Hundred and seventieth Session

Transcription

1 ex United Nations Educational, Scientific and Cultural Organization Executive Board Hundred and seventieth Session 170 EX/22 PARIS, 20 August 2004 Original: English Item 7.4 of the provisional agenda FINANCIAL REPORT AND AUDITED FINANCIAL STATEMENTS OF UNESCO FOR THE PERIOD ENDED 31 DECEMBER 2003 AND REPORT BY THE EXTERNAL AUDITOR SUMMARY In accordance with Financial Regulation 12.10, the report of the External Auditor and the audited financial statements, together with the report of the Director-General on the accounts of UNESCO for the financial period ended 31 December 2003 are submitted to the Executive Board. The financial report and the audited financial statements, together with the formal opinion of the External Auditor, are contained in document DCO/133 (attached hereto) while the report of the External Auditor, together with the comments of the Director- General thereon, is presented in an addendum (170 EX/22 Add.). The draft decision refers to the document as a whole (170 EX/22 and Add.). Decision proposed: paragraph In accordance with Financial Regulation 12.10, the Executive Board is required to examine the External Auditor s report together with the final audited accounts and to forward them to the General Conference with such comments as it deems appropriate. 2. The Executive Board may also wish to note in particular the opinion of the External Auditor on the financial statements in that they present fairly, in all material respects, the financial position of UNESCO as at 31 December The long-form report of the External Auditor and the Director-General s comments thereon is to be found in document 170 EX/22 Add.

2 170 EX/22 page 2 Proposed draft decision 3. The Board may wish to adopt a decision along the following lines: The Executive Board, 1. Recalling Article of the Financial Regulations, 2. Having examined documents 170 EX/22 and Add., 3. Expresses its appreciation to the External Auditor for the high standard of her work; 4. Notes the opinion of the External Auditor that the financial statements presented fairly, in all material respects, the financial position of UNESCO as at 31 December 2003 and the results of its operations and its cash flow for the two-year financial period then ended; that they were prepared in accordance with the stated accounting policies, which were applied on a basis consistent with that of the preceding financial period; 5. Takes note of the unobligated balances in Statement IV by appropriation line and approves the expenditure as reported; 6. Invites the Director-General to report on the implementation of the recommendations of the External Auditor to the General Conference at its 33rd session and to submit this report to the Executive Board at its 172nd session for prior review; 7. Decides to transmit to the General Conference the report of the External Auditor and the audited financial statements of UNESCO for the period ended 31 December 2003.

3 170 EX/22 page 3 DCO/133 PARIS, 31 March 2004 Original: English UNITED NATIONS EDUCATIONAL, SCIENTIFIC AND CULTURAL ORGANIZATION FINANCIAL REPORT AND AUDITED FINANCIAL STATEMENTS OF UNESCO FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2003

4 170 EX/22 page 5 CONTENTS 1. REPORT OF THE DIRECTOR-GENERAL ON THE ACCOUNTS OF UNESCO FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER OPINION OF THE EXTERNAL AUDITOR 3. APPROVAL OF THE FINANCIAL STATEMENTS 4. STATEMENTS Statement I Statement II Statement III Statement IV Statement of Income and Expenditure and Changes in Reserves and Fund Balances as at 31 December 2003 for the financial period ended 31 December 2003 Statement of Assets, Liabilities and Reserves and Fund Balances as at 31 December 2003 Statement of Cash Flow of Proprietary Funds (General, Working Capital and Other) for the financial period ended 31 December 2003 Status of Appropriations of the General Fund Regular and Participation Programmes for the financial period ended 31 December NOTES TO THE FINANCIAL STATEMENTS 4. SCHEDULES Schedules of Income and Expenditure and Changes in Reserves and Fund Balances as at 31 December 2003 for the financial period ended 31 December 2003 for the following funds: Schedule 1.1 Schedule 1.2 Schedule Schedule Schedule Schedule 1.3 Schedule Schedule Schedule 1.4 General Fund (GEF) Other Proprietary Funds (OPF) Other Proprietary Funds (OPF) Revenue-Generating Activities Other Proprietary Funds (OPF) Support Costs Other Proprietary Funds (OPF) Staff Related Accounts Programme Fiduciary Funds (PFF) Special Accounts for Institutes Other Special Accounts and Trust Funds Staff Fiduciary Funds (SFF) Schedules of Assets, Liabilities and Reserves and Fund Balances as at 31 December 2003 for the following funds: Schedule 2.1 Schedule 2.2 General and Working Capital Funds Other Proprietary Funds

5 170 EX/22 page 6 Schedule Schedule Schedule Schedule 2.3 Schedule Schedule 2.4 Other Proprietary Funds Revenue-Generating Activities Other Proprietary Funds (OPF) Support Costs Other Proprietary Funds (OPF) Staff-Related Accounts Programme Fiduciary Funds Special Accounts for Institutes Staff Fiduciary Funds Schedule 4.1 Schedule of Budget and Expenditure Summary for the General Fund Regular and Participation Programmes by object-of-expenditure for the financial period ended 31 December UNAUDITED ANNEXES Annex I Annex II Annex III Ex-gratia payments Report of special accounts and trust funds established and closed during the financial period ended 31 December 2003 Aged analysis of assessed contributions receivable

6 170 EX/22 page 7 REPORT OF THE DIRECTOR-GENERAL ON THE ACCOUNTS OF UNESCO FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2003 Full biennium combined financial situation 1. In , UNESCO realized for the first time over $1 billion of programme expenditure (i.e. excluding Staff Fiduciary Funds), over 50% of which related to non-regular programme activities. This can be summarized as: $ 000s % $ 000s % General Fund (GEF Schedule 1.1) 559, , Other Proprietary Funds (OPF Schedule 1.2) 69, , Total, Proprietary Funds (A) 629, , Programme Fiduciary Funds (PFF Schedule 1.3) 567, , Less transfers from General Fund (56,750) (4.96) (54,495) (5.59) Total, Programme Fiduciary Funds (B) 510, , Total, Programme Funds (A) plus (B) 1,139, , This excellent performance was attained through increases as follows: General Fund $ 16.8m +3.10% Other Proprietary Funds 24.7m % Programme Fiduciary Funds 125.5m % The increase in the General Fund (regular programme) was largely due to the carry-forward of funds from and the increased implementation rate in Other Proprietary Funds have been affected through large increases in expenditure for the Renovation Plan as well as an increase in programme support costs for extrabudgetary activities. The considerable increase in programme fiduciary funds (extrabudgetary activities) was principally due to the institutes, especially ICTP and IIEP, the Iraq Oil-for-Food Programme and the Brazilian self-benefiting trust fund. Unliquidated obligations 2. In her report on the last biennium, the External Auditor recommended that UNESCO should implement mechanisms to ensure that only valid obligations remain in the accounts at the end of the financial period and these obligations should be assessed on an ongoing basis as to validity and amounts. UNESCO took this recommendation very seriously for all its business areas (regular programme and extrabudgetary), and in addition to the regular ongoing review work, performed a very detailed biennium end overview. This review work, which resulted in the cancellation of many invalid obligations/commitments, is evidenced through a reduction in the total balance outstanding from $81 million at the end of 2001 to $64 million at the end of 2003.

7 170 EX/22 page 8 Treasury 3. UNESCO operates a central treasury function, mostly in euros and United States dollars, providing services to the whole Organization by managing cash and reducing financial risks. UNESCO adopts a prudent investment policy for available funds, with investments placed mainly in fixed-term deposits with international prime banks accounts. Use is made of cash concentration pooling arrangements to provide efficient cash management, while respecting the nature of most of the fiduciary funds ($816 million or 90% of the total at 31 December 2003). 4. During the biennium, Treasury management had to operate in an environment with very large exchange rate variations, with the value of the euro, in particular, appreciating by some 42% against the United States dollar from January 2002 to December Overall, the regular programme was satisfactorily protected by the split-level assessment system. Extrabudgetary funds experienced losses on exchange, which were offset against interest income in accordance with past practices. 5. The amount of $98 million of contributions due by Member States at 31 December represents almost three months expenditure and almost four times the level of the Working Capital Fund. This gives great cause for concern and all Member States, which owe money to the Organization, are urged to pay their outstanding debts as soon as possible. Even so, through careful management, no external borrowing was required during the biennium. Miscellaneous income 6. As explained in note 15 to the Financial Statements, an amount of $5 million is available for distribution to certain Member States in accordance with 32 C/Resolution 66. Since the availability of funds is less than the maximum amount of $12.9 million authorized by the General Conference, the available balance will be distributed in January 2005 proportionately to certain Member States as an adjustment to their assessments for 2003 in accordance with the decision. Finance and Budget System (FABS) 7. In 1999, the General Conference approved UNESCO s proposal to renew its finance and budget computer system. A project team was established to implement FABS with a target to go live on 1 January This objective was attained for Headquarters and despite some early problems in 2002, the budget and accounts of the Organization were maintained by the new system for the complete biennium Member States will recall that UNESCO has been criticized for the late production of its accounts under the old system. It is thus a great pleasure to announce that the accounts for the biennium were satisfactorily closed using the new system on a timely basis and that the Financial Statements were made available to the External Auditor by 31 March 2004, as required by the Financial Regulations. Liabilities for employee benefits 8. In accordance with past practice, UNESCO, in common with most agencies in the United Nations system, does not normally recognize in its financial statements liabilities for accrued annual leave, terminal and repatriation grant entitlements and after service medical care. Such unrecorded liabilities are disclosed in Note 12 to the financial statements for a total amount of some $355 million. Although this treatment is acceptable under United Nations System Accounting Standards, International Accounting Standards would require full provisions for such future liabilities. Consequently, certain organizations in the United Nations system have started to make provisions for such liabilities progressively. UNESCO will be presenting options to address these matters to the Executive Board in a separate document for its consideration and eventual transmission to the General Conference.

8 OPINION OF EXTERNAL AUDITOR 170 EX/22 page 9

9 170 EX/22 page 10 APPROVAL OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2003 Established by Approved by Mark. L. Warren Comptroller Koïchiro Matsuura Director-General

10 STATEMENT I UNESCO STATEMENT OF INCOME AND EXPENDITURE AND CHANGES IN RESERVES AND FUND BALANCES FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2003 (Expressed in '000s US dollars) PROPRIETARY FUNDS PROGRAMME FIDUCIARY FUNDS General Fund Other Programme Staff Inter-fund (Regular Programme) Proprietary Total Proprietary Funds Fiduciary Fiduciary Eliminations Funds Funds Funds "GEF" "OPF" "PFF" "SFF" Total Managed Funds (Schedule) (1.1) (1.2) (1.3) (1.4) INCOME Assessed contributions 559, , ,384 6, , ,674 Voluntary contributions 3,769 5,836 9,605 10, , , ,653 Revenue producing activities 12,558 12,558 12, ,083 26,640 23,865 Funds received under inter-organization arrangements 131, ,877 67,395 Allocations from other funds (regular programme) 13,578 13,578 14,882 22,332 13,722 (49,632) Income for services rendered 20,840 20,840 18, ,722 (20,840) 14,440 12,727 Investment income 1,425 5,907 7,332 10,702 13,438 38,364 59,134 75,907 Currency exchange adjustments and other 8,478 5,461 13,939 3,127 2,337 7,292 23,568 (8,725) TOTAL INCOME 573,153 64, , , ,708 86,183 (70,472) 1,294,752 1,117,496 EXPENDITURE Expenditure 559,624 69, , , ,417 42,625 (70,472) 1,168,872 1,000,092 TOTAL EXPENDITURE 559,624 69, , , ,417 42,625 (70,472) 1,168,872 1,000,092 EXCESS (SHORTFALL) OF INCOME OVER EXPENDITURE (a) 13,529 (5,498) 8,031 26,767 74,291 43, , ,404 Increase in land and buildings (Note 11) Savings on prior year obligations Transfers (to)/from reserves (15,093) 15,093 Distribution to members of USLS (31,931) (31,931) (39,018) Decrease in budgetary surpluses (Note 4) (836) (836) (836) Other adjustments to reserves and fund balances 6,181 2,975 9,156 (847) 7,501 3,903 20,560 (1,331) Reserves and fund balances, beginning of period 112,029 36, , , ,655 33, , ,678 RESERVES AND FUND BALANCES, END OF PERIOD 115,812 49, , , ,447 49, , ,895 The accompanying notes and schedules are an integral part of the financial statements. (a) Represented by: Budget surplus - Statement IV 2,110 Currency clearing account (5,592) Other exchange adjustments 5,638 Miscellaneous income 4,285 United States Special Account - OPF 15,093 Use of carry-forward funds (8,005) 13, EX/22 - page 11

11 UNESCO STATEMENT OF ASSETS, LIABILITIES AND RESERVES AND FUND BALANCES AS AT 31 DECEMBER 2003 (Expressed in '000s US dollars) STATEMENT II 170 EX/22 - page 12 PROPRIETARY FUNDS PROGRAMME FIDUCIARY FUNDS General Fund Other Programme Staff (regular programme) Proprietary Inter-fund Total Proprietary Funds Fiduciary Fiduciary Inter-fund Funds Eliminations Funds Funds Eliminations Total Managed Funds "GEF" "OPF" "PFF" "SFF" (Schedule) (2.1) (2.2) (2.3) (2.4) ASSETS Cash and term deposits (Note 6) 64,571 21,793 86,364 51, , , , ,416 Investments (Note 7) 5,548 89,257 94,805 90,783 Accounts receivable Assessed contributions receivable from Member States (Note 8) 97,731 97,731 74,068 97,731 74,068 Inter-fund balances 14,128 83,647 (83,647) 14,128 3,668 17,351 2,174 (33,653) Other (Note 9) 720 3,403 4,123 6,055 4,444 48,640 57,207 48,463 Other assets (Note 10) 164 1,152 1,316 2,839 1,901 2,344 5,561 5,365 Land and buildings (Note 11) 72,891 72,891 72,891 72,891 72,891 TOTAL ASSETS 250, ,995 (83,647) 276, , , ,563 (33,653) 1,136, ,986 LIABILITIES Payments or contributions received in advance 21,456 21,456 8,626 21,456 8,626 Loan for IBE building (Note 11) 1,938 1,938 1,940 1,938 1,940 Unliquidated obligations 25,115 5,199 30,314 29,487 33,249 63,563 80,767 Accounts payable Inter-fund balances 76,076 40,191 (83,647) 32,620 (8,035) 1,033 (33,653) Other 9,271 13,056 22,327 16,453 6,451 5,536 34,314 39,215 Members' deposits 515, , ,500 Other liabilities 537 1,766 2,303 13,559 3,368 13,273 18,944 17,043 TOTAL LIABILITIES 134,393 60,212 (83,647) 110,958 62,030 44, ,542 (33,653) 655, ,091 RESERVES AND FUND BALANCES Working Capital Fund [Note 3] 30,500 30,500 25,000 30,500 25,000 Capital funds relating to land and buildings (Note 11) 70,953 70,953 70,951 70,953 70,951 Operating reserves (Note 5) 1,695 1,695 3,643 9,116 22,063 32,874 25,521 Balances relating to projects funded by donors 5, , , ,104 Budgetary surpluses (Note 4) 7,255 7,255 8,091 7,255 8,091 Other surpluses (Note 5) 7,104 48,088 55,192 36,040 16,247 26,958 98,397 60,228 TOTAL RESERVES AND FUND BALANCES 115,812 49, , , ,447 49, , ,895 TOTAL LIABILITIES, RESERVES AND FUND BALANCES 250, ,995 (83,647) 276, , , ,563 (33,653) 1,136, ,986 The accompanying notes and schedules are an integral part of the financial statements.

12 170 EX/22 page 13 STATEMENT lll UNESCO PROPRIETARY FUNDS (General, Working Capital and Other) STATEMENT OF CASH FLOW FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2003 (Expressed in '000s US dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net excess of income over expenditure 8,031 22,467 Decrease (increase) in contributions receivable (23,663) 26,856 Decrease (increase) in other accounts receivable 1,932 (495) Decrease in other assets 1,523 2,783 Increase in contributions or payments received in advance 12,830 8,223 Increase (decrease) in accounts payable 5,874 (190) Increase in unliquidated obligations Decrease in other liabilities (11,256) (520) NET CASH FROM OPERATING ACTIVITIES (3,902) 59,323 CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES Decrease (increase) in inter-fund balances receivable (10,460) 2,173 Increase in inter-fund balances payable 40, Decrease in borrowings (15,133) Decrease in loan for IBE building (2) (162) NET CASH USED FROM INVESTING AND FINANCING ACTIVITIES 30,193 (12,459) CASH FLOWS FROM OTHER SOURCES Distribution under positive incentive scheme (836) (675) Savings or cancellation of prior periods' obligations 1,174 (4) Other adjustments to reserves and fund balances 8,477 NET CASH USED FROM OTHER SOURCES 8,815 (679) NET INCREASE IN CASH AND TERM DEPOSITS 35,106 46,185 CASH AND TERM DEPOSITS, BEGINNING OF PERIOD 51,258 5,073 CASH AND TERM DEPOSITS, END OF PERIOD 86,364 51,258

13 170 EX/22 - page 14 UNESCO GENERAL FUND STATEMENT IV STATUS OF APPROPRIATIONS REGULAR AND PARTICIPATION PROGRAMMES FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2003 (Expressed in '000s US dollars) Appropriations Expenditure Appropriation line 31 C/5 approved Carry-forward funds from 2000/2001 Authorized transfers Other credits 31 C/5 approved as adjusted Deliveries/ Disbursements ULOs/UDOs Total Unobligated balance PART I GENERAL POLICY AND DIRECTION A. Governing bodies 1. General Conference 6, ,413 5, , Executive Board 7, ,903 7, , Total Part I.A 14, ,316 12, ,280 1,036 B. Direction 16, ,684 15, ,613 1,071 (Including: Directorate; Office of the Director-General; Internal Oversight; International Standards and Legal Affairs) C. Participation in the Joint Machinery of the United Nations System 2, ,489 2, ,503 (14) TOTAL, PART I 32,471 1,018 33,489 30, ,396 2,093 PART II PROGRAMMES AND PROGRAMME RELATED SERVICES A. Programmes Major Programme I - Education 94,092 2,504 1,380 1,346 99,322 89,794 5,154 94,948 4,374 Major Programme II - Natural sciences 51, , ,811 48,454 2,480 50,934 2,877 Major Programme III - Social and human sciences 28, ,755 26,541 1,733 28,274 1,482 Major Programme IV - Culture 43,850 1, ,522 42,604 2,134 44,738 1,784 Major Programme V - Communication and information 33, ,572 29,597 3,043 32,640 1,932 UNESCO Institute for Statistics 7,320 7,320 7, ,318 2 Total, Part II.A 258,776 5,194 4,645 2, , ,008 14, ,852 12,451 B. Participation Programme 22,000 22,000 21, , C. Programme Related Services 1. Coordination of action to benefit Africa 2, ,756 2, , Fellowships Programme 1, ,003 1, , Public information 20, ,045 17, ,289 2,756 Total, Part II.C 24, ,804 22, ,891 2,913 PART III SUPPORT FOR PROGRAMME EXECUTION AND ADMINISTRATION TOTAL PART II 305,741 5,334 5,344 2, , ,952 15, ,678 15,429 A. Strategic planning and programme monitoring 6, ,723 5, , B. Budget preparation and monitoring 4, ,361 3, , C. Field management and coordination 48,953 1,171 1,128 1,057 52,309 49,506 1,556 51,062 1,247 D. External relations and cooperation 22, ,626 23, ,395 (1,768) E. Human resources management 25, ,361 25, , F. Administration 88,686 1,100 3,609 93,395 94,976 4,501 99,477 (6,082) G. Renovation of Headquarters Premises 6,292 1,890 8,182 8,342 8,342 (160) TOTAL, PART III 201,998 2,671 8,206 1, , ,150 7, ,857 (4,899) TOTAL, PARTS I - III 540,210 8,005 14,568 3, , ,594 24, ,930 12,623 Reserve for reclassifications 1,500 (1,499) 1 1 PART IV ANTICIPATED COST INCREASES 13,691 (13,691) Absorption of expenditure relating to the previous biennium (102) TOTAL, PARTS I - IV 555,401 8,005 (622) 3, , ,696 24, ,032 12,522 Less: Amount to be absorbed during the execution of the programme and budget within the limits of the approved total budget (11,034) 622 (10,412) (10,412) TOTAL APPROPRIATION APPROVED AS ADJUSTED 544,367 8,005 3, , ,696 24, ,032 2,110

14 170 EX/22 page 15 UNESCO NOTES TO THE FINANCIAL STATEMENTS 1. OBJECTIVES (Purpose, mandate and governance of the Organization) (a) (b) The United Nations Educational, Scientific and Cultural Organization (UNESCO) was created in London on 16 November 1945 by governments of the States Parties to contribute to peace and security by promoting collaboration among the nations through education, science and culture in order to further universal respect for justice, for the rule of law and for human rights and fundamental freedoms which are affirmed for the peoples of the world, without distinction of race, sex, language or religion, by the Charter of the United Nations Organization. As one of the Specialized Agencies referred to in Article 57 of the Charter of the United Nations Organization, the provisions of Articles 104 and 105 of that Charter concerning the legal status of that Organization, its privileges and immunities, apply in the same way to UNESCO. UNESCO is governed by a General Conference, consisting of the representatives of its Member States, which determines the policies and main lines of work of the Organization. The Executive Board, which consists of 58 Member States elected by the General Conference, takes, in accordance with the decisions of the General Conference, all necessary measures to ensure the effective and rational execution of the programme by the Director-General. 2. SIGNIFICANT ACCOUNTING POLICIES Introduction The financial statements have been prepared in accordance with the provisions of UNESCO s Financial Regulations and with stated accounting policies as described below. These accounting policies conform to the United Nations System Accounting Standards which provide a framework for accounting and financial reporting in the United Nations system. The financial period of UNESCO is a biennium and consists of two consecutive calendar years, beginning with an even-numbered year. The financial statements are presented in thousands ( 000s/K) of United States dollars ($). (a) Financial Statement presentation In conformity with the framework for financial reporting in the United Nations System, the financial statements are prepared on a combined basis, which includes the accounts of all the funds managed by UNESCO with a sub-grouping for UNESCO Proprietary Funds (GEF and OPF), on which the Statement of Cash Flow is presented at the end of each financial period, followed by Programme Fiduciary Funds (PFF) and Staff Fiduciary Funds (SFF). Elimination columns show adjustments for inter-fund transfers and balances. Managed Funds are disclosed in the following business areas: (1) General Fund (GEF) includes both the General and Working Capital Funds set up in accordance with Financial Regulations 6.1 and 6.2.

15 170 EX/22 page 16 (2) Other Proprietary Funds (OPF) include Revenue Generating Activities, Programme Support Costs for Special Accounts and Trust Funds, the Staff Compensation Fund, the Terminal Payments Fund, the Staff Housing Loan and the Headquarters Special Accounts for new management and monitoring instruments (FABS) and building renovations. The United Kingdom and United States Special Funds are also included under this grouping. These funds are used to carry out the programmes, or to group other authorized expenditure, of UNESCO. The residual right of ownership of all of these funds is ultimately vested in Member States. The Funds have been established in accordance with Financial Regulation 6.6 and normally have individual special financial regulations. (3) Programme Fiduciary Funds (PFF) include institutes, special accounts and trust funds set up in accordance with Financial Regulation 6.6. They are used to carry out extrabudgetary programme activities in accordance with the respective agreements signed between UNESCO and the related parties or other legal authority. (4) Staff Fiduciary Funds (SFF) are funds that have been established for the benefit of UNESCO s staff members, namely the Medical Benefits Fund, the UNESCO Staff Savings and Loans Services (USLS), UNESCO Commissary Fund (UCF) and the UNESCO Restaurant Service (URS) with the residual right of ownership totally or partially vested in staff or retired staff members. The resources of each fund in the Programme Fiduciary Funds and the Staff Fiduciary Funds can only be used for the purposes for which the respective fund has been established. (b) Income recognition Income from assessed contributions represents a legal obligation of Member States, which is recognized as income in the biennium in which it becomes due and payable. No provision is made for delays in the collection of assessed contributions. Voluntary contributions are recognized when funds are received. Other sources of income are recorded on an accrual basis of accounting. A provision for doubtful receivables is recorded at the end of the financial period to recognize the risk of non-receipt of certain amounts. (c) Expenditure recognition Expenditure includes amounts for goods supplied and services rendered in the financial period as well as amounts for legal obligations of the financial period. Expenditure is recorded on an accrual basis of accounting except for certain employee benefits. During the financial period, the Finance and Budget System (FABS) was implemented at Headquarters. As a result of this, certain transactions and balances resulting from Headquarters processing are no longer grouped in the same way as in the past.

16 170 EX/22 page 17 Unliquidated Obligations (ULOs) Field office ULOs are consistent with past practice whereby in the legacy systems, the vendor payment accounts and certain other liability amounts were combined in the Unliquidated Obligations (ULOs) account as at the end of the biennium. Headquarter ULOs consist only of Undelivered Orders (UDOs) or obligations that are covered by purchase orders or contracts but for which the goods or services are not yet received as at the end of the biennium. UNESCO employees are entitled to annual leave, termination and repatriation grant entitlements. The Organization contributes an amount equal to the employees share of medical costs. The cost of these benefits is normally recognized as an expense in the financial period in which they are paid. However, a Terminal Payment Fund (TPF) reserve for repatriation grant and other post-termination entitlements is maintained by appropriate transfers from certain non-general Fund accounts for the benefit of staff financed by these accounts. Acquisitions of non-expendable equipment, including furniture, computers and other office equipment and motor vehicles as well as maintenance and repairs to buildings are charged to operations in the financial period in which the expenditure is contracted. A figure for non-expendable equipment (referred to as Inventories) is given in Note 13 of these Financial Statements. (d) Translation of currencies Transactions carried out during the period in currencies other than United States dollars, except for budgetary income and expenditure in euros of the regular and Participation Programmes of the General Fund, are translated to United States dollars using the United Nations operational rate of exchange at the date of the transaction. For budgetary purposes, General Fund expenditures (regular and Participation Programmes) in euros are translated to United States dollars using UNESCO constant budget rates. The difference between the translation at constant and operational rates of exchange is charged or credited to the currency clearing account. Likewise, the differences between the operational rates of exchange at which the assessed contributions of the General Fund are brought to account are also credited or debited to this account. Any balance under the currency clearing account at the end of the biennium shall be added to or deducted from Miscellaneous Income. A more detailed breakdown of the Currency Clearing Account is given in Note 16 to these Financial Statements. Monetary and non-monetary balances carried at fair value are converted using the United Nations rate of exchange at 1 January of the year following the end of the financial period. Non-monetary balances carried at historical cost are converted using the United Nations rate of exchange at the date of the transaction. (e) Land and buildings Land and buildings are carried at historical purchase cost except for donated properties where land is shown at nominal valuation and structures at insurance valuation as of the

17 170 EX/22 page 18 balance sheet date. Major construction and renovations in progress are recorded at cost, which includes material, direct labour and related overhead and is capitalized when a project is completed. No provision is made for depreciation since the cost is charged to expenditure as approved by the General Conference. (f) Pension fund participation UNESCO is a member organization participating in the United Nations Joint Staff Pension Fund (UNJSPF) which was established by the United Nations General Assembly to provide retirement, death, disability and related benefits. The Pension Fund is a defined benefit plan. The financial obligation of the Organization to the UNJSPF consists of its mandated contribution at the rate established by the United Nations General Assembly together with any share of any actuarial deficiency payments under Article 26 of the Regulations of the Fund. Such deficiency payments are only payable if and when the United Nations General Assembly has invoked the provision of Article 26, following determination that there is a requirement for deficiency payments based on an assessment of the actuarial sufficiency of the Fund as of the valuation date. At the time of this report the United Nations General Assembly has not invoked this provision. (g) Investments Investments are recorded at cost adjusted for amortization of premiums or discounts to maturity or market value, if significant. 3. FUNDS (a) General Fund A General Fund has been established for the purpose of accounting for the expenditure of the Regular Programme appropriation voted by the General Conference of UNESCO for a given financial period. It is financed from assessed contributions from Member States. Appropriations, which are voted by the General Conference, are available for obligation during the financial period to which they relate and for a further twelve months to the extent they are required to discharge obligations incurred during that financial period. In addition to the appropriations voted by the General Conference, the Director-General is authorized by Financial Regulation 7.3 to accept voluntary contributions, gifts, bequests and subventions. Such receipts are shown as voluntary contributions in Statement I and as Other credits in Statement IV. Furthermore, as authorized by the General Conference, the carry forward of unspent balance from the previous biennium is identified separately in Schedule 1.1 and Statement IV. (b) Working Capital Fund A Working Capital Fund has been established in an amount and for purposes to be determined from time to time by the General Conference. It is financed by advances from Member States made in accordance with the scale of assessments as determined by the General Conference. The authorized level of the fund for was K$25,000 ( K$25,000) to which was added K$5,500 due to assessments made on new

18 170 EX/22 page 19 member states, hence the closing balance of K$30,500. By 32 C/Resolution 68, the authorized level of the fund was established to K$28,000 as of 1 January (c) Trust funds, reserve and special accounts Trust funds, reserve and special accounts are established by the Director-General and are reported to the Executive Board. They are administered in accordance with the Financial Regulations of UNESCO unless otherwise provided. Trust Funds and Special Accounts are financed principally by voluntary donations. They are organized in three groups, namely, Institutes, Self-Benefiting Trust Fund- Brazil and Other. Details of Other, their sources of income and the projects they support are detailed in Schedule INCREASE/DECREASE IN BUDGETARY SURPLUSES Budgetary surpluses for a financial period, after deducting therefrom any contributions of Member States relating to that financial period which remain unpaid, shall, in accordance with Financial Regulations 4.3 and 4.4, unless otherwise determined by the General Conference, be apportioned among Member States in proportion to their assessed contributions for that financial period and surrendered to each Member State once its contribution for that financial period has been paid in full. The balance of budgetary surplus is summarized as follows: Un-apportioned surpluses relating to the budgets of previous financial periods: $ 000s Not yet available for apportionment 1,958 1,958 Available for apportionment Subtotal Surpluses apportioned but not surrendered 1,976 5,279 2,812 5,279 Total (Statement II) 7,255 8,091 However, in accordance with 31 C/Resolution 53 (III) the existing experimental scheme to encourage prompt payment of contributions should be continued for a further six-year period. Consequently, the amount of K$18 available for apportionment shall be included in the balance available for distribution under that scheme. 5. OPERATING RESERVES AND OTHER SURPLUSES (i) Operating reserves Operating reserves have been created within the legislative authority of certain funds as is deemed to be required for the purpose of sound administration or legal obligation and are summarized as follows:

19 170 EX/22 page Increase/ (Decrease) Administrative reserves $ 000s Public Information Liaison and Relations Fund 1,500 2,720 (1,220) International Centre for Theoretical Physics (ICTP) International Institute for Education Planning (IIEP) 5,789 4,130 1,659 2,883 2, UNESCO Institute of Statistics (UIS) Currency fluctuation reserves 10,616 9,557 1,059 Public Information Liaison and Relations Fund (PILRF) (748) (748) Staff Savings reserves UNESCO Savings and Loan Services (USLS) 22,063 15,041 7,022 22,063 15,041 7,022 Other reserves Headquarters Utilization Fund (HQF) Total (Statement II) 32,874 25,521 7,353 (ii) Other surpluses (a) Other surpluses consist of the budget surplus of the regular programme for the current biennium to which is added (or deducted if negative) the net amount of all miscellaneous income earned for the biennium after taking into account currency exchange adjustments and the balance of the currency clearing account. Included also are other General Fund surpluses; surpluses on other proprietary funds and surpluses on fiduciary funds. Apart from surpluses of the regular programme and certain other funds, to which special rules apply, surpluses can be carried forward from one financial period to the next.

20 170 EX/22 page 21 (b) An overall summary of all other surpluses is given in the following table: $ 000s Increase/ (Decrease) Proprietary funds Regular programme (Note 5(c)) 7,104 7,987 (883) United Kingdom Special account 806 (806) Total General Fund 7,104 8,793 (2,199) Other Proprietary Funds 48,088 26,537 21,551 Fiduciary funds 55,192 35,330 19,862 Special Accounts with Financial Allocations 16,247 5,738 10,509 Employee Benefit Funds 26,958 19,160 7,798 43,205 24,898 18,307 Total (Statement II) 98,397 60,228 38,169 (c) The surplus of the regular programme is reconciled to the balance available for distribution under the positive incentive scheme to encourage prompt payment of contributions as follows: Excess of Regular Programme Income over Expenditure (Schedule 1.1) Unspent balance of appropriations from (Note 5 (ii) (d)) US Special Account transferred to OPF Reserves Adjustment budget surplus available for apportionment Unspent balance on Use of carry-forward funds $ 000s 21, (15,093) (18) 280 7, Other surplus (Schedule 2.1) 7,104 7,987 Adjustment budget surplus available for apportionment Less: surplus available for carry-forward in accordance with 32 C/Resolution 64 (2,110) (8,005) Balance available for distribution under the positive incentive scheme in accordance with 32 C/Resolution 66 (see note 15) 5,

21 170 EX/22 page 22 (d) At the close of financial period, a provision of K$22,607 was set up to cover the unliquidated obligations of the regular and Participation Programmes at that date. Those unliquidated obligations remained available for 12 months up to 31 December 2002 to the extent that they were required to discharge obligations against goods and services rendered in the financial period and to liquidate any other outstanding legal obligations of that financial period. As previously reported to the General Conference (32 C/34) a part of the unspent balance of these unliquidated obligations has been used to liquidate other outstanding legal obligations of the Organization relating to periods prior to 1 January 2002 as follows: $ 000s Unspent balance 1,247 5,041 Less: (i) Over-expenditure of field offices, principally running costs 309 1,128 (ii) Amounts charged to extrabudgetary accounts for which funding was not available 2,650 (iii) Salary adjustments on overtime due to Contribution Sociale Généralisée/Contribution au Remboursement de la Dette Sociale adjustments 257 (iv) Liquidation of lawsuit 1,187 Subtotal 567 4,965 Total CASH AND TERM DEPOSITS The table below shows that of the amount of K$807,816 (2001 K$610,416), K$86,364 (2001 K$51,258) is available under Proprietary Funds and the remaining balances are held by UNESCO in a fiduciary capacity $ 000 Regular Programme (GEF) 64,571 51,028 Other Proprietary Funds (OPF) 21, Total Proprietary Funds 86,364 51,258 Programme Fiduciary Funds (PFF) Staff Fiduciary Funds (SFF) 280, , , ,959 Total (Statement II) 807, ,416

22 170 EX/22 page 23 The term deposits are held with international banks which are assigned deposit ceilings in line with their credit ratings and in accordance with the investment policy. 7. INVESTMENTS Investments, all of which are held in a fiduciary capacity, are summarized as follows: Carrying value $ 000s $ 000s Market Carrying value value Market value Short-term money market funds 4,013 4,201 1,201 1,292 Shares 1,535 1,892 1,955 2,192 Subtotal 5,548 6,093 3,156 3,484 Bonds 89,257 89,257 87,627 87,627 Total (Statement II) 94,805 95,350 90,783 91,111 Within Staff Fiduciary Funds (SFF), the UNESCO Staff Savings and Loan Service (USLS) portfolio managers are authorized within defined limits to buy and sell futures contracts which complement the bond investment strategy by covering firm investment positions and generating additional income. All such contracts are traded on organized markets and valued at official settlement prices. As at 31 December 2003, the fair market value of futures contracts owned by USLS was K 5,305 (K$6,624) (2001 Nil). The futures are off-balance sheet amounts and consequently, the underlying values are not included in the Financial Statements. 8. ASSESSED CONTRIBUTIONS RECEIVABLE FROM MEMBER STATES A detailed listing of assessed contributions for the General Fund is not provided since this is included in separate documents submitted to the governing bodies of UNESCO.

23 170 EX/22 page 24 The balance of assessed contributions receivable is summarized as follows: Current financial period Prior financial periods $ 000s Arrears payable in annual instalments (a) Total Contributions due for prior financial periods and receivable as at 1 January 2002 (b) 50,844 23,224 74, ,880 Contributions assessed , , , , , ,193 50,844 23, , ,264 Less: Paid and other credits (256,505) (250,904) (28,844) (5,817) (542,069) (571,519) Subtotal General Fund New Member States New Payment Plans (32 C/5) 15,688 (5,686) 21,289 15,812 (6,734) 22,000 (10,239) 17,407 22,659 76,385 15,812 73,745 Total General Fund (*) 10,002 30,367 11,762 40,066 92,197 73,745 Working Capital Fund New Member States 34 5, , Total Working Capital Fund 5,534 5, Total (Statement II) 10,002 35,901 11,762 40,066 97,731 74,068 (*) Of the balance of K$92,197 (2001 K$73,745) due to the General Fund, an amount of K$77,928 (2001 K$66,109) remained outstanding at 31 May 2004 of which a total of K$30,385 (2001 K$14,065) is deferred to future years. (a) Arrears payable in annual instalments may be summarized as: $ 000s Instalments under payments plans Deferred for payments to future years 9,575 30,491 5,456 17,767 Total 40,066 23,223 (b) Contributions denominated in euros have been translated at the approved budget rate of $1 to (2001 $1 to 0.869). However, in application of 32 C/65 paragraph 1(c), the contributions for that remained unpaid as at 1 January 2004 that were assessed in euros are considered as due and payable in United States dollars thereafter and are converted therein using the rate of exchange most beneficial to UNESCO as decided in the resolution, namely the year-end rate of exchange of $1 to (2001 $1 to 0.869).

24 170 EX/22 page ACCOUNTS RECEIVABLE OTHER The balances of Accounts Receivable Other, which are shown net of any provisions established to cover the risk of non-payment of any sum which appears doubtful, are summarized as follows: $ 000s Staff loans 43,831 30,610 Interest receivable 4,495 10,368 Amounts receivable for goods and services 2,489 4,502 Value added tax recoverable 1,456 1,406 Miscellaneous 4,936 1,577 Total (Statement II) 57,207 48, OTHER ASSETS Other assets are summarized as follows: $ 000s Field office payments held in suspense pending analysis 1,686 1,430 Stock on hand, at lower of cost or net realizable value 1,818 1,421 Project Imprest Accounts Value Added Tax receivable Miscellaneous ,828 2,514 Total (Statement II) 5,561 5, LAND AND BUILDINGS $ 000s Headquarters premises, Place de Fontenoy at cost 23,022 23,022 Headquarters Fifth Building, rue Miollis at cost 7,899 7,899 Headquarters Sixth Building, rue François Bonvin at cost 30,426 30,426 Headquarters Seventh Building, rue François Bonvin at cost 3,525 3,525 Industrial building, rue François Bonvin at cost Building of the International Bureau of Education (IBE), Geneva at cost 4,615 4,615 Ocampo Villa, Buenos Aires Land, at nominal valuation of $1 and structures at insurance valuation 2,700 2,700 Total (Statement II) 72,891 72,891

25 170 EX/22 page 26 (a) Headquarters buildings The land at Place de Fontenoy is rented from the French Government at a nominal rent of 2 per annum and the land lease covers a period of 99 years starting with the year The land at rue Miollis and François Bonvin is rented from the French Government at a nominal rent of 15 per annum and the land lease covers a period of 84 years starting from 1 January (b) IBE building (and related loan) (1) Building An agreement was signed on 31 July 1984 between UNESCO and FIPOI (Property Foundation for International Organizations) of Switzerland for the purchase of three floors of a building situated at 17 rue des Morillons, Geneva to house the International Bureau of Education. Further to an agreement signed between FIPOI and the Canton of Geneva on 16 October 1996, UNESCO s share of the costs of this building have been finalized at KCHF (thousands of Swiss francs) 6,692 (K$4,615) and the IBE building has consequently been brought to account for this amount. This amount was financed partly by a donation of KCHF 2,255 by the Conseil d Etat of the Republic and Canton of Geneva and partly by loans from FIPOI for the balance of KCHF 4,437. Following a renegotiation of the repayment schedule in December 1997 it was agreed to fix the amount of the loan outstanding as of 1 January 1998 at KCHF 3,223 (K$2,270) repayable in equal annual instalments of KCHF 133 from 1998 until 2021, with a final payment of KCHF 19 in (2) IBE loan outstanding Swiss francs $ 000s Balance at 1 January ,690 1,940 Less Loan repayment 2002 and 2003 (267) (208) Add Exchange adjustment on revaluation 206 Balance at 31 December ,423 1,938 (c) Capital funds related to land and building The increase in the capital funds relating to land and buildings follows the repayment of KCHF 267 (K$208) of the outstanding loan on IBE building, bringing the total capital funds at 31 December 2003 to K$ 70,953 (2001 K$70,951). (d) Loan for renovation (the Belmont Plan) By 32 C/Resolution 74, the General Conference has authorized the Director-General to contract an interest-free loan of K 79,875 with a lender chosen by him in cooperation with the Government of France and to take into account the necessity of making provision in future budgets for the funds

26 170 EX/22 page 27 required for reimbursement of the sums borrowed. The loan will be drawn in five yearly instalments from 2004 to 2008 and will be repaid over eight biennia starting in LIABILITIES FOR EMPLOYEE BENEFITS (a) Annual leave, termination and repatriation grants As stated in note 2(c) on expenditure recognition, UNESCO does not normally recognize in its financial statements liabilities for accrued annual leave, termination and repatriation grant entitlements. Where not provided, charges are recorded in the financial period in which they are paid. At 31 December 2003, UNESCO s total liability for these costs is estimated to be approximately K$37,000 (2001 K$35,000) of which an amount of K$5,215 (2001 K$4,314) has been accumulated as reserves in the Financial Statements. (b) After-service medical care Staff retiring from UNESCO, who have reached their fifty-fifth birthday and who have completed at least 10 years of participation in the Medical Benefits Fund as at the date of their separation, may opt to remain (indefinitely) in that Fund as an associate participant with UNESCO continuing to participate in the funding of their contributions. As at 31 December 2003 the net present value of UNESCO s liability which is not provided for in these financial statements, amounts to K$323,000 (2001 K$252,000). This figure has been determined by actuarial valuation. 13. INVENTORIES (NON-EXPENDABLE EQUIPMENT) Estimates of Inventories, excluding Works of Art, at Paris Headquarters, UNESCO Institutes and Offices away from Headquarters as at 31 December 2003 are as follows: $ 000 Paris Headquarters at valuation 3,904 UNESCO Institutes at valuation/original cost 9,850 Offices away from Headquarters at original cost 5, HOUSING ARRANGEMENTS OF THE DIRECTOR GENERAL By 32 C/Resolution 76, the General Conference has approved the purchase of the apartment currently occupied by the Director-General under the conditions stated in the available offer for the use of UNESCO Directors-General and authorized the Executive Board to review and approve on its behalf the implementation of this purchase, including its funding from UNESCO s own cash balances. The resolution states that the purchase will be amortized over two biennia starting in 2006 and 2007 and invites the Director General to include in future budgets the necessary funds to cover such amortization. The Executive Board at its 169th session, decided on measures to be taken regarding this question. The purchase was concluded in May 2004.

27 170 EX/22 page SCALE OF ASSESSMENT OF MEMBER STATES CONTRIBUTIONS By 32 C/Resolution 66, the General Conference has resolved that a maximum amount of K$12,900 depending on the availability of funds will be credited to certain Member States for the year 2003, as per Annex IV of document 166 EX/30, from voluntary contributions received for this purpose and from funding currently earmarked for the existing experimental scheme to encourage prompt payment of contributions made available from the biennium as resolved by 31 C/Resolution 53, Part III. The total amount of resources available, amounting to K$5,012 shall be credited against the assessed contributions of those Member States in CURRENCY CLEARING ACCOUNT The currency clearing account (CCA) was set up by the General Conference for the regular programme to account for the differences arising from the translation of expenditure incurred during the course of a financial period in euros at varying operational rates of exchange as compared with the constant dollar rates as well as similar differences arising from assessed contributions made in euros. The objective of this mechanism, together with the gains or losses in exchange on bank balances is to protect UNESCO s regular programme budget from currency fluctuations. During the biennium there was an overall deficit on the currency clearing account of K$5,592 (2001 K$5,839), which was absorbed by other gains on currency adjustments of K$5,638 (2001 K$2,215 loss). 17. COMPARATIVE FIGURES Comparative figures of the corresponding period of the previous biennium (2001) are given in the Statements and Schedules. These have been adjusted to mirror the structural changes in the accounting presentation in FABS. Within Schedule 2.2 (OPF Schedule of Asset, Liabilities, Reserves and Fund Balances 31 December 2003) there is an additional column Unattributed OPF Balances for balance sheet items which cannot be attributed to individual special accounts. In reference to note 2(c) with respect to expenditure recognition, the accounting treatment of ULOs between the Mainframe legacy system (2001) and FABS (2003) is different. Under the Mainframe legacy system, the accrued liabilities and vendor payable accounts were combined and reported as ULOs as at the end of the 2001 biennium. In FABS, the ULOs consist of only accrued liabilities, i.e. obligations that are covered by valid commitments and for which the goods and services are not yet received or paid as at the end of the biennium. Vendors Payable are disclosed separately under Accounts Payable Other, in the Financial Statements. The corresponding 2001 figures for ULOs have not been restated according to the new presentation in FABS because the information is not available.