Revised memo to the Management and Program Sub-Committee (MPSC) on GGGI Overhead

Transcription

1 Global Green Growth Institute Eighth Meeting of the Management and Program Sub-Committee July 5, 2018; via videoconference Revised memo to the Management and Program Sub-Committee (MPSC) on GGGI Overhead Summary In response to the requests made by the Management and Program Sub-Committee (MPSC) at its Seventh Meeting, held on April 24-25, 2018, this revised memo on the GGGI overhead provides further explanations on the proposals made and includes a comparison with the practices of other international organizations. At its Eighth Meeting, the Institute proposes the MPSC to recommend to the Council, the following: 1. Approve a pass-through earmarked rate or management cost of 7% for GGGI s core donors; 2. Approve a 15% earmarked overhead rate, increase from 1%, for non-core donors which would match the GGGI overhead for a full cost recovery;. Adopt a new definition of overhead or non-programmatic cost as a share of total expenditures; and 4. Call upon the Institute to reach a target of 15% overhead by year 202, down from 22% in 2017 and 6% in

2 Background There are several Council decisions related to overhead costs at GGGI, namely: 1. Overhead rate GGGI charges on earmarked proposals is 7 to 1% i. 2. Management and Administration costs ii should be 17% of the core resources by 2020 (achieved in 2017).. Non-programmatic costs should be reduced from the then 41% to 0% of core by 2020 (achieved in 2017). The Institute presented a Memo to MPSC on Overhead (MPSC/2018/8) to provide an outline of the process of transitioning from an operational model that is predominantly funded though core resources to one with a higher percentage of earmarked resources. This is in response to a decreased amount and proportion of core funding to cover the cost of delivering the Work Program. The MPSC, at its Seventh Meeting held on April 24-25, 2018, requested the Institute to revert with a comparison with other organizations and to provide further explanation. Proposed principles 1. Overhead supports both core and earmarked resource funded projects and should be defined as a percentage of the total expenditures of GGGI, not as a percentage of core alone. 2. The overhead rate charged on earmarked projects should closely approximate the real rate, so that there is no subsidy of core resources to earmarked projects (full cost recovery).. The overhead of GGGI should not be higher than that of similar international organizations. 4. All costs that can be directly charged to projects should be charged out, to minimize overhead costs. Actual situation In the WPB, the non-programmatic costs (ODG 1 plus OED 2 ) are targeted to be below 0% of the core resource expenditures. At budgeted levels of $47.6M in 2017 and $50.04M for core resource expenditures that results in a non-programmatic budget of $1.4M per annum. For the WPB the forecast core resource expenditures are around $26.2M per annum and at 0% of that, or $ 9.86M a significant reduction is required. Both OED and ODG have initiated exercises to explore how costs can be reduced, particularly through a reduction in staff cost. In Table 1 the overhead costs are calculated (using the current definition of indirect or nonprogrammatic cost as OED plus ODG) as a share of the total expenditure (core plus earmarked). It is shown that overhead as a share of total expenditures is moving in the right direction, from 1 Office of the Director General (ODG) includes 1) Director-General s office 2) Governance ) Strategy, Partnership and Communications (SPC) and the 4) Green Climate Fund (GCF) Liaison Unit. 2 Operations Enabling Division (OED) includes 1) Office of the Deputy Director-General 2) Legal ) Finance 4) Human Resources 5) Administrative Services and 6) Technology Services. 2

3 6% in 2014 to a projected 20% in (in the Base Scenario). Given the declining share of core in the total budget, overhead defined as a share of core alone may exceed the current set limit of 0%. While the overhead trend for the Institute is positive (declining), it is still desirable to bring overheads down further, with a target proposed as 15% of total expenditures in the medium term. Table 1: Trends in GGGI Overhead Costs as a share of total Expenditures, i.e. core plus earmarked resources (with and without Capital costs) from Actual Actual Actual Actual Budget Budget Budget A Expenditure 2,255 1,076 40,987 44,117 55,81 49,949 49,949 ODG 4,695,624 4,294,788 4,511,406,406 OED 6,969 6,740 6,402 6,045 7,564 6,61 6,61 B Sub-total 11,664 10,64 10,695 9,82 12,074 10,019 10,019 Overhead (B/A) 6% % 26% 22% 22% 20% 20% C Capital ,15 1,460 1,516 1,000 1,000 D = (B+C) Total 11,98 11,109 11,849 11,292 1,590 11,019 11,019 Overhead (D/A) 7% 6% 29% 26% 25% 22% 22% A comparison with other international organizations shows that overhead is defined in two distinct ways: 1. Earmarked Rate, or Full Overhead: all indirect or non-programmatic costs in the organization. 2. Pass Through Rate, or Management Cost: where a share of the non-programmatic costs are funded through, for example assessed contributions (core), and earmarked projects 1. Actual expenditure - is sourced from GGGI s Audited Financial Statement 2014, 2015, 2016 and Budget is sourced from WPB presented and approved by Council in Budget is sourced from draft WPB to be presented to MPSC in July The projected budget should be read in the context of the high-level budget section of the draft Work Program and Budget

4 are charged only the cost of managing the project (but not the cost of managing the organization. It would be reasonable to charge earmarked donors that do not contribute to the core resources of the organization the full overhead (proposed for GGGI to be 15%), where allowed, while earmarked donors that also contribute to GGGI s core resources would be charged the management cost (proposed as 7%). Based on the analysis, we noted that most organizations have in fact established a different rate mechanism for different type of earmarked funds. In our comparison (see Table 2), you will find the examples of organizations applying different rates for pass through type earmarked funds compared to standard earmarked funds. This is largely in line with GGGI s proposal to charge a 7% earmarked rate for donors who are also core contributors and a 15% earmarked rate to those donors who only contributes to earmarked funding only. While para 9. of the Finance Policies and Procedures, dated July 2016, provides a definition, and examples of direct-indirect cost structure, GGGI will need to work toward defining these better to enable them to be used to drive overhead costs down, and charge the largest possible share to projects. Some costs incurred in OED and ODG may be charged directly to projects, while some of the costs in GGPI and IPSD may in fact be better classified as overhead or nonprogrammatic. Table 2 Pass Through Rates and Earmarked Rates applied by International Organizations ORGANISATION PASS THROUGH RATE EARMARKED RATE WHO 4 Between 0 12% Up to 20% GAVI 5 N/A Between 5-15% Bill and Melinda Gates 6 Between 0-10% Up to 15% CCAFS 7 Up to 5% Up to 20% UNDP 8 7% Between -9.5% UN Chief Executives Board 9 N/A Between 14-19% GGGI (At present) 7% Up to 1% It would be desirable for GGGI to move to a situation where the real total non-programmatic expenditure the overhead costs equaled the amount charged to earmarked project donors, that is, full cost-recovery, or no subsidy of earmarked projects by core funds. A realistic target, at 4 WHO GAVI - Guidelines on Detailed Budgeting page 11 6 Bill and Melinda Gates Foundation applies 0.0% - Government Agencies, Other Private Foundations, 15.0%-Nongovernmental Organizations (NGOs), Multilateral Organizations, Non-US universities, For-profit organizations, 10.0%-US Universities, community colleges 7 CCAFS y%20from%20other%20resources%20-%20general%20management%20support%20(gms).pdf 9 4

5 least in the medium term (defined here as 5 years, or by the year 202), would appear to be 15% overhead as a total of overall expenditures. Recommendation to the MPSC The Institute proposes that the MPSC recommends the Council to: 1. Approve a pass-through earmarked rate or management cost of 7% for GGGI s core donors: 2. Approve a 15% earmarked overhead rate, an increase from 1%, for non-core donors which would match the GGGI overhead for a full cost recovery;. Adopt a new definition of overhead or non-programmatic cost as a share of total expenditures; and 4. Call upon the Institute to reach 15% overhead rate by year 202, down from 22% in 2017 and 6% in Proposed actions The Institute to undertake a detailed direct and indirect costs structure to enable a more precise overhead definition. Implementation By adopting this recommendation, the Institute will do the following: 1. Revise GGGI s cost recovery rates in the draft Work Program and Budget ; 2. Revise Article 9. of the Finance Policies and Procedures to adopt the above-mentioned definition on direct and indirect support. i Decision on the approval of minutes from the sixth session of the Council [C/WRP/DC/9], December 16, 2014 Reference to Decision on the Work Program and Budget [C/6/DC/5] a. To ensure transparency, accountability and ease of accounting, GGGI will charge 7% Project Support Cost (PSC) for earmarked projects funded by core contributing members of GGGI; and b. To ensure core resources do not subsidize earmarked projects, funding partners who are not GGGI s core contributing members will be charged between 7% to 1% overhead cost, depending on the value and complexity of the projects ii Programmatic Cost: Cost of all programs including Impact and Evaluation Unit; Non Programmatic Cost: Includes Management and Administration (M&A), Strategy, Policy and Communications (SPC), Office of the DG (replacing former Office of the Executive Management Group), Office of Internal Audit and Integrity (OIAI) and Capital Cost. 5