FINANCE COMMITTEE

1. The Financial Highlights Report is a new report for the Finance Committee. It is designed to show, at a summary level, the financial highlights of the Organisation. The format of the top section of the report broadly follows a sources and application of funds presentation, where sources of funds are shown in the form of income to the Organisation or funds received in trust. The report then shows how these funds have been used in terms of programme, project or other expenditures and what the impact of these flows has been on the equity or reserve balances of the Organisation

2. The second part of the report expands on the equity section of the accounts to show movements in reserve balances during the period under report.

In terms of the vertical structure of the report, there are three groupings of data:

• income and expenditure by source of funds (Regular Programme appropriations, the TCP appropriations and extrabudgetary funds - Trust Funds, UNDP and other projects) coming to a total fund presentation;
• the budget for particular sources of funds where the budget for trust funds represents the expenditure plan formulated by project managers as opposed to expenditure ceilings budgeted for the Regular Programme; and,
• balances for a comparative period in a prior year - 1999 in the case of the attached report.

A. REGULAR PROGRAMME

3. As the statement shows, the Financial Position of FAO has strengthened during the year 2000 when compared with the close of the last biennium. The General Fund has moved from a US$63.6 million deficit position to a deficit of US$26.7 million. The impact of the deficit on the liquidity of the General Fund is mitigated by the accummulated funding earmarked for the TCP programme which grew in 2000 from 64.6 million to 77.5 million. However, most of the improvement in the General Fund in 2000 is a function of income for the first year of the biennium reaching 107% of the plan (PWB) whereas expenses only accounted for 88% of the plan. If the PWB is fully implemented in support of the Regular Programme, and below the line costs (staff-related schemes and after service medical medical costs) are in line with the last biennium, the deficit in the General Fund should be back in the order of US$50 to US$60 million unless budgeted expenses are offset by arrears payments. Clearly, the financial situation is no longer one where shortfalls in contributions can be absorbed by the Working Capital or Special Reserve Funds.

B. TCP

4. At the end of 1999 the funding carried forward under the TCP Programme totalled US$64.6 million to which was added the appropriation of 44.6 million for the first year of the 2000/01 biennium, for total funding os US$109.2 million for this programme. During the first year of the current biennium (2000) some US$31.7 million was disbursed on TCP projects, leaving a balance available for this programme at year end of US$77.5 million.

C. EXTRA BUDGETARY FUNDING

5. The "income" figure for Trust Fund and UNDP (US$277.5 million) reflects the payments received from donors during the year 2000. This figure includes advance payments as well as funding for current year payments. The expense figures (US$314.2 million) shown is a combination of payments made on Trust Fund projects during the year plus accruals (non-cash charges) for the year. The accrual figure, which takes expenses above cash received, is mostly accounted for by some US$90 million in the Oil for Food Programme where contracts cleared for implementation were accrued, and this accrual, which is high, preceeds the flow of advance funding from the UN. Absent this distortion in Trust Fund expenditures, the reserve balance for funds in trust with FAO would be on the order of US$180 million.

D. NET EQUITY POSITION

6. The results of the year 2000 show that the equity position of member countries has improved during 2000, when compared to 1999 as the General Fund balance has dropped from a deficit position of US$63.0 million to a deficit position of US$26.7 million. If the assets earmarked for the TCP progamme are taken into account the equity position moves to US$107.1 million at the end of 2000 compared with US$47.9 million at the end of 1999.

7. Funds held in trust with respect to extra-budgetary contributions total US$98.7 million as shown in the statement. If non-cash charges are set aside, the figure is in the order of US$190 million.

8. It is important to note that several major assets and liabilities are not shown on the financial statements under standing UN accounting practices or by FAO Financial Rules approved by the Council. More specifically, the largest asset the Organization has - arrears of US$171 million - are carried on the books at zero value so as not to treat unpaid assessments as income. Under UN accounting practices the full liability for after service payments - some US$85 million - is shown as a footnote to the Financial Statement.

Conclusion

9. Clearly, unless the payment of accummulated donor arrears can be anticipated FAO will continue in a weak financial position with the Working Capital and Special Reserve Funds insufficient to keep the General Fund out of deficit. If the TCP programme were to surge, FAO would not have sufficient funds to get through the biennium. Steps need to be taken to improve the flow of arrears and/or to increase the Working Capital available to the Organization to cover unpaid contributions.

a/  Regular Programme excluding TCP

b/  Arrears of Members' Contributions amounted to $152,463,000 (excluding Govt Cash Contribution $5,695,000; Working Capital Fund $1,602,000; and Special Reserve Account $10,874,000)

c/  Includes investment income (long-term) in addition to budgeted miscellaneous income prescribed by Conference Resolution

d/  As per Conference Resolution on staff redeployment costs

e/  As per Conference Resolution on amortisation of After-service medical liabilities over 30 years

f/  As per Conference Resolution on transfer of investment surpluses to After-service medical scheme