FINANCE COMMITTEE

Introduction

1. At its session in May 1999, the Finance Committee reviewed the Thirty-second Annual Report of Budgetary Performance and Programme and Budgetary Transfers (FC 92/4), which was subsequently endorsed by the Council at its Hundred and sixteenth Session in June 1999. The document tentatively indicated that transfers would be required principally in favour of General Policy and Direction (Chapter 1 - US$ 1 million), Development Services to Member Nations (Chapter 3 - US$ 4 million) and Common Services (Chapter 6 - US$ 3 million), with resources transferred from the technical programmes (Chapter 2).

2. While regretting the need to transfer resources from the technical programmes, where discretionary expenditure is greatest, the Committee recognized that this was a result of the factors outlined in the Annual Report of Budgetary Performance including under-budgeted costs in essential areas of the non-technical programmes, such as the development costs of Oracle.

3. This document provides updated estimates of the Chapter transfers foreseen in 1998-99, for approval by the Finance Committee in accordance with Financial Regulation (FR) 4.5.

Overall Biennial Forecast and Budgetary Transfers between Chapters

4. Conference Resolution 7/97 on the Budgetary Appropriations for 1998-99 approved a budget of US$ 650 million, and FR 4.1(a) authorizes the Director-General to incur obligations up to the amount voted.

5. Full utilization of the 1998-99 appropriation is foreseen. In this connection, it is recalled that:

• The 1998-99 Programme of Work, for the first time, includes the projected availability of resources from Other Income¹. A 20% shortfall in support cost income versus the budgeted amount of US$ 43 million in 1998-99 is foreseen and should be offset by corresponding reductions in planned expenditure to remain within the approved budgetary appropriation of US$ 650 million.
• A US$ 12 million authority was established by the 1997 Conference to cover redeployment and separation costs in 1998-99, and at its Ninetieth Session in September 1998, the Finance Committee was advised that approximately US$ 10.5 million is expected to be charged to the authority (document FC 90/5 refers). In line with Conference Resolution C 97/7 on the 1998-99 budgetary appropriations, this expenditure is not chargeable against the US$ 650 million budget.
• The September 1998 Joint Meeting of the Programme and Finance Committees approved the use of the Special Reserve Account (SRA) for up to US$ 5 million or such lesser amount as may prove necessary to cover the unbudgeted extra costs arising from the award of the ILOAT with respect to General Service salaries in Rome. Utilization of US$ 5 million from the SRA is foreseen and is excluded from the planned expenditure chargeable against the appropriation, as it is highly unlikely that the costs arising from the award of the ILOAT can be absorbed without impairing the implementation of the approved programmes. Even after this use of the SRA, the 1998-99 Staff Cost Variance is expected to exceed US$ 2 million.

6. The Thirty-second Annual Report of Budgetary Performance and Programme and Budgetary Transfers (FC 92/4) noted that the extent of the transfers would be influenced by factors including changes in accounting policies resulting from the implementation of Oracle, initial Oracle roll-out costs, Year 2000 compliance costs, and the modalities and timing of the transfer of telecommunications functions from AFS to AFI.

7. The 1998-99 transfers sought in this paper are consistent with the amounts previously foreseen except that approval is also sought to transfer up to US$ 3.0 million into Chapter 5, with the resources being transferred from Chapter 2.

8. It had been forecast that Chapter 5 expenditure could be held to the budget ceiling as the under-budgeted amounts, primarily for Oracle, were offset by the transfer of staff and non-staff costs for maintenance and the provision of voice and data services from AFI Chapter 5 to AFS Chapter 6. However, the sum of the additional allocations to Oracle development costs (US$ 3.3 million), the decline in support cost income (i.e. US$ 2 million for AOS from projects and reimbursements from WFP) and some lesser transfers within GI from Chapter 1 to Major Programme 5.2 have caused the situation to deteriorate and thus approval is sought for additional transfers. It is noted that Oracle operational costs commencing in 1999 have not significantly affected Chapter 5 (i.e. less than US$ 100 000) as the operational costs for Oracle will be charged to the AFI Computer Pool, and are thus distributed across all programmes.

9. Except for recent developments under Chapter 5, described above, the explanations of the required transfers by chapter were provided in the Thirty-second Annual Report of Budgetary Performance and Programme and Budgetary Transfers (FC 92/4), which the Finance Committee reviewed in May 1999. A summary of the main influencing factors concerning chapters requiring additional resources is provided below:

• Chapter 1: Over-spending of US$ 0.5 million arises from the existence of some temporary administrative and personnel posts, as well as from the necessity to cover the lapse factor which many of the small ODG units were unable to absorb.
• Chapter 2: Under-spending against the appropriation is partially the result of a planned reduction to the Professional Staff allotments which was taken against this chapter at the beginning of 1998 and 1999 in order to fund programmes which have been under-budgeted. Under-spending against the appropriation of US$ 7.9 million has already occurred in 1998, largely resulting from professional vacancies and delayed financial implementation of some programmes. The required 1999 under-spending will therefore be less than in 1998.
• Chapter 3: Estimated over-spending against the appropriation of approximately US$ 3.6 million is largely due to the substantial effect of the decline in support cost income (currently estimated at US$ 8 million less than budgeted for the biennium) on this chapter. Reduced AOS income increases the net charges against the appropriation if it is not matched by corresponding reductions in expenditure. While expenditure is being reduced, there is a lag which prevents the decline in income being matched by an equal decline in expenditure in the same reporting period.
• Chapter 5: As explained above, over-spending of up to US$ 3.0 million against this chapter is now anticipated and is largely due to the decline in support cost income and higher than expected costs for the Oracle Project.
• Chapter 6: Over-spending of approximately US$ 2.5 million against the appropriation arises mainly from the transfer of staff and non-staff costs from Chapter 5 for the AFS/AFI restructuring, for the period from 1 January 1998 to June 1999. In addition, US$ 0.8 million was required in 1998 to cover unbudgeted arrears for gas consumption at Headquarters, which arose as a result of a persistent misreading of the main gas meter by the utility supplier. Further under-budgeted costs may arise as a result of an imminent relocation of the Regional Office in Africa to a new common UN building.

Decision Sought

10. In accordance with FR 4.5, the Finance Committee is requested to endorse the transfer of up to US$ 11 million from Chapter 2 Technical and Economic Programmes, to Chapter 1 General Policy and Direction (US$ 1 million), Chapter 3 Development Services to Member Nations (US$ 4 million), Chapter 5 Support Services (US$ 3 million) and Chapter 6 Common Services (US$ 3 million). The precise amounts transferred can only be determined in the light of the Regular Programme accounts for 1998-99, to be finalized in early 2000. Given the the additional complexities involved in the financial management of resources in the current biennium arising from the incorporation of Other Income into the 1998-99 Programme of Work, the implementation of a new financial system during the biennium and related changes in financial procedures and possible changes in administrative structures, the Committee may wish to note that there could be some variation to the figures given at the present time and agree that the Director-General would report to the Finance Committee at its first session in 2000, the exact amounts transferred.

1 Other Income comprises voluntary contributions that are largely at the disposal of the Organization, and/or resources that are managed closely with the Regular Budget Appropriation.