appropriation Spent|
|1.||General Policy and Direction|
|1.2||Policy, Direction and Planning||19,353||20,175||(822)||104.2%|
|1.3||External Coordination and Liaison||12,204||11,264||940||92.3%|
|Total Chapter 1||50,359||49,535||824||98.4%|
|2.||Technical and Economic Programmes|
|2.1||Agricultural Production and Support Systems||88,344||85,458||2,886||96.7%|
|2.2||Food and Agriculture Policy and Development||86,612||84,694||1,918||97.8%|
|2.5||Contribution to Sustainable Development and Special Programme Thrusts||48,473||47,203||1,270||97.4%|
|Total Chapter 2||292,906||285,962||6,944||97.6%|
|3.||Development Services to Member Nations|
|3.2||Support to Investment||20,209||19,640||569||97.2%|
|3.5||Cooperation with External Partners||5,501||8,112||(2,611)||147.5%|
|Total Chapter 3||118,029||121,626||(3,597)||103.0%|
|4.||Technical Cooperation Programme|
|4.1||Technical Cooperation Programme||87,259||87,218||41||100.0%|
|Total Chapter 4||89,447||89,447||-||100.0%|
|5.1||Information and Publications Support||14,073||15,723||(1,650)||111.7%|
|Total Chapter 5||57,496||58,920||(1,424)||102.5%|
|GRAND TOTAL REGULAR PROGRAMME||650,000||648,832||1,168||99.8%|
CHAPTER 1: GENERAL POLICY AND DIRECTION
General Policy and Direction utilized 98.4% of its 1998-99 appropriation. Savings were generated in Major Programme 1.1, Governing Bodies, on costs incurred in the Conference, Council and Protocol Affairs Division (GIC). Underspending in Major Programme 1.3, External Coordination and Liaison, was a result of staff savings arising from currency gains on general service staff costs in the Liaison Offices. Furthermore, the Organization's financial contribution to inter-agency coordination mechanisms for the biennium was lower than budgeted in this major programme.
Overspending under Major Programme 1.2, Policy, Direction and Planning, was partially a result of the impact of the support cost income shortfall on this major programme, and partially due to the coverage of additional staff requirements. Overspending under Programme Management (Major Programme 1.9) arises from the existence of some temporary administrative and personnel posts.
CHAPTER 2: TECHNICAL AND ECONOMIC PROGRAMMES
Technical and Economic Programmes were underspent by US$ 6.9 million, utilizing 97.6% of the appropriation. The under-spending in each Major Programme can be largely explained by the planned reduction to the Professional Staff allotment, implemented on the basis of vacant professional posts. This reduction was required to fund the expected unfavourable staff cost variance, to cover expected shortfalls on Other Income and to compensate for under-budgeted, high priority programmes in other chapters. Detailed reporting of delivery performance (i.e. budgetary inputs and outputs) under each programme can be found in Chapter 3 of the Programme Implementation Report C 01/8, "Summary of Programme Implementation".
CHAPTER 3: DEVELOPMENT SERVICES TO MEMBER NATIONS
Development Services to Member Nations utilized 103% of the 1998-99 appropriation, due to over-spending against the original appropriation in Major Programmes 3.3 (Field Operations) and 3.5 (Cooperation with External Partners), as described below.
Approximately 60% of support cost income in the Programme of Work and Budget 1998-99 was allocated to Field Operations (Major Programme 3.3), with the result that the budgetary appropriation for Major Programme 3.3 amounted to only US$ 3.7 million, despite a corresponding programme of work of US$ 30.6 million. The support cost income shortfall allocated to this major programme is approximately US$ 6 million. Half of this shortfall could be covered by curtailing expenditure under this major programme, particularly in the Regional Operations branches and in the Headquarters Field Operations division (TCO). The remaining US$ 3 million remains over-spent against the appropriation as it was not possible to immediately reduce expenditure in direct proportion to the steep reduction in support cost income.
Major Programme 3.5 expenditure exceeded the appropriation due to a number of under-budgeted costs of approved programmes, including World Food Day Special Events, FAO's contribution to the Non-Governmental Liaison Service (NGLS) and the Project Identification Facility (PIF). Major Programme 3.5 is also affected by the support cost income deficit, and by a shortfall in the Money and Medals Programme.
The surplus in Major Programme 3.4 (FAO Representatives) is mainly a result of some vacancies and lower than budgeted staff costs for general service staff and National Professional Officers due to favourable currency exchange rates.
CHAPTER 5: SUPPORT SERVICES
Expenditure patterns under Support Services were affected by a number of items as outlined below, which resulted in expenditure exceeding the appropriation by US$ 1.4 million.
In Major Programme 5.1 (Information and Publications Support), a deficit incurred by the Information Products Revolving Fund (IPRF) was absorbed by the Information Division (GII). Furthermore, additional funding was provided for World Food Day Special Events and for the editing and production of the Arabic edition of Cerestronic.
Administration (Major Programme 5.2) was affected by a number of items. One - which lowered expenditure against the appropriation - was related to the restructuring of the staff and non-staff costs for maintenance and provision of voice and data services on account of the technological convergence of telecommunications systems and information technology. In the PWB 1998-99, it was envisaged that these costs would be transferred from Chapter 6 (Common Services) to this major programme, as the related functions were expected to be transferred from the Administrative Services Division (AFS) to the Information Systems and Technology Division (AFI). The final restructuring was not completed until mid-1999, at which time it was decided to transfer many of the functions to the AFI pool, where the associated costs are distributed across the programme structure. As a result, under-spending against the appropriation of US$ 2.9 million occurred in AFI under Major Programme 5.2, while US$ 1.7 million of the related costs were incurred in AFS in Chapter 6, and US$ 1.2 million was transferred to the AFI pool.
Largely off-setting the above transfers, Administration has received an additional allocation of US$ 2.5 million for Oracle development, to cover the higher than expected costs for the Oracle Project. In addition, shortfalls in the reimbursement of support costs and services to WFP had an impact on this Major Programme.
CHAPTER 6: COMMON SERVICES
Expenditure of 105.3% of the appropriation in Chapter 6 arises mainly from the transfer of voice and data services from Chapter 5 (US$ 1.7 million), as outlined above. In addition, US$ 0.8 million was required 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. These items, which caused over-spending against the appropriation in Chapter 6, were partially offset by currency gains on general service staff in the decentralized locations, and savings on vacant professional posts.
The equity of the General and Related Funds comprises the balance of the General Fund (i.e. in deficit 1998-99), and the balance on the Special Reserve Account (SRA) and Working Capital Fund (WCF). Based on the latest draft accounts, the reserves and fund balances at 31 December 1999 are as follows:
|General and Related Funds Equity Position at 31 December 1999||
|Working Capital Fund||23.7|
|Special Reserve Account||23.8|
|Total Reserves and Fund Balances||9.1|
WORKING CAPITAL FUND
The purpose of the WCF, which is specified in Financial Regulation 6.2, is to advance monies on a reimbursable basis to the General Fund in order to finance budgetary expenditures pending receipt of contributions to the budget. The Council may also authorize the use of the WCF to make reimbursable loans for specific purposes determined by the Council or, with the prior approval of the Council, to finance emergency expenditures not provided for in the current budget.
In accordance with Conference Resolution 15/91, the authorized level of the WCF is US$ 25 million. Of this, the amount paid up was US$ 23.7 million at 31 December 1999. Receipts from Member Nations to the WCF in 1998-99 have been negligible, and the contributions receivable from Member Nations remain US$ 1.6 million. During 1998-99, all amounts previously advanced by the WCF to the General Fund were repaid, and the WCF was not utilized for any of the other purposes for which it was established.
SPECIAL RESERVE ACCOUNT
In accordance with Conference Resolution 13/81, the purpose of the SRA is to protect the Organization's Programme of Work against the effects of unbudgeted extra costs arising from adverse currency fluctuations and unbudgeted inflationary trends. Net gains or losses on exchange as well as the currency variance on staff standard costs (i.e. the difference between the US dollar value of staff costs expressed at the budget rate for the biennium and the UN operational rate at the time of payment) are charged to the SRA. The SRA can also advance monies on a reimbursable basis to the General Fund.
The SRA is authorized at a level of 5% of the effective working budget, or US$ 32.5 million and the contributions receivable at 31 December 1999 stood at US$ 10.9 million. The balance on the SRA was US$ 23.8 million at 31 December 1999, and movements during the biennium are tabulated below.
|Special Reserve Account Movements in 1998-99||
|Balance as at 1st January 1998||-0.2|
|Receipts from Member Nations to the SRA||0.1|
|Exchange losses on translations of foreign currencies||-16.7|
|Currency variance on staff standard costs||10.5|
|Portion of 1998-99 unbudgeted inflationary cost of retroactive 4% General Service salary increase charged to SRA||-1.9|
|Transfer from General Fund to settle all amounts owed to SRA||32.0|
|Balance as at 31st December 1999||23.8|
Receipts from current assessments on Member Nations, Miscellaneous Income, Support Cost reimbursements, income from jointly funded investment activities and technical support services comprise the source of funding for the Programme of Work and are credited to the General Fund. The related expenditures to execute the Programme of Work are charged to the General Fund.
In arriving at the accumulated deficit, account is also taken of receipts against past assessments on Member Nations, any indebtedness of the General Fund to the Working Capital Fund and Special Reserve Account, as well as charges or credits outside the Programme of Work that are authorized by the Governing Bodies from time to time.
The accumulated deficit has risen to US$ 38.4 million as at 31 December 1999 and the main movements during the biennium are tabulated below.
|Accumulated Deficit Movements in 1998-99||
|Balance as at 1 January 1998||-28.0|
|Under-expenditure versus budgetary appropriations||1.2|
|Portion of 1998-99 unbudgeted inflationary cost of retroactive 4% General Service salary increase charged to SRA||1.9|
|Net shortfall in receipt of assessed contributions||-14.5|
|Unbudgeted miscellaneous/sundry income (primarily arising from investment income from staff related schemes)||59.5|
|Separation Payments Scheme and Staff Compensation Plan surplus investment income transferred to After Service Medical Care liability, as per Conference Resolution 10/99||-25.6|
|Impact of 2 years' amortization of After Service Medical Care liability (to be spread over 30 years)||-21.1|
|Redeployment and separation costs charged to General Fund under Conference Resolution 7/97||-10.6|
|Balance as at 31 December 1999||-38.4|
The accumulated deficit at 31 December 1999 needs to be seen in the context of total arrears of assessed contributions which stood at US$ 151.2 million at the end of 1999.