Rome, 20 - 25 November 2000
Report of the Ninety-fifth
Session of the
|- Programme and Budgetary Transfers in the 1998-1999 Biennium and Annual Report on Budgetary Performance to Member Nations||
4 - 8
|- Programme Implementation Report (1998-1999)||
9 - 12
|- Medium Term Plan||
13 - 19
|- Review of Support Costs||
20 - 22
|- Financial Position of the Organization and Status of Current Assessments as at 30 June 2000||
23 - 25
|- Protection of the Organization's Programme of Work against Exchange Rate Fluctuations||
29 - 33
|- Role of the Finance Committee in the Management of Arrears||
34 - 36
1. The Committee submitted to the Council the following report of its Ninety-fifth Session.
2. The following representatives were present:
|Chairperson:||Mr Aziz Mekouar (Morocco)|
|Vice-Chairperson:||Mr Anthony Beattie (United Kingdom)
Ms Ileana Di Giovan Battista (Argentina)
Ms Neela Gangadharan (India)
Mr Kim Kyeong-kyu (Republic of Korea)
Ms Ekhlas Fouad Eltom (Sudan)
Mr Rolf Gerber (Switzerland)
Ms Perpetua M.S. Hingi (Tanzania)
Ms Carolee Heileman (United States of America)
3. The Committee noted that Mr Kim Kyeong-kyu had been designated to complete the Republic of Korea's term on the Finance Committee and that Ms Carolee Heileman had been designated to complete the United States's term on the Finance Committee.
4. The Committee reviewed the Director-General's Thirty-third Annual Report of Budgetary Performance to Member Nations. The report provided data on the overall Regular Programme budgetary outturn for 1998-99 and the final transfers between budgetary chapters as well as on the status of reserves and fund balances of the General Fund.
5. The Committee was satisfied that the Director-General had managed the Regular Programme appropriations in accordance with the Financial Regulations. Specifically, it noted that the overall net expenditure in 1998-99 was US$1.2 million less than the appropriations and that the effective budgetary transfers required were within the limits already approved by the Finance Committee at its session in September 1999.
6. The Committee noted that the figures in the report were based on the draft unaudited financial accounts for 1998-99. It regretted the absence of the 1998-99 audited accounts, which would have normally been submitted to the Committee at this session as these would have facilitated its examination of the report.
7. The Committee also regretted that a transfer out of Chapter 2 (Technical and Economic Programmes) of US$6.6 million proved to be necessary in 1998-99, although it recognized the reasons for this and further that this was less than the approved limit of US$11 million.
8. In conclusion, the Committee endorsed the report, which is attached as Annex I, for transmission to the Council.
9. The Committee expressed satisfaction with the Programme Implementation Report (PIR) and welcomed the improvement in its format and presentation. The Report was considered an important accountability document in providing quantitative information on the accomplishments of the Organization and thus an important source for members to assess that the resources placed at the disposal of the Organization were used for the purposes intended.
10. The Committee appreciated the enhanced information provided on the evolution of the Programme of Work and Budget via the approved budgetary transfers and the corresponding expenditures, which provided improved clarity of the data and consistency with other planning and accountability documents. It identified a number of areas in which such reports could potentially be improved in the future including: a reassessment of how field programme data should be presented; greater use of tables and charts to present financial information; reduction in overall length through more summarization of financial information; increased information on the outcome of work undertaken and the effectiveness in the use of outputs; and the inclusion of additional time series information on past results, including efficiency improvements.
11. The Committee noted that with the introduction of the Strategic Framework and Medium Term Plan based upon the new programme model, the format of the Programme Implementation Report would be significantly modified beginning with the 2002-2003 biennium. In this regard the Committee requested that a draft format of the new model for the PIR be presented to the Finance and Programme Committees for consideration and that Permanent Representatives also be kept aware of these developments.
12. The Committee endorsed the Programme Implementation Report for submission to the Council and Conference.
13. The Committee considered its discussion of the Medium Term Plan (MTP) as a preliminary review, since the document had only recently been made available to member nations and, therefore, regional groups had not yet had the opportunity to consider it. It discussed the resource aspects of the Plan in depth. While according importance to Part III - Strategies to Address Cross-Organizational Issues, the Committee was not able to consider this section of the document because of time constraints.
14. The Committee welcomed the new format of the Medium Term Plan and commended the secretariat for successfully reflecting the new programme model and the Strategic Framework in the document. It noted that the process of strategic planning was as important to the Organization as the production of the Plan itself and agreed that the Plan provided a good vision of the Organization for the medium term.
15. Some members expressed concern regarding the analysis and conclusions in the Director-General's introduction and, in particular, the basis of the proposed increase of US$95 million over the period 2002-2007. They also inquired about the extent to which the benefits of efficiency savings had been taken into account and, similarly, on the impact of favourable exchange rate movements on future resource levels.
16. The Committee discussed the principle of including resources in the MTP as requested by the Conference in the Strategic Framework and confirmed its view that this was a useful practice. It noted that the figures were to be considered as indicative and non-binding on the membership. In the light of this discussion, some members were of the view that the level of projected budget in the MTP was too high and, thus, it would be useful to have another scenario that was based on a lower level of resources. Another view was that a Medium Term Plan spanning six years needs to show a growth trend and, therefore, the document should be accepted in its present form and that the resource levels be addressed by the Council in the context of guidance for the preparation of the Programme of Work and Budget (PWB).
17. The Committee noted the need for additional information to be provided concerning the prospects for extra-budgetary resources and how they would be utilized in the MTP. It also highlighted the need for more explicit treatment of regional dimensions in the Plan and was informed that both aspects would be addressed in the next Programme of Work and Budget.
18. The Committee discussed problems, risks and outstanding issues related to the MTP. Specific risks identified during the discussions included:
19. In conclusion, the Committee agreed to share its observations at the Joint Meeting of the Programme and Finance Committees.
20. The Committee recalled that it had considered the issue of support costs in considerable detail at its Ninety-fourth session in May 2000 and further recalled that the outstanding issue was to decide on the proposed policy on reimbursement rates.
21. The Committee agreed with the proposed policy on reimbursement rates as summarized in Annex II of this report, and transmitted them to Council for noting.
22. In proposing a new regime attention had been given to existing agreements and to the following principles:
23. The Committee considered the financial position of the Organization as at 30 June 2000 and updated to 25 September 2000 and noted that 56.26 percent of current assessments had been received. Fifty-nine member nations had paid their current assessments in full while a further 32 members had made partial payment whereas 89 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 that of the past four years and that the only major difference was due to the timing of the payment of the second largest contributor.
24. The Committee considered that the financial information presented was too brief and requested that various enhancements be made to the format currently being used. In particular, it requested more detailed information on arrears (listing of member nations having paid their arrears in full, analysis of arrears in excess of US$1 million and total of arrears of those member nations in risk of losing their right to vote).
25. The Committee noted that the Organization's projected financial liquidity through year-end was based on the assumption that payment of the current year 2000 contribution would be forthcoming from the largest contributor (approximately US$82 million) as well as the balance from the second-largest contributor (approximately US$31 million). If these contributions were not received, the Organization's financial liquidity would be severely impacted.
26. In accordance with established practice, the Committee reviewed a list of 28 Trust Fund projects that had received waivers and/or reductions of Project Servicing Costs (PSC) during the period 1 June 1999 through 31 May 2000. It also took note of 63 emergency projects, which were subject to Direct Operating Cost charges instead of standard Project Servicing Costs.
27. Out of the 28 projects subject to full or partial waiver, 18 projects provided direct support to Regular Programme outputs and 10 were funded by United Nations agencies.
28. The Committee noted the Report.
29. The Committee considered a document3/ which dealt with the protection of the Organization's Programme of Work from fluctuations in exchange rates. This included an examination of the problem, the current approach as followed by the Organization and possible future improved approaches. Three options were examined: split assessment applied to all members, split assessment applied on the basis of members selecting to pay in one currency or the other and the setting of the budget at the forward rate instead of the spot rate combined with the use of forward purchase contracts.
30. Following a presentation by the secretariat, the Committee conducted a useful preliminary discussion on the principles and options put forward to protect the Organization's programme of work from the impact of exchange rate fluctuations.
31. It appreciated the clarifications received, and recognized that the current arrangements for protecting the Programme of Work, were no longer sustainable in the long-term.
32. It noted that further discussion was required between the members of the Finance Committee and the appropriate experts in their capitals as well as with their respective regional groups before any positions could be taken on proposals put before it. In this connection, it welcomed the offer from the External Auditor to provide, during the course of November 2000, some details on the approaches followed by other United Nations organizations.
33. The Committee agreed to place the item on the agenda for its next session in 2001, with a view to providing its recommendations to the Council in June 2001.
34. The Committee recalled that at its 94th Session it had requested the secretariat to prepare a document listing the various options open to the Committee concerning the management of arrears and giving the experience of other UN organizations in this field. It further noted that the document provided at the current session did not provide sufficient information to enable full consideration of the subject.
35. While discussing the item, one option suggested was that the secretariat prepare an analysis of those cases in which member nations faced voting rights problems with its recommendations for the Finance Committee's review and endorsement and onforwarding to the Council. Another possible option would involve following the decisions adopted by the UN Committee on Contributions with regard to these member nations. Following the discussion, the Committee reiterated its request that the secretariat prepare a document for consideration at its session in May 2001, describing a full range of options to enable a more pro-active role for the Finance Committee in the management of arrears and comparing the experience of other UN agencies.
36. Following deliberation of the matter next May, the Committee would make an appropriate recommendation to the subsequent session of the Council in June 2001 on how the problems relating to the loss of voting rights could better be handled. Depending on the views of the Council, the Committee would be in a position to review the matter in depth and make appropriate recommendations, prior to the Conference in November 2001.
37. The Committee discussed the proposals contained in the paper4/ and requested and obtained further clarification from the secretariat. In order to attract candidates from as many regions as possible, members agreed that an invitation to bid should be sent to all member nations. In order to facilitate the selection process the secretariat should submit for the consideration of the Committee a short list of all valid proposals together with a comparative analysis of these proposals based on the selection criteria approved by the Finance Committee. Members further recalled that in discharging their responsibilities in the process of selecting and appointing the External Auditor, the Committee would review the shortlisted proposals, interview shortlisted candidates and submit its recommendation to the Council. Subject to these refinements, the Committee accepted the proposed arrangements, including the weighting of various factors, as set out in the paper.
38. The Committee noted that, with respect to past practice, the audited accounts of the Organization were late in being presented to the Committee. It also noted that this was a result of problems encountered during implementation of the new financial systems.
39. The Committee noted that the incentive scheme had been in effect since 1993 and that the cost to the Organization during the period 1993-2000 had amounted to almost US$7.8 million. Given the outstanding contributions, the Committee questioned whether the scheme had produced a tangible improvement in the rate of collection of contributions that could justify its continuation.
40. In order to assist assessing the effectiveness of the scheme, the Committee requested that the secretariat submit a detailed paper for consideration at its May 2001 Session. This paper should include details of the history of the scheme, an assessment of its effectiveness and cost and proposals for its refinement or abolition.
41. The Committee confirmed the rate of 1.24 per cent suggested by the Director-General for use in determining the amount of discount for each member nation that had paid its contributions before 31 March 2000.
42. The Committee took note of the information provided in document FC 95/13 and the oral information provided by the Personnel Division.
43. The Committee took note of the information provided in document FC 95/14 and the oral information provided by the Personnel Division.
44. The Committee took note of the information provided in document FC 95/15 and the oral information provided by the Personnel Division. The Committee observed that the demographic trends towards an aging staff population within the Organization, indicated by these statistics, raised concerns about potential impacts on the Organization's staffing structure and the loss of corporate memory.
45. The Committee took note of the information provided in document FC 95/16 and recognized the potential concerns raised regarding the release of individual information on staff members. It agreed that the matter should be referred to the CCLM and suggested that European Commission privacy guidelines5/ could serve as a point of reference. The Committee also requested that Personnel Division make a presentation once a year on progress on human resource issues covered by the Medium Term Plan.
46. The Committee reviewed and took note of the Budgetary Performance Report, 1998-99 (WFP/EB.3/2000/4-A) submitted to it for discussion and recommendations to the Executive Board and expressed its appreciation for the clear, transparent and well-focused report. The Committee welcomed the report, taking note of the usefulness of the data presented and the improvements in the format, particularly, the Executive Summary.
47. The Committee recommended that future Budgetary Performance Reports include references in the Executive Summary to related WFP reports.
48. The Committee reviewed the Audited Biennial Accounts for the biennium 1998-99 (WFP/EB.3/2000/4-B/1), which included the Report of the External Auditor and the secretariat's responses and actions taken on the External Auditor's recommendations on the 1998-99 and 1996-97 reports.
49. The Committee requested the External Auditor to introduce the audit report. The External Auditor explained that the report consisted of the audit opinion and the long form report containing the detailed findings and recommendations on financial, management, and other matters. The External Auditor stated that a clean opinion without reservation had been given and that the financial statements did properly reflect the results of operations, were reliable and in line with standards.
50. The Committee considered the possibility of having private sessions with the External Auditor to discuss plans on how audit was conducted and how conclusions were presented. The secretariat confirmed that it had no difficulty with such a proposal, which it considered to be a matter between the External Auditor and the Committee.
51. The Committee sought and received clarifications from both the External Auditor and the WFP secretariat on the following matters arising from the financial statements and audit report:
52. In providing the responses, the WFP secretariat highlighted the ongoing process of decentralization, which had many positive results for WFP operations and assured the Committee that an evaluation would be conducted and its outcome presented to the Board in October next year. However, the decentralization process was not yet complete and improvements were expected with the installation of the new systems, in communications, and in financial management. The secretariat assured the Committee that steps were being taken to strengthen WFP's field financial management including the monitoring and control of field bank accounts.
53. The External Auditor informed the Committee that the WFP secretariat had undertaken a comprehensive review of the Prior 1996 fund balance resulting in the reprogramming and refund of unused fund balances in consultation with concerned donors. It also led in the identification of US$86.8 million in unused balances for which the secretariat sought approval of the Board to use for operations and to fund the Immediate Response Account (IRA). The External Auditor also noted that the secretariat had sought Executive Board approval on the replenishment of the Operational Reserve and had indicated its intention to propose relevant amendments to the Financial Regulations.
54. In addition, the Committee requested the External Auditor to comment on recommendations contained in the report and on the responses and follow-up actions taken by the WFP secretariat. The External Auditor responded that the secretariat had been reactive and had demonstrated willingness to take action but had not always had the administrative capacity to do so immediately. The Committee also asked the External Auditor to identify the emerging issues facing WFP. The External Auditor identified four issues:
55. The Committee noted that the External Auditor rendered an unqualified opinion on the financial statements of the Programme and expressed satisfaction on the responses and actions taken to date on the audit recommendations.
56. The Committee expressed appreciation for the frank responses of the External Auditor and the transparency in the report.
57. The External Auditor acknowledged the collaboration of the secretariat in their work.
58. The Committee decided to recommend to the Executive Board the approval of the recommendations contained in the Executive Summary as detailed in paragraph 45 of the Statement of the Executive Director.
59. The Committee reviewed the proposal of the WFP Executive Director to strengthen the management capacity of the Programme (WFP/EB.3/2000/4-D/1) by creating nine new senior-level posts and by upgrading selected posts within the points approved by the Executive Board. The Committee sought and received clarification on WFP's decentralization initiatives to date; the functions and tasks to be performed by the new posts; the geographical distribution of posts; the rationale for grading WFP Country Director posts at the minimum P-5 level; and whether WFP's grading process was in conformance with prescribed standards. Information was also sought and reply received on the evaluation of the decentralization and the reporting of it to the Executive Board, as recommended in the External Auditor's Report.
60. The Committee took note of, and appreciated, the table included as an annex which provided useful data on the staffing levels of various UN agencies. The Committee noted that, compared to those UN agencies, WFP had the lowest ratio of senior managers vis-à-vis total budgeted posts and that even after the implementation of these proposals, WFP would remain at the bottom of the range in terms of this ratio. It reiterated the position that the main criterion for judging the proposal should be the increasing scope and complexity of the work of the Programme. The Committee agreed to send the proposal forward to the Executive Board, based upon the case made for the additional posts and upgrades as presented in paragraph 7 of the document.
61. The Committee was informed that the 96th session was tentatively scheduled to be held in Rome from 7 to 11 May 2001. The final dates of the session would be decided in consultation with the Chairperson.
62. It was suggested that, given the extensive agenda already foreseen for that session, it might be preferable to hold an additional short meeting in January 2001 in order to reduce the workload of the May session. The Committee agreed that the Chairperson should undertake the necessary consultations with the Director-General and the secretariat to determine whether a January session would be feasible.
63. The Committee considered the format and content of the draft financial highlights report, suggested by the secretariat, and concluded that the report, as proposed, be prepared for the next meeting. The Committee concluded that by working with the report over time there would be opportunity to refine it and add supplementary information.
1/ Doc. C 2001/82/ Doc. CL 119/17 3/ Doc. FC 95/9 4/ Doc. FC 95/11 5/ Directive 95/46/EC of 24 October 1995
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$650 million, and FR 4.1(a) authorizes the Director-General to incur obligations up to the amounts voted.
3. The 1998-99 programme of work, for the first time, included the projected availability of resources from Other Income1/ which comprises voluntary contributions that are largely at the disposal of the Organization and are managed closely with the appropriations. The appropriations comprise the approved programme of work less Other Income. Table 1 summarizes the overall budgetary performance for 1998-99. The net expenditure figures are based on Statement IV of the latest draft accounts for the biennium ended 31 December 19992/.
Overview of 1998-99 Regular Programme Budgetary Performance (US$ 000)
|Programme of Work||367 595||368 865||736 460|
|Other Income||(43 291)||(43 169)||(86 460)|
|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|
|Adjusted Appropriation||279 577||280 976||560 553|
|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.
1998-99 INCOME (US$000)
|Budget||Actual||Variance||Actual as %
|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%|
|Total Income||86 460||69 522||16 938||80.4%|
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$0.3 million in reimbursements to FAO's Finance Division from WFP following the cessation of treasury services provided to that organization. The remaining shortfall was due to fees from technical support services to Trust Fund projects being below budgeted levels.
12. In the 1998-99 biennium, the budget component structure underwent significant change when the conversion from FINSYS to Oracle took place. Consequently, the budget component structure used to establish the 1998-99 appropriation differs from the new accounting structure, making a detailed comparison of non-staff expenditure versus appropriation by budget component difficult.
13. However, Table 3 summarizes the 1998-99 Regular Programme expenditure (excluding TCP) in the groupings of staff cost and non-staff cost expenditures.
1998-99 INCOME AND EXPENDITURE (excluding TCP) (US$ 000)
|Description||Budget||Actual||Variance||Actual as %
|Staff Costs (including staff cost variance)||468 406||437 989||30 417||93.5%|
|Non-staff Costs||178 607||190 918||(12 311)||106.9%|
|Total Expenditure||647 013||628 907||18 106||97.2%|
|Income||(86 460)||(69 522)||(16 938)||80.4%|
|Net Expenditure||560 553||559 385||1 168||99.8%|
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/.
1998-99 BUDGETARY PERFORMANCE BY CHAPTER (US$000)
|Chapter/Title||1998-99 Original Appropriation||Budgetary Transfers||Final Appropriation||1998-99 Expenditure / Commitments||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||-|
|5.||Support Services||57 496||1 500||58 996||58 920||76|
|6.||Common Services||41 163||2 300||43 463||43 342||121|
|GRAND TOTAL REGULAR PROGRAMME||650 000||-||650 000||648 832||1 168|
21. The Thirty-second Annual Report of Budgetary Performance to Member Nations (doc. 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 (doc. 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. Appendix 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 Appendix 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.
ANNEX I - APPENDIX I
This Appendix 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|
|1.1||Governing Bodies||18 046||17 014||1 032||94.3%|
|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%|
|1.9||Programme Management||756||1 082||(326)||143.1%|
|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%|
|2.3||Fisheries||39 167||38 370||797||98.0%|
|2.4||Forestry||30 310||30 237||73||99.8%|
|2.5||Contribution to Sustainable Development and Special Programme Thrusts||
|Total Chapter 2||292 906||285 962||6 944||97.6%|
|3.||Development Services to Member Nations|
|3.1||Policy Assistance||22 322||22 160||162||99.3%|
|3.2||Support to Investment||20 209||19 640||569||97.2%|
|3.3||Field Operations||3 703||6 672||(2 969)||180.2%|
|3.4||FAO Representatives||64 321||62 989||1 332||97.9%|
|3.5||Cooperation with External Partners||5 501||8 112||(2 611)||147.5%|
|3.9||Programme Management||1 973||2 053||(80)||104.1%|
|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%|
|4.2||TCP Unit||2 188||2 229||(41)||101.9%|
|Total Chapter 4||89 447||89 447||-||100.0%|
|5.1||Information and Publications Support||14 073||15 723||(1 650)||111.7%|
|5.2||Administration||43 423||43 197||226||99.5%|
|Total Chapter 5||57 496||58 920||(1 424)||102.5%|
|6.||Common Services||41 163||43 342||(2 179)||105.3%|
|GRAND TOTAL REGULAR PROGRAMME||650 000||648 832||1 168||99.8%|
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.
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".
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.
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.
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$0.8 million was required to cover unbudgeted arrears for gas consumption at Headquarters, which arose as a result of a persistent misreading of the main gas meter by the utility supplier. These items, which caused over-spending against the appropriation in Chapter 6, were partially offset by currency gains on general service staff in the decentralized locations, and savings on vacant professional posts.
ANNEX I - APPENDIX II
The equity of the General and Related Funds comprises the balance of the General Fund (i.e. in deficit 1998-99), and the balance on the Special Reserve Account (SRA) and Working Capital Fund (WCF). Based on the latest draft accounts, the reserves and fund balances at 31 December 1999 are as follows:
|General and Related Funds Equity Position at 31 December 1999||US$ million|
|Working Capital Fund||23.7|
|Special Reserve Account||23.8|
|Total Reserves and Fund Balances||9.1|
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.
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$23.8 million at 31 December 1999, and movements during the biennium are tabulated below.
|Special Reserve Account Movements in 1998-99||US$ million|
|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$38.4 million as at 31 December 1999 and the main movements during the biennium are tabulated below.
|Accumulated Deficit Movements in 1998-99||US$ million|
|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.
Technical Assistance (TA)
Normative Programmes and Other RP Activities
FAO RP Normative Activities inc. Commissions
Jointly Funded Activities
|Extra-budgetary||13% ceiling (see text of FC 94/4(d)for exceptions)||13% ceiling (see text of FC 94/4(d) for exceptions)||6% ceiling (to recover actual indirect costs of TCOR||6% (see text of FC 94/4(d) for exceptions)||As per MoU|
|Regular Programme||TCP and SPFS: ceiling of 7%
TSS Days times standard cost per day
|TCP 7% ceiling||FAO Regular Programme||FAO Regular Programme|
1. The following notes apply these principles to the each of the categories of programme defined in Table 1 above.
2. These are defined as technical assistance projects in the field which are funded by the Government of the recipient country, including those which are funded through loans from international financing institutions.
3. In principle, such projects should reimburse the variable indirect support costs associated with the project. Standard rates are not to exceed a ceiling rate (currently 13%) but can be adjusted where appropriate for special circumstances:
4. These are defined as technical assistance projects in the field which are funded by a third party other than FAO or the recipient Government.
5. In principle, such projects should reimburse the variable indirect support costs associated with the project. Standard rates are not to exceed a ceiling rate (currently 13%) but may be adjusted where appropriate for special circumstances:
6. Emergency assistance is defined as a situation where there is an urgent response to the impact on the agriculture sector of a particular disaster, natural or man-made. Such disaster should therefore be addressed with immediate action which justifies specific operational procedures. If the project is characterized as an emergency, the request follows the "fast track" and is operationally treated as such. Generally, "prevention" and "preparedness" are not within the meaning of "emergency" for project operational purposes.
7. Rates for emergency assistance are to be determined on a case-by-case basis to recover the full variable indirect support cost of the project as incurred by the Special Relief Operations Service. Such rates currently range from a low of 3% to a high of 6%.
8. Further identifiable incremental costs incurred in the Special Relief Operations Service (TCOR) and other units (e.g. special purchasing missions or additional temporary staffing) should be covered by these support cost rates unless they are chargeable as direct costs to the project (often the case).
9. This implies that the time of Regular Programme staff (e.g. FAOR services, Technical Support Services, Administrative staff in HQ and the Regional Offices) will not generally be charged to emergency projects except where they can be treated as direct costs.
10. When TCOR operates technical assistance projects because of special situations, the reimbursement rates for technical assistance shall normally apply.
11. These are defined as voluntary contributions which directly support the implementation of Regular Programme activities. Such activities will generally be normative in nature and be implemented at HQ or at a Regional Office rather than directly in the field.
12. A standard rate (currently 6%) will apply to those projects which fully meet the definition (i.e. HQ implemented and normative in nature) being average actual variable indirect support costs incurred by such projects.
13. Such rates can be adjusted to reflect the impact of certain special circumstances:
14. These arrangements cover activities which are part of the Regular Programme and are usually normative in nature. They are defined as partnership arrangements between FAO and other inter-governmental organizations including, in particular, UN system organizations.
15. The special nature of these partnership arrangements will be recognized and translates into an agreement to share direct costs in a manner appropriate to the joint activity's contribution to the strategic objectives of the Organization. Variable indirect costs are generally to be funded by the host organization although recognition of this fact should generally be given in the Memorandum of Understanding and related cost sharing formulae.
16. Regular Programme funded technical assistance (including emergencies) should, in principle, reimburse the variable indirect support costs incurred by "operating units" or their equivalent associated with the project (i.e. for operational services). This should be based on an average rate (currently 7%).
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 (doc. FC 90/5 refers). 4/ Annual Report on Budgetary Performance and Programme and Budgetary Transfers (doc. 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 reimburesement 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.