Eighty-fourth Session of the Programme Committee and Ninety-fifth Session of the Finance Committee
Rome, 27 September 2000
FAO'S NEW FINANCIAL SYSTEM AND PROCEDURES
1. At the Joint Meeting of the Programme and Finance Committees in May 2000, the Secretariat provided the Committees with a report on implementation issues with FAO's new financial systems project (the "Oracle Project"). This report identified five specific areas that accounted for major implementation problems during the first year of operation (the Field Accounting System, Data Conversion, Clearing Account Management, Interface Problems and Systems Support for Projects Work) and described specific actions that had to be taken over the balance of the financial year 2000 to correct these problems. The paper also made the point that the project had been understaffed and under-funded from the outset and that the struggle for adequate resources had played a major role in FAO's inability to address and resolve problems quickly.
2. Members expressed their appreciation for the comprehensive and frank account of progress to date. Detailed questions were raised by the Members on the project budget and implementation problems. They also noted the importance of the Oracle project to FAO and expressed concern that it is behind schedule and underfunded. The Committees requested that the Secretariat (i) prepare a submission for their September session providing further information on the nature and extent of work to be done, as well as the cost, timescale and possible sources of funding to resolve outstanding problems of the project; and (ii) appeal for voluntary contributions, notwithstanding the Director-General's authority to allocate the resources within the existing budget approval.
3. The purpose of this note is to report back to the Programme and Finance Committees on what has been done since their May meeting to resolve project issues and what actions have been planned or put in place to resolve the remaining problems in implementing and funding the project. The note also addresses the related question of the restructuring and reinforcement of the Finance Division as foreseen during the discussion of the Programme of Work and Budget at the Conference in November 1999.
4. The note seeks the Committees' support for the proposed approach to funding the project as laid out in the Conclusions of this document.
5. Following the Finance and Programme Committee Meeting in May 2000 the Oracle Project Team was asked by senior management to undertake a full review of the project and to prepare a revised work programme and budget for the remainder of the 2000-01 biennium; a work programme that would resolve initial implementation problems, normalise FAO's accounting business functions and pave the way for a major Oracle upgrade that will be required in 2001a/.
6. The work programme and budget prepared by the Project Team, and reviewed by senior management, was structured in terms of three major work categories: (i) work and cost associated with solving initial implementation problems; (ii) work and cost to fix problems with FAO accounts and account documentation; and (iii) work to carry out the upgrade to Oracle Release 11i. The budget formulated for this work programme is summarised in the table below and discussed in greater detail in the body of this report.
|Business Area||Cost 2000
|I. Work and Costs associated with solving initial Oracle Implementation Problems|
|. Decentralised Accounting||591||748||1,339|
|. Accounts Payable & Receivable||596||48||644|
|. General Ledger||190||45||235|
|. Data Warehouse||402||535||937|
|. Technical support for the consolidation of Oracle implementation||575||395||970|
|Total Oracle Implementation:||2,564||1,821||4,385|
|II. Work to fix accounting problems||485||485|
|III. Oracle Upgrade to Release 11.i||75||2,600||2,675|
|Total Programme requiring funding:||3,124||4,421||7,545|
Already budgeted in PWB 2000-01 for Oracle upgrade Release 11I
Phase II Budget in PWB 2000-01
|Incremental budgetary requirements relating directly to Oracle||3,124||321||3,445|
7. The table shows that the budget to carry out the proposed work programme totals US$7.5 million over the 18-month period 1 July 2000 to 31 December 2001. Given the magnitude of the work involved, management made some decisions on how to proceed. More specifically, the Director-General decided that:
8. There are three possible sources of funding to meet the shortfall of US$3.5 million: (i) extra-budgetary voluntary contributions, (ii) the use of arrears and/or (iii) internal transfers between the budgetary Chapters.
9. Based on the recommendation of the Finance Committee, an appeal for contributions to support the project was made in June to donors, who responded either in the negative or requested additional information on the project. Further efforts to solicit donor support will be made in September.
10. As discussed at the last Conference in November 1999, there is a possibility that a payment of arrears may be made by the major contributor during 2000-01. The Conference authorised the use of these arrears subject to their receipt and to a review of the priorities by the Programme and Finance Committees and their subsequent approval by the Council.
11. It is recommended that a portion of such arrears should be applied to this project and that this should be taken into account when the Committees consider the priorities for their use during the current meeting (see Agenda Item 5 and document CL 119/19 Use of Arrears). That document proposes that the entire shortfall of US$ 3.5 million (as well as funds for Phase II) be funded from arrears.
12. It is not possible to predict whether adequate funding will be raised from extra-budgetary contributions in 2000-01 or whether the anticipated payment of arrears will be received in the current biennium. In the absence of sufficient funding from either of these sources, there would be a need to fund the shortfall of US$3.5 million from within the PWB by means of transfers between budgetary Chapters. While the precise implications by Chapter cannot yet be determined, it is necessary to seek approval in principle from the Finance Committee at its present session for budgetary transfers into Chapter 5. This is because the approval would otherwise be too late to authorise early commencement of the work programme on these systems for 2001 if it were only to be received at the meeting of the Finance Committee in May 2001.
13. The Director-General therefore seeks the Committee's approval in principle to make the necessary budgetary transfers on the understanding that a) such transfers will be minimised; b) Chapter 2, Technical and Economics Programmes will be protected as much as possible; and c) full details of the proposed transfers will be provided to the Committee at its sessions next year in the usual manner.
14. Within the funding made available on the authority of the Director-General, work over the balance of this year has been prioritised to:
15. With these decisions, along with the additional funding made available under the authority of the Director-General, it has been possible to move forward on the agenda of issues drawn to the Committees' attention in May, resolve some start up problems and put other key work programme components in place. That is, between June and September:
16. Work during this period will be focussed on three main activities: the further resolution of implementation problems; completion of the resolution of problems with FAO's accounts; and completion of a full review and reformulation of all financial operations. This exercise will enable AFF and AFI to develop updated blueprints for the Oracle Release 11i reconfiguration and migration work which will be carried out in 2001. Resolution of implementation problems means:
17. The technical work to be provided by AFI over the balance of this year in support of the above work programme, is to be augmented by an additional allocation of US$575,000. These funds will be used for database administration and system maintenance activities as well as for acquisition and support of hardware, software licenses and security modules for secure access to financial data from FAORs over the Internet.
18. Most of the work programme relating to 2001 will be focused on the reconfiguration and migration of Oracle business applications as operations are transferred to Oracle Financials - Release 11i. As noted, Oracle has informed FAO that at the end of 2001 they will no longer support Release 10.7 which FAO is now operating. This new version of Oracle has major new and enhanced functionality and is fully based on "web" technology. It has more sophisticated interfaces between Oracle products and external systems and is more user-friendly.
19. The Oracle Corporation is advising its users that they should plan for a six-month development period to configure the software, make business process modifications and properly test the new systems.
20. This upgrade is not a small project and in many ways constitutes a reworking of the original implementation. It also will require training to educate users on how practices and software handling have changed. Oracle guidance is that organisations should plan to spend about 25% as much time and money as they did on the initial introduction of the Oracle systems in implementing the upgrade.
21. Pending the full development of the reconfiguration blueprints over the second half of 2000, an allocation of US$2.6 million is set aside for the 11i upgrade work in 2001. This figure includes additional hardware of US$250,000, but does not include the above-mentioned training programme which will be charged back to each user division.
22. In November 1999 "The Conference was informed that further restructuring requirements were being contemplated, which could not be identified at the time of processing of the document, and for which the envisaged solutions would not have an impact on total resources. These involved in particular the strengthening of the Finance Division (AFF) and would also be duly reported to the Finance Committee."1
23. It is appropriate to report the results of this review as they are closely related to the need to fully support Oracle and also have resource implications, albeit within the total budget. A number of factors combine to make it essential that the AFF structure be reviewed and strengthened at the present time. These include:
24. Following a detailed review of the existing structure, it was felt that the ratio of support staff to professional accountants was no longer appropriate. The first step involved the abolition of nine general service posts and was recorded in the PWB 2000-01. However, the review of professional requirements has proved difficult given that it is problematic to distinguish between the short-term demands arising from the establishment of new systems and procedures and the long-term response to address professional under-staffing.
25. The division proposed a new structure which included the addition of eleven professional posts and the abolition of a further general service post. This new configuration was reviewed by the Establishments Group which recommended acceptance of the proposals. The Director-General has therefore approved the establishment of eleven additional posts on a temporary basis for a period of up to three years. While he has authorised the addition of these posts to the PWB proposals for 2002-03, he has asked the Assistant Director-General, AF to undertake a review of the department's staffing needs in time for the results to be reflected in the PWB 2002-03. He has indicated his expectation that the department should be in a position to abolish some posts either as they become vacant by attrition or redundant as a result of administrative efficiencies realised, for example through Oracle's implementation.
26. The Committee is asked to note and record its agreement with the Director-General's decision to establish eleven professional posts in the Finance Division for a three year period and is informed that a definitive proposal will be made in the PWB 2002-03.
27. These proposals will, of course, affect the level of costs incurred during the current biennium and will result in an increase in the amounts incurred under Chapters 5 and 9 of the Budget, the latter relating to the additional authority of US$ 9 million approved by the Conference to cover redeployment and separation costs. It will only be possible to indicate a figure accurately once the dates of appointment and separation are known but a preliminary estimate suggests an incremental cost in the region of US$ 1.4 million under Chapter 5 and a further amount of up to US$ 1 million under Chapter 9. Both amounts will be funded from savings on vacant posts across the Organization. Such savings will have an impact in terms of programme delivery on which more details will be provided as the specific vacancies are identified.
28. The Secretariat believes that the reformulated work programme, together with the funding foreseen through the balance of the biennium, will put the Oracle project on track and bring Phase I to a successful conclusion.
29. Attention is drawn to the difficulties there have been in finding sufficient resources to implement this project. As a part of the PWB 1996-97, the Director-General proposed an additional appropriation of US$ 20 million to fund the replacement of the Organization's financial administrative systems (FINSYS/ PERSYS). Not only was this request rejected by the Membership but the Organization also suffered a budget reduction of US$ 56.9 million or 8.5% in the PWB 1996-97 with the consequence that finding funds from within the Regular Programme Budget for this essential project proved to be an almost impossible task.
30. The additional budget, if fully utilised, will bring the total cost of the project to about $28 million, about $3 million above the level of spending WFP has budgeted for its SAP systems project, when comparably stated. While the cost of implementing these major systems is high, the allocated budget of $10 million was never a realistic or plausible figure to carry out a job of this magnitude and complexity, involving, as it does, high level technology, integrated software structures, state of the art hardware and communication technology and a complete restructuring of all FAO's administrative and financial processes, accounting and reporting. It should also be recognised that FAO did not have the level of Oracle skills and expertise in house to fully do this work and outside expertise in this field was and is very expensive.
31. In the light of the experience so far, the Committees are asked to:
32. In addition, the Finance Committee, recognising that the actions proposed under b) and c) above may not result in sufficient resources being made available in time to complete the implementation of Oracle within the current biennium is requested to approve in principle reallocation within the approved budget for 2000-01 of:
recognising that these approvals may lead to inter-chapter budgetary transfers in favour of Chapters 5 and 9 to the detriment of the remaining Chapters but on the understanding that: a) such transfers will be minimised; b) Chapter 2, Technical and Economics Programmes will be protected as much as possible; and c) full details of the proposed transfers will be provided to the Finance Committee at its sessions next year in the usual manner.
__________________________a/ Oracle has informed their users that release 10.7 (the Oracle financial applications currently used by FAO) will not be supported beyond the end of 2001. The new release (11i) contains major new functionality and is based on web technology.
1 C99/REP paragraph 92