FC 107/15

Finance Committee

Table of Contents

Background

Application of the Arrears

Allocation of Amount Available for Use

Action Sought from the Finance Committee

Annex I:  Resolution 6/2001 - Use of Arrears

Annex II: Arrears Use for Specific Purposes (US$ '000)

Background

1. In late 2002, the Organization received from the Major Contributor a payment of arrears in the amount of US$ 100 million. The use of these funds was stipulated in Conference Resolution 6/2001 (see Annex I). The conditions of the Resolution as well as the Conference Report require that amounts available after the proportional reduction in the accumulated deficit of the Organization be used taking into account that:

• the funds are authorized for the purposes defined in the Resolution;
• expenditures must be committed by 31 December 2005 and all commitments must be closed by 31 December 2006; and
• the explicit requirement in the Conference Report is that the expenditure items be of a one-time nature.

2. The Finance Committee received, at its 104^th Session in October 2003, an oral summary on the use of arrears and asked that additional information be provided to the 107^th Session in May 2004. This report has been prepared in response to the request of the Committee.

Application of the Arrears

3. As indicated above, a total amount of US$ 100 million was received as a payment against arrears of Assessed Contributions, the Special Reserve Account and the Working Capital Fund. In agreement with the major contributor, the amounts were allocated as shown in Table 1.

Table 1. Payment of Amounts due as Arrears from the Major Contributor

4. The application of the amount of US$ 92,747,868 paid to the General Fund was, according to Resolution 6/2001, to be used to reimburse the Working Capital Fund and adjust the accumulated deficit, with the remainder being available for use under Operative Clause 4 of Resolution 6/2001, as shown in Table 2.

Table 2. Allocation of Amount Available for Use

Allocation of Amount Available for Use

5. Resolution 6/2001 authorized expenditures up to US$ 50.7 million under Operative Clause 4 and hence it was necessary to realign proposed expenditures to the lower limit of US$ 44.9 million. To achieve the lower level of funding, in April 2003 revisions to the original submissions were sought from the departments concerned. A critical review of the amended proposals was undertaken based upon a set of criteria including:

• how proposed amounts were calculated and their justification;
• consistency with proposals on which Resolution 6/2001 was based (C 2001/LIM/15);
• consistency with the criteria and priorities established in the Resolution;
• absence of potential ongoing costs or other impacts on the programme; and
• avoiding overlaps between proposals.

6. Based upon these criteria and the guidance provided by the Deputy Director-General, target amounts were determined and communicated to the concerned Assistant Directors-General in early June 2003. The Departments determined the specific amounts for individual items and allotments for each year. Table 3 shows adjustments in resources for the areas identified in the Resolution to align proposed expenditure with the level of resources received.

Table 3. Adjustments to Align Proposed Expenditures with Resources Received (US$ ‘000)

7. In many cases, resources were adjusted downward taking into account expenditures from other funding sources prior to the arrears being received. In a few instances, new items were added, including: a project to strengthen the capacity of Less Developed Countries and Small Island Developing States to access electronic information; support to the one-time cost associated with the International Year of Rice; and a study of water resources as a component of national Forestry Resources Assessments.

8. Further demands have also been placed upon the arrears through the actions of the Finance Committee and FAO Conference. The Finance Committee at its 104^th session, when considering the Programme and Budgetary Transfers in the 2002-03 Biennium “recognized that the increased transfer into Chapter 3 was mainly due to incremental cost for field security, resulting from the Minimum Security Telecommunications Standards (MISTS) adopted by the Chief Executives Board for Coordination (CEB). The Committee agreed in principle to the use of arrears for the one-time expenditure on equipment arising from field security requirements, on the understanding that every effort would be made to absorb these costs within the Regular Programme”. In addition, the FAO Conference approved the following provision in the Budget Resolution 7/2003: "Invites the Director-General to make proposals to the Finance Committee for the reallocation of arrears, the use of which was subject to Conference Resolution 6/2001, to cover one-time redeployment and separation costs associated with the implementation of this budget reduction”.

9. With regard to field security costs in 2002-03, it was possible for the Regular Programme to absorb US$ 900,000 of one-time expenditures and thus avoid using arrears for this purpose. However, the Organization faces additional one-time security expenditures in 2004-05 for Amber and Red level terrorist threat duty stations and installation at Headquarters of shatter-proof film on windows and security road blocks. Therefore, the Committee is requested to extend its agreement in principle to the use of arrears for the one-time expenditure on security, again on the understanding that every effort will be made to absorb these costs within the Regular Programme.

10. Approval in principle to cover one-time redeployment and separation associated with the implementation of the budget reduction in the 2004-05 Approved PWB is also requested. An approximate estimate of the amounts involved will be provided to the Committees in the document “Adjustments to the Programme of Work and Budget 2004-05”.

11. Table 4 indicates the arrears expenditures for 2003 and forecast expenditures for 2004 and 2005. This takes into account a 10 percent reduction in 2004 and 2005 of the resources previously approved to provide contingency funds for possible use related to one-time security and redeployment and separation costs.

Table 4. Expenditure by Year (US$ ‘000)

12. With actual expenditure in 2003 of only US$ 3.5 million (7.8 percent of the available arrears resources), it is not yet realistic to report significant achievements. However, a report on the achievements resulting from the use of arrears will be made in the Programme Implementation Report 2004-05.

13. As shown in Table 4, over US$ 26 million (nearly 60 percent) of the arrears resources are to be used for development/strengthening of corporate administrative systems and information technology (IT) infrastructure. These systems are mainly in the Administration and Finance Department, which – as indicated in Table 5 – is expected to use over US$ 20 million. A complete list of activities and the resources assigned to all Divisions is included in Annex II to this paper.

Table 5. Expenditure by Department (US$ ‘000)

Action Sought from the Finance Committee

14. Two areas in which the Organization is facing major one-time expenditures, not currently covered by Regular Programme resources, relate to security and redeployment and separation as described above. At the present time, it is not possible to identify the exact cost of either of these. The security costs are largely dependent upon decisions adopted or to be adopted by the Chief Executives Board for Coordination (CEB) and applied to all UN Organizations. Similarly, redeployment and separation associated with the implementation of the budget reduction in the 2004-05 Approved PWB depend upon the success in redeploying staff on posts identified for abolition.

15. The Committee is therefore requested to approve in principle the setting aside of an amount of US$ 4.1 million, for possible use in covering one-time costs related to security and redeployment and separation, on the understanding that the Organization will make every effort to absorb these costs within the Regular Programme and inform the Committee when more reliable information becomes available on the actual costs.

Annex I

RESOLUTION 6/2001
Use of Arrears

THE CONFERENCE,

Noting the continued pressure to constrain public expenditure and the consequences for the Organization’s Assessed Contributions,

Recognizing that the demands placed upon the Organization in respect of its programmes exceed the level of the effective working budget as defined in its Programme of Work,

Noting that the Director-General had, as a consequence, been unable to accommodate a number of important capital and other one-time expenditures under the budget as approved by the Conference,

Noting that additional funds could become available to the Organization during the biennium 2002-2003 in the form of payments of arrears of contributions, in particular by the major contributor,

Notwithstanding the continuing generous support of Trust Fund donors to the work of the Organization and recognizing that some of the purposes mentioned below could benefit from voluntary contributions,

1. Requires that the Director-General apply such arrears as may be paid by the major contributor to a proportional reduction in the accumulated deficit as shown in the accounts of the Organization as at 31 December 2001 (excluding the cumulative impact of amortization of the liability for After Service Medical Coverage) equal to the proportion of payments made by the major contributor of its total arrears in Assessed Contributions,
   
2. Reaffirms the principle of Financial Regulation 6.1 that any cash surplus in the General Fund at the close of any financial period shall be allocated among Member Nations,
   
3. Urges Member Nations to pay their assessments in full, on time and without conditions and to immediately pay all arrears,
   
4. Authorizes the Director-General, notwithstanding Financial Regulation 6.1, to use part or the whole of the balance of such payments of arrears for the following purposes, after providing for the implementation in full of the Programme of Work and Budget for the 2002-2003 biennium under Resolution 4/2001, and to carry forward such funds to the following biennium if necessary, subject to the receipt of such arrears:

5. Establishes Chapter 9 of the Programme of Work and Budget, "One-time Expenditures funded from Arrears", to manage such expenditures.

(Adopted on 9 November 2001)

Annex II

Arrears Use for Specific Purposes (US$ ‘000)