JAG/DEC-2008/02 ITC UNDERSTANDING FINANCIAL RESOURCES EXPORT IMPACT FOR GOOD

Transcription

1 JAG/DEC-2008/02 ITC UNDERSTANDING FINANCIAL RESOURCES EXPORT IMPACT FOR GOOD

2 The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the International Trade Centre concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Maps are provided for ease of reference only. This document has not been formally edited by the International Trade Centre. November 2008 Original: English Joint Advisory Group on the International Trade Centre Forty-second session Geneva, December 2008 International Trade Centre 2008

3 CONTENTS 1. INTRODUCTION... 2 Audience familiarity with ITC financial information...3 Funding REGULAR BUDGET (RB) EXTRA-BUDGETARY RESOURCES (XB)... 7 Un-earmarked and soft-earmarked funding...7 Earmarked funding...8 Programme Support Costs (PSC)...9 Operating Reserves GOVERNANCE Accounting...12 More efficient management of ITC financial resources

4 1. INTRODUCTION A key recommendation of the 2006 external evaluation (Denmark) of ITC stated: Steps to facilitate a harmonized approach should be taken, including movement to a single fiscal year for ITC operations and preparation of an integrated programme and budget document. As a first step to achieving greater harmonization, the JAG agreed in December 2007 to align the financial reporting year to the regular budget cycle (1 January 2008 to 31 December 2009). Consequently, the Global Trust Fund (GTF) financial year now runs from 1 January to 31 December each year and is co-terminus to the regular budget financial year. As a second step, integrated financial information showing all ITC s financial resources is presented in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep to provide a context within which donors may situate their extra-budgetary contributions. The present report outlines the source, nature and governance of the financial resources available to ITC. As this is the first time ITC is including comprehensive financial information in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep. 2008, this document provides supplementary descriptions and explanations. However, ITC will not reproduce this supplementary information in the future. 2

5 Audience familiarity with ITC financial information While developing the financial information presented in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep consideration is given to the expected audience. The member state representatives attending on the JAG are sometimes the same delegates attending UNCTAD meetings. In some cases these same individuals attend also meetings of the WTO, though sometimes not as some member states have sufficient staff to allocate separate representatives to WTO and UNCTAD. While some delegates formally reviewing ITC s programme and budget in the General Council of WTO may also attend the JAG, the delegates who review ITC s programme and budget in the General Assembly in New York are likely not the same delegates that participate in the JAG in Geneva. A consequence of this challenging governance situation is that exposure to ITC s financial and budgetary information presented in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep among our audience is uneven. For some the information may be completely new and viewed for a first time while for others it will have been viewed previously in various formats and contexts. The requirement for information is tied to the use that one will make of that information and the influence one may have on its use. The information presented in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep report is meant to facilitate the provision of guidance and advice from the JAG. This type of reporting is distinct from, and serves a different purpose than, the statutory reporting included in the formal budget processes and the provision of audited financial statements and reports. It is against this background that we will describe the pockets in which ITC financial resources are found in Annex 1 Status and Expenditures of ITC Resources as of 30 September 2008, in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep

6 Funding ITC receives funds from different sources and holds them in different pockets. The rules applied to the accounting, management and use of these funds vary depending on their source, nature and agreement concluded. Funding is divided into two types, regular budget funds and extra-budgetary funds. As agreed in the administrative arrangements for the regular budget of ITC, the regular budget is assessed, approved and paid in Swiss francs, while its accounts are kept in US dollars (USD). Payments are received monthly and at present represent approximately 50% of ITC s annual financial resources (see Table 1). Type Currency Source Regular budget Extrabudgetary funds Table 1. Funding Types SF United Nations WTO Payment frequency % of resources Monthly 50% US $ Donors Varies 50% The remaining 50% of ITC s resources, referred to as extra-budgetary funds, are contributions donated principally by donor countries to ITC, in support of technical assistance in trade and a small component comprising income earned by ITC from support costs and from selling its services and products. These funds are accounted separately in USD and are subject to different conditions depending on their nature and the agreements governing their use when the funds were accepted by the organization. 1 1 For the purposes of this report, all figures are listed in US dollars, unless otherwise indicated. 4

7 2. REGULAR BUDGET (RB) The regular budget funding received from WTO and the UN represents approximately half of ITC s total annual resources. The 2008 Regular Budget is approximately $32.8 million (as per Annex 1 in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep. 2008). As the budget is approved in Swiss Francs, the figures have been converted in this report to USD in order to integrate the data and provide a comprehensive view of ITC s financial situation. (This immediately introduces a measure of fluctuation as the USD data changes with the movement of exchange rates.) It is also noteworthy that the regular budget is approved, paid and monitored in Swiss francs while the USD data is only used for accounting and reporting purposes. The regular budget provides funding for a number of posts, support for intergovernmental meetings such as the JAG, publications, public information, communications, the World Export Development Forum as well as the administrative and physical infrastructure and internal management of ITC (e.g. oversight, evaluation and audit services, security and insurance). ITC regular budget funding structure and delivery as of 2008 Sources of funding Budget Examples of ITC Delivery United Nations & WTO Regular Budget Administrative & physical infrastructure of ITC Internal management Regular budget posts Global, inter-regional and country-level programmes available to all countries as appropriate Development of core business line products Trade Intelligence Intergovernmental meetings (JAG) WEDF Publications & communications Figure 1. ITC regular budget funding structure and delivery as of

8 In keeping with the United Nations practice of focusing the use of the regular budget on the provision of collective benefits for beneficiary countries, regular-budget-funded posts and related activities have been assigned (in addition to the functions mentioned above) to the design and development of programmes and export solutions which will ultimately serve ITC s entire client population. As ITC is a purely technical cooperation agency, probity and good management have dictated the allocation of a share of regular budget resources to the oversight, management and backstopping of technical cooperation activities largely funded, by extra-budgetary contributions. The Report of the ACABQ on the UN programme budget for (Para 115) states that there is a need to ensure that regular budget funded activities do not subsidize extra-budgetary activities and vice versa. The General Assembly subsequently took note of the report and its recommendations (A/RES/50/216 part II, Para. I). This policy guidance from the General Assembly, understood to require a distinction in the management of programme activities funded from extra-budgetary or regular budget resources, has influenced the conceptualization of ITC s programme of work. Previously this was interpreted by ITC as meaning that products made available globally or interregionally would, where adequate funding was available, be funded from regular budget resources while country specific programmes would be funded by extra-budgetary resources. While this distinction may serve an agency where technical cooperation activities form only a small proportion of its activities, it is not an interpretation that facilitates the management of an agency like ITC, whose mandate and activities are 100% technical-cooperation oriented. With a view to simplifying and strengthening ITC s programme strategy and delivery, as recommended by the Denmark evaluation, this conceptual construct has been revisited as described on page 12. ITC is exploring the usefulness of the described approach. 6

9 3. EXTRA-BUDGETARY RESOURCES (XB) Extra-budgetary funding falls into three categories: un-earmarked funding, earmarked funding and legislative requirements (operating reserves). As shown in Annex 1 in the Highlights of ITC Activities Report - 1. Jan. to 30. Sep. 2008, approximately 47% of the extra-budgetary funding available to ITC is un-earmarked. Un-earmarked and soft-earmarked funding 2 ITC s un-earmarked (and soft earmarked) XB resources comprise the funding received for the Global Trust Fund (GTF). GTF funds are used primarily to finance technical expertise, programme development, and country and regional activities. They also finance other activities in support of ITC s work such as mission travel, expert meetings and independent evaluations. These are un-earmarked contributions that are allocated periodically by the ITC senior management on the basis of the most pressing needs, taking due account of the parameters set by the Consultative Committee. In previous years, donors for particular programmes have earmarked funds. During 2008, consistent with donors requests for soft earmarking, ITC has used these funds for programmes delivering the goals and objectives targeted, including gender, environment, poverty and the seven W2 programmes listed below: Business Advocacy for Trade (World Trade Net) South-South Trade Promotion (SSTP) E-Trade Bridge Programme for SMEs (a capacity developm ent programme for e-facilitated trade) Export-led Poverty Reduction Programme (EPRP) ServiceExportNet National Export Strategy Design and Management ACCESS! Bridge Programme At the December 2007 JAG, member states agreed to replace the GTF with the ITC Trust Fund (ITC TF) to facilitate the use of extra-budgetary contributions. To date, the Consultative Committee has not yet agreed the terms and conditions of the ITC Trust Fund. Accordingly, funds have not yet been allotted to the new fund and are still managed from the existing GTF. 2 Soft-earmarked funds are used for thematic and geographical priorities in accordance with general guidelines provided by the donors. 7

10 Earmarked funding Earmarked extra-budgetary funding is used for bilaterally- or multilaterally-funded projects, whose technical cooperation goals and outcomes fall within the scope ITC s Strategic Framework. ITC currently has seven pockets of extra-budgetary resources, with varying rules for each. Integrated Framework (IF) This comprises projects implemented by ITC. As the IF is being replaced by the Enhanced Integrated Framework (EIF), the amounts will progressively decrease and will be replaced by a new EIF pocket. UNDP UNDP funding has progressively decreased over the past years and it is not expected to be a major funder to ITC. European Commission (EC) The EC has become a major contributor to ITC in the form of bilateral agreements. A number of agreements, including the Asia Trust Fund, have ended or will end soon. New agreements such as the agricultural commodity development and diversification programme for the African, Caribbean and Pacific countries (ACP) are established. Use of funds provided by the EC is guided by the rules specific to the receipt and management of EC project funding and for the specific purposes defined. Any unspent funds remaining after the conclusion of the agreement are returned to the EC. These funds may not be redeployed to other purposes within ITC. Joint Integrated Technical Assistance Programme (JITAP) ITC is both the trust fund manager for JITAP on behalf of ITC, UNCTAD and WTO as well as one of the implementing agencies. The funds are used exclusively for JITAP purposes as agreed with the JITAP Steering Group and cannot be redeployed without their formal authorization. As JITAP has ended, steering group members are currently discussing the use of remaining funds. Bilaterals A major portion of ITC s XB funding is in the form of bilateral agreements, where funding is received from a donor for the completion of specific project proposals. Frequently, these funds support customized country and regional projects. In these instances, funds may only be used for the defined project(s) and unique financial and results reporting are prepared on behalf of each donor for both contributions and expenditures. These funds may not be redeployed without a donor s specific agreement. 8

11 Revolving Funds Within ITC there are 9 revolving funds that receive money through the sale of products and services. The use of resources within each fund is governed by the fund s terms of reference. A recently initiated review of the revolving funds has confirmed that they all contribute to the mandate of ITC. The review is still ongoing and should result in greater coherence and integration among the various revolving funds. Associate Experts This pocket comprises funding by donors for associate expert staff working for ITC. While the different Associate Experts work on a variety of tasks and functions, this fund (composed of the monies to pay their salaries) cannot be deployed to any other purpose. Programme Support Costs (PSC) Programme Support Costs are generated from extra-budgetary resources but are managed similarly to regular budget funds. They comprise two pockets--the Programme Support Costs and the Programme Support Costs Operating Reserve. The first of these is described below; the second, the Programme Support Costs Operating Reserve, is covered under the section entitled Operating Reserves. Both pockets are governed by very specific administrative guidelines concerning their receipt and use. Expenditures funded by extra-budgetary resources are charged programme support costs and the resulting charges are recognised as income to ITC. The standard rate is set at 13% for extrabudgetary expenditures with the following exceptions: UNDP and IF 10% (with some IF projects at 8% pending approval from the Controller) Associate Experts 12% EC 7% Programme Support Costs may be used to pay for: Project and programme management Staff posts and related charges (after service health insurance, home leave, education grant, and maternity, paternity) Costs for: o Consultants o Overtime o Travel o Rent o Office supplies and materials, office equipment and computers Central administrative functions (finance, personnel and general services, travel services) Substantive backstopping of projects in technical cooperation programmes A share of the costs for: o External Auditors o Joint medical services o Services received from UNOG (treasury, payroll, IT connections, data, inter-organizational global security measures) o Malicious Acts Insurance 9

12 Income earned by ITC from the charging of PSC must be used in areas where there is a demonstrable relationship between the supporting activity concerned and the activities that generated the programme support costs revenue. In addition, they must be equitably distributed across project and programme management, substantive backstopping in technical cooperation programmes and central administrative functions Operating Reserves As a legislative requirement, ITC maintains two operating reserves to cover financial liabilities arising from operations funded from extra-budgetary resources. 1. The PSC Operating Reserve is made up of 20% of the estimated annual programme support income in order to protect against unforeseen shortfalls in delivery, inflation and currency adjustments or to liquidate legal obligations in the cases of abrupt terminations of activities financed from extra-budgetary resources. 2. The Trust Fund Operating Reserve is used to meet the final expenditures of trust fund technical cooperation activities, including liquidating liabilities and to cover unexpected project-related requirements for which funds are not available. The Trust Fund Operating Reserve is also used as a cash flow tool. When pledges have been received from a donor, but funds are not actually in hand, an advance from the operating reserve may be extended to the project to allow work to commence or continue. Once donor funds are received, the operating reserve is reimbursed and the funds are again available to meet a future need of the same nature. The cumulative use made of the operating reserve for 2008 to 30 September is over $1.5 million. The Denmark evaluation and the External Board of Auditors A/63/5 (Vol.III) have both recommended that ITC move to increase the amount of the operating reserve to the recommended level of 15% of ITC s expected annual expenditures. As agreed by members at the 40 th Meeting of the Joint Advisory Group in April 2007, ITC continues its efforts to incrementally increase this reserve. The resources in both operating reserves may not be redeployed to serve any other purposes. 10

13 4. GOVERNANCE The institutions and bodies exercising governance functions over the ITC--the UN Secretariat, the WTO Secretariat, the member states of the General Assembly, the General Council--require formal budget and financial statements in respect to ITC s finances. ITC s financial statements covering both the RB and XB resources are signed by the UN Controller and audited by the UN Board of Auditors. The programme and budget submissions describe the complete programme of work--including activities funded by the regular budget as well as those funded by extrabudgetary contributions--even though the result of the budgetary process is restricted to the approval of regular budget funding. Guidance, advice and control are exercised through these bodies on the entire ITC programme of work. 3 In addition, ITC s governing bodies receive the results of the External Audit of ITC s financial statements. These reporting mechanisms enable the governing bodies to make decisions about the level of contribution they wish to make to ITC s regular budget. In addition, the reporting mechanisms provide reassurance that all monies received by ITC (regardless of source) and all financial transactions conducted by the ITC correspond to the rules and regulations established for their management. As part of the regular budget process, the Joint Advisory Group (JAG) reviews the Strategic Framework for ITC s programmes. The Trade and Development Board of UNCTAD and the Committee on Trade and Development of the WTO consider the report of the JAG annually. The Committee for Programme and Coordination (CPC) of the General Assembly in the UN in New York formally considers the ITC Strategic Framework. While the detailed review of the regular budget and the examination of external audit reports are handled through the WTO and UN mechanisms, in keeping with the recommendation of the Denmark evaluation, ITC wishes to show our entire programme activity (funded by either source of funds) to the JAG. The JAG requires financial information focusing on the results and use of extra-budgetary contributions. In addition, the JAG needs to understand ITC s overall financial situation (including the regular budget) in order to provide guidance on the definition and implementation of ITC s technical assistance programmes. 3 Related documents are posted at 11

14 Accounting ITC manages its funds on a cash basis and its financial management systems currently do not support accrual accounting. The UN common system is moving to the adoption of the International Public Sector Accounting Standards (IPSAS), which provides for an accrual rather than cash accounting approach. The UN will adopt IPSAS in 2010/11 and automated financial systems will be implemented to support the adoption of IPSAS. An Enterprise Resource Planning (ERP) system is foreseen with a target date for implementation of ITC uses the UN automated system (the legacy IMIS system ), which is planned for replacement in 2011 by the new ERP system. During the interim period, ITC will continue generating financial reports through the use of a combination of systems and tools including IMIS, ITC specific portal database systems (described as best practice for the UN by the OIOS), desktop tools (excel and access) and manual processes. More efficient management of ITC financial resources Going forward, regular budget resources will be spent on the development and implementation of ITC s core competencies (or business lines), which serve all ITC clients and beneficiaries and achieve the development outcome--export Impact for Good. ITC s technical cooperation activities will still rely largely on the extra-budgetary contributions from donor countries and experience acquired in programme implementation at all levels (global, regional and country) will serve to strengthen our products and programmes, generate lessons learned and improve networks. While the finite resources of ITC require a sequential and focused response to country needs, over time all countries will benefit from ITC s programmes through one delivery channel or another. While not every country can benefit within a financial period, eventually all beneficiary countries will benefit either from ITC activities in the country or through a globally or regionally delivered programme. Extra-budgetary resources are used to complement regular budget financing to achieve the goals of ITC on behalf of beneficiary countries. Extra-budgetary funding is also used for bilaterally- or multilaterally-funded projects whose technical cooperation goals and outcomes fall within the scope of ITC s Strategic Framework, as adopted by the JAG and the General Assembly. ITC will explore the feasibility of adopting this simplified approach to managing the use of our regular budget funds over the next few months. 12

15 The International Trade Centre (ITC) is the joint agency of the World Trade Organization and the United Nations. Street address: Postal address: ITC, 54-56, rue de Montbrillant, 1202 Geneva, Switzerland ITC, Palais des Nations, 1211 Geneva 10, Switzerland Telephone: Fax: Internet:

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