MATTERS REQUIRING ATTENTION BY THE COUNCIL

INTRODUCTION

BUDGETARY MATTERS

PROGRAMME IMPLEMENTATION REPORT 1996-97

SPECIAL RESERVE ACCOUNT

UTILIZATION OF US$12 MILLION AUTHORITY FOR REDEPLOYMENT AND SEPARATION COSTS

FINANCIAL MATTERS

FINANCIAL POSITION AS AT 30 JUNE 1998

INCENTIVE SCHEME TO ENCOURAGE PROMPT PAYMENT OF CONTRIBUTIONS (DETERMINATION OF DISCOUNT RATE)

AUDITED ACCOUNTS - FAO 1996-97

FAO CREDIT UNION 1997

FAO COMMISSARY 1997

TRUST FUNDS - EXEMPTION OF PROJECT SERVICING COSTS

AFTER SERVICE MEDICAL COVERAGE

FAO INVESTMENT MANAGEMENT PRACTICES AND ARRANGEMENTS FOR REVIEW OF INVESTMENTS OF THE FAO RESERVE FUNDS

ARRANGEMENTS FOR THE SELECTION AND APPOINTMENT OF THE EXTERNAL AUDITOR

UN SCALE OF CONTRIBUTIONS

PERSONNEL MATTERS

RECENT DEVELOPMENTS IN THE ACTIVITIES OF THE ICSC AND THE UN JOINT STAFF PENSION BOARD

CHANGES IN SALARY SCALES AND ALLOWANCES

STATISTICS OF PERSONNEL SERVICES

ORGANIZATIONAL MATTERS

CHANGE IN THE QUOTA DISTRIBUTION SYSTEM FOR PUBLICATIONS

UN JOINT INSPECTION UNIT REPORTS - STRENGTHENING FIELD REPRESENTATION OF THE UN SYSTEM - FURTHER INFORMATION ON FAO FIELD OFFICE STRUCTURE

UN JOINT INSPECTION UNIT REPORTS - TRAINING INSTITUTIONS IN THE UN SYSTEM: PROGRAMMES AND ACTIVITIES

WORLD FOOD PROGRAMME

BUDGETARY PERFORMANCE REPORT 1996-97

WORLD FOOD PROGRAMME AUDITED ACCOUNTS 1996-97

OTHER MATTERS

HEADQUARTERS ACCOMMODATION

ENHANCING COOPERATION AMONG THE ROME-BASED AGRICULTURAL DEVELOPMENT AGENCIES

DATE AND PLACE OF THE NEXT SESSION

ANNEX I

FAO INVESTMENT MANAGEMENT PRACTICES AND ARRANGEMENTS FOR REVIEW OF INVESTMENTS OF THE FAO RESERVE FUNDS

1. The Committee submitted to the Council the following report of its Ninetieth Session.

2. The following representatives were present:

3. Mr. Samba Moomi Te Avelela (Democratic Republic of Congo) was regretfully unable to attend this session.

4. In reviewing the Programme Implementation Report (C98/8), the Committee concentrated its attention on general financial matters. It expressed satisfaction with the format and presentation of the Report which was considered to be an improvement over the past.

5. The Committee expressed concern about the declining resources available to the Organization, particularly the continued decrease in extra-budgetary resources. Importance was placed upon the need for the Organization to attract additional extra-budgetary resources without detracting from the priority to be given to its normative areas of work. The Committee also expressed concern about the shortfall in support cost reimbursement, but took note of the determined efforts to reduce administrative and operational support costs to bring the actual costs closer to the 13 percent support cost reimbursement level set by the Governing Bodies.

6. The importance of support to investment was recognized and appreciation expressed for Investment Centre collaboration with the World Bank, IFAD, Regional Development Banks and others in the preparation of investment projects. The steady growth in the use of National Consultants and TCDC experts in TCP projects was welcomed and further expansion encouraged.

7. The Committee noted that the document had included only limited reference to the other Rome-based food organizations. It emphasized the value of synergy between FAO and these organizations and the importance of increased cooperation and coordination with them.

8. The Committee identified a number of areas in which the Report could be improved including: a synthesis of results, emphasis on selected priorities and an assessment of outcomes against previously agreed performance indicators and evaluation criteria. In this regard, the Committee noted that the new programme approach, encompassing the Strategic Framework, Medium Term Plan and Programme of Work and Budget, included a programme model based upon fixed duration projects, not exceeding six years, which would have specific objectives and pre-defined success criteria to allow a critical assessment of results. The Committee welcomed this movement towards results-based budgeting; and, in recognition of the need for the simultaneous consideration of both qualitative and quantitative post facto assessments, suggested combining the Programme Implementation Report with the Programme Evaluation Report into a single document.

9. The Committee noted that the document on the subject (JM 98/5) requested the Joint Meeting of the Programme and Finance Committees to approve the use of the Special Reserve Account for up to US$5.0 million or such lesser amounts as may prove necessary to cover the unbudgeted extra cost arising from the International Labour Organisation (ILO) Administrative Tribunal ruling to set aside an earlier decision of the International Civil Service Commission (ICSC) to eliminate the language factor.

10. The Committee recalled that at the previous session of the Finance Committee, one member had expressed the view that the rationale for the use of the Special Reserve Account was inconsistent with the approved purposes outlined in Conference Resolution 13/81 and that the use of the Special Reserve Account in this manner appeared to be an increase in the budget level previously approved by the Conference. It also recalled that the previous session of the Joint Meeting of the Programme and Finance Committees requested further information on the impact on programmes and possible offsetting savings. The Committee noted that a legal opinion on the use of the Special Reserve Account and the requested information were contained in the document.

11. Members of the Committee reaffirmed the positions they had taken at the Eighty-ninth session of Finance Committee and agreed to take the item forward to the Joint Meeting without a consensus position at this stage.

12. The Committee noted with interest that a proposal by the meeting of Legal Advisers of the UN system was currently before the Administrative Committee on Coordination (ACC). That proposal would seek to avoid in the future situations whereby organizations of the common system were faced with retroactive and unbudgeted expenses arising out of the overturning by the UN and/or ILO Administrative Tribunals of decisions of the ICSC.

13. The Committee took note of the report on the subject (FC 90/5), which forecast an overall utilization of the authority at US$10.5 million for the purpose of meeting redeployment and separation costs over and above the net budgetary appropriations, compared with US$12 million authorized for that purpose by Conference Resolution 7/97.

14. The Committee noted the criteria applied to identify the cases covered by the authority, as well as the nature of the costs that were chargeable as redeployment and separation costs. It also recalled that the PWB 1998-99 included a total provision for termination indemnities of US$3.0 million. It was informed that a conscious decision was made for each case; i.e. those cases that met the criteria for the US$12 million authority were charged against the authority whereas those that did not were charged against the Programme of Work and Budget provision. The latter provision was expected to be exhausted in providing budgetary coverage for terminations arising in the normal course of business.

15. The Committee considered the financial position of the Organization at 21 September 1998 and noted that 51.89 percent of current assessments had been received. Sixty-one Member Nations had paid their current assessments in full, a further 30 Members had made partial payment whereas 84 had made no payment as yet towards their 1998 assessment. The Committee expressed concern over the disappointing rate of receipt of contributions compared to the same date last year and over the possibility of having to make recourse to borrowing later in the year. Accordingly, the Committee once again renewed its appeal to all Member Nations with contributions outstanding to pay their assessed contributions and arrears in full as soon as possible.

16. The Committee discussed the results of the Scheme in 1998 following the adoption of the revised methodology as decided by the Conference at its Session in November 1997. It noted that, as in previous years, the Scheme had not been significant in improving the rate of receipt of contributions.

17. The Committee confirmed the rate of 1.41 percent suggested by the Director-General for use in determining the amount of discount of each Member Nation which had paid its contributions before 31 March 1998.

18. In accordance with General Rule XXVII 7 (1) the Committee examined the FAO Audited Accounts for the biennium 1996-97.

19. The Committee noted that the opinion of the Auditor on the Accounts for the biennium was unqualified and endorsed the recommendations of the Auditor outlined in his report.

20. In accordance with past practice the Secretariat will submit a progress report on implementation of the External Auditor’s recommendations to the next meeting of the Committee. The Secretariat also undertook to submit to the same session a paper outlining a proposal to simplify the Support Costs accounting structure.

21. Following the request from the Chairperson to elaborate on the reasons for the difficulties experienced by the Organization in implementing information technology related projects, such as the Oracle Financials, a progress report on the status of the Oracle Project was provided.

22. The report noted that the Oracle Project was at this time in an advanced stage of configuration (applying functional features available in the software package to refined business and accounting practices in FAO), and that this stage would be completed by the end of September. In October 1998, the various business applications would undergo extensive testing of basic business functions, and work would progress on the testing of interfaces between various modules of the system. The most critical step in the implementation would take place in November when there would be a rigorous integration test of transactions to ensure that transactions could be handled properly in a unit and move accurately across modules of the system to carry out required accounting functions. Assuming this integration test proved satisfactory, the plan was to introduce the new system with respect to transaction management from the start of January 1999 both at Headquarters and in the field. In connection with this plan some 120 field staff would be trained on how to use the field accounting module and this training would take place during the first two weeks of December 1998. Comparable training at Headquarters would also start in December 1998 and carry on through much of the first quarter of 1999 as some 600 staff members at Headquarters would need training in one form or another.

23. It was indicated that the programme of work on the Oracle project required extensive technical support for an effective implementation of the system, including deployment of additional desktop capacity and the support of different database software environments. These activities were provided both at Headquarters and for the Field System to allow meeting the target implementation date.

24. In response to a query regarding the reasons why WFP had not joined the FAO Oracle Project, it was noted that an official invitation had been issued to the Programme in mid-1997, following previous correspondence on the subject and informal contacts at working level. FAO had proposed to explore potential sharing of plans and possible co-funding of the planned developments. However, it needed to be noted that organizations were influenced in the choice of solutions by their own requirements and needs.

25. The Committee recommended that the Council submit the audited accounts for the 1996-97 biennium to the Conference for adoption. The Committee submitted to the Council the draft resolution below for onforwarding to the Conference:

DRAFT CONFERENCE RESOLUTION

FAO AUDITED ACCOUNTS 1996-97

"The Conference,

Having considered the report of the 115th Session of the Council, and

Having examined the 1996-97 FAO Audited Accounts and the External Auditor’s Report thereon

Adopts the Audited Accounts."

26. The Committee inquired regarding the reasons for significant reductions between 1996 and 1997 in personnel costs, investment management fees and investments. It was explained that there had been professional staff vacancies in 1997. Reduced investment fees reflected the closure of one portfolio and appreciation of the US dollar meant that investments in Italian Lire translated to substantially lower values in the 1997 accounts. The staff vacancies in question had since been filled and both employees were fully engaged in on-going work, including introduction of the Euro and of new systems. For investments, there was currently no requirement for additional independent advice since funds not lent to members were mainly invested in short-term bank deposits, to ensure ready liquidity, in accordance with established investment policies.

27. As regards the legal status of the Credit Union, since January 1976 it had operated as an integral part of the FAO though separately managed and self-financing. Membership was restricted to staff of FAO and WFP. Members elected a Board that in turn elected officers, including a Chairperson, Vice-Chairperson and Treasurer. The Treasurer in particular was responsible for certain independent controls over the activities of the Manager.

28. The Committee reviewed the Financial Statements of the Commissary for the year ended 31 December 1997 and approved the accounts. However, concern was expressed at the apparent discrepancy of US$27 000 in the inventory of goods. The Secretariat gave assurances that the matter was being addressed and that procedures were now in place to correct such discrepancies. The Committee was otherwise pleased with the overall success of the Commissary.

29. As required by its Twenty-fifth Session, the Committee was informed of the Trust Fund projects where Project Servicing Costs had been waived or reduced during the period 1 June 1997 through 1 May 1998.

30. The Committee was satisfied with the reasons given, which were in line with pre-established criteria, and noted that the vast majority of the waivers had been granted for emergency operations.

31. The Committee reviewed the background information concerning the liabilities of the Organization for After Service Medical Coverage (document FC 90/9) and noted that now that the funding for the costs of medical benefits for current staff were being provided for, the last remaining problem for the Organisation was to take action to fund the liability for past services. The Committee also reviewed the actions of the Secretariat in response to the Committee’s advice in this connection and the Director-General’s proposal regarding the funding of the past service liability.

32. The Committee noted that the estimated unfunded liability for past services amounted to US$195.1 million at 31 December 1997. The Committee also noted that the Separation Payments Scheme and Staff Compensation Plan have now achieved fully funded status; and that the audited accounts as at 31 December 1997 showed that the book value of related investments exceeded the liabilities by some US$40 million. Accordingly, the Committee, unanimously endorsed the Director-General’s proposal with the exception of one member who was unable to agree to item 4 of the proposal that any cash surplus on the General Fund be allocated as a priority towards funding the After Service Medical Coverage Liability. The Committee, therefore, decided to onforward to the Council and Conference for their approval the following resolution embodying items 1, 2 and 3 of the proposal.

33. In making this decision, the Committee recognized that, while some considerable progress had been made with respect to the financial clarification and disclosure of this considerable and growing liability, it had not been able to make specific recommendations to ensure its funding. In consequence, this problem was largely unresolved in financial terms.

DRAFT CONFERENCE RESOLUTION

AFTER SERVICE MEDICAL COVERAGE

The Conference,

Having considered the report of the 115th Session of the Council,

Having noted the unfunded liability for past services

Having noted that the Separation Payments Scheme and the Staff Compensation Plan have achieved fully funded status and that the audited accounts at 31 December 1997 show that the book value of related investments exceed the liabilities

Approves the following plan of action:

1. Any income generated from the investments held in respect of the Separation Payments Scheme and Staff Compensation Plan be applied as originally foreseen to ensure the adequacy of those funds to extinguish the respective liabilities.
2. Should there be an excess in the investment income of the Separation Payments Scheme and Staff Compensation Plan over the requirements for these funds then this should in principle be earmarked for the After Service Medical Coverage liability for past services.
3. Following the past practice to establish separate funds for after service benefits, the investments in the Separation Payments Scheme and the Staff Compensation Plan exceeding the liabilities be earmarked for an After Service Medical Coverage Fund.

34. The Committee took note of the information contained in documents FC 90/10 - FAO Investment Management Practices and FC 90/11 - Arrangements for Review of Investments of the FAO Reserve Funds and endorsed the proposed revised arrangements for the review of the investments of the FAO Compensation Plan Reserve Fund and the Separation Payments Scheme.

35. The Committee noted that the proposed change in respect of the oversight function (see Annex I) would require an amendment to Financial Regulation 9.1 of the Organization’s Basic Texts and also endorsed the proposed amendment for onforwarding through the Committee on Constitutional Matters (CCLM) to the Council at its next Session for its approval and then to the Conference for adoption.

36. The Finance Committee reviewed the proposal covering the arrangements foreseen under Financial Regulation XII for external audit together with the additional information on the experience of other organizations which had been submitted at its request.

37. The Committee noted that the information obtained on the experience of other organizations showed that the proposal on the arrangements for the selection and appointment of FAO’s External Auditor as submitted in FC 89/7 was broadly in line with the practice followed in other UN agencies. The Committee further noted that the proposal in FC 89/7 met better the concern to achieve greater participation of developing countries in the audit process by permitting "joint proposals" under the sole responsibility of a lead auditor but involving the sub-contracting of work to one or more other eligible auditors. Accordingly the Committee endorsed the proposal in FC 89/7 for transmission to the Council for its approval.

38. The Committee thought it important to preserve clear accountability of the External Auditor to member states, whatever the selection criteria.

39. The Legal Counsel reported on the latest developments in the United Nations with respect to the Scale of Assessments for the year 1999. He recalled that the Conference at its 29th Session in November 1997 had adopted a Scale of Contributions for the biennium 1998-1999 and had decided that if the UN General Assembly adopted a new scale of assessments for the years 1998 to 2000 before 31 December 1998, the Director-General should prepare a modified scale of contributions for FAO Member Nations for the year 1999 to reflect that new scale. The UN General Assembly had, on 22 December 1997 (Resolution 52/215) adopted a new UN Scale of Assessments for the period 1998 to 2000 which reflected a number of changes to the previous scale. The Director-General had therefore prepared a modified FAO Scale of Contributions for the year 1999 which was circulated to all FAO Member Nations in May 1998. The new UN Scale of Assessments did not reflect any change in the 25% ceiling on individual contributions. The General Assembly, however, in the same Resolution had decided to "consider reviewing the scale for the year 1999 and 2000 during its resumed 52nd session, in the light of all relevant factors, including the periodic reports of the Secretary-General on the status of contributions, and to make a determination in this respect early enough to refer this matter to the Committee on Contributions during the 52nd session of the General Assembly."

40. A decision on reducing the ceiling had been linked, in discussions in the General Assembly, to the situation of the payment of arrears by the major contributor. Since there had been no change in that situation, no action had been taken by the General Assembly to review the scale for 1999 and 2000 before the closure of its fifty-second session. As a result, the UN Committee on Contributions had not itself taken any action to reopen the scale at its last session in June 1998.

41. The Committee took note of the information provided in document FC 90/14 and the verbal information provided by the Director, Personnel Division and the Chief, Social Security Branch.

42. The Committee took note of the information provided in document FC 90/15 and the verbal information provided by the Personnel Division.

43. The Committee took note of the information provided in document FC 90/16 and the verbal information provided by the Director, Personnel Division. The Committee requested that qualitative as well as quantitative issues should be highlighted in future reports.

44. The Committee complimented the secretariat for the progress made on the development of a new system of national accounts to replace the present Quota Distribution System following the instructions given by the Conference in 1997.

45. The Committee was invited to recall that the present quota system was generally deemed to lead to considerable waste of printed materials and to a mismatch between materials routinely sent to countries and their real needs. It could also be seen as favouring countries with high levels of financial contributions to the budget.

46. For the envisaged system of national accounts to function properly, a number of practical and financial issues needed to be addressed and effective solutions identified. These included the need to identify a contact person for each country, procedures to inform them in advance about forthcoming publications and the establishment of amounts by country.

47. In the light of this, a full-fledged and well-tested set of proposals should be ready for consideration by both the Programme and Finance Committees at their May 1999 sessions.

48. The Committee noted with appreciation the additional information contained in document FC 90/18(a). While confirming that this information would assist it in evaluating the recommendations of the JIU in its report on Strengthening Field Representation of the United Nations System (JIU/REP/97/1), it felt that further information was necessary for it to obtain a broader understanding of the FAO Representations and the decentralized structures of FAO.

49. The Committee agreed that the report of the JIU could be submitted to Council with the comment that the Committee had found it useful in catalysing discussion on this important subject.

50. In wishing to ensure the most cost effective use of resources, the Committee asked that the question of decentralized structures remain on its agenda and that the following additional information be provided to it so as to facilitate its work:

• a clear explanation of the role of each part of the decentralized structure (i.e. the Regional Offices, Subregional Offices, Country Offices and Liaison Offices) and the relation of that role to the strategic objectives of the Organization;
• an explanation of the relationships between each element of the structure and with Headquarters (in this regard, the internal Circular on Responsibilities and Relationships-Headquarters and Decentralized Offices, was considered a valuable source);
• quantitative data on the staffing and resources of decentralized structures at a level of detail which would allow the Committee to attain a full understanding of the resources allocations;
• information on the proposed changes in the financial systems and procedures for decentralized offices; and
• an assessment of how well the decentralized system was working particularly in terms of cost efficiency but also as regards the qualitative aspects of their functions taking into account the need for a critical mass of expertise at each location.

51. The Committee took note of the information provided by and the recommendations of the Joint Inspection Unit contained in document CL 115/INF/17, Training Institutions in the UN System: Programmes and Activities (JIU/REP/97/6) - together with the Comments of the Director-General.

52. The Committee reviewed and took note of the Budgetary Performance Report, 1996-97 (WFP/EB.3/98/4-C) submitted to it for discussion and recommendations to the Executive Board and expressed appreciation for the user friendliness and easy-to-read format of the document. In his introduction, the Deputy Executive Director pointed out that the report had been reoriented to include more specific and detailed information of WFP’s activities in view of previous comments given by the Executive Board and the Advisory Bodies.

53. The Committee sought and received clarification on the resource, shipment, delivery and distribution baselines that comprised the measurements of WFP’s operations, and on how WFP had coped over time in monitoring pre-emergency situations, particularly in light of an increase in natural disasters and its ability to mount timely and effective interventions. The Committee also sought and received additional details on WFP’s collaborative efforts with its partners, including FAO, on dealing with emergencies, particularly the multi-agency Complex Emergencies Training Initiative.

54. The Committee reviewed the financial report and statements (Audited Accounts) for the biennium 1996-97, which included the Report of the External Auditor and the secretariat’s responses to the External Auditor’s recommendations on the 1994-95 accounts and the 1996-97 accounts. It commended the quality of the External Auditor’s report and noted with approval the inclusion, for the first time at this stage of the biennium, of a table detailing management’s response and actions taken to date or planned in response to the External Auditor’s recommendations on the 1996-97 biennial accounts.

55. With regard to a number of the External Auditor’s recommendations for further improvement to financial and management control, the Committee looked forward to receiving an update of the table at a later session. The Committee noted that cost classification in WFP’s accounts was complex, and that possible simplification would be discussed in the next Executive Board in the context of the Resourcing and Long Term Financing review. The Committee suggested that rapid and profound changes in WFP may have given rise to some of the issues raised by the External Auditor.

56. The Committee noted the difference in opinion between the External Auditor and the WFP secretariat regarding the accounting method for the self-insurance activity, i.e. whether to reflect the activity as a special account. While it noted the proposal for the use of a special account for management purposes, the Committee recognized the External Auditor’s cautionary comments regarding the consistency of this approach with accepted accounting principles.

57. In responding to a query from a member of the Committee regarding collaboration with other Rome-based agencies in the choice of new computerized financial systems, the WFP secretariat informed the Committee that the Programme had opted for a system which was not used by either of the other two agencies in Rome. The secretariat explained that WFP had selected the package which best fit the programme’s specific operational and technical needs, taking into account the cost. The secretariat also informed the Committee that although the package selected, SAP, was not used by the other two agencies in Rome, it was used by UNICEF and ITU, which had certain operational similarities to WFP, and WFP was seeking to set up memoranda of understanding with these two agencies to ensure harmonization and the efficient sharing of resources and know-how.

58. The Committee noted that there may be a need for a special session in preparation for the January Executive Board as a result of the recommendations of the Formal Working Group reviewing the Resourcing and Long Term Financing policies of WFP.

59. The Committee welcomed progress in implementing the FMIP and noted the need for interim financing until this important programme had been completed and fully funded.

60. The Committee decided to recommend that the Executive Board approve the biennial accounts for 1996-97 together with the report of the External Auditor.

61. The Committee was provided with an update on the developments which had taken place since it had considered this matter at its last session.

62. The Committee noted that it had not been possible for the interested parties to arrive at a technical solution to the question of common premises. The matter should, however, be pursued at the mutual convenience of the interested parties, including the necessary expert meetings.

63. The financial implications of any eventual proposal should be brought to the attention of the Committee.

64. Following a lengthy consideration of the issues surrounding the matter, the Committee emphasized to the secretariat and through the secretariat to WFP and IFAD its concern that all efforts should be made to enhance cooperation and coordination among the three agencies.

65. The Committee was informed that the Ninety-first Session was tentatively scheduled to be held in Rome from 3 to 7 May 1999. The final dates of the Session would be decided in consultation with the Chairperson.

1. The decision by the UN Investment Committee (UNIC) that had supervised the management of the FAO long-term assets to no longer fulfil this function, had prompted a review of the responsibilities for the oversight of the Organization’s Reserve Fund Assets.

2. Presently, the FAO Advisory Committee on Investments (ACI), and the internal Investment and the Credit Committees provided oversight over investment activities. The ACI had been in existence since 1977. Its original terms of reference called for the Committee to advise the Director-General, on a confidential basis, on:

1. various types of investment media suitable for FAO, including but not limited to money market investments;
2. the list of banks and financial centres to be used by FAO in making money market investments and investment ceilings for individual banks and financial centres as considered appropriate in the light of current developments;
3. financial return and exchange rate considerations applicable to 1.and 2.; and
4. any other related matters referred to it by the Director-General.

3. The Advisory Committee on Investments (ACI) included representatives from the International Monetary Fund (IMF), Bank for International Settlements (BIS) and the Banca d’Italia. In 1997, Northern Trust Company was also invited to provide a member. The other members were FAO and WFP senior staff. The Director-General, or his representative, was Chairperson of the committee.

4. The membership of the internal Investment and Credit Committees was restricted to only FAO/WFP staff members, who might lack the required and necessary extensive financial and investment expertise. The present terms of reference of the Credit Committee required that credit guidelines and exposure be determined and reviewed by the FAO Credit Committee (an oversight committee) at its meetings. The FAO Credit Committee would also establish and issue credit guidelines, standards and limits and approve, where appropriate, new instruments and counterparts as well as investment limits.

5. The Investment Committee’s responsibilities presently covered reviewing the Organization’s overall investment strategy, interest rate and currency risk based on market outlook and, overseeing and reviewing the performance of the Organization’s investments.

6. Under the new arrangements both the Advisory Committee on Investments (the external panel that meets once a year to give advice to the Director-General on treasury matters), and the internal Investment Committee, will be revised as follows:

7. This Committee would be increased from its current three members to five members, with the two additional members being appointed based of their expertise in financial markets and/or direct portfolio management background. The Terms of Reference for this Committee would be revised so that at its annual meeting it could formally review two papers prepared by Treasury. The first paper would be a formal report in the investment activities of the past year and performance of the portfolio managers, and the second paper would address the strategy and plan of operation for the year ahead. Based on its consideration of these two formal documents and other matters put before it, the Committee would advise the Director-General of its views on this agenda.

8. This Committee would be restructured by combining the Credit Committee and the Investment Committee into one. This Committee would take over the functions that used to be performed by UNIC with respect to the management of the Organization’s short and long-term assets. Apart from combining the two Committees to form one, the Investment Committee would be responsible for:

• setting broad investment policies and goals (including credit policies under which the short and long-term portfolios will be managed);
• reviewing the performance and annual program of treasury operations;
• assessing the performance of portfolio management;
• deciding on the selection of professional external portfolio managers; and
• approving specific treasury operations such as forwards or other hedging activities.

9. In order to carry out these functions it was proposed to restructure the membership so that the Committee would have members who were expert in treasure and market operations from IFAD, WFP and hopefully the Banca d’Italia, and would, in addition, have a consultant appointed who could provide the committee with expert advice on treasury and investments operations.

10. Under this scheme of management the actual day-to-day trading activities would be managed by professional portfolio managers operating under financial guidelines and policies approved by both the internal and external Investments Committees and the Director-General.

11. The purpose of the revised arrangements was to provide a greatly enhanced framework for the supervision and monitoring over the Organization’s assets, bringing in outside expertise to ensure an independent appraisal on the policies, operations, performance and plans relating to investments. While changes to the internal committee arrangements would not require changes to the Financial Regulations, the new role of the ACI required an amendment to the Financial Regulations as indicated in the Finance Committee document (FC 90/11).