FC 108/26 f)

Finance Committee

1. This Committee, at its Ninety-ninth Session in May 2002, approved the proposal establishing an FAO-GEF¹ Fund and its special audit examination by the External Auditor. This was reported to the 123^rd Session of the Council as follows:

“91. The Committee examined the Memorandum of Understanding between FAO and the Global Environment Facility and the request for a separate audit opinion to be given by the External Auditor on the biennial statement of the proposed FAO-GEF Fund. The Committee welcomed strengthening the partnership between the two institutions and noted the complementary strategic priorities.
 

92. The Committee supported the proposal and requested the External Auditor, in accordance with the provisions of Financial Regulation 12.6 and the Organization’s rules and procedures for external audit, to perform a special biennial audit of the FAO/GEF Fund, the cost of which would be covered by project funds.”

New audit requirement on the part of the GEF and its Trustee – the International Bank for Reconstruction and Development (World Bank)

2. Following an extension in the scope of the FAO-GEF collaboration, the GEF Secretariat in consultation with its Trustee, the World Bank, wishes to introduce into a revised Financial Procedures Agreement with FAO a new audit provision for project-specific audit (which is now applied to all UN recipients of GEF funds):

“Section 12.5. Where the Trustee has reason for concern that GEF resources may not have been used in accordance with the Instrument and the decisions taken by the Council, the Trustee will ask FAO to provide it with information concerning the use of GEF resources in respect of the GEF Project(s) concerned. If after reviewing any such information provided by FAO, the Trustee continues to have a concern as to the manner in which the GEF resources provided to FAO for such GEF Project(s) have been used, the Trustee may request FAO to cause accounts and reports of such individual GEF Project(s) to be audited by its external auditors on terms agreed with the Trustee. The Trustee would require such additional audits only in these exceptional circumstances, and will communicate fully its reasons for such request to FAO. The costs of such audits will be borne by FAO; however, should the additional audit by FAO’s external auditors disclose that the resources were used in accordance with the Instrument and the decisions taken by the Council, the cost of such audits shall be borne by the GEF Trust Fund.”

3. It is considered unlikely that this contingent audit provision would ever be invoked, since the Organization is confident that any possible issues that the GEF might raise could be resolved in the course of normal business. The cost of such an audit would, initially, be incurred against the Income deriving from the GEF projects (currently referred to as the Fee for the recovery of reasonable costs incurred by Implementing and Executing Agencies for provision of Project Cycle Management Services). In the normal course of events this would be followed by reimbursement of the project audit cost from the GEF Trust Fund, with no incremental liability arising for FAO.

Conclusion and recommendation

4. The revised Financial Procedures Agreement foresees project-specific audit action in predefined circumstances which are considered reasonable and unlikely to materialize. It is recommended to the Committee that this new provision be accepted and that the Committee request the External Auditor to agree to undertake any ensuing project-audit examinations.

_________________________

¹ The Global Environment Facility (GEF) is an independent financial organization that provides grants to developing countries for projects that benefit the global environment and promote sustainable livelihoods in local communities. GEF resources can be utilized to cover the incremental costs of measures that provide global benefits in the areas of biodiversity conservation, climate change, international waters, sustainable land management, persistent organic pollutants, and ozone layer depletion.