| CL 120/15
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| CL 120/15
|
Hundred-and-twentieth Session |
Rome, 18 - 23 June 2001 |
Report of the Ninety-sixth
Session of the
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SUMMARY PROGRAMME OF WORK AND BUDGET 2002-2003
ANNUAL REPORT OF BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS
PROTECTION OF THE PROGRAMME OF WORK AND BUDGET AGAINST EXCHANGE RATE FLUCTUATIONS
EUROPEAN COMMISSION FOR CONTROL OF FOOD-AND-MOUTH DISEASE - BUDGET FOR 2002-2003
MANAGEMENT OF CONTRIBUTIONS - COLLECTION OF CURRENT ASSESSMENTS AND ARREARS
MANAGEMENT OF CONTRIBUTIONS - SCALE OF CONTRIBUTIONS 2002-2003
MANAGEMENT OF CONTRIBUTIONS -
ROLE OF THE FINANCE COMMITTEE IN THE MANAGEMENT OF ARREARSLIABILITIES FOR AFTER SERVICE MEDICAL COVERAGE
AUDITED ACCOUNTS – FAO 1998-99
AUDITED ACCOUNTS - FAO CREDIT UNION 1999
2000 ANNUAL ACTIVITY REPORT OF THE OFFICE OF THE INSPECTOR-GENERAL
WFP REPORT OF BUDGETARY PERFORMANCE 2000
WFP STRATEGIC AND FINANCIAL PLAN
AMENDMENT TO THE WFP FINANCIAL REGULATIONS ON THE OPERATIONAL RESERVE
REPORT OF THE EXECUTIVE DIRECTOR ON THE UTILIZATION OF CONTRIBUTIONS AND WAIVER OF COSTS
ANNUAL REPORT OF BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS
1. The Committee submitted to the Council the following report of its Ninety-sixth 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 Summary Programme of Work and Budget (SPWB) proposals for 2002-03 were presented to the Committee on the basis of a Real Growth (RG) scenario of US$35 million (4.8%). A Zero Real Growth (ZRG) scenario was also outlined in a supplementary document1, following requests for more information.
4. The Committee also reviewed an update on cost increases as provided in document CL 120/3-Sup.2, following the recent completion of a cost-of-living survey of headquarters staff by the International Civil Service Commission (ICSC):
5. The Committee received exhaustive clarifications on the binding nature of the ICSC decisions for FAO, in view of the Organization's acceptance of the ICSC statute in March 1975. It was informed that the ICSC was responsible for determining the post adjustment multiplier to ensure that professional salaries had the same purchasing power in all duty stations and that the established methodology involved the following cycle of steps:
6. The Committee noted that the substantial salary adjustment arising from the survey implied that the between-survey mechanism had not kept pace with the real cost-of-living growth for Rome-based professional staff in the past few years. Changes in the ICSC methodology for the housing factor, and the use of local inflation indices that may not have adequately reflected the basket of expenditure of international staff, may have contributed to this outcome. The Committee recognised that the results of the place-to-place cost-of-living survey were not intended to provide a real salary increase, but constituted an adjustment to ensure that Rome professional salaries had the same purchasing power as other duty stations. In this regard the Committee noted that the last real increase in professional pay had been 0.4% in January 1997. Cost-of-living adjustments of 0.9% and 0.4% had been granted in May 1997 and May 2000, respectively.
7. The secretariat confirmed that the cost increase assumptions would be critically reviewed and revised in the full Programme of Work and Budget (PWB) to reflect the latest developments for each item.
8. In particular, the Committee encouraged the Director-General to continue to find ways to achieve further efficiencies, as a means of containing the level of the budget. In this connection, the Committee was reminded of the substantial efficiency savings made since 1994, amounting to approximately US$50 million to US$60 million per year as well as the evidence that reductions in certain administrative areas, such as funding for Oracle and Finance Division (AFF) staffing, had previously gone too far and were now being reversed. It was informed that, in the view of the secretariat, the scope for further efficiency savings was limited.
9. The Committee was advised that under the current methodology, the cost increase estimate would be revised to reflect the US dollar/Lira rate of exchange on the day the Resolution was put before the Conference, and noted the significant favourable impact on cost increases of the current market rate of Lire 2 183 to the dollar versus the budget rate of Lire 1 875.
10. The Committee considered and endorsed the cost increase calculations as well as the assumptions on which these were based.
11. It was also satisfied with the explanations received on the programme and budgetary provisions for non-technical programmes. It emphasized that the areas of Finance, Personnel and Information Technology under Major Programme 5.2, Administration, should be allocated adequate resources and stressed the importance of a satisfactory administrative infrastructure.
12. Some Members of the Committee expressed divergent positions on the budget level for the next biennium, but it was noted that this particular aspect would be discussed at the Joint Meeting of the Programme and Finance Committees.
13. The Committee reviewed the Director-General's Thirty-Fourth Annual Report of Budgetary Performance and Programme and Budgetary Transfers (Annex I). The report, submitted in accordance with Financial Regulation 4.6 for information and discussion, summarized the budgetary aspects of the Regular Programme performance for 2000 and indicated likely resource transfers between Chapters.
14. The Committee noted that the purpose of the Annual Report of Budgetary Performance was specifically to meet the obligation to account for expenditures against the approved appropriation whereas the Financial Highlights paper addressed the broader issue of the Organization's overall financial health (i.e. equity, cash, overall performance). However, it was recognized that the relationship between the two documents needed to be made clearer.
15. The Committee noted that the Director-General was managing the appropriations in accordance with the Financial Regulations and was forecasting the full utilization of the biennial appropriation. It also noted that the US$9 million authority would be fully utilized as planned for redeployment and separation costs.
16. The Committee noted that the proposed transfers between Chapters were consistent with information provided to the Joint Meeting at its September session (document JM 2000/3 refers). It re-emphasized its position that resource transfers from the technical programmes (Chapter 2) should be minimized to the extent possible.
17. The Committee was informed that the report had been prepared before the probable results of the headquarters salary surveys of professional and general service staff were known2, but was advised that the resulting salary increases were expected to be absorbed within the Regular Programme budget for this biennium. This was possible because of lower increases in headquarters general service and professional salaries in 1999 and 2000 than those budgeted in the Programme of Work and Budget 2000-2001 and savings on non-headquarters salary costs arising from the weakening of local currencies against the US dollar.
18. The Committee noted that a formal request for transfers between chapters would be submitted to its next session in September 2001. It endorsed the report for transmission to the Council.
19. The Committee recalled that the subject of protection of the Organization's Programme of Work against exchange rate fluctuations had been raised at the secretariat's initiative at its ninety-fifth session in September 2000.
20. The Committee was informed that under current market conditions, the present methodology as applied to budget rates and forward purchase would entail minor cost and, therefore, that the search for an alternative method was no longer as urgent as had previously been the case.
21. The Committee was informed that, given the complexity of the matter, the secretariat planned to seek expert advice via one of the major international accounting firms. Such advice would include examination of the possible methods for protecting the budget, consideration of a change in the functional currency and the implications of such action for the extra-budgetary programmes of FAO. The matter had also been placed on the agenda of the Advisory Committee on Investments.
22. The Committee agreed that it would be preferable to defer the matter, so as to benefit from the expert opinions before reaching its final decision. It agreed to re-visit the matter at its September session.
23. The Committee reviewed and approved the proposed budget for European Commission for the Control of Foot-and-Mouth Disease (EUFMD), for 2002 and 2003.
24. The Committee reviewed and approved the proposed budget for the Regional Animal Production and Health Commission (APHCA) for the years 2002-2003.
25. The Committee noted the budgets presented for the three Locust Commissions operated by FAO, namely for South-West Asia, the Central Region and North-West Africa.
26. The secretariat responded to a question by explaining that the Trust Funds were in general in a healthy financial state. The Central Region in particular had a cash balance of over US$1 million, which would be available to respond to the next major desert locust outbreak. A small number of countries in each Trust Fund area had developed large arrears.
27. The secretariat noted the request from one member to provide a list of member countries of each Commission in its future working papers. The secretariat also explained that the work plans of each Trust Fund were discussed and agreed by member countries at the Commission sessions. The Agreements establishing the Commissions required that budgets be submitted for approval to the Finance Committee, but work plans did not have to be submitted to the Programme Committee.
28. Following these minor points of detail, the Committee approved the budgets as presented.
29. The secretariat introduced the Financial Highlights (FH) report for the year to 31 December 2000 and provided clarification on its relationship to the Annual Report on Budgetary Performance (ARBP). The Committee noted the following salient points:
30. The Committee welcomed the new Financial Highlights paper requested by the Committee in its last session and the update paper showing the financial situation as at 31 March 2001. This document provided an excellent perspective on the financial position of the Organization. The Committee agreed that it provided very useful information and that improvements, such as a cashflow statement, could be made and incorporated in the document to be presented in the next session in September.
31. The Committee also noted the explanation of the secretariat that whilst the FC Report on budgetary performance of year 2000 was referring to the same period of reporting as the Financial highlights paper, it provided a different emphasis and focused only on the PWB performance in relation to the approved budget without discussing non-PWB matters.
32. The Committee expressed concern that the cashflow situation was essentially dependent on TCP unspent funds. If TCP disbursements were to accelerate, there would be a heavy burden on cash resources. This would be resolved by an improvement of payment of arrears of contributions. However, if this did not materialize FAO would have to resort to external borrowing.
33. The Committee considered the financial position of the Organization at 2 May 2001 and noted that 40.10 percent of current assessments had been received. Thirty-one Member Nations had paid their current assessments in full while a further 32 Members had made partial payment and 116 had made no payment as yet towards their 2001 assessment.
34. The Committee further noted that the rate of receipt of contributions was less than the same period last year - 40.10 percent compared to prior year 48.38 percent. The secretariat explained that the adoption of a new United Nations Scale of Assessments for 2001-2003 by General Assembly Resolution 55/5B of 22 December 2000 had required FAO to prepare a revised Scale of Contributions for the year 2001 (in accordance with paragraph 2 of Conference Resolution 9/99) and had resulted in a delay of approximately 4 weeks compared to the previous year in sending out call letters to member nations for contributions due to the budget of the Organization for 2001. This delay had a consequent effect on the timing of payments of contributions but it was expected that contributions rates would reach those of prior years in the next months.
35. The Committee considered the proposed Scale of Contributions for 2002-2003 and noted that it had been derived directly from the United Nations Scale of assessments approved for those years, as established by General Assembly resolution 55/5B adopted on 22 December 2000.
36. The Committee endorsed an enabling resolution for adoption of the scale by the Conference as follows:
Resolution /01
SCALE OF Contributions 2002-03
THE CONFERENCE
Having noted the recommendations of the one hundred-and-sixteenth Session of the Council;
confirming that as in the past, FAO should follow the United Nations Scale of Assessments subject to adaptation for the different membership of FAO;
37. Concerns were raised by some Members of the Committee regarding the derivation of the 2001 Scale of Assessments.
38. Some Members of the Committee felt that the application of Conference Resolution 9/99 to the 2001 Scale was open to interpretation and that no transitional measures had been proposed when introducing the Scale of Contributions for 2001 as was the case at the United Nations.
39. Some Members felt that FAO should revert to the previous practice of deriving the Scale of Contributions from that in force at the UN during the calendar year of the FAO Conference.
40. The Legal Counsel explained that, as reflected throughout the proceedings which led to the Adoption of Resolution 9/99, the Conference took a clear and detailed decision as to how the budget should be apportioned among its member states for the year 2001, in the event that the United Nations General Assembly would approve a new Scale of Assessments for that year. The paper distributed to the Committee setting out the legal position is attached to this report as Annex III.
41. The Committee decided to reflect the above concerns in its Report to the Council.
42. The Committee considered the document prepared by the secretariat which listed the various options open to the Committee concerning the management of arrears and giving the experience of other UN organizations in this field.
43. The Committee noted that the document:
44. The Committee agreed that without making specific recommendations, it should forward to Council a set of options for its consideration as to how the management of arrears could be addressed in the future, including that:
45. The Committee noted that options (c) and (d) would require a change to FAO's Basic Texts, whereas options (a) and (b) would require no such change.
46. The Committee considered that it should have no direct involvement in the management of arrears. Such a role fell beyond its remit of responsibility and the recommended practices were clearly set out in the Basic Texts.
47. The Committee considered the paper submitted by the secretariat which detailed:
48. The Committee noted that the Incentive Scheme had been in effect since 1993 and based on the information presented in the paper prepared by the secretariat questioned whether the Scheme had produced any tangible improvement in the rate of collection of contributions that could justify its continuation. As well as the lack of effectiveness of the Scheme, the Committee noted that the cost of the Scheme continued to be significant.
49. A number of proposals were considered by the Committee:
50. The Committee decided to recommend to the Council that the Scheme should be suspended for a period of four years (covering two biennia), effective 1 January 2002. At the end of this period a review would be made of the impact of suspension of the Scheme on the rate of collection of contributions. On the basis of such review a further recommendation would then be made by the Committee for the abolishment or reactivation of the Scheme.
51. The Committee noted that the effective date of the proposed suspension of the Scheme of 1 January 2002 would not impact on discounts due for contributions paid in the three-month period to 31 March 2001.
52. The Committee had a brief preliminary discussion on the paper which had been prepared at its request to provide information on after service benefits and any further measures that could be taken regarding the accounting and funding arrangements for these liabilities.
53. The secretariat outlined the progress made to date; the Director-General's preference to continue for the time being with the present accounting and funding arrangements for After-service Medical Coverage (ASMC); and the Director-General's proposal that the same funding mechanism for ASMC could be extended to cover the Termination Payments liability in the event that the liability for ASMC became fully funded one day.
54. The Committee noted that an enabling Conference resolution would be needed to extend the ASMC funding mechanism to Terminal Payments. Accordingly, the Committee decided to return to the subject at its next session.
55. In accordance with General Rule XXVII 7(1) the Committee examined the FAO Audited Accounts for the biennium 1998-99 and expressed its satisfaction that the audit opinion was unqualified.
56. In response to the questions and observations of the Committee, the Director, External Audit provided clarifications as follows:
57. The secretariat provided further clarification to the Committee as follows:
58. The Committee, noting the clarifications and comments provided by the Director, External Audit and the secretariat, recommended that the Council submit to the Conference for adoption, the audited accounts for the 1998-99 biennium. The Committee submitted to the Council the draft resolution below for onforwarding to the Conference.
DRAFT CONFERENCE RESOLUTION
FAO AUDITED ACCOUNTS 1998-99
The Conference,
Having considered the report of the 120th Session of the Council, and
Having examined the 1998-99 FAO Audited Accounts and the External Auditor's Report thereon
Adopts the Audited Accounts.
59. The Committee reviewed the Financial Statements of the Credit Union for the year ended 31 December 1999 and approved the accounts.
60. The Committee took note that the Commissary was an integral part of the Organization, although its operations were of a different nature. The Commissary's funds and net assets had been placed in a special account and were administered separately from all other funds and assets administered by FAO. Further, all costs incurred in the operation of the Commissary and any financial liabilities, including bad debts and losses, arising out of the Commissary's activities were chargeable to the Commissary's funds and assets, including its working capital and terminal emoluments funds.
61. The accounts of the Commissary were subject to both external and internal audit in the manner prescribed by the Financial Regulations of the Organization. Accordingly, the Organization had instituted a series of safeguards to ensure the proper financial operation of the Commissary within the Organization.
62. The Committee requested that the introduction to the Commissary accounts be amended to reflect the fact that the Commissary had been opened to all staff, following an exchange of Notes Verbales between the Organization and the host government, in 1971.
63. Pursuant to Conference Resolution 16/97, the Committee reviewed the Financial Statements of the Commissary for the year ended 31 December 1999 and approved the accounts.
64. The Committee considered the proposals received for External Audit services. The Committee noted that, although all member states were invited to bid for these services, only seven favourable responses were received.
65. The Committee members whose countries had submitted audit proposals (India and the United Kingdom), announced their intention not to participate in the evaluation process, and this decision was welcomed by the Committee. Thus the selection was undertaken by seven Committee members.
66. Audit Representatives from six countries (Germany, India, Jordan, Sweden, The Netherlands, and the United Kingdom) that had expressed an interest in offering their services were invited to make presentations to Committee members to enable them to have a better appreciation of the various proposals and to give them an opportunity to seek additional information and clarification so as to facilitate the selection process. It was noted that the seventh proposal (from Tunisia) did not comply with the eligibility criteria and, therefore, it was not considered further.
67. The Committee observed that proposals made by the six remaining bidders were of high quality. Members fully recognised the importance of ensuring that the selection process be objective, impartial and transparent. After considerable debate and thorough review of the merits of the different proposals based on the following criteria: independence, qualifications of officials and staff, training and experience, audit approach and strategy, audit reports and costs, the Committee selected the proposal submitted by India and agreed to recommend it to Council for its consideration. The Committee considered that the Value-for-Money audit was an essential part of the work of the External Auditor.
68. The Committee recommended the following resolution to the Council for the appointment of the External Auditor for the four year period, commencing with the Audit of the 2002-2003 biennium.
Resolution .../97
APPOINTMENT OF THE EXTERNAL AUDITOR
THE COUNCIL
Noting that the Finance Committee recommends the appointment of the Comptroller and Auditor General of India as External Auditor of the Organization;
Recognizing the need and importance of the function of the External Auditor to review and certify the accounts of the Organization;
Decides to appoint the Comptroller and Auditor General of India as External Auditor of the Organization for a period of four years commencing with the year 2002.
69. The Inspector-General introduced the Annual Activity Report of the Office of the Inspector-General, reminding the Committee that it was his report to the Director-General, but that it had been made available to the Finance Committee for the past five years. He indicated that the report reflected suggestions made in the Committee's discussion of the 1999 report in the previous year. He added that while the annual report was for information, he was available to respond to any questions.
70. In response to a question on which areas concerned him most, the Inspector-General highlighted the Oil for Food programme as his top priority. In this connection he advised the Committee that he now had a resident auditor in Baghdad who was devoted full time to this project, was in the process of up-grading the role and responsibility of the regional auditor based in Cairo, and would continue to provide additional resources from headquarters in Rome as circumstances dictated. He also mentioned the staffing situation in the Finance Division, particularly in relation to the introduction of Oracle, noting that he had contributed senior members of his own staff to helping alleviate the problem rather than auditing the area and telling the Division the problems they were already addressing. He believed there was some light at the end of the tunnel now. Another issue he mentioned was the extent to which the Offices away from headquarters were fully conversant with their roles and responsibilities with respect to the decentralized relationships. On this matter he was of the opinion that the recent clarifications issued by headquarters would go a long way toward resolving the issue, and that his office would continue to review the extent to which the benefits of decentralization were being achieved.
71. In response to a question whether the Finance Committee might have access to specific internal audit reports, the Inspector-General said these were all listed in his Activity Report. He was always available to members of the Finance Committee and other interested member states to discuss matters relating to the activities of his office.
72. The Committee questioned the Inspector-General about the references in his report to tobacco, Kosovo and fraud and presumptive fraud. On the latter issue the Inspector-General re-affirmed that recoveries had been effected on the reported cases and that those who perpetrated the frauds were no longer staff members of FAO. Cases under current investigation would be included in the 2001 report, which the Committee would see in May 2002.
73. The Committee took note of the information provided by the UN Joint Inspection Unit in the following documents:
74. The Committee decided to postpone consideration of the report on Young Professionals in Selected Organizations of the United Nations System: Recruitment, Management and Retention until its next session at which time it would also review other human resources management issues.
75. In reviewing the report (document FC 96/17; WFP/EB.A/2001/5-A/1), the Committee commended its clarity and noted WFP's efforts to reduce the redundancy of information that was included in other documents. It sought and obtained clarification from the WFP secretariat on several matters. The WFP secretariat clarified the distinction between amounts shipped and amounts delivered. It also clarified how the information provided in the annual budgetary performance report would be reported in the future under WFP's new governance arrangements, i.e., in the new Annual Performance Report. The Committee thus accepted the secretariat's proposal that this annual report be the last of the annual reports presented in this format.
76. The Executive Director of WFP introduced the WFP Strategic and Financial Plan (SFP) for 2002 to 2005. She informed the Committee of the Plan's central focus, feeding as many as possible of the nearly 800 million hungry people throughout the world.
77. She emphasized that the SFP is in transition to a Strategic Plan as required by the Executive Board in its measures to strengthen governance. The transition changes included adding the results-based objectives and indicators that were Section II of the document. The Committee commended WFP for its efforts in incorporating results-based management and thinking into its planning and operations.
78. The Committee discussed with the Executive Director her views on the robustness of the SFP's resource projections, the security of humanitarian workers, the Financial Management Improvement Programme, results-based management and the implementation of the Resource Mobilization Strategy. The Committee asked the secretariat if the views of the UN Advisory Committee on Administrative and Budgetary Questions (ACABQ) on the SFP were available. It was informed that, as ACABQ had met only the previous week, its report had not yet been distributed.
79. The Committee endorsed the WFP Strategic and Financial Plan 2002-05.
80. The proposed amendment to the WFP Financial Regulations on the Operational Reserve (document FC 96/19) was submitted in response to the recommendation by the External Auditor and the Board's decision. The proposed amendment was to include in the Financial Regulations a provision for the restoration of the Operational Reserve to its approved level in situations when confirmed contributions did not materialize. The Committee agreed to endorse the approval by the Executive Board of the proposed amendment to the Financial Regulations and to take note of the relevant changes in the Financial Rules.
81. The Committee took note of the Report of the Executive Director on the Utilization of Contributions and Waiver of Costs (General Rules XII.4 and XIII.4 (g)) (document FC 96/22 (a)), and made no further comments.
82. The Cash Management Report (document FC 96/22b) that set out the policies, systems and procedures adopted by the secretariat since taking over the treasury function from FAO in January 1999 was being submitted in response to a request of the Board in its third regular session in October 2000.
83. The Committee requested and the secretariat provided clarification on the level of cash resources; how this was managed; and what was considered as an appropriate level given the fluctuations in the emergency operations of WFP. The Committee also sought the External Auditor's opinion, who informed the Committee that cash management would be a subject of their upcoming audit. She also explained that fluctuations in income associated with WFP's emergency operations meant that it was difficult to establish an appropriate target level for the Programme's cash resources.
84. The Committee requested additional clarification on foreign exchange exposure and the status of the common services agreement with IFAD on investment management, for which the secretariat informed the Committee of actions taken after consultation between the internal audit offices of IFAD and WFP.
85. The Committee agreed with the secretariat's proposal that the Cash Management Report be submitted as part of the audited biennial accounts.
86. The Committee was informed that the 97th session was tentatively scheduled to be held in Rome from 17 to 21 September 2001. The final dates of the session would be decided in consultation with the Chairperson.
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2 Document CL 120/3 Sup. 2 entitled Cost Increases refers
3 Document JM 2000/3 drew attention to the difficulties the Organization faced to find sufficient resources to implement the project. As part of the PWB 1996/97, the Director-General had proposed an additional appropriation of US$20 million to fund the replacement of the Organization's financial/administration systems. This request was not approved and, in addition, the Organization suffered a budget reduction of US$56.9 million or 8.5% in the PWB 1996/97.
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