Finance Committee

LONG FORM REPORT

External Auditor’s Recommendation

Priority

External Auditor’s Suggested Timetable

Action taken and status

Auditor’s Comments

FINANCIAL MATTERS

Format of the Financial Statements

Manual Adjustments

I recommend that the Organization critically review the chart of accounts to identify further possibilities of reducing manual adjustments (See paragraph 12).

Significant

Before the 2002-03 closure

A review of FAO’s chart of accounts is in process. Any opportunities identified for reducing manual adjustments will be implemented prior to the 2002-03 closure, as recommended by the External Auditor.

Status: In course of implementation

Progress in this area will be examined during the audit of the 2002-03 financial statements.

Absence of Consolidation of non-main Stream Activities

I am of the opinion that the accounts of the Credit Union and of the Commissary should be consolidated with the ones of the FAO in order to produce truly consolidated financial statements (See paragraph 14).

Not indicated

Before the next Finance Committee Meeting

The objective of the External Auditors’s recommendation is that the assets and liabilities of the FAO be clearly reported to Member Nations as part of the Organization’s financial statements. Having reviewed this recommendation in the light of prior decisions of the Governing Bodies and considering the need to report clearly to Members, the Organization proposes to describe the relationships between the FAO and the Credit Union and between the FAO and the Commissary by way of a disclosure note to the FAO’s financial statements. In arriving at this decision, the Organization has considered the factors set out in Attachment 2 to this document.

Status: Not for implementation

The matter will be examined.

Presentation of Statement I

I recommend the following disclosure more in line with the presentation prescribed by Annex II to the UN Accounting Standards (UNAS) and the respective importance of the financial amounts concerned:

·  The gains or losses on exchange would be disclosed separately in one line entitled “Currency exchange adjustments”;

·  The proceeds of sales of information products and the revenue from advertising in and sponsoring of such products would be disclosed separately in one line entitled “Revenue producing activities”;

·  The GCC would also be disclosed separately under the line “Government cash contributions for local costs”;

The line entitled “Miscellaneous income” would regroup, as prescribed by Financial Regulations 4.4. and 7.1., lapse of accrued liabilities and other miscellaneous income. [paragraph 15]

Merits attention

For the 2002-03 accounts

As recommended by the External Auditor, the 2002-03 biennial accounts will include separate disclosure for the items shown below, as follows:

i) Gains/losses on exchange;

ii) Information Products Revolving Fund;

iii) Government Cash Contributions; and

iv) Miscellaneous income.

Status: In course of implementation

This will be verified during audit of the 2002-03 financial statements.

I recommend that a new line entitled “Prior period expenditure” be added after the computation of the excess/shortfall of expenditure, as prescribed by Appendix II to the UNAS. [paragraph 16]

Merits attention

For the 2002-03 accounts

The Organization already follows the United Nations System Accounting Standard (UNAS) paragraph 17. No further action is required on this recommendation.

Status: Accounting Standard is already in place

This will be examined.

Rounding Policy

I recommend that, starting with the 2002-03 financial statements, a note relating to the rounding policy be included clearly indicating the level of rounding off. [paragraph 18]

Merits attention

or the 2002-03 accounts

The rounding policy applicable to the Organization’s financial statements will be stated in a note to the 2002-03 biennial accounts.

Status: In course of implementation

Noted.

Financial Position of the Organization

Applicable Rules and Regulations for Employment of Retirees

I recommend the following:

·  The existing guidelines and practices for the re-employment of former staff members who have been separated should be consolidated into a comprehensive policy, which should address, in particular, the following issues: minimum time lapse between termination and re-employment, maximum time of employment, nature of the assignment, financial and other conditions of employment.

·  As far as the first point is concerned, I consider the UN standard rule of three years minimum to be a good practice. It should be duly recalled in all termination agreements. The Director-General could, of course, always grant a waiver to this rule on the basis of detailed justifications. The maximum time of employment could be based on the one for retirees (six months).

·  Once defined, the rules governing re-employment of separated staff should be incorporated into the FAO Manual under Section 300. [paragraph 31]

Significant

Early in 2003

The Organization maintains that the current practice, as described in the internal adminstrative document (Key Information Circular – KIC 99/7 dated 1 July 1999), should continue to apply, i.e. no re-employment of a former staff member can be considered during the period covered by the indemnity of an agreed termination. The provisions of this Circular will be reflected in the relevant Manual Section during the first half of 2003.

The terms of employment including time and remuneration are governed by the relevant United Nations General Assembly decision concerning the employment of retirees (Decision number 51/408) and the rules and regulations of the United Nations Joint Staff Pension Fund.

Status: In course of implementation, except as indicated above.

This will be verified.

Specific Financial and Accounting Issues

Contributions receivable

Normally, no shortfalls should be incurred for Trust Funds in line with the provisions under Section 250.113 of the FAO Manual, which states the following: "In principle, the Organization makes no financial commitment and disburses no funds under a Trust Fund until funds have been received. Advance financing arrangements may be made in exceptional circumstances." This rule is recalled in paragraph 50 of the AFF procedural manual II entitled "Accounting for projects". "A fundamental element of financial management for projects is to ensure that funds are available before financial commitments and disbursements are undertaken. For externally funded projects, this means ensuring that funds from donors have been received, whether for an individual project or to cover a range of projects. Funds checking, to confirm the availability before committing an expenditure, is the responsibility of the budget holder."

I recommend that the rules and regulations recalled above be more strictly applied to avoid any Trust Funds projects going into deficit. [paragraph 43]

Significant

Immediate effect

The Organization is now monitoring the cash position of projects and donors balances on a more frequent basis than in the past, making use of a recently developed report. In addition, the full implementation during 2002 of formal invoicing of calls for funds from donors has provided for improved monitoring and control of calls made and of funds received.

Status: Implemented

The impact of these measures will be verified during the audit of the 2002-03 financial statements.

MANAGEMENT MATTERS

Implementation of the “Oil for Food” Programme

Security of Cash and Valuables

I recommend that detailed rules and guidelines on the safe handling of cash and valuables be issued as soon as possible for all FAORs and that the specific case of Iraq also be addressed. [paragraph 56]

Significant

By mid-2003

Detailed guidelines concerning the safe handling of cash and valuables at field offices have been prepared and are being reviewed in-house. These guidelines will be issued within the deadline suggested by the External Auditor.

In the specific case of Iraq, action has been taken to ensure the safe handling of cash and valuables in all the offices of the “Oil-for-Food” Programme. A procedure for “Cash Handling at the Time of an Evacuation in Iraq”was issued in May 2002.

In addition, since the time of the External Auditor’s review, three new field positions have been established and filled under the Iraq Programme, i.e., those of Programme Co-ordinator (D-1), Financial Controller (P-4) and Finance Officer (P-3). These actions have greatly strengthened financial controls over FAO operations in Iraq, including controls over cash and valuables.

Status: In course of implementation

Progress in this matter will be examined.

Management of the Locally Generated Funds

I recommend that the Organization continue to make the necessary efforts to solve all pending matters regarding LGF [Locally Generated Funds] procedures and that LGF income and expenditure be duly included in the FAO’s financial statements for the 2002-03 biennium. [paragraph 97]

Fundamental

Before the 2002-03 closure

Draft guidelines for Locally Generated Funds (LGFs) have been prepared and in August 2002 the Organization forwarded these guidelines to the Office of the Iraq Programme (OIP), New York, for endorsement. In response, on 20 December 2002, the Executive Director of OIP approved guidelines concerning the utilization of LGFs for all UN agencies. These guidelines have been transmitted to the FAO office in Iraq, for implementation.

As recommended by the External Auditor, LGF income and expenditure will be included in the FAO’s financial statements for the 2002-03 biennium.

Status: In course of implementation

This will be verified.

Procurement Process Delays

I recommend that a study be initiated in order to determine precisely when and where delays were generated and investigate their reasons with the objective of re-engineering the procurement process or adjusting the staffing level, if necessary. [paragraph 105]

Significant

By mid-2003

A study has been carried out in line with the External Auditor’s recommendation. The report is being reviewed and the Auditor’s recommendation will be implemented well ahead of the indicated timetable.

Status: In course of implementation

This will be verified.

REVIEW OF THE ORGANIZATION’S INTERNAL CONTROLS

Organization of the Overall Function of Oversight at the FAO

Applicable Rules and Regulations

I recommend that the Financial Rules, which constitute Section 202 of the FAO Manual, and Section 108 that relates to the AF Department be updated as soon as possible in order, notably, to give a comprehensive view of the oversight functions within the Organization. [paragraph 131]

Merits attention

Before the end of 2002

In view of the planned changes in Finance Division, Sections 108 and 202 of the FAO Manual Section are being updated as part of the preparation of the PWB for the 2004-05 biennium.

Status: In course of implementation.

Noted.

Overall Organization and Respective Mandates

I recommend that the FAO examine the possibility of combining AUD and PBEE with the view of creating a single office or division for oversight. The present Controls Branch, which operated at a different level, could remain within the Finance Division. However, working relationships should be formally established in order to avoid any duplication of work. [paragraph 137]

Merits attention

Before the end of 2003

A document entitled “The Independence and Location of the Evaluation Service” is being presented to the Joint Meeting of the Programme and Finance Committees in May 2003.

Status: In course of implementation.

Noted.

Review of the Office of the Inspector-General

Organizational Status and Mandate

I recommend that a section dedicated to Internal Audit be established on the FAO’s Intranet site since I am of the opinion that such could further enhance the visibility of AUD and its strategic importance within the Organization. The section should contain the following information: organisational status and mandate, organisational chart, work plan for the current year and annual activity reports for, at least, the past two biennia. Last but not least, in line with the practice of other UN or non-UN organisations, reference could be made to a “hot line” or a confidential fax number to report fraud, abuse of FAO’s resources, mismanagement or theft. Procedures should be established to deal with cases reported. [paragraph 140]

Significant

Before the end of 2002

The Intranet site for the Office of the Inspector-General is now available on the FAO Intranet.

Status: Implemented.

A confidential fax hotline has been installed and communicated to all staff by means of a Director General’s bulletin. The fax machine is kept under lock and key and access is restricted. The Office has a standing procedure for handling any reported cases.

Status: Implemented.

Noted.

Noted.

I recommend the following:

·  The Finance Committee should be consulted as well before the renewal of the incumbent [Inspector-General’s post].

·  As suggested by the Finance Committee, and in line with the recent practice for Directors’ posts, future vacancies for the Inspector-General’s post should be posted on the FAO’s Intranet and Internet sites with a job description attached thereto. [paragraph 143]

Significant

Before the end of 2002

At its last session, in September 2002, the Finance Committee took note of an explanation provided by the Legal Counsel on the requirement for consultation with the Committee on the appointment and termination of the Inspector-General. In particular, following consultations with the Legal Offices of other organizations that have adopted provisions identical to those of the Charter for the Office of the Inspector-General and after considering the jurisprudence of the ILO Administrative Tribunal, the Legal Counsel clarified that it would not be legally correct to consult the Finance Committee on a purely administrative matter such as the renewal of the appointment of the Inspector-General.

Status: Not for implementation

The post was advertised on the Internet in line with current policy.

Status: Implemented

Noted.

Noted.

Use of Audit Committee

I recommend that an audit committee be established. According to agreed standards it could be chaired by an external person and also include a representative from another UN organisation. [paragraph 147]

Fundamental

Before the end of 2003

In line with the commitment to the 100^th Session of the Finance Committee, the Organization has reviewed arrangements in place at other UN specialised agencies and the Director-General has now established the FAO Audit Committee. Its composition and terms of reference are set out in the Director-General’s bulletin No. 2003/6 Rev 1 dated 2 April 2003.

Status: Implemented.

Noted.

Audit Responsibilities

I recommend that a specific unit for investigation be established at the FAO and staffed with persons with appropriate competence and skills (lawyers, certified fraud examiners, ex policemen, etc.). [paragraph 152]

Significant

Before the end of 2003

The responsibility for investigations has been assigned to the Special Assignments group in the Office of the Inspector-General which has been renamed Special Assignments and Investigations. The staffing of this group, headed up by the Principal Auditor, has recently been strengthened by the addition of a staff member with a legal and investigative background

Status: Implemented.

Noted.

Audit Planning

I recommend that AUD revise and improve its entire approach to audit planning taking into account the following specific recommendations.

·  Audit planning should be carried out at three different levels on a long and medium term basis, on a biennium basis and on an annual basis).

·  A risk assessment process should be conducted and updated on a regular basis (at least once per biennium). Its overall objective would be to collect and analyse data, both quantitative and qualitative, to describe the form, dimension, and characteristics of the risks faced by the Organization. [paragraph 156]

Significant

By mid-2003

The External Auditor’s recommendation has been taken into account in updating the work plan for 2003 and will be followed in preparing future work plans.

Status: Implemented.

AUD has engaged a senior consultant to develop a risk assessment methodology for audit planning. The review will be completed in two parts: the first in April 2003 and the second in good time for the results of the review to be applied during the 2004-2005 planning cycle

Status: In course of implementation.

Noted.

Noted.

Actual Audit Coverage

I recommend the following:

·  The time dedicated to Headquarters activities should be increased significantly and areas such as Oracle implementation, investments and other treasury functions should be addressed as soon as possible in view of the risks and shortcomings already identified. On the contrary, considerably less time could be spent on Commissary and Credit Union, which had to be reviewed on a regular basis by the External Auditor because of the necessity of issuing an audit opinion on the yearly accounts. Furthermore, in my opinion both non-stream activities were well managed.

·  The following improvements should be made to the DTS [Daily Time Sheet] system. Audit staff should be asked to report on a bi-weekly or weekly basis and the reporting by sub-activities should be made more consistent. Reporting should provide a comparison between planned and actual. [paragraph 163]

Fundamental

Merits attention

Immediate effect

Immediate effect

This recommendation was based on a misconception regarding the amount of time spent on Headquarters activities. As the Organization explained to the Finance Committee in September 2002, consideration of the time spent by AUD on the Headquarters activities should also include the time spent on Special Assignments and Investigations, almost all of which were undertaken at Headquarters. When this is done, the total time spent on Headquarters activities was in line with the current target and was closer to the levels recommended by the External Auditor. AUD’s target is 50% decentralised activities, 25% Headquarters activities, and 25% Special Assignments and Investigations.

On the basis of AUD’s current risk assessment of the operations of the Commissary and Credit Union, the audit time devoted to these two operations remains stable for the current biennium. As part of the planning process for the 2004-05 biennium, AUD will reassess the risk profile and plan the audit effort accordingly.

Again, this recommendation was based on a misconception, as the Organization has explained to the Finance Committee in September 2002. AUD staff record their time on a daily basis and a planned and actual comparison for the office as a whole is performed monthly. Furthermore, planned to actual comparisons are performed for each assignment at the end of the assignment. The time recording system is exclusive to AUD within the Organization and is up-to-date.

AUD’s assumptions will be verified.

Noted.

Staffing

I recommend that top priority be given to recruitment and that, in the meantime, external resources be contracted in order to address the issues not covered as planned in the 2000-01 work plan. [paragraph 166]

Fundamental

Immediate effect

AUD’s recruitment efforts are receiving top priority and, indeed, certain key positions have already been filled. In the meantime, consultancy assistance is being used as required.

Status: Implemented.

Noted.

Professional Qualifications

In view of the growing importance of ICT [Information and Communication Technology] in the field of auditing, I recommend that priority be given to candidates with a strong background in this area. Furthermore, I recommend that recruitment be more diversified than at present in order to obtain proficiency in a variety of technical disciplines. In view of the FAO activities, auditors with agronomic, statistic or economic background would be a welcome addition. [paragraph 167]

Significant

Immediate effect

In the current recruitment actions of AUD, these areas of expertise continue to be taken into account, for example, the Office has recently recruited an auditor with a law degree. In addition, audit staff is encouraged to enrol in the Certified Information Systems Auditor (CISA) programme and ICT experience is given a high rating in current recruitment actions.

Status: Implemented.

This will be verified.

Training

I recommend that training be intensified and focused, in particular, on information system audit. In addition, some existing auditors should be encouraged to become CISAs [Certified Information System Auditors] or Oracle “Certified Professionals”. [paragraph 168]

Significant

For 2003 training plan

Training and development continue to be important aspects of the overall management of the Office of the Inspector-General. Such training comprises three elements:

·  professional audit training,

·  language training, and

·  training in the use of office technology.

As part of the ongoing training efforts, computer fraud courses were held in Rome for the entire Office in 2000 and 2001. In October 2002, a special course was held in Rome by an internationally recognised expert in the areas of preventing, detecting and investigating fraud, including technology-based detection. A course on information systems audits, concentrating on auditing Oracle applications, is being organised in Rome for the entire Office for late 2003.

The Office of the Inspector-General has increased its investment in training in recent years. At present, approximately 3.5 percent of total staff time is invested in formal training and it is expected that this will increase in future years.

Status: In course of implementation.

Noted.

Performance of Audit Work

I recommend the following:

·  Dramatic improvements should be made to the audit manual to turn it into a useful tool for the auditors. Priority should be given to include sections on risk assessment, statistical sampling and materiality. The section dedicated to Headquarters should be expanded to cover the information system, treasury functions and investments, procurement and human resources audits.

·  For the working papers, the prescribed format for the “Audit Summary File” should be followed in all cases and the information regarding planned/budgeted schedule and costs versus actual should be duly completed. In addition, working papers of audits conducted in the field should be repatriated to Headquarters.

·  On an annual basis, an overall comparison should be made between the work plan and the actual audit conducted and duly reported in the annual activity report. [paragraph 172]

Significant

By mid-2003

Immediate effect

For 2002

The audit manual will be updated during the first half of 2003, taking into account the results of the work on risk assessment methodology and the new standards for the professional practice of internal auditing adopted in June 2002.

Status; In course of implementation.

The Audit Summary File is being completed in line with the External Auditor’s recommendation.This is a continuing process. Working papers for audits conducted in the field by the regional auditors are retained by the regional auditors for reference, and are brought to Headquarters when necessary.

Status: Implemented.

This recommendation has been implemented for the 2002 annual activity report.

Status: Implemented.

Progress will be verified.

Noted.

Noted.

Reporting and Follow-up of Audit Findings

I recommend the following:

·  The results of all audit assignments should be documented in a formal report.

·  For each type of audit assignment a standard report should be developed. Compliance to the agreed content and format should be closely monitored.

·  Relative importance and timeframe for implementation should be duly mentioned for all recommendations and, if applicable, the cost implication of their implementation should be estimated.

·  Procedures should be established and duly followed to ensure quality control on the audits conducted and reports issued. [paragraph 175]

Significant

Immediate effect

This recommendation was based on a misconception. All audit assignments are documented in a formal report.

AUD is carrying out a comparative review of the practice of other agencies and will consider ways to implement this recommendation without stifling creativity and initiative on the part of the auditor.

Implemented.

Implemented.

Noted.

This will be verified.

This will be verified.

This will be verified.

I recommend that a section be included in the AUD annual report regarding the implementation of all recommendations issued. [paragraph 177]

Significant

For 2002 anual report

Implemented.

Noted.

Review of the InternalControls over the Use of the Organization’s Resources

In view of the deficiencies of the review conducted and the unreliability of the results, I recommend that another review be conducted as soon as possible with an appropriate methodology, namely a risk assessment. The assessment should first look back at past cases of fraud and misuse of the Organization’s resources in order to determine the factors that facilitated their occurrence. On the basis of how existing rules, regulations and procedures were indeed applied, the assessment should then look ahead and try to predict the possible risks of misuse of the Organization’s resources and recommend ways of preventing them. [paragraph 187]

Fundamental

In 2003

In this respect, an expert consultant has been retained to assist in developing a new risk assessment methodology and with this tool the issue will be revisited during the first half of 2003.

Status: In course of implementation.

Noted.

Local Audits

I recommend that the present arrangements be evaluated by AUD together with AFF with regards to their costs and that alternatives be sought. In view of the presence of one internal auditor in each RO, the Organization might consider having the work performed by its own staff. [paragraph 190]

Significant

Before the end of 2002

In coordination with AFF, AUD has reviewed the local audit programme and issued a report in December 2002. AFF has also prepared a report with proposed changes to the current arrangements.

Status: Implemented

Noted.

Overall Conclusions

To conclude on the review of AUD, I recommend that the deficiencies identified above in terms of audit planning and coverage, professional resources, performance of audit work, reporting and follow-up be addressed. A detailed plan of action should be prepared and closely monitored under the authority of the audit committee, if established as recommended. [paragraph 191]

Fundamental

Detailed plan of action before the end of 2002

An action plan was provided to the Finance Committee in September 2002 and the present document states the current position.

Status: Implemented

Noted.

Review of the Set-up of Controls in Oracle

Systems-development Process

I recommend that priority be given to the following:

·  an overall strategy should be formalised;

·  a well-proven project methodology should be adopted for the Human Resources and Budget projects and any other future projects;

·  existing documentation should be completed and/or updated (especially all parameters’ guides) and procedures defined for their maintenance;

·  all controls carried out either at the level of AFI or AFFS should be formally documented. [paragraph 195]

Fundamental

Before the end of 2002

·  Strategic Objective E.1 of the Strategic Framework 2000-2015 seeks to provide “An integrated information resource base, with current, relevant and reliable statistics, information and knowledge made accessible to all FAO clients…” This is further elaborated in the Medium Term Plan (MTP) 2002-2007 where it is estimated that 22.4% of total resources are allocated to the Strategic Objective E.1. The administrative aspects were also covered in the Strategic Framework under the cross organizational strategy “Continuing to Improve the Management Process”.

·  PRINCE2 (Projects In a Controlled Environment 2) has been adopted as the methodological framework for both Oracle Phase II project components (Oracle HR & Payroll and PIRES).

·  As part of the Oracle 11i upgrade process (completed in August 2002), standard Oracle configuration documentation was completed for all applications. In addition, procedures are now in place to document future changes to the configuration as part of the standard systems change procedure.

·  Current procedures and controls in relation to system access and security are now being formally documented.

Status: In course of implementation

Progress in these matters will be verified.

Interfaces

Although I acknowledge that the Controls Branch has started to address these problems through the monitoring and reporting of interface activity and follow up of issues arising, I recommend that efforts be continued to establish procedures for the following: frequency of up-dates; regular analysis of rejects; recycling and audit trail. [paragraph 196]

Significant

Immediate effect

As noted by the External Auditor, regular review and reporting of interface activity is already in place. Procedures are currently being reviewed to extend the work in this area also to cover the points raised by the External Auditor. It is expected that this work will continue throughout 2003.

Status: In course of implementation

Progress in these matters will be verified.

FOLLOW UP REVIEW OF THE TREASURY MANAGEMENT

Organizational Arrangements

Investment Committee

I recommend that a second member be appointed and that FAO continue the discussions with the WFP regarding the possibility of having its Treasurer participate in the functions of the FAO Investment Committee. [paragraph 209]

Merits attention

Before the end of 2002

The Organization has invited the Treasurer of the WFP to participate in the FAO Investment Commiteee meetings, just as the WFP has invited the Treasurer of the FAO to attend its investment committee meetings.

Status: Implemented

Noted.

Advisory Committee on Investments

I recommend that the ACI [Advisory Committee on Investments] meet twice a year, by teleconference and that informal consultation be encouraged in between. Minutes should be prepared in all cases, even for informal consultation, and promptly issued, as previously recommended. [paragraph 213]

Merits attention

In 2003

The recommended approach is being implemented from 2003 onwards depending on the availability of ACI members and the issues to be discussed. For urgent issues, phone conference calls will be made.

Status: In course of implementation

Progress in these matters will be verified.

Banking Arrangements

I recommend prompt action to implement the third tier of the strategy in order to further streamline the number of retail banking relationships and reduce the cost of banking. [paragraph 215]

Significant

Before the end of 2003

With regard to the third tier of the banking strategy, initial contacts have now been made with the main service providers for the FAO regions. A banking expert has been engaged as a consultant to establish agreements with major banks and to prepare the linkages with their electronic banking systems.

Status: In course of implementation

Progress in these matters will be verified.

Short-Term Investments

2002 Update

I recommend that the transfer (of the short-term investments) only be made once all the arrangements for the monitoring of the investments are in place as detailed below. [paragraph 217]

Significant

By mid-2003

Status: Implemented

Noted.

Long-Term Investments

2002 Update

While regretting that the existing arrangements were not reviewed earlier, as recommended in my previous report, I urge the Organization to progress on this issue (transfer of the long-term investments) as soon as possible now that a Chief, Treasury Unit has been appointed. [paragraph 224]

Fundamental

y mid-2003

The Finance Committee, at its Session held in September 2002, was informed that an asset and liability study would be performed in order to address the situation of growing liabilities for current and past after service medical care obligations with only partial funding and a possibly unrealistic expectation to meet such liabilities solely from the FAO’s long-term investments. The ACI had noted that one of the Organization’s outstanding investment strategies concerned dividing the equity portion of the long-term portfolio between a value investor and a growth investor. This strategy was subject to an assessment of the current investment manager’s performance and a detailed asset and liability study was necessary before any partitioning could take place.

An specialized firm has been contacted to carry out an asset and liability study. Once the study has been completed, depending on the results, a transfer of assets to other investment managers together with other cost efficient alternative actions will be considered. In parallel with the above, preparatory work is now underway to identify potential new long-term asset managers.

Status: In course of implementation

This will be verified.

FOLLOW UP REVIEW OF THE AFF REORGANISATION AND STAFFING

Staffing review

I recommend that on the basis of the final report of the consulting firm, a detailed action plan on how to address the unresolved issues faced by the AFF division be prepared and that its implementation be closely monitored through the regular issuance of progress reports. [paragraph 254]

Significant

Detailed plan of action before the end of 2002

The recommendations of the consulting firm are being considered as part of the budgetary process and proposals to address the staffing situation will be included in the PWB for 2004-05.

Status: In course of implementation

Noted.

ACTION TAKEN IN RESPONSE TO PREVIOUS REPORTS

Human Resources Management

Use of Other Human Resources

Regarding the use of other human resources, I recommended that the conditions of services and contracts be standardised and that a control and monitoring system over the corporate use of external collaborators be put in place [paragraph 119 of my 1998-99 report]. At the time of writing this report, my staff were informed that the envisaged new contractual arrangement called “Personal Services Agreement”, which would replace four previous types of contracts, and would be implemented in October 2002.

Not indicated

Not indicated

A new contractual arrangement called "Personal Services Agreements" was introduced in October 2002 to replace the previous four types of contracts (Reimbursable Loan Agreements, Special Services Agreements, Employment of National Professional Project Personnel and Contracts for Technical Writers, Technical Editors, Illustrators, Translators, Typists, Proof Readers and Publishers). The new Manual Section 319 has been made available on the FAO Intranet at Policies & Procedures, FAO Administrative Manual (AFH), and the Organization is providing assistance in the implementation of this new contractual arrangement. In addition, a control and monitoring system over the use of external collaborators is being addressed within the context of the implemenation of Oracle HRMS.

Status: In course of implementation

Progress will be verified.

Support Cost Arrangements

Support Costs

In my 1996-97 report, I had commented on the proliferation of support costs of various types and recommended that a comprehensive but much simplified framework for support cost arrangements be prepared. Following extensive reviews by the Finance Committee at its 94^th and 95^th Sessions (May and September 2000), the Council endorsed the proposed policy on reimbursement rates at its 119^th Session in November 2000. I noted the progress made but I am of the opinion that support costs could be further streamlined. In this regard, I think that the FAO could benefit from the review of indirect support costs recently conduced by the WFP that includes a comparison with other UN organisations.

Not indicated

Not indicated

In response to the suggestion of the External Auditor, the Organization has reviewed the referenced WFP Report [FC 100/16] which is an examination of WFP’s policies and procedures for charging indirect support costs to donors. Currently WFP utilises a single rate of 7.8% of total direct project expenditures which is calculated biennially and designed to achieve full recovery of costs incurred in its Programme Support and Administrative (PSA) Budget. The said report explains the difficulties WFP has faced in the past several biennia as actual recoveries have not kept pace with support cost expenditures. WFP’s Executive Director proposes reducing the indirect support charge to 7.0% commencing in 2003, recovering the costs of certain variable expenditures currently included in its PSA budget through direct charges to project budgets and using interest generated on unexpended project funds to finance potential future deficits.

Unlike the FAO, WFP is a voluntary agency with no assessed contributions, and is required to recover all its fixed and variable support costs through an indirect support cost charge. The FAO’s Governing Bodies have, on the other hand, established policies limiting the recovery of support costs to incremental costs incurred. Under these policies the costs of the FAO’s fixed overhead infrastructure attributable to support to field projects are financed through its Regular Programme.

WFP’s Executive Board has established a single rate for the recovery of support costs notwithstanding studies which have shown significant differences in the costs of providing support to its development, emergency relief and refugee relief activities. Instead, the FAO’s support cost recovery policy has been designed to attempt to relate, as closely as possible, its variable costs incurred to the rate charged for the delivery of technical cooperation, normative, emergency, TCP/SPFS and other project services. While a single support cost rate might appear to simplify the accounting procedures related to support cost charging, it is also likely to complicate relationships with donors asked to reimburse for support services provided using rates unrelated to costs incurred.

The comparisons mentioned in the External Auditor’s comment provide information comparing operating expenditures and support costs budgeted for UNDP, UNFPA, UNHCR, UNICEF and WFP. All of these agencies are financed primarily through voluntary funding and are not involved in delivering project technical services. While the information is of interest to all organisations within the UN system, the significant differences in agency mandates, methods of delivery service and financing limit their applicability to the FAO.

The External Auditor’s also expressed the view that further streamlining could be possible although without indicating how this might be achieved. The Organization is of the view that this might be difficult if the current policy objectives are to be met – in particular, to relate, as closely as possible, the FAO’s indirect variable costs incurred to the rate charged for the delivery of its services. On the other hand, every opportunity to reduce the process costs should be grasped and, in this regard the Organization will continue to review and share with the Finance Committee the cost of supporting the field programme, the extent to which such costs are recovered and the application of the current policy always with the objective of improving performance in the broadest meaning of that term.

Finally, the Organization draws attention to the fact that the Finance Committee will have a further opportunity to discuss this issue in its consideration of the JIU’s report 2002/3 "Support costs related to extra-budgetary activities in Organizations of the UN system"

In conclusion, the Organization suggests that the work on this recommendation be considered complete.

Status: Implemented

The matter will be examined.

Phase

Confirmed
Allocation

Amount in
Pipeline

Expenditure and Hard Commitments

Rate of
Delivery (%)

I

20 150 000

20 150 000

100.00

II

26 000 000

26 000 000

100.00

III

26 000 000

26 000 000

100.00

IV

36 000 000

35 896 072

99.71

V

58 900 000

58 682 538

99.63

VI

124 000 000

99 562 226

80.29

VII

187 141 500

124 081 733

66.30

VIII

151 327 712

59 878 997

39.57

IX

22 128 500

16 971 500

2 194 183

9.92

X

4 857 579

55 107 421

XI

1 000 000

29 000 000

XII

41 000 000

TOTALS

657 505 291

142 078 921

452 445 749

68.81

                 TOTAL APPROVED:

                 TOTAL PIPELINE:

                 TOTAL APPROVED + PIPELINE:

657 505 291

142 078 921

799 584 212

Phase

Total Budget
Approved

Expenditure and Hard Commitments

Balance

I to XII (1997-2002)

68 822 715

68 058 061

764 654