Hundred and Twenty-seventh session
Rome, 22 – 27 November 2004
Report of the 108th Session of the
Matters requiring attention by the Council
financial highlights and status of current assessments and arrears
aff Abolished posts and effect on internal controls
analysis of contributions received and proposals for improvement
incentive scheme to encourage prompt payment of contributions – determination of discount rate
Audited accounts – fao 2002-2003
Audited accounts – credit union 2003
audited accounts – commissary 2003
appointment of the auditor general of a member nation as external auditor (financial regulation 12.1)
utilization of the special fund for emergency and rehabilitation activities
fao audit committee (internal) annual report to the director-general for 2003
report of the united nations joint inspection unit AND
programme of work of the joint inspection unit for 2004
Revised Audit Arrangements for the FAO-Global Environmental Facility (GEF) Fund
staff costs and liabilities – liabilities for after service medical costs and summary history on staff-related liabilities
programme implementation report 2002-2003
progress report on human resources management issues
recommendations and decisions of the icsc and un joint staff pension board to the general assembly (including changes in salary scales and allowances)
results of the application of the new methodology for equitable geographic distribution
independent evaluation of fao’s decentralization
progress report on administrative information systems
procurement undertaken by fao for the regional development banks
report of the external auditor on management matters
follow-up on the receommendations of the external auditor
business process review: second pilot update
ANNEX I - Time Series of TCP Budget Commitments and TCP Delivery by Semester, 2001-2004
ANNEX II - Comparison of the classification of Recommendations in the External Auditor's Long Form Report
ANNEX III - Number of Staff at Headquarters and Established Offices by Nationality, Grade and Gender
|FINANCIAL AND BUDGET REPORTS|
|-||Financial Highlights and Status of Current Assessments and Arrears||5 - 16|
|-||Analysis of Contributions Received and Proposals for Improvement||19 - 21|
|-||Incentive Scheme to Encourage Prompt Payment of Contributions – Determination of Discount Rate||22 - 23|
|-||Audited Accounts – FAO 2002-2003||24 - 29|
|-||Appointment of the Auditor General of a Member Nation as External Auditor (Financial Regulation 12.1)||40 - 42|
|FINANCIAL POLICY MATTERS|
|-||Summary History of Staff-Related Liabilities||54 - 61|
|-||Programme Implementation Report||65 - 71|
|-||Medium Term Plan 2006-2011||72 - 80|
|HUMAN RESOURCES MATTERS|
|-||Progress Report on Human Resources Management Issues||85 - 88|
|-||Results of the Application of the New Methodology for Equitable Geographic Distribution||90 - 92|
|-||Independent Evaluation of FAO’s Decentralization||93 - 97|
1. The Committee submitted to the Council the following report of its Hundred and eighth Session.
2. The following representatives were present:
||Mr Roberto Seminario (Peru)|
||Mr Anthony Beattie (United Kingdom)|
|Members:||Mr Aboubakar Bakayoko (Côte d’Ivoire)
Mr Augusto Zodda (Italy)
Ms Ryuko Inoue (Japan)
Ms Lamya Ahmed Al-Saqqaf (Kuwait)
Mr Simon J. Draper (New Zealand)
Mr Mushtaq Hussain Syed (Pakistan)
Ms Ana María Baiardi Quesnel (Paraguay)
Mr J. Michael Cleverley (United States of America)
Ms Verenica Mutiro Takaendesa (Zimbabwe)
3. The Committee noted that Mr Mushtaq Hussain Syed had been designated to replace Mr Muhammad Saleem Khan as the representative of Pakistan at this 108th Session of the Finance Committee.
4. During the adoption of the Agenda and Timetable, the Committee expressed concern about the late arrival of the documentation in the required language versions.
5. The Committee reviewed the paper on Financial Highlights and status of Current Assessments and Arrears which showed the results of operations for the first six months of the 2004-05 biennium, and a working paper on the status of assessed contributions at 27 September 2004. The Committee noted several key messages to be drawn from the discussion of the paper.
6. The General Fund deficit had increased from US$90 million at the end of the 2002-03 biennium to US$134 million at 30 June 2004, essentially due to two factors:
7. The General Fund deficit was expected to increase in 2004-05 due to the higher amortization charge of the After Service Medical Care (ASMC) liability recommended in the latest actuarial valuation. This amounted to US$30 million, which exceeded the funding approved by the Conference of the ASMC amortization of US$14.1 million for the current biennium. This matter was further considered by the Committee under another agenda item (ref. paras 54-61 below).
8. In respect of the balances of the other two components of the Organization’s reserves, the Working Capital Fund (WCF) balance remained unchanged at US$25.2 million while the Special Reserve Account (SRA) balance had decreased by US$2.5 million to US$20.2 million during the period. This decrease was mainly due to the exchange rate effect of Euro salaries as reported in US dollars, arising from the generally weaker monthly US$ exchange rates compared to the budget rate.
9. Of the US$41.4 million which had been brought forward from 2003 in respect of allocations from arrears payments for one-time expenditures in accordance with Conference Resolution 6/2001, expenditures of US$5.4 million were made in the first six months of 2004, leaving a balance of US$36 million available for the remainder of the biennium.
10. The Committee noted that funding towards staff related liabilities had improved following:
11. The Committee requested an update of the projected overall net equity position at the end of 2005, and was informed that the projection of a negative US$95 million net equity position remained unchanged from the previous forecast presented at the 107th Session of the Finance Committee in May 2004.
12. The liquidity of the Organization would continue to be seriously impacted by the General Fund deficit and other pressures including:
13. Delay in receipt of contributions and the persistently high level of arrears were again identified as being the most significant factors undermining the financial health of the Organization. The Committee noted that payments were still due from the two major contributors for 2004 assessments and was informed that the Organization had been required to resort to internal borrowing from the Working Capital Fund in September 2004. The Committee was informed that Regular Programme cash had declined to a level of US$10 million at the end of September 2004, meaning that the Organization had consumed nearly all cash represented by the statutory reserves. Based on expenditure forecasts and in particular the requirement to meet operating costs and staff-related disbursements, the Organization would be forced to borrow from external sources within the first two weeks of October 2004, in the absence of the receipt of a significant level of outstanding contributions from member nations.
14. The secretariat indicated that about US$50 million of external borrowing would be required in order to meet disbursements in October 2004 and early November. The requirement for further external borrowing would be reviewed at the end of October 2004 based on contributions received during the period and disbursement obligations for November 2004.
15. The Committee discussed the prospects of payment from the two major contributors, and the reasons why other large contributors also owed significant amounts to the Organization. The Committee asked the secretariat to make every effort to keep borrowing to the minimum, and to contact all contributors with large amounts unpaid to seek settlement of contributions due.
16. The secretariat confirmed that any external borrowing requirements would be met by credit lines for up to US$97.6 million which had been negotiated in previous years and updated on an annual basis with three lending institutions. The Committee requested an estimate of the costs which would be incurred by the Organization as a result of entering into borrowing arrangements for US$50 million for one month, and then for the full extent of the credit lines for the remainder of 2004, should this become necessary. The Committee was informed that the total interest cost for one month would amount to approximately US$62 000, while borrowing to the full extent of the credit lines to the end of 2004 would cost approximately US$332 000, to be charged to investment income in the Miscellaneous Income component of the Regular Programme. The Committee was subsequently informed that Japan intended to make full payment of its outstanding assessment in mid-October and that the United States would likely make a substantial payment in late October.
17. The Committee considered the implications of the abolition of the five general service posts in Finance Division and expressed concern over the potential negative effects on internal controls in this key area. The Committee noted the support functions performed by these posts in Finance Division to deal with a high volume of transactions and that abolishing the posts had caused AFF to fall below the minimum level of staffing recommended by external consultants. The Committee was informed that the efficiency savings required to be able to reinstate these posts in accordance with the decision taken during the previous Committee session had not yet been achieved, but that resources could become available for reinstatement. The secretariat indicated that, given the time needed to generate such savings, it was unlikely that full reinstatement would be possible from only such sources in 2005, but that other options were being examined.
18. The Committee urged the secretariat to find the required efficiency savings in order to reinstate these posts as a matter of priority.
19. The Committee reviewed document FC 108/4 which had been prepared at the Committee’s request and discussed possible reasons for the general decline in the rate of receipt of contributions in recent years and ways to address the problem. The Committee noted the low impact of the incentive scheme currently in place and also discussed the impact of sanctions applied in the case of non-payment and past measures proposed but not adopted by the Governing Bodies to improve the collection of contributions. The Committee was also informed of the FAO percentages of collection of contributions in 2002 and 2003 compared with those of other UN organizations and noted that FAO was among the lowest at 30 June and 30 September of both years.
20. The Committee recognised that the difficult and deteriorating cash flow situation faced by FAO was due to late and/or non-receipt of contributions from member nations and the fact that measures in place and existing sanctions had been largely ineffectual in improving the rate of collections. The Committee noted with concern that certain countries in arrears of payment of Regular Programme contributions had nevertheless made significant voluntary contributions to the Organization’s extra-budgetary funds during the 2002-03 biennium.
21. Fully recognizing that only through timely receipt of contributions could FAO meet operating cash requirements without recourse to statutory reserves or to external borrowing, the Committee discussed various alternative measures and additional sanctions which could be introduced to improve collection (including measures suggested in the past but not implemented) and resolved to review these in more detail at its May 2005 session with a view to making a comprehensive recommendation to the June 2005 Session of Council. In the meantime, the Finance Committee urged all member nations to make timely payment of assessed contributions to ensure that FAO could meet the operating cash requirements for the programme of work.
22. The Committee reviewed document FC 108/5 and discussed the operation and effectiveness of the incentive scheme to encourage prompt payment of contributions. The Committee reiterated its finding expressed in several past sessions1 that the incentive scheme had no real impact in encouraging prompt payment by member nations, noting that members which paid their contributions by 31 March of any year were not likely to be influenced by the minor benefit resulting from the scheme.
23. The Committee reviewed and discussed the proposed rates of discount to be credited against 2005 contributions in US dollars and Euro and decided that both rates should be set at zero. This action would emphasize to the membership the Finance Committee’s position that the scheme was ineffectual. The effect of a discount rate of zero on members’ timing of payments in early 2005 could be analysed against past behaviour and reveal whether the incentive scheme had any relevance.
24. In accordance with General Rule XXVII 7(l), the Committee examined the FAO Audited Accounts for the biennium 2002-2003.
25. The External Auditor noted that he had issued an unqualified opinion on the FAO Audited Accounts for the biennium 2002-2003 and summarized the main conclusions of his report as follows:
26. The External Auditor expressed his appreciation for the wholehearted cooperation of the Director General and his officers and staff and noted that, for most observations, the Organization had either taken adequate action or had assured that it would do so. The External Auditor also thanked the Auditor General of Ghana, the Federal Auditor General of Ethiopia and the Comptroller and Auditor General of Bangladesh for providing their officers to assist the audit teams in selected audits.
27. The secretariat welcomed the External Auditor’s report and recalled that details of the follow-up action against each recommendation made would be provided in a report to the Finance Committee in 2005. In response to specific questions and observations of the Committee, the secretariat provided further clarification as follows:
28. The Committee noted that the issues relating to the Medium Term Plan and the decentralization process would be discussed further under the relevant agenda items later during the session.
29. The Committee, noting the comments and clarifications provided by the External Auditor and the secretariat, recommended that the Council submit to the Conference for adoption, the Audited Accounts for the 2002-2003 biennium. The Committee submitted to the Council the draft resolution below for onforwarding to the Conference.
Having considered the report of the 127th Session of the Council, and
Having examined the 2002-03 FAO Audited Accounts and the External Auditor’s Report thereon
Adopts the Audited Accounts.
30. The secretariat presented the document, which contained the accounts of the FAO Credit Union for 2003 and noted that the External Auditor had issued an unqualified audit opinion.
31. The Committee requested information of a general nature on the Credit Union’s operations, enquiring in particular on several issues relating to loan losses, investments, governance structure of the Credit Union and on who was ultimately responsible for Credit Union operations.
32. As regards loan losses, the Committee enquired on the reason for the increase in loss provision and if the Credit Union was experiencing difficulties in recovering loans. The secretariat explained that the Credit Union was not experiencing increasing loan losses, which are mainly associated to death or separation on disability grounds of Credit Union members. The secretariat added that the Credit Union carried insurance on its loan portfolio in case of death or disability of borrowers and that the insurance cover was presently subject to a deductible of US$125 000. The secretariat then provided the details of the 2003 loan loss provision noting that the related charge was below the deductible amount mentioned above.
33. As regards investments, the Committee enquired on the decrease of Italian Government bonds, in particular if this decrease was to be associated to the increase noted in US$ corporate bonds and if this meant that the Credit Union was exposed to exchange rate risk. The secretariat explained that the decrease in Italian Government bonds was related to bonds bought prior to the introduction of the Euro and now coming to maturity date. The secretariat added that this decrease was not to be related to the increase in US dollar denominated bonds as the Credit Union ran two completely independent sets of operation, denominated in US dollar and Euro, respectively. The secretariat further explained that the Credit Union was not allowed to enter into any exchange rate operation and investments in each book must derive from savings being deposited in the Credit Union in the same currency.
34. The Committee requested information on the governance structure of the Credit Union, in particular enquiring on who was to be considered ultimately responsible for Credit Union operations and if, in a worst case scenario, there could be a liability to the FAO member nations.
35. The secretariat explained that the Credit Union was governed by a Board of Directors, the officers of which were elected at the Annual General Meeting by the Credit Union membership (staff members of the FAO and WFP), the Credit Union membership being ultimately responsible for the Credit Union operations. The secretariat noted that the Credit Union had over its 50 years of activity built a strict system of internal controls which had been thoroughly and satisfactorily verified by both Internal and External Auditors who both performed an annual review of Credit Union operations and accounts. The secretariat noted that this system of internal controls significantly mitigated the risk of the Credit Union incurring severe financial disruption.
36. The secretariat also noted that these issues had already been analysed at the May 2003 session of the Finance Committee when it was decided to describe the relationship with the FAO Credit Union simply with a disclosure note in the FAO Financial Statements rather than a full consolidation of the FAO Credit Union accounts into those of the FAO.
37. The Committee took note of the explanations and information provided by the secretariat and approved the FAO Credit Union accounts for 2003.
38. The Committee took note of document FC 108/6(iii), Audited Accounts – FAO Commissary 2003. In approving the accounts, the Committee expressed the wish that a brief note recalling the history of the Commissary be included, as done in the past.
39. The Finance Committee took note of the experience in the application of the policy on support reimbursement rates as well as the experience to date with projects under the Decentralized Cooperation Programme (DCP), a new modality for international cooperation.
40. The Committee reviewed document FC 108/8 which had been prepared at the Committee’s request. The Committee discussed the process in place for selecting and appointing the External Auditor and noted the background information included in the document in relation to the evolution of Financial Regulation 12.1 within the UN system over many years. Financial Regulation 12.1, which stipulated that the External Auditor should be an Auditor General (or person exercising an equivalent function) of a Member Nation, had been in force at FAO since 1971 and was currently in force in nearly all UN organizations.
41. With regard to the possibility of extending the invitation to bid for the external audit of FAO, not only to Auditors General of all member nations, but also to large private sector audit firms, the Committee requested that, in view of the intrinsically inter-agency nature of the subject, the Director-General should refer the matter to the United Nations System Chief Executives Board for Coordination for additional information.
42. The Committee noted that referral of the matter to the United Nations System Chief Executives Board for Coordination would be without any prejudice to the role of the Finance Committee to recommend to the Council the appointment of the External Auditor, in accordance with applicable statutory provisions.
43. The Committee reviewed the document on the utilization of the Special Fund for Emergency and Rehabilitation Activities (SFERA), which described its utilization for the humanitarian crises in Darfur and Colombia since it became operational in April 2004.
44. The Committee was informed that the SFERA’s target funding level had been entirely covered from the Organization’s internal resources, specifically from the Emergency Operations and Rehabilitation Division’s Direct Operating Cost Recovery account. A number of countries had been approached but donor funds had not yet been received. One donor had, however, agreed to allow underspending on its completed emergency projects to be transferred to the fund.
45. The Committee was advised that the fund had been indicatively subdivided into three categories: US$1 million to ensure advance funding for approved emergency projects where the pledged funds had not been received, which was necessary to accelerate the provision of supplies and equipment by several weeks; US$500 000 for the establishment of emergency coordination units to manage field-based interventions with governments, the United Nations and NGOs; and US$500 000 for undertaking needs assessment missions in response to natural disasters and other emergencies.
46. In response to questions from members, the Committee was provided with information on the use of the SFERA for the locust control campaign since the document went to print. It took note of the amounts earmarked for the setting-up of an emergency coordination unit in Dakar and for a needs assessment mission totalling US$430 000 and that no funds had been expended from the category earmarked for advance funding.
47. Some members of the Committee questioned the use of the SFERA for long-lasting crises and considered that the fund might be better used to respond to new and sudden emergencies.
48. The Committee noted that potential expansion of the SFERA would depend on additional donor support and reasserted the importance of such a fund for the Organization. It recognized the imbalance between the current target funding level of the fund of US$2 million on the one hand, and the resources needed to respond to the crises on the other.
49. The Committee recognized that the SFERA sought to enhance FAO’s capacity to respond quickly to emergencies and stressed the importance of drawing lessons from the current locust crisis in West Africa for the future and the need to identify and tackle all the regulatory, managerial and other constraints faced by the Organization, when utilizing resources for acute emergencies. It requested the secretariat to report on the use of the fund on an annual basis and emphasized its wish to see comprehensive financial data, in particular on the application of resources by activity.
50. The Deputy Director-General introduced the Annual Report of the FAO Audit Committee (Internal) for 2003 and provided a brief overview of its role, work and main accomplishments.
51. The Committee discussed the report and obtained clarifications from the Deputy Director-General, the Inspector-General and the Assistant Director-General, AF, where needed. The issues which were discussed were:
52. The Committee took note of the two above-mentioned reports.
53. The Committee reviewed document FC 108/26(f), noting that it related to audit arrangements the Committee had already approved. The new audit provision, a standard inclusion in agreements involving the World Bank, was considered a formality that would allow the Organization to continue with important cooperative activities. The Committee accordingly approved acceptance of the new audit provision and requested the External Auditor to be ready to carry out any resultant special audit examination arising from the provision.
54. The Committee considered the updated information, requested in the May 2004 session, on all the schemes of staff-related liabilities reflecting the financial situation of the liabilities as reported in the FAO 2002-03 Audited Accounts and based on the latest actuarial valuations at 31 December 2003, as well as developments in the 2004-05 biennium and funding issues.
55. The Committee noted that the increase of the Separation Payment Scheme (SPS) liability from $55.6 million at 31 December 2001 to $77 million at 31 December 2003 was solely due to exchange rate effect. The liability, which was completely denominated in Euro was actually on the decline when expressed in Euro but fluctuated with the applicable exchange rates at the end of each valuation period when expressed in the accounting currency, US$.
56. The Committee noted that the actual charges of the Termination Payments Fund (TPF), amounting to $9.8 million in 2002-03 exceeded the accrued charges recommended by the actuaries by $4.5 million. The assumptions of the TPF valuation would be reviewed in depth by the actuaries during the course of the 2005 actuarial valuation and the results of the review were to be reported to the Finance Committee.
57. Total staff-related liabilities, recorded and unrecorded, increased significantly from 31 December 2001 to 31 December 2003 due primarily to a “one-time” change in methodology for the 2003 actuarial valuation of the After Service Medical Care (ASMC). The 2001 calculations had been based on a single valuation for the scheme participants of all Rome-based UN agencies, using a notional apportionment of retirees amongst the agencies. The 2003 method of computing ASMC liability had reflected two calculations, one for FAO and IFAD and one for WFP which now handled its own valuation. This resulted in a different combination of age groups in the two calculations and, because FAO was an older organization compared to WFP and IFAD, the distribution of liability had resulted in a significant increase in the FAO share and a reduction in the liabilities of the other participating agencies. The magnitude of the increase had become evident with the release of the results of the 2003 actuarial valuation by the actuaries in February 2004. It was reiterated that future biennial actuarial calculations should not fluctuate so significantly.
58. The Committee recalled that the funding of staff-related liabilities was provided first from the investment income of long-term investments earmarked for staff-related liabilities and secondly, from budget appropriations, which started in 2004-05. The Conference in 2003 approved partial funding of the ASMC liability of US$14.1 million in 2004-05 based on the latest actuarial valuation, which was as of 31 December 2001. The Committee noted at the May 2004 session that funding would need to increase to US$30 million for the 2006-07 biennium to offset the increased biennial amortization for ASMC calculated as at 31 December 2003. This was necessary for the gradual elimination of the unfunded liability by matching funding with amortization over the next several biennia. The need to adjust the biennial ASMC funding in accordance with the latest actuarial valuation had been recognized by the Council at its 125th session in 2003 when it endorsed the Finance Committee recommendation to include US$14.1 million in the 2004-05 Budget Resolution towards the ASMC liability. The Committee recognized that insufficient funding would cause the unfunded portion of the liability to increase, compounding the difficulties of reaching full funding in future years.
59. The progression of the ASMC liability and funding was summarised as follows (in US$ millions):
Current Service Cost included in PWB
60. Turning to the total of all staff-related liabilities, the Committee was informed that the actuaries estimated an increase of US$20 million in 2004-05, using the same assumptions in the latest 2003 actuarial valuation, bringing the total to US$452 million at the end of 2005.
61. The Committee decided to further examine the issues and options available for the ASMC liability before making a recommendation to Council regarding the additional US$15.9 million funding in the 2006-07 Budget in respect to the increased ASMC amortisation arising from the latest actuarial report. For this purpose, the Committee requested the secretariat to prepare a document for the May 2005 session of the Finance Committee with proposals and options available on the funding of the ASMC liability, to assist the Committee in arriving at a recommendation to Council on the amount of funding to be included in the 2006-07 budget appropriation.
62. The secretariat introduced the document FC 108/11(b), which was prepared in response to the Committee‘s request at its 107th session for information on the financial aspects of staff emoluments. The Committee expressed appreciation for the preparation of the document and considered it useful for a better understanding of the structure of the staff remuneration package.
63. The Committee requested more information on how this remuneration package was established and administered and took note that the Organization as a part of the United Nations common system, applied the salary scales, benefits and allowances as established by the International Civil Service Commission (ICSC).
64. In response to the concern expressed by the Committee regarding any possible liability of the Organization for staff pensions, the secretariat provided clarification regarding the governance structure of the UN Joint Staff Pension Fund and the mechanisms employed to ensure that the Fund created no actuarial liability for the Organization. The secretariat indicated that it would seek further assurances from the Fund and would report to the Committee at its next session.
65. The Committee welcomed the document and expressed general satisfaction at the reported achievements in the biennium 2002-03, including the nearly full utilization of budgeted resources.
66. The Committee noted that the changes to the format of the document took due account of earlier guidance from the membership and reflected the progress made by FAO in the application of results-based budgeting principles. However, it expressed concern that the document had become too large, because of the duplication of some information made necessary by the efforts to report performance by several dimensions; that is, the strategic, regional and programme views. Some members indicated that despite the wealth of data, the report did not fully succeed in conveying a clear and concise message on overall organizational performance.
67. The Committee recalled that the prime purpose of the Programme Implementation Report (PIR) was to meet accountability requirements to members, in full complementarity with evaluation reports, by providing comprehensive coverage of all FAO activities in a given biennium and covering both resources utilization and output production. Several suggestions were made to keep the document to a reasonable length and to reduce the time spent by the secretariat in producing it.
68. It was felt that the section on Strategies to Address Members’ Needs was not appropriate to the biennial time frame of the PIR, which was insufficient to convey the cause/effect relationship between the biennial outputs and broad strategic objectives. The Committee encouraged shortening of the Summary of Programme Implementation, with an increased results orientation and the posting of some of its content on the FAO web site, including information to facilitate financial analysis. The Regional Dimensions section was found to be too general and could either be eliminated or incorporated into the section on Programme Implementation.
69. The Committee appreciated in particular the section on Organizational Performance, which provided a good overview and specific information on the use of resources put at the disposal of the Organization, complemented by the Summary of Programme Implementation. The new table on donor sources of external funding for the field programme was welcomed, and it was suggested that additional information be provided on where the resources were utilized. Also, a member referred again to the need for extension of the financial analysis to include an expenditure analysis of every FAO Representation.
70. In light of the above comments, the Committee requested the secretariat to prepare a proposal for consideration at its session in September 2005 on further improvements to the PIR, also taking into account the best practices of other United Nations agencies. Given the mandate of the Programme Committee, the proposals should be considered by the Joint Meeting.
71. The Committee endorsed the PIR 2002-03 for transmission to the Council.
72. The Committee welcomed the Medium Term Plan 2006-11 and the innovations introduced, in particular the application of results-based principles to non-technical and technical cooperation areas and the proposals for Capital Budgeting. It welcomed the fact that the plan now reflected the “rolling” nature as approved by Conference and agreed, by implication, to application of the concept to non-technical entities.
73. The Committee was informed that the Programme of Work proposals for each of the three biennia had been formulated in a stepwise approach starting from the approved PWB 2004-05 and assuming constant purchasing power. First, department heads were asked to prepare a medium term plan for their programmes within the current biennium’s resource envelope, shifting resources among programme entities as necessary to address relative changes in emphasis and priorities. The proposed real growth factor (2.2% p.a.) was then applied to the total net appropriation, and the resulting incremental resources (e.g. US$22.9 million for 2006-07) were allocated selectively to departments to develop real growth proposals for a restricted set of high priority areas. These real growth proposals were then aggregated at the Programme level and added to the current net appropriation to yield the indicative net appropriation with real growth for each biennium of the Medium Term Plan (MTP).
74. The Committee was informed that, as in past MTPs, the indicative resource levels did not include an amount for cost increases needed to maintain the purchasing power of the budget at the same level as the current biennium. It pointed out that the amount to be added to assessed contributions to fund the amortization of After Service Medical Care was also not included in the MTP figures which dealt with the Programme of Work and the Appropriation. The Committee recalled that, with the adoption of split assessments, the Organization did not need to take account of the impact of exchange rates on the budget.
75. The Committee was concerned that the proposals did not take account of efficiency savings that could arise from the process now being pursued by the secretariat. It was informed that information on efficiency savings would be reflected in the next Summary Programme of Work and Budget (SPWB).
76. The Committee considered the issue raised by the External Auditor concerning how to treat unprogrammed resources in the second and third biennia of the MTP. It accepted that the current approach, whereby the resources from time-bound entities ending in the first or second biennium of the MTP were shown as unprogrammed at Programme level, was the most practical way to treat such resources within the results-based programme model.
77. The Committee appreciated the results-based formulation of programmes under Chapters 5 and 6, which were included for the first time in the Medium Term Plan, and generally endorsed the proposals. It received clarification that work on public information and outreach under Programme 5.1.1, which contributed to raising public awareness of world hunger issues and possible solutions, complemented the collection, analysis and dissemination of food and agricultural information under Programme 2.2.2. The Committee observed that work on information systems and technology services was not limited to the budget for Programme 5.2.2 but had also been funded through the Use of Arrears and also, in the future, from the Capital Expenditure Facility.
78. The Committee recalled the importance it had placed on developing and implementing the Human Resources Action Plan and regretted that the increase in funding was limited to the Real Growth proposal. It noted that Programme 5.2.3 Human Resources Services addressed elements of the plan, which would be discussed under a separate agenda item.
79. The Committee welcomed the proposals for capital budgeting that were presented to implement the Capital Expenditure Facility as approved by the Conference. It endorsed the cautious approach adopted by the secretariat, in terms of the scope of eligible proposals and level of funding, so as to gain experience and accumulate resources for future capital proposals. It recognized that the proposed net appropriation for the Capital Expenditure Account was not an increase in resources but would be taken from within the overall budget appropriation. The Committee also approved in principle the proposal to carry forward of any unused balance of arrears as at 31 December 2005 to the Capital Expenditure Facility.
80. The Committee recognized that the Medium Term Plan was the Director-General’s proposal of programmes to address the Organization’s strategic objectives in the context of evolving challenges and demands over a six-year period, including indicative resource levels that were non-binding on the membership. Some members were of the view that the Plan should present an alternative no-growth scenario in line with recent budget trends, showing the potential programmatic impact of a lower level of resources. Other members considered the level of projected budget in the Plan was only a modest growth that would help the Organization to better carry out its mandate, taking into account the demands placed on it by the membership and, therefore, the document should be endorsed for transmission to the Council along with the comments and suggestions of the Finance Committee as contained herein.
81. The Finance Committee took note of the Progress Report on Efficiency Savings, which was provided for its information as requested at its 107th session. The Committee welcomed the process that the Organization had put into place for pursuing efficiency savings and appreciated the information provided on the proposals being investigated for possible efficiency savings this biennium, as outlined in the Annex to the document.
82. The Committee requested clarification on certain proposals in the Annex, and put forward new proposals for consideration by the secretariat, including improved sequencing of meetings and broader use of remote translation.
83. The Committee requested that the secretariat contact a range of public and private organizations, not just UN agencies, to obtain comparative data and feedback on lessons learned.
84. The Committee looked forward to receiving more detailed information, including on cost savings and timing, in the Summary Programme of Work and Budget 2006-07.
85. The Finance Committee took note of the information provided in the Progress Report on Human Resources Management Issues (document FC 108/15), and in particular welcomed the inclusion of the Annex containing statistics on staff broken down by region, nationality, grade and gender (see Annex III).
86. The Committee noted with appreciation that some of the objectives set forth by the Human Resources Management Division had been successfully accomplished, such as teleworking, spouse employment and the validation of a managerial competency framework, but noted that progress was still expected in other areas of human resources management. Concerns were expressed over the fact that a number of deadlines for implementation had been missed, with the result that FAO could end up lagging behind other UN organizations in terms of best practices in human resources management. The Committee referred more specifically to the necessity of introducing an integrated performance management system, the improvement of the gender balance in the professional category, both in terms of number and grades, the further development of policies supporting the Work/Family Agenda and the establishment of a Management Development Programme matching competency requirements. The timely introduction of the Human Resources Management System (HRMS) was seen as an essential management tool in reaching these objectives.
87. The Committee requested clarifications on the practices followed by the host government regarding the issuance of work permits to spouses of expatriate staff members. The Legal Counsel reported that discussions had been initiated in that regard with relevant authorities and that developments would be reported upon at the next session of the Committee.
88. The Committee requested that the next progress report on Human Resources Management be presented in September 2005. The Committeee also asked, following the recruitment missions recently fielded by the secretariat, that a report be prepared to advise member countries on the appropriate means for their nationals to compete effectively for position with FAO. Finally, the Committee requested a comparative study on the ratio between staff members in the general service and professional categories serving at the Headquarters of other UN organizations.
89. The Finance Committee took note of the information provided in document FC 108/16 regarding the recommendations and decisions of the ICSC and UN Joint Staff Pension Board to the General Assembly and changes in salary scales and allowances.
90. The Finance Committee took note of the analysis of the application of the new methodology for determination of equitable geographic representation of member states (doc. CL 127/6). The application of the new formula had resulted in a significant increase in the number of equitably-represented countries. Only small variations in representation status were found among the three options analyzed in this report, namely two grade-weighted methodologies and the not grade-weighted methodology.
91. The Committee was assured that the paramount consideration in the selection of staff was to seek the highest standards of technical competence and integrity.
92. A member referred to the serious under-representation of one region, even under the new methodology and the need for further efforts to remedy the situation.
93. The Committee welcomed the evaluation of FAO’s decentralization and indicated that it felt that the report went to the very heart of the Organization’s institutional modalities and its capacity to respond to the felt needs of its member countries – in particular, to developing countries.
94. The independence and comprehensiveness of the report was particularly commended as was the depth of analysis and the wide range of useful conclusions and suggestions in addition to the main recommendations. The Committee noted that this work reflected the Organization’s commitment to an effective evaluation process. The Committee was informed of and welcomed the frank and open discussions which had taken place between senior management and the evaluation team. The positive initial management response to the evaluation’s findings and the senior management commitment to further enhancing decentralization were appreciated.
95. Many members of the Committee emphasised the importance of decentralization and that the capacity of the decentralized structures needed to be strengthened so as to increase their effectiveness. The evaluation report itself had noted that decentralization, while bringing considerable benefits, also required systems and competencies in the decentralized offices to support delegations of authority and to ensure organizational unity and coherence, while responding to differentiated country needs.
96. The Committee fully appreciated that management had not had time to consider fully the implications of the findings and recommendations in a report of this complexity. The Committee thus recommended that prior to consideration of the evaluation by the Council, both Programme and Finance Committees revisit the evaluation report and its follow-up at their next sessions. In addition to the evaluation report itself, this discussion should be based on a senior management response on the entire matter, which would, in particular:
97. The proposal of management to reflect its intentions for implementation of the action plan in the Summary Programme of Work and Budget proposals for the next biennium was also welcomed.
98. The Committee took note of the information provided in doc. FC 108/19, Progress Report on Administrative Information Systems.
99. The Committee had before it document FC 108/20, Procurement undertaken by FAO for the Regional Development Banks. The Committee decided that the Organization could consider application of restrictions of the nationality of potential suppliers set by the donors for the procurement of goods, works and services in the case of projects funded by multilateral financing institutions, provided that FAO was satisfied that such restrictions would only be accepted if there was a significant number of countries to allow valid competition.
100. Following an introduction of the documents by the WFP secretariat, the Committee discussed the reports of the External Auditor on management matters comprising air operations, vulnerability analysis and mapping, and corporate governance. The Committee further discussed the follow-up report of the Executive Director on the recommendations of the External Auditor for the 2000-2001 (the final report on this matter) and 2002-2003 biennia, and the work done by WFP in implementing the recommendations.
101. The WFP secretariat gave a brief presentation on the progress to date of the Business Process Review pilot programmes which so far had improved WFP’s ability to deliver food aid in a timely manner. The Committee was informed that if pilot projects continued to proceed in a satisfactory way, WFP intended to present appropriate revisions to the financial policies to the Executive Board in February 2005 in order to facilitate implementation of the Business Process Review in 2005.
102. The Committee took note, with satisfaction, of the information provided and documents presented by WFP.
103. The Committee was informed that the Hundred and ninth Session was tentatively scheduled to be held in Rome from 9 – 13 May 2005. The final dates of the session would be decided in consultation with the Chairperson.
104. The Committee took note of the information provided in document FC 108/26(c), Payment of the European Community to cover Administrative and Other Expenses arising out of its Membership.
1 Ref. CL 119/13, paras. 39-41; CL 120/15, paras. 47-51; CL 123/15, paras. 59-62
2 As estimated by the actuaries in 2004, based on assumptions of 2003 valuation
NOTE: All data provided is provisional as of 28 September, 2004.
Budget Revisions to ongoing projects and final Budget Revisions for closed projects mean that data provided may be subject to change prior to final closure of project accounts.