PC 91/INF/3 - FC 107/7

Programme Committee and
Finance Committee

Table of Contents

I. Background

II. Mandate and Scope

III. Procedures and Guidelines for the Acceptance of Extra-budgetary Funds

IV. Strategic Framework and Programme Planning

V. Oversight and Internal Governance throughout the Project Cycle

I. Background

1. During its 104th session, the Finance Committee “recalled that in the absence of a policy framework agreed by the Governing Bodies on the use of extra-budgetary funds, some member states had expressed concern about the scope of activities carried out with such resources. Accordingly, the Committee requested that a paper be prepared for the May 2004 session on an oversight framework for the use of extra-budgetary funds.¹ It was noted that this paper should also be submitted to the Programme Committee.”

II. Mandate and Scope

2. The mandate of the Organization, as set forth in Article 1 of the FAO Constitution, states, inter alia, that:

“It shall also be the function of the Organization:

a. to furnish such technical assistance as governments may request;

b. organize, in cooperation with the governments concerned, such missions as may be needed to assist them to fulfil the obligation arising from their acceptance of the recommendations of the United Nations Conference on Food and Agriculture and of this Constitution...” ²

3. Financial Regulation 6.7 in the Basic Texts enables the Director-General to accept voluntary contributions. This Financial Regulation provides that:

        “Voluntary contributions, whether or not in cash, may be accepted by the Director-General, and Trust and Special Funds may be established by him to cover moneys made available to the Organization for special purposes, provided that the purposes of such contributions and moneys are consistent with the policies, aims and activities of the Organization.”³

4. In line with this Financial Regulation, “[t]he purposes and limits of any Trust and Special Funds shall be clearly defined”, and therefore each agreement is supported by a project document which defines the objectives of the project and the activities to be undertaken. Such contributions can be broadly classified into the following categories:

• activities within the framework of the field programme in the form of projects, including proceeds collected through the TeleFood appeal, to be used to finance concrete grassroots-level projects;
• sponsorship and other private and public contributions to finance the promotion and coordination of the TeleFood operation worldwide;
• contributions to the normative activities of the Organization as a whole and of the technical departments; and
• contribution to the physical infrastructure of FAO.

5. “The acceptance of any such contributions and moneys which directly or indirectly involves additional financial obligations for Member Nations and Associate Members shall require the consent of the Conference.” ⁴

This is assured by the general policies and procedures that apply to projects funded from extra-budgetary resources and which require that projects do not “involve additional financial obligations for Member Nations”:

• all direct costs are to be budgeted in the project document and are funded by the donor, recognising however, that partnerships may involve jointly funded activities which are in direct support of the Organization’s approved Programme of Work – the FAO share of the cost of such activities would be funded from the Regular Programme;
• indirect variable costs are charged to projects and funded by donors on the basis of the approved policy for the recovery of support costs through the project support cost rates (PSC);⁵
• incremental costs associated with the cost of financing project cash flow is generally avoided through the application of the long-standing policy⁶ which requires that funds must be received before commitments can be made by the Organization.

6. “Trust and Special Funds and voluntary contributions shall be administered in accordance with the Financial Regulations of the Organization, unless otherwise provided for by the Conference.” ⁷

The financial administration of Trust and Special Funds is subject to all the financial regulations, rules and related procedures applicable to the General Fund, except for inevitable differences arising from the specific nature of the funds concerned.

7. “Trust and Special Funds shall be reported to the Finance Committee.” ⁸

Trust and Special Funds are reported along with the General Fund in the Organization’s biennial Financial Statements and are equally covered by the opinion of the External Auditor. (In addition, the Organization produces and provides to donors a booklet showing the balances and biennial receipts and expenditures for each project financed from Trust Funds.)

III. Procedures and Guidelines for the Acceptance of Extra-budgetary Funds

8. Extra-budgetary contributions are formally negotiated on behalf of the Organization by the ADG/TC, more specifically by TCA for contributions to normative and operational activities and by TCE for emergency activities. All contributions are subject to a formal agreement with the donor concerned, to which a project document describing in detail the activities to be undertaken is appended.

9. For each contribution, AFF opens a separate account in Oracle.⁹ Budget holders and organizational management monitor and manage the use of resources throughout the project cycle in accordance with the Organization’s rules and regulations. All related financial transactions and records are subject to the normal financial controls of the Organization and to audit by the External Auditor and Office of the Inspector-General.

10. For negotiations with donors for contributions in support of normative activities below US$150 000 in value, authority is delegated to the ADGs of the recipient departments, as governed by Administrative Circular 2001/8 and TC Procedure 2001/02.¹⁰ For these contributions the formal agreement can take the form of a Letter of Agreement.

11. Individual donations collected through the TeleFood appeal (coordinated by GI) are either sent to the TeleFood Special Fund account at FAO headquarters or paid directly into one of the TeleFood national bank accounts opened by AFF in a number of countries. The total amount received worldwide is certified at the end of each yearly campaign by AF. The approval for the use of the funds rests with TC, with delegation to TCOS for ensuring that projects are in line with TeleFood guidelines and, with support from relevant technical divisions, that they are technically sound.

IV. Strategic Framework and Programme Planning

12. FAO’s Strategic Framework 2000-2015 (SF), approved by the FAO Conference in 1999, and the associated programme planning process, guide the work of the Organization under all sources of funds.

13. The Strategic Framework defines five corporate strategies to address member countries’ needs, facilitated by six additional strategies covering cross-organizational issues (SACOIs). As the requirements for implementing the corporate strategies through normative and operational activities will generally exceed resources available from assessed contributions (Regular Programme), additional resources through voluntary contributions are often required to allow the programme to be fully implemented. In this context, the SACOIs create the conditions for the Organization to leverage extra-budgetary resources through effective targeting of support to priority areas in both the normative and field programmes by Broadening Partnerships and Alliances, Continuing to Improve the Management Process, and Leveraging Resources for FAO and its Members.

14. The rolling six-year Medium-Term Plan (MTP) operationalizes the Strategic Framework and provides the structure for the application of regular and extra-budgetary resources. It identifies opportunities for extra-budgetary support linked to specific programme entities. As such, it forms a basis for FAO’s cross-organizational resource mobilization effort and serves as an indication to donors regarding the areas where their voluntary contributions could be most productive within the framework of the approved set of medium-term priorities.

15. The two-year Programme of Work and Budget (PWB) provides the budgeted implementation plan for the first biennium of the rolling Medium-Term Plan. The Programme of Work is based on both Regular Programme resources and on Other Income. The latter is defined as “...voluntary contributions [as per FR 6.7] available to execute the Programme of Work because they are at the disposal of the Organization and/or are managed closely with the Regular Budget Appropriation.”¹¹ In addition, expenditure estimates for field programme and emergency trust funds are given by region and by Programme, providing an indication of the demand from Members and of the likely level of support given donors’ policies.

16. The Organization applies a results-based approach to programme and project identification and design for all sources of funds. This implies the statement of clearly defined objectives, outcomes, outputs and performance indicators, implementation monitoring and a comprehensive evaluation regime. The planning and reporting processes apply to both Regular Programme resources and the associated supplementary extra-budgetary funding, and are an integral part of the oversight framework for the application of extra-budgetary resources in support of normative and operational activities of the Organization.

17. Organizational accountability is assured through the biennial Programme Implementation Report, which is a comprehensive and quantitative account of achievements against the biennial Programme of Work as defined in the MTP and PWB. Under Other Income and Trust Funds, it includes an analysis of expenditure of extra-budgetary resources in support of the Programme of Work.

V. Oversight and Internal Governance throughout the Project Cycle

A. FIELD PROGRAMME COMMITTEE

18. The Field Programme Committee is a high-level committee that promotes, coordinates and monitors organization-wide activities and initiatives aimed at improving and expanding the field programme of the Organization in line with the Strategic Framework 2000-2015. In particular, the Committee provides policy guidance and oversight at programme level.

B. PROGRAMME AND PROJECT REVIEW

19. All FAO programme and project documents require definitions of long-term and immediate objectives, and their relation to national and/or regional strategies and priorities. They are formulated in accordance with guidelines and predefined formats which depend on the source of funding and the execution and/or implementation modalities. Three main formats are available in FAO, namely Trust Fund (GCP/UTF), TCP and UNDP, although it should be noted that many funding sources have their own formats (e.g. GEF, EC, etc.). Prior to submission for approval and signature by the concerned parties (i.e. donors, government), programme and project documents are subject to an internal review process, as outlined in Attachment 1.

20. The Programme and Project Review Committee (PPRC) is a high-level internal committee established to review programme and project proposals to ensure their compliance with the general orientation and policies of FAO. In particular, it ensures that the various projects implemented by FAO in a particular country are mutually supportive and possess real synergies in pursuing common objectives. The PPRC also ensures that proposed programmes and projects are in line with the following six guiding principles:

• ensure continuing interaction between the Organization’s normative and operational activities;
• draw maximum benefit from the Organization’s comparative advantages and intervene where such advantages are known to exist;
• have a tangible impact in improving the food security of the least privileged populations and in contributing to sustainable rural development;
• build and/or reinforce national capabilities, promote sustained self-reliance and support the sustainable use and management of natural resources;
• promote gender equality and equity; and
• promote broader partnerships, alliances and participation.

In addition, the PPRC ensures that all the programmes and projects it endorses contribute to the follow-up to the World Food Summit and are coherent with and, wherever possible, strengthen the Special Programme for Food Security (SPFS).

C. PROJECT IMPLEMENTATION

21. Project delivery and performance is monitored through the Oracle Data Warehouse; the Field Programme Monitoring Information System (FPMIS) through a system of delivery estimates; and the Quarterly Project Implementation Reports (QPIRs) which show quantitative delivery and plans in terms of in-kind inputs and activities. The work of project managers is reviewed and monitored at different levels: by budget holders, regional operations branches (where applicable) and TCOM. The control and oversight mechanisms during project implementation are described in Attachment 2.

D. INTERNAL AUDIT

22. The audit regime in FAO, as specified in FAO's Basic Texts, consists of External Audit provided by the Auditor-General (or person exercising an equivalent function) of a Member Nation appointed by the Governing Bodies of the Organization and reporting directly to them, and an internal audit function performed by the Office of the Inspector-General (AUD) located in the Office of the Director-General. AUD operates as an integral part of the Organization’s system of internal controls, following best practices, and under policies established by senior management. The annual reports of the Inspector-General to the Director-General, as well as any other reports deemed necessary, are communicated to the Finance Committee.

23. The audit strategy, scope and practice of AUD retain the concept of comprehensive auditing embodying financial, compliance, performance and ‘value for money’ features. Accordingly, the internal audit function addresses headquarters’ activities and programmes, focusing on such aspects as reliability and integrity of financial operations, compliance with the Organization's rules and regulations, and the proper safeguarding of assets. Audits of decentralized activities provide assurance that field operations are managed in an economical, efficient and effective manner, with emphasis on the most significant programme priorities. Special reviews, studies and investigations are also carried out to assess performance and value-for-money aspects, including instances of fraud or potential fraud.

24. In addition, the Internal Audit programme continuously assists management in improving the operations of the Organization, promoting control at reasonable cost, and actively following up on the implementation of audit recommendations. Advisory services are provided to units, and participation of internal audit is ensured in various internal committees and working groups, as required.

E. EVALUATION

25. All extra-budgetary funding, which is fully integrated with that for the regular budget, is subject to a rigorous evaluation by the Evaluation Service. All individual projects with a budget of US$1 million or more, excluding emergency assistance, are currently subject to independent evaluation at least once in the project’s life. This applies both when projects are in support of the normative work of the Organization and when they are directly in support of member countries. Such evaluations are carried out by fully independent teams which represent the donor, the participating countries and FAO. Emergency assistance projects, field projects under US$1 million, and small projects which form part of a normative programme are also subject to independent evaluation, usually within the context of evaluation of an FAO strategic objective or programme, or through evaluation of FAO activities in a country or sub-region.

26. Evaluation criteria which are published in a number of Governing Body documents, in particular, Evaluation in the Context of the Strategic Framework and the New Programme Model (September 1999),¹²ⁱare also available on the Evaluation Service Web site.¹³ Particularly important among these evaluation criteria is conformity to the Organization’s priorities as established by member countries and also to those of the individual countries benefiting from particular funding. It may be noted in this regard that no evaluations in recent years have found any divergence between the priorities to which extra-budgetary funding is being applied and those agreed for the Organization by the Governing Bodies.

27. The Programme Committee is consulted on the future programme of independent evaluations, including evaluations of strategies, programmes and themes with significant extra-budgetary components. In this way, the result of the application of extra-budgetary resources is fully integrated with that on the application of regular budget resources.

28. The Programme Committee receives a synthesis paper on the findings of field project evaluations¹⁴ⁱⁱwhich are available in summary form on the Evaluation Service Web site. Oversight is further assured in the subsequent reporting by the secretariat to the Programme Committee on the follow-up actions taken as a result of the evaluation findings and recommendations.

29. In addition, an auto-evaluation process has recently been initiated which will comprehensively cover all programme entities. The process is carried out by FAO managers responsible for the entities and includes the application of extra-budgetary funds falling within the work of the entity. It is expected that the Evaluation Service will synthesize the results of these evaluations for consideration by the Governing Bodies.

Attachment 1

Attachment 2

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¹ It should be noted that for the sake of this paper, the term “extra-budgetary resources” refers to those funds received in addition to the assessed contributions of members in support of the Organization’s normative and operational activities as outlined in the Programme of Work and Budget.

² FAO. “Constitution” (Article I, point 3) in Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I – 2000 edition (Rome, FAO, 2001).

³ FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001).

⁴ FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001)

⁵ The extent of recovery versus the support costs incurred is subject to regular reporting to the Governing Bodies through the biennial Programme Implementation Report. (It should be noted that TeleFood projects are not subject to the levy of PSC in accordance with Conference resolution 3/97.)

⁶ MS 250.113.

⁷ FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001)

⁸ FAO, Basic Texts of the Food and Agriculture Organization of the United Nations, Volume I, Part C- 2000 edition (Rome, FAO, 2001)

⁹ Except for contributions not exceeding US$150 000 in value, made in direct refund of Regular Budget normative expenditure, for which no formal financial reporting is sought by the contributor (see procedures referenced in footnote 7).

¹⁰ AC 2001/8: “Procedure for the Treatment of Ad Hoc Extra-Budgetary Contributions in Direct Support or in Reimbursement of Regular Programme Funded Normative Activities (not exceeding US$150 000)”; TC Procedure 2001/2: “Special Procedure for the Receipt of ad hoc Extra-budgetary Contributions in Support of Normative Activities (not exceeding a total amount of US$150 000)”.

¹¹ C 2003/3, Programme of Work and Budget 2004-2005, paragraph 154.

¹² PC 82/4: see in particular paragraphs 5 and 11.

¹³ http://www.fao.org/pbe/pbee

¹⁴ PC 83/4 (b) was the most recent of these papers in 2000.