| CL 116/16
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| CL 116/16
|
Hundred-and-sixteenth Session |
Rome, 14 - 19 June 1999 |
REPORT OF THE NINETY-SECOND
SESSION OF THE FINANCE COMMITTEE,
|
MATTERS REQUIRING ATTENTION BY THE COUNCIL
FAO STRATEGIC FRAMEWORK 2000-2015 (VERSION 3.0)
SUMMARY PROGRAMME OF WORK AND BUDGET 2000-2001
ANNUAL REPORT OF BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS
FINANCIAL POSITION OF THE ORGANIZATION
REGULAR PROGRAMME AND TRUST FUNDS, COMPESATION PLAN RESERVE FUND AND SEPARATION PAYMENTS SCHEME
1998 ANNUAL ACTIVITY REPORT OF THE OFFICE OF THE INSPECTOR-GENERAL
PROGRESS REPORT ON IMPLEMENTATION OF THE EXTERNAL AUDITOR'S RECOMMENDATIONS
UN JOINT INSPECTION UNIT REPORTS - WORK PROGRAMME OF THE JOINT INSPECTION UNIT FOR 1999
ANNUAL REPORT OF BUDGETARY PERFORMANCE AND PROGRAMME
AND BUDGETARY TRANSFERS
ANNOUNCEMENT OF THE DIRECTOR-GENERAL TO THE JOINT MEETING OF THE PROGRAMME AND FINANCE COMMITTEES
REPORT OF THE NINETY-SECOND SESSION OF THE FINANCE COMMITTEE
3 - 7 May 1999
1. The Committee submitted to the Council the following report of its Ninety-Second Session.
2. The following representatives were present:
| Chairperson: | Mr Julian A. Thomas (South Africa) |
| Vice-Chairperson: | Mr Luigi M. Fontana-Giusti (Italy) Mr Roberto O. Villambrosa (Argentina) Mr Kalarickal P. Fabian (India) Mr Horacio Maltez (Panama) Mr Lubomir Micek (Slovak Republic) Ms Ekhlas Fouad Eltom (Sudan) Ms Laurie J. Tracy (United States of America) |
3. Mr Samba Moomi Te Avelela (Democratic Republic of Congo) was regretfully unable to attend this session.
4. The Committee welcomed Version 3.0 of the Strategic Framework, noting the significant improvements introduced and the progress made through incorporating the comments of members at the Council, on Version 1.0 and at the subsequent meetings of the Technical Committees on Version 2.0.
5. Concern was expressed by some members about the feasibility of attaining the global goals and in particular, whether it would be possible to halve the number of chronically undernourished people no later than the year 2015, considering the financial resources which would be required by countries, and by the international community, including FAO, to assist them. The secretariat explained that in regard to resources for FAO, the Strategic Framework was essentially resource neutral. Funding considerations would be addressed in the Medium Term Plan, which would include resources and permit the choice of specific technical projects or other programme entities in the light of resource availability.
6. The Committee reviewed Part I, which provided the Overall Strategic Framework, and agreed that it could, in addition, provide the basis for a short, more media and public opinion oriented text, which could be developed in order to facilitate dissemination of the underlying message to a broader audience. In Part II, particular support was expressed for the Strategies to Address Cross-Organizational Issues, including those dealing with partnerships and with continued improvements to the management process. Specific amendments to the text of Part II were proposed by several members.
7. The Committee concentrated on Part III, which provided the Implementation Programme and welcomed its addition to the document. It especially welcomed the new programme model, its stronger emphasis on results, monitoring and evaluation and its proposed application in the Medium Term Plan, and confirmed its view that the implementation schedule seemed reasonable and achievable.
8. The Committee agreed with the importance of including in the Strategic Framework criteria for priority-setting and FAO's comparative advantages. The Committee recognized that their application was more practical at the stages of formulation of the Medium Term Plan and the Programme of Work and Budget. In particular, the comparative advantages of FAO's involvement could be assessed in more precise terms in the context of specific programme areas or disciplines, based upon the general formulations given in the document. However, it asked that the definitions be refined and sharpened with a view to improving their effectiveness for application.
9. In the Committee's consideration of the Annex on Regional Priorities, it was noted that most regions had not yet had sufficient time to review the proposals and that proposed amendments would be submitted to the Secretariat in due course.
10. In discussing the form of the final version to be submitted to the Conference, the Committee agreed on the need for a more concise document. In this regard, it welcomed the suggestion that the analytical annexes be placed in a supplementary document thus allowing this supporting documentation to be placed before the Conference while limiting approval to the Strategic Framework itself.
11. The Summary Programme of Work and Budget proposals for 2000-2001 were presented to the Committee on the basis of a Zero Real Growth (ZRG) scenario as well as a real growth scenario of US$ 22.6 million beyond ZRG. One member regretted the absence of a Zero Nominal Growth (ZNG) scenario given that this was acknowledged to be the known preference of more than one member nation, emphasizing the need to include this scenario in future budget documents for 2000-2001. The Secretariat drew attention to the fact that FAO was the only large United Nations agency that had suffered a nominal decline in resources since 1994.
12. The Committee welcomed the introduction of the new programme model throughout the technical programmes. It recognized that potential presentational difficulties that arose in the 2000-2001 Programme of Work and Budget documents were an inevitable consequence of the transitional step in the change from the old to new programme structures.
13. The Committee considered and endorsed the cost increase calculations, as well as the assumptions on which these were based. It recognized that US$10.3 million of the overall cost increases of US$34.7 million had arisen from events that had already taken effect. In particular, it noted that the need to take account of the retroactive 4 percent increase on general service salaries at Headquarters (US$5.5 million) and a significant increase in the current service cost of after service medical coverage (US$3.3 million) and the Staff Compensation Plan (US$1.5 million) had accounted for US$10.3 million of the overall increase.
14. The Secretariat confirmed that the data on cost increase assumptions would be critically reviewed and revised in the full PWB to reflect the latest forecast for inflation for each item. It also reaffirmed that the SPWB was prepared on the basis of the budget rate adopted by the Conference for the 1998-1999 budget of Lire 1 690 to the Dollar. The Committee noted that under the current methodology, the cost increase estimate would be revised to reflect the US dollar/lire rate of exchange on the day the resolution is put before the Conference. It noted that the impact of this is an estimated increase/decrease of US$3.7 million for every movement of Lire 25 in the dollar/lire exchange rate (e.g. at the current rate of Lire 1830, the cost increase figure would be reduced from US$34.7 million to approximately US$15 million).
15. The Committee encouraged the Director-General to continue to find ways to achieve further efficiencies, as a means of containing the level of the budget or re-programming resources for priority activities. In this connection, the Committee was reminded of the substantial efficiency savings made since 1994, amounting to approximately US$40 million per annum. It was informed that, in the view of the secretariat, the scope for further savings was very limited and that a budget based upon ZNG would result in programme reductions. In particular, and in response to member questions, the secretariat replied that most savings from decentralization had already been captured and that savings from the implementation of Oracle would only be realized after 2000-2001.
16. The Committee recognized that it would not be possible, at this stage, to form a consensus recommendation on the budget level for the next biennium and noted that this particular aspect would also be discussed at the Joint Meeting of the Programme and Finance Committees.
17. The Committee reviewed the Director-General's Thirty-second Annual Report of Budgetary Performance to Member Nations. The report, submitted for information purposes, provided data on the overall Regular Programme budgetary outturn for 1998. The report is attached as Annex I.
18. The Committee noted that this was the first budgetary performance report to be presented in the context of the "gross budgeting" framework that was set out in the PWB 1998-1999. It noted that Other Income had fallen short of the budgeted amount by US$7.1 million in 1998 and that this required corresponding reductions in the programme of work to remain within the appropriation of US$650 million.
19. The Committee also noted that redeployment and separation costs that were part of the US$12 million authority established by the Conference were not chargeable against the US$650 million budget and were excluded from the planned expenditure in the report. It was hoped that voluntary contributions to finance the US$12 million authority would be forthcoming. If not, the required amount would be charged to the General Fund.
20. It also noted that the staff cost variance was currently forecast to total US$7 million for the biennium and that use of the Special Reserve Account for an amount of US$5 million was foreseen to cover the unbudgeted extra cost arising from the judgement of the ILO Administrative Tribunal, which was adverse to FAO, with respect to general service salaries in Rome. This amount was also excluded from the planned expenditure in the report.
21. The Committee regretted the projected need to transfer resources from the technical programmes (Chapter 2) in favour of General Policy and Direction (Chapter 1), Development Services to member nations (Chapter 3), and Common Services (Chapter 6). However, it recognized that this was largely a result of the factors mentioned and of under-budgeted costs in essential areas of the non-technical programmes, such as the development costs of Oracle. The secretariat explained that in a climate of declining resources such under-budgeted costs had to be funded from the technical programmes, where discretionary expenditure is greatest.
22. The Committee noted that a formal request for transfers between chapters will be submitted at the session in September 1999. It endorsed the report for transmission to the Council.
23. The Committee considered the financial position of the Organization at 3 May 1999 and noted that 50.55 percent of current assessments had been received. Forty-three member nations had paid their current assessments in full, a further 21 members had made partial payment whereas 111 had made no payment as yet towards their 1999 assessment. The Committee expressed satisfaction with the encouraging rate of receipt of contributions compared to the same date last year. The Committee was, however, concerned over the number of member nations with arrears and in particular the number that risked losing their right-to-vote at the Conference later in the year. Accordingly, it renewed its appeal to all member nations with contributions outstanding to pay their assessed contributions and arrears in full as soon as possible.
24. The Committee considered the financial report covering the first year of the biennium 1998-1999. Members discussed the contents and requested clarifications which were provided by the secretariat.
25. The Committee noted that the income and expenditure of the Organization in 1998 were as follows:
STATEMENT OF INCOME AND EXPENDITURE for the period ended 31 December 1998 (US$'000) |
||||
| General and Related Funds | Trust Funds and UNDP | Total | ||
| INCOME: | 1998 | 1996 | ||
| Assessment on Member Nations | 308,447 | - | 308,447 | 315,500 |
| Voluntary contributions | 15,099 | 209,957 | 225,056 | 178,500 |
| Funds received under inter-organisational arrangements | 4,237 | 28,391 | 32,628 | 50,800 |
| Jointly financed activities | 12,916 | - | 12,916 | 18,000 |
| Services rendered | 3,016 | - | 3,016 | 3,000 |
| Miscellaneous | 37,461 | 9,085 | 46,546 | 19,300 |
| Sundry | (3,686) | (3,686) | 14,700 | |
| 377,490 | 247,433 | 624,923 | 599,800 | |
| EXPENDITURE: | ||||
| Regular Programme | 349,154 | - | 349,154 | 356,700 |
| Projects | 247,433 | 247,433 | 241,000 | |
| 349,154 | 247,433 | 596,587 | 597,700 | |
| EXCESS OF INCOME OVER EXPENDITURE | 28,336 | 0 | 28,336 | 2,100 |
| Provision for contributions | (14,453) | 0 | (14,453) | 55,000 |
| Amortisation of After-service Medical Scheme | (10,289) | (10,289) | ||
| NET EXCESS OF INCOME OVER EXPENDITURE | 3,594 | 0 | 3,594 | 57,100 |
| Net Transfers from/(to) Reserves | ||||
| Support Costs | 0 | 3,000 | ||
| Working Capital Fund | (23,700) | - | (23,700) | 700 |
| Special Reserve Account | (29,747) | - | (29,747) | (28,400) |
| Fund balances, beginning of period | 27,609 | 0 | 27,609 | (70,600) |
| FUND BALANCES, END OF PERIOD | (22,244) | 0 | (22,244) | (38,200) |
26. The Committee noted the net excess of income over expenditure of US$3.6 million and the fact that the General Fund was in deficit by US$22 million at the close of the first year of the biennium.
27. The Committee took note of the information contained in documents FC 92/5c(i), FC 92/5c(ii) and FC 92/5c(iii) and expressed appreciation on the quality of the documents presented and results achieved.
28. The Committee noted the FAO Investment Committee oversight arrangements and proposed that any significant developments in the area of investments be brought to the attention of the Finance Committee.
29. The Committee recalled that, in accordance with General Rule XXVII 7(j), it was required to keep under review the Scale of Contributions and to submit recommendations of any changes to the Council.
30. The Committee noted that the FAO Scale of Contributions had been derived directly from the United Nations Scale of Assessments since 1955, when the Eighth Session of the Conference (November 1955) had adopted a resolution to that effect. The FAO Conference had subsequently reviewed this practice in depth and had concluded that it would be appropriate to continue to derive the FAO Scale directly from that of the United Nations.
31. The Committee noted that the proposed FAO Scale of Contributions for the years 2000 and 2001 had been derived directly from the United Nations Scale of Assessments in force for the calendar year 2000, as established by General Assembly Resolution 52/215 adopted on 22 December 1997.
32. The Committee recommended to the Council that the following enabling Resolution be submitted to the Conference:
Resolution /99
SCALE OF CONTRIBUTIONS 2000-01
THE CONFERENCE
Having noted the recommendations of the one hundred-and-sixteenth Session of the Council;
Confirming that as in the past, FAO should follow the United Nations Scale of Assessments subject to adaptation for the different membership of FAO;
33. The Committee noted that the largest contributor intended to negotiate the reduction of the "ceiling rate" (the maximum rate of contribution) with the UN Committee on Contributions in New York, from the current twenty-five percent to twenty-two percent. The largest contributor informed the Committee that, in this instance, it would request that the Conference Resolution be amended to allow for the modification of the scale for the year 2001 subsequent to the adoption of a new scale by the United Nations for the period 2001-2003.
34. The Committee emphasized its interest in and the importance of oversight of the financial and management operations of the Organization. Accordingly, it decided to review the following four items in relationship to each other.
35. The Committee had the subject report before it for information and noted it was the third year the Director-General had made this internal report available to members of the Finance Committee. The Committee expressed its appreciation to the Director-General for continuing this practice which it considered to be an important element of the oversight function. The Committee also expressed its appreciation to the Director-General for the new initiatives he announced at the Joint Meeting with the Programme Committee (statement attached as Annex II to this report). The Committee expressed the hope that, in drafting the Charter to be developed for the Office of the Inspector-General, its concepts could be embodied in a permanent way in the regulations of the Organization. In particular, they commented on the enhanced transparency and new linkages between the secretariat and the member nations.
36. A number of questions and further observations were presented to the Inspector-General relating to the Director-General's statement and other matters identified in the Inspector-General's report. Of significant interest to the Committee was the extent to which management followed up on the recommendations of the Inspector-General and the relationship not only with the External Auditor, but with the Finance Committee itself.
37. On the basis of the questions and comments raised, additional information was provided by the Inspector-General and senior members of management for the areas under their responsibility. The Committee expressed satisfaction with the work of the Office of the Inspector-General and with the responses provided. It requested the Inspector-General to explore ways of reflecting the status of follow-up on selected recommendations in future reports.
38. The Committee considered the status of implementation of the various recommendations and complimented the Organization for the clarity and comprehensiveness of the explanations provided. It recognised that while certain recommendations were easy to implement, there were others that were complex and therefore required more careful study and time. However, it took note of the Organization's intention to implement all the reported recommendations. The External Auditor expressed satisfaction with his relationship with the Office of the Inspector General and the Finance Division.
39. The Committee:
invited the External Auditor to provide, in future, a brief comment on the progress made by the Organization in implementing each recommendation;
requested that representatives from other divisions having an interest or involvement in a particular audit recommendation be invited to attend the meeting, in future, so that the members could have the benefit of their views, and
proposed that the information required would include
40. The Committee took note of the studies included in the work programme. The Committee indicated that the following reports (as outlined in Section II) were of particular interest:
41. In relation to Section III, Preliminary listing of potential reports for 2000 and beyond, the Committee expressed interest in the subject "support costs on programmes and activities financed from extrabudgetary resources" and asked whether the production of this report could be accelerated.
42. The Committee took note of the recommendations in this report and the comments of the Director-General and the ACC thereon. The Committee emphasized the importance and relevance of these documents and expressed its interest in continuing to receive such reports, noting, in particular, the usefulness of this report in its contribution to reflection on the oversight function. The Committee recognized the validity of the JIU's emphasis on providing information to member states on organization compliance with oversight recommendations. It also recognized that strong oversight depends on partnership among member states, internal and external auditors and the management of the Organization.
43. The Committee reviewed the information provided in document FC 92/8 and took note of the verbal information provided by Personnel Division. The Committee requested that the budgetary implications of changes in salary scales and allowances should be indicated in the relevant document.
44. The Committee took note of the information provided in document FC 92/9 and the verbal information provided by Personnel Division. It noted that the decisions taken by the General Assembly on the recommendation of the ICSC would have minimal financial impact.
45. The Committee took note of the proposal to change the quota distribution system of information products contained in document JM 99/2.
46. The Committee supported the proposal in principle given the need to introduce a reduced free distribution system aimed at a more efficient, targeted and equitable dissemination of FAO's information products. The Committee felt, however, that a quota distribution based on a minimum of between 2 to 5 copies per member government would be more appropriate. The Committee suggested that consideration be given to increasing the discount for developing countries and decreasing it for developed countries.
47. The Committee welcomed the document on "Review of FAO Language Policy"1 and the proposals contained therein. Recognizing the importance of linguistic and cultural diversity, as well as the multilingual nature of the Organization, the Committee reaffirmed the principle of statutory parity of all languages of the Organization as outlined in the FAO Constitution, while reiterating the need to maintain a pragmatic and flexible approach in its application and use.
48. The Committee stressed that language issues were of a substantive nature and should not be treated as formal requirements. Language diversity enhanced the work of the Organization and improved its value. It recognized that budgetary constraints in recent biennia had resulted in significant cuts in resources for translation, editing and interpretation and that these had reduced both the use of the languages of the Organization and the quality of texts in the various languages. The Committee asked that management and the authors of substantive and technical documents pay close attention to translating volumes with special relevance in regions where a particular FAO language was widely spoken.
49. The Committee welcomed the creation of the Corporate Communication Committee (CCC) chaired by the Deputy Director-General, as a means to assist in correcting the language imbalance in the Organization.
50. The Committee considered the budgetary implications of expanded language coverage, as proposed in paragraphs 58-60 of document PC 81/6-FC 92/13, and noted that these had been included in the SPWB under a Real Growth Scenario.
51. The Committee fully supported the allocation of additional RP funds towards improving the use of the five languages of the Organization and ensuring a more equitable treatment of these languages. The Committee requested that the proposals for additional funds made in the document be included to the extent possible in each of the budget scenarios that would be developed for consideration by Council and Conference.
52. In view of the importance of Language Policy and the interrelated programme and financial aspects, the Committee felt that the subject should in future be addressed at the Joint Meeting.
53. Following a verbal presentation by the secretariat, outlining progress made concerning headquarters accommodation since the last report to the Committee, one member questioned some of the information provided.
54. The Committee referred these differences back to the two parties involved, pointing out that, should the outcome of the discussions have financial implications, such implications could be considered by the Committee.
55. In reviewing the report (FC 92/16; WFP/EB.A/99/5-B/1), the Committee commended its clarity and congratulated WFP on its achievements during a demanding year. It sought and obtained clarification from the WFP secretariat on a number of matters. The WFP secretariat clarified the way in which the indirect support cost rate was set and the factors that affected the recovery of the programme support and administrative (PSA) budget. The Committee noted that a large, additional contribution to WFP from the United States of America had resulted in recovery of a PSA greater than that projected in the 1998-1999 budget. In light of this unforeseen increase in PSA recovery, the Committee suggested that WFP clarify its approach to full cost recovery and calculation rates.
56. The Committee discussed the Strategic and Financial Plan 2000-2003 (FC 92/17; WFP/EB.A/99/5-A/1) and sought and received clarification and explanation of several aspects. The Committee suggested that it could be beneficial for WFP, FAO and IFAD to extend their co-operation to the area of strategic planning. It noted the importance of implementing the Plan's strategy in conjunction with the UN reforms such as United Nations Development Assistance Framework (UNDAF) to achieve a concerted and co-ordinated effort in pursuit of the development objectives of the partner countries. The priority accorded to the key initiatives of organizational change, resource and long-term financing, development food aid, and the financial and management improvement programme was supported by the Committee. It expressed the view that WFP would need to demonstrate its achievement of the results planned in the document and that evaluation would need to be strengthened to do this. Two members of the Committee expressed the concern of their regional group that the Plan showed only one country strategy outline and no country programmes to be approved for their region. The Committee endorsed the Plan's strategy and priorities for the period 2000-2003 and commended WFP on a clear planning document.
57. The Committee considered the document (FC 92/21; WFP/EB.A/99/5-C/1) and after clarificatory questions that were answered by the WFP secretariat, some members proposed the endorsement of the document's recommendations by the Committee. However, due to the late submission of the document, some members either had not received instructions from their capitals or had not had time to fully consider the implications.
58. The Committee was informed that the Ninety-third Session was tentatively scheduled to be held in Rome from 13 to 17 September 1999. The final dates of the Session would be decided in consultation with the Chairperson.
ANNUAL REPORT OF BUDGETARY PERFORMANCE AND PROGRAMME AND BUDGETARY TRANSFERS
INTRODUCTION
1. Financial Regulation (FR) 4.6 requires the Director-General to manage the appropriations so as to ensure that adequate funds are available to meet expenditures during the biennium and requires the Finance Committee to review annually the Director-General's implementation of this regulation.
2. In accordance with these requirements, the Thirty-second Annual Report of Budgetary Performance to Member Nations is submitted herewith to the Finance Committee. Any comments the Committee may wish to make will be submitted to the Council at its forthcoming session together with this Annual Report, which is appended to the Report of the Committee.
3. FR 4.5(a) requires transfers within the same chapter of the budget from one division to another to be reported to the Finance Committee where the funds that are moved exceed a specific sum, currently established at US$10 000. FR 4.5(b) requires transfers from one chapter to another to be approved by the Finance Committee.
4. Accordingly, this report also provides some advance notice of the likely magnitude of budgetary transfers arising from the implementation of the programme of work, and the Committee is requested to take note of the forecast requirements in this regard. A formal request for transfers between chapters will be submitted at the next session in September 1999.
OVERALL BIENNIAL FINANCIAL PERFORMANCE FORECAST
5. Conference Resolution 7/97 on the Budgetary Appropriations for 1998-99 approved a budget of US$650 million, and FR 4.1(a) authorizes the Director-General to incur obligations up to the amounts voted.
6. Table 1 summarizes the management of the overall budgetary appropriations. The appropriations comprise the approved programme of work less Other Income2. The 1998 expenditure is based on the actual expenditure in the interim unaudited accounts of the Organization and the 1999 figures represent the latest Regular Programme financial projections. In arriving at the planned net expenditure, Other Income earned in 1998 and the projected earnings in 1999 have been subtracted, so that the budgetary appropriations and planned expenditure are comparable.
Table 1: Overview of 1998-99 Regular Programme Performance
*This figure excludes internal income transfers of US$ 6.5 million for the biennium, representing TCP AOS charges levied on TCP projects, giving a TCP net appropriation of US$ 87.3 million.
7. It may be noted from the preceding table that:
8. It is recalled that a US$12 million authority was established by the 1997 Conference to cover redeployment and separation costs in 1998-99. 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. In 1998, US$9.1 million was charged to this authority. 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.
9. The September 1998 Joint Meeting of the Programme and Finance Committees approved the use of the Special Reserve Account for up to US$5 million or such lesser amount as may prove necessary to cover the unbudgeted extra costs arising from the award of the ILOAT with respect to general service salaries in Rome. A substantial transfer to the SRA is foreseen and is excluded from the planned expenditure figures above. The Director-General will make every effort to absorb this unbudgeted cost to the extent that he can do so without impairing the implementation of the approved programmes. However, the current forecast of staff costs (see below) suggests that there will not be much scope for savings in the current biennium. An estimate of the amount chargeable to the SRA will be provided to the Programme and Finance Committees at their sessions in September 1999.
OTHER INCOME
10. The 1998-99 programme of work, for the first time, includes the projected availability of resources from Other Income, which comprises voluntary contributions that are largely at the disposal of the Organization, and/or resources that are managed closely with the Regular Budget Appropriation. Income is shown separately from total expenditure in Table 2, to arrive at the net expenditure4. In accordance with FR 4.1(a), shortfalls in income recovery versus the budgeted levels require corresponding reductions in planned expenditure during the biennium to remain within the approved budgetary appropriation of US$ 650 million.
Table 2: 1998 Budgetary Performance of Other Income
Support Cost Income
11. Support Cost income, comprising Project Servicing Cost levied on non-emergency Trust Fund projects and reimbursements for Administrative and Operational Support services on UNDP projects, is budgeted at US$21.5 million per annum.
12. Extra-budgetary Field Programme delivery has shown a steady rise between 1996 and 1998, and the overall 1998 delivery is consistent with the levels budgeted. However, the following factors have contributed to a US$3.9 million 1998 shortfall in Support Cost income versus the budgeted amount:
13. The Support Cost income performance in 1999 is not expected to show an upturn from the levels achieved in 1998. Consequently, a substantial shortfall of Support Cost income versus the levels budgeted is foreseen in 1998-99.
World Bank and Other Financial Institutions
14. Reimbursement under cost sharing arrangements from the World Bank and other multilateral financial institutions relates to the work of TCI in support of lending activities for the agricultural/rural sector. A shortfall of US$0.8 million has emerged in 1998, primarily due to a decline in the reimbursements from the World Bank, because the 1998-99 budgetary projections foresaw additional income over and above the governing Memorandum of Understanding for the FAO/World Bank Cooperative Programme, which has not materialized.
Other External Income
15. Other external income includes: fees for technical support services; income from terminal project reports; reimbursements for administrative services to WFP; and other items.
16. A shortfall of US$2.5 million has emerged in 1998 versus the budgeted level, primarily as a result of the following:
17. The overall performance under Other Income in 1999 is expected to show an improvement, due to a projected increase in the level of reimbursement for technical support services provided to projects and additional receipts of government counterpart cash contributions for the FAORs. However, reimbursements for administrative services performed for WFP are expected to decline, due to the cessation of treasury services provided by the Finance Division (AFF) to that organization.
EXPENDITURE
18. There is no constitutional constraint on the budgetary appropriations as regards spending by budget component. Although the Organization is free to choose the most effective inputs to fulfil the approved programme of work, an analysis of spending by budget component versus the appropriation provides useful indications of income and cost trends and required corrective action, where appropriate. The Regular Programme expenditure in 1998 (excluding TCP projects), by budget component, is summarized in Appendix A.
Staff Cost Variance
19. Staff Cost Variance (SCV) is the difference between staff cost at standard rates reflecting the approved budget and what is actually incurred on general service staff at Headquarters and all professional staff. SCV is accumulated for the biennium and therefore the 1998 expenditure details in Appendix A do not include any SCV. At the end of the biennium, any adverse or favourable balance (excluding currency effects, which are charged or credited to the SRA) is distributed over all programmes in proportion to the amounts incurred at standard rates.
20. In general, the first year of the biennium should close with a positive SCV, with the second year showing a negative variance, on account of gradual cost of living adjustments, to break even for the biennium. However, 1998 incurred a US$4.4 million deficit, which is mainly due to the following factors:
21. The SCV is expected to deteriorate further in 1999, with the items noted above continuing to contribute to the unfavourable outturn for the biennium. It is foreseen that there will be an unfavourable SCV for the biennium, making a transfer of up to US$ 5 million to the SRA both likely and necessary (see also paragraph 9 above).
ANALYSIS OF 1998 PERFORMANCE AND 1998-99 BUDGETARY PROJECTIONS BY CHAPTER
22. Table 3 below summarizes the budgetary performance by major programme. It compares the portion of the approved 1998-99 net budget pertaining to 1998 with the corresponding net expenditure.
23. Support Cost income cannot be assigned directly to specific programmes of the Organization. To arrive at the budgetary appropriations for 1998-99, the allocation of Support Cost income was based on the historic distribution of the related expenditure. An improved methodology for distributing Support Cost income is being considered. However, as the introduction of variations in the method of distributing the actual and budgeted Support Cost income by Programme for 1998-99 would be confusing, the method adopted in the PWB 1998-99 has been consistently applied in Table 3.
Table 3: 1998 Budgetary Performance by Major Programme
CHAPTER 1: GENERAL POLICY AND DIRECTION
24. General Policy and Direction utilized 96.6% of its 1998 calendarized appropriation. Under-spending occurred mainly in Major Programme 1.3, External Coordination and Liaison, as a result of staff vacancies in the newly created Liaison Offices and savings on general service staff costs arising from currency gains. Moreover, some financial contributions to inter-agency coordination mechanisms have not been committed in 1998 due to the non-receipt of the related invoices.
25. Over-spending under Programme Management (Major Programme 1.9) arises from the existence of some temporary administrative and personnel posts.
26. The rate of expenditure in this chapter is expected to increase in 1999 as vacancies in the Liaison Offices are filled and the biennial Inter-agency Contributions are committed, with the result that the full appropriation will be exhausted or indeed exceeded.
CHAPTER 2: TECHNICAL AND ECONOMIC PROGRAMMES
27. Chapter 2 under-spent its calendarized appropriation by US$7.9 million, utilizing 94.6% of its 1998 appropriation. Therefore, Chapter 2 accounts for the overall under-spending in 1998 of US$6.4 million, reported in Table 3. Part of the under-spending against the appropriation is the result of a planned US$3.7 million reduction to the Professional Staff allotments which was taken against this Chapter at the beginning of 1998 in order to fund programmes, the cost of which has been under-budgeted, while a further US$3.5 million of under-spending materialized during 1998 at the request of budget managers, who found the need to shift the financial implementation of their programmes into 1999.
28. The largest percentage under-expenditure in Chapter 2 is under Major Programme 2.3 (Fisheries) and Major Programme 2.5 (Contributions to Sustainable Development and Special Programme Thrusts). In the case of Fisheries, the under-expenditure versus the calendarized appropriation is the result of the non-completion of work that commenced during 1998, and will require some US$0.8 million of additional funds in 1999 to achieve the related programme objectives. Major Programme 2.5 is particularly affected by the Special Programme on Food Security which is expected to incur increased costs in the second half of the biennium and has thus carried over approximately US$1.3 million to 1999.
29. The rate of expenditure under Chapter 2 is expected to be higher in 1999 due to the above-mentioned carry-over of funds and a lower rate of professional vacancies amongst technical positions at both Headquarters and the decentralized offices. At this stage, it is foreseen that the biennial surplus under Chapter 2 may remain close to the 1998 under-spending of US$7.9 million.
CHAPTER 3: DEVELOPMENT SERVICES TO MEMBER NATIONS
30. Chapter 3 expenditure amounted to 100.9% of the annualized 1998 appropriation, with Major Programmes 3.3 (Field Operations) and 3.5 (Cooperation with External Partners) contributing to the 1998 net over-spending as described below.
31. The PWB 1998-99 allocated nearly 60% of Support Cost income to Major Programme 3.3, with the result that the annualized budgetary appropriation for Major Programme 3.3 amounted to only US$1.8 million, despite a corresponding annualized programme of work of US$20.2 million. Although expenditure (i.e. the programme of work) has been curtailed under this major programme in 1998, the resulting net expenditure is nevertheless US$1.2 million above the calendarized appropriation due to the allocation to this major programme of a share of the overall shortfall of US$3.9 million in 1998 Support Cost income.
32. Major Programme 3.5 exceeds the calendarized appropriation primarily because it is affected by the support cost income deficit. It also incurred some additional expenditure because of under-budgeted costs of approved programmes, including World Food Day Special Events and FAO's contribution to the UN Non-governmental Liaison Service.
33. Expenditure in 1999 is expected to continue to be higher than the calendarized appropriation, for similar reasons.
CHAPTER 5: SUPPORT SERVICES
34. Expenditure patterns under Support Services (102.9%) were affected by two items in 1998. One item - which lowered expenditure against the appropriation - was the transfer of staff and non-staff costs for maintenance and provision of voice and data services from Major Programme 5.2 (Administration) to Chapter 6 (Common Services). This arose because costs that were budgeted under AFI in Major Programme 5.2 in anticipation of the AFS/AFI restructuring, were transferred to AFS under Chapter 6 (US$1.1 million). Due to the technological convergence of telecommunications systems and information technology, deliberations on the AFS/AFI restructuring are ongoing, with a view to consolidating the responsibilities within a single division. The results of these deliberations are as yet unknown and may result in further transfers between Chapters 5 and 6, and between AFI and AFS, which will be brought to the attention of the Committee.
35. Offsetting the above transfer, Major Programme 5.2 has received an additional allocation of approximately US$2.6 million to cover the higher than expected costs for the Oracle Project.
36. Expenditure patterns are expected to be similar in 1999, with the exception of the allocation of funds for Oracle which will start to level out in 1999.
CHAPTER 6: COMMON SERVICES
37. Expenditure of 106.4% of the calendarized Chapter 6 appropriation arises mainly from the transfer of staff and non-staff costs from Major Programme 5.2 for the AFS/AFI restructuring, as noted above. In addition, US$0.8 million was allotted 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.
38. The biennial deficit under this Chapter is expected to rise as a result of further under-budgeted costs, particularly in relation to an imminent relocation of the Regional Office for Africa to a new building.
BUDGETARY TRANSFERS
BETWEEN CHAPTERS
39. The expenditure pattern of the first year of the biennium and the estimated requirements for the second year of the biennium tentatively indicate that transfers will be required principally in favour of Chapter 1 (estimated US$1 million), Chapter 3 (estimated US$4 million) and Chapter 6 (estimated US$3 million). The resources would be transferred from Chapter 2, and amount to the approximate level of Chapter 2 under-spending already incurred in 1998.
40. The extent of the transfers may yet be influenced by changes in accounting policies resulting from the implementation of Oracle, the impact of which have not yet been fully examined, as well as initial Oracle roll-out costs and year 2000 compliance costs. The transfers required into Chapter 6 will also depend upon the modalities and timing of the transfer of telecommunications functions from AFS to AFI, as described in paragraph 34 above.
41. The Director-General will keep the Committee informed of further developments and will formally submit the request for transfers to the next session, as required by FR 4.5(b).
BETWEEN DIVISIONS
42. As a matter of practice, the need to report a transfer of resources from one division to another within the same chapter of the budget, as required by FR 4.5(a), is rare. At this stage, no transfers between divisions are foreseen, but should they materialize, they will be reported in the next Annual Report covering the full biennium 1998-99.
Appendix A
ANNUAL REPORT OF BUDGETARY PERFORMANCE TO MEMBER NATIONS
1. The Regular Programme expenditure in 1998 (excluding TCP projects), by budget component, is summarized below. Significant factors that have affected the actual 1998 performance by budget component, and a brief description of trends emerging in the 1998-99 biennium, are described below.
2. The total staff appropriation, which comprises Professional Staff Costs, General Service staff costs and Temporary Assistance, was underspent by approximately 10% in 1998. This is primarily the result of professional staff vacancies at the beginning of the biennium.
Organizational units with high professional vacancy rates during 1998 included some of the decentralized offices (particularly RAF and SNEA), ESA, ESS, TCI and AFF. The Regional, Sub-regional, Liaison and FAOR offices are also under-spent due to lower rates for general service staff than was foreseen during the PWB 1998-99 preparation stage in July 1997, on account of favourable exchange rates.
3. Some of the staff savings arising from vacant posts were necessary to compensate for the substantially reduced levels of Other Income. Other savings are being, and will be, applied to fund high priority or essential programmes, the cost of which has been under-budgeted, such as one-time costs of decentralization, essential investment in information technology and the replacement of FINSYS with Oracle.
4. Staff cost expenditures in 1999 are expected to be higher than in 1998, as professional recruitment procedures have been accelerated and vacant professional posts are being gradually filled. For example, most of the Regional and Sub-regional Offices, which had relatively high vacancy rates at the beginning of 1998, expect to be staffed at budgeted levels by the latter part of 1999. Continued savings are expected against general service staff costs in the decentralized locations, but the effect will be less pronounced in 1999 as some local currencies where FAO has a substantial presence are now strengthening against the US dollar (e.g. Thai Bhat). Moreover, large unbudgeted general service salary increases have been promulgated by the ICSC in some decentralized locations (e.g. Accra and Bangkok).
5. Several divisions such as RAF, SNEA, ESA, ESS, TCI and AFF have applied savings under Professional Staff costs to this budget component, hiring consultants to fulfil programme objectives. In addition, an unbudgeted amount of US$1.2 million related to the Oracle project has been incurred under this budget component.
6. A positive balance against this budget component is seen in 1998, as many divisions have experienced some delays in finalizing publications which were initiated in 1998 and have requested the relevant funds to be carried over to 1999. However, above-average expenditure is expected in 1999.
7. Expenditure against this component comprises the cost of the Information Systems and Technology Division (AFI), representing the services provided to the Organization in the fields of information technology infrastructure, network services and computerized applications. This budget component has incurred additional spending as a result of a transfer of resources between AFS and AFI in relation to the ongoing restructuring of telecommunications services. It has also incurred some unbudgeted costs to support corporate computer training needs and related hardware costs.
8. Divisions have re-programmed much of the savings incurred under other budget components (in particular Professional Staff costs) to GOE. Several Headquarters divisions have used the savings to upgrade their information technology infrastructure, while many Regional and Sub-regional offices have covered higher than expected ongoing general operating expenses. In addition to the re-programmed savings, funds were provided under this budget component to AFI and the Regional Offices for unbudgeted equipment requirements for Oracle and for set-up costs incurred in some Regional Offices, such as RAF, in anticipation of their substantially augmented staffing complement.
ANNOUNCEMENT OF THE DIRECTOR-GENERAL TO THE JOINT MEETING OF THE PROGRAMME AND FINANCE COMMITTEES
FAO Headquarters, Rome, 5 May 1999
1. Although there is in FAO an external auditor appointed by the Conference who has resident staff at Headquarters and access to all departments and locations, and who can investigate any matters relating to the implementation of the rules and regulations and the use of the resources of the Organization and report directly to the membership, I wish to advise you today of four new arrangements I have made to increase the information available to member nations, to increase transparency in the administration of FAO, and to respond to the growing interest in the oversight function.
2. Three years ago I arranged for members of the Finance Committee to receive copies of the annual activity report of the Inspector-General - and this practice will continue.
3. I believe that these measures will provide important information and new linkages between the administration and the member nations. The enhanced transparency is clearly in the best interests of the Organization and its governance and I am pleased to make this announcement today.
2 Other Income is described in paragraphs 10 through 17.
3 The breakdown of the approved budget between 1998 and 1999 takes account of the timing of the Regional Conferences and the FAO Conference in the first and second year of the biennium respectively, and assumes that other programmes incur expenditure evenly throughout the biennium.
4 In arriving at the calendarized 1998 appropriation for Other Income, adjustments have been made for those elements that are accounted as Trust Funds in the accounts of the Organization. This is necessary to provide a comparable basis of relating the appropriation with the expenditure reported in the interim unaudited accounts of the Organization.
