INCENTIVE SCHEME TO PROMOTE TIMELY PAYMENT OF ASSESSED CONTRIBUTIONS BY MEMBERS. Report by the Director-General

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1 WORLD HEALTH ORGANIZATION ORGANISATION MONDIALE DE LA SANTE EB/ October EXECUTIVE BOARD Eighty-first Session Provisional agenda item. INCENTIVE SCHEME TO PROMOTE TIMELY PAYMENT OF ASSESSED CONTRIBUTIONS BY MEMBERS Report by the Director-General The Executive Board, following its review of the Director-General's report on the report of the Joint Inspection Unit on "Cash management in the United Nations and four specialized agencies (FAO, ILO, UNESCO, Ш) м at its seventy-ninth session held in January, requested tue Director-General to prepare a proposa 丄 or alternative proposals for an incentive scheme for the apportionment of casual income among Members, to be submitted to the eigiity-first session of the Board. The formula used for apportionment in the Director-General s proposal is identical to the S-curve" formula developed and adopted by ICAO. This formula has also been adopted by WMO. A similar incentive scheme is presently under consideration by other specialized agencies, including FAO, ILO, and UNESCO. The Director-General proposes that the formula should be applied to the amount of interest credited to the casual income account. If the Executive Board should agree to the Director-General s proposal, it may wish to recommend to the Forty-first World Health Assembly the adoption of a resolution along the lines of that proposed in paragrapn. Introduction. In the "Report of the Joint Inspection Unit on cash management in ttie United Nations and four specialized agencies (FAO, ILO, UNESCO, WHO) M,^ submitted to the seventy-ninth session (January ) of the Executive Board under cover of a report by the Director-General,^ the first recommendation of the Inspector reads as follows: The governments which have met all their financial obligations concerning the payment of contributions siiould benefit from any surpluses to be credited to them, proportionate to the scale of contributions and in accordance with the timing of their payment during the previous budgetary period.. The comments and observations of the Administrative Committee on Coordination^ with respect to this recommendation read, inter alia, as follows:. As noted by the Inspector, each organization has financial regulations specifying when assessed contributions are due and payable. The widespread disregard of these provisions by Member States has been a major factor contributing to the cash flow problems being experienced by most organizations. Document JIU/REP//b, Geneva, 丄. Document EJJ/ 丄 /REC/ 丄,Aimex, pp. to 丄, Document EB//REC/ 丄,Annex, p. 丄.

2 . The Director* Genera 丄, s comments^ on this matter included tne fo 丄丄 owing!. In recent years, WHO, 丄 ike other organisations in the United Nations system, has experienced considerable delays ia payment by Member States of assessed contributions to the regular budget. This has been a matter of great concern since it prejudices the ability of tne Organization to implement the programme budgets adopted by the World Health Assembly. Moreover, the practice of apportioning casual income among Member States in ttie same proportion as the scale of assessments, without making any distinction between those Members which pay early and those which pay late, favours the late-paying Member States. Not only do such Members have the use of the unpaid assessment, while those that pay on time lose interest they could have earned, but also the Organization s interest earnings are reduced and, as a consequence, assessments on all Member States, early and late payers alike, are increased. The Healtti Assembly has each year urged ail Memùer States to pay their contributions as and when taey fall due, but this has generally had little effect on the timing of payment of contributions by Member States.. At the seventy-liinth session of the Executive Board, in January 丄, the Director-General had sought ttie guidance of the Executive Board () on the possible adoption by WHO of an incentive scheme similar to that which had been adopted by the International Civil Aviation Organization (ICAO) in to become effective as from 丄 January and whicli was under consideration by some other specialized agencies of ttie United Nations; and () on the wishes of the Board as to the procedural and logistical aspects of review and adoption of such a scheme, wtiich would determine the earliest date from which sucii a scheme might possibly become effective in WHO.. Ttie Executive Board decided^ to request the Director Genera 丄 to prepare a proposal or alternative proposals for an incentive scheme for the apportionment of casual income among Members, to be submitted to tlie eighty-first session of the Board. Present system. A relatively substantial portion of the biennial regular budget of WHO nas normally been financed by appropriations of casual income earned by the Organization in the two calendar years immediate 丄 y preceding the year of adoption of the budget. The casual income appropriated by Health Assemblies for this purpose has been deducted, together with the expected reimbursement of support costs by the United Nations Development Programme, from the total budget level in order to arrive at the portion of the budget which was to be financed by assessed coatributions of Member States according to the WHO scale of assessments. In effect, therefore, all casual income appropriated to help finance the regular budget has in the past been apportioned among Member States in accordance with the scale of assessments applicable to the financial period covered by the programme budget. Alternative incentive formulae. Ttie Director-General proposes the adoption of an incentive scheme under which available casual income would continue to be appropriated to help finance the regular budget and thus reduce net contributions of Member States but which would provide that the amount of interest credited to the casual income account would be apportioned among Members in accordance with a formula wnich takes account not only of the scale of assessments but also of the dates and amounts of the payments of assessed contributions made by Member States in respect of and during each year of a preceding two year period, the remaining portion of the casual income appropriation being deducted from the total budget, as in the past, in the manner indicated in paragraph above. Such a scheme would not affecc the amount of casual income to be appropriated by the Healtn Assembly to help finance the regalar budget but would merely change the method by which part of it would be apportioned among Member States, with consequent minor changes to the Financial Regulations and the appropriation resolution for the financial period. Document ЕВ/ 丄 /REC/ 丄,Atmex 丄, pp. 丄 and. Document EB//REC/, decision EB( 丄 ), p..

3 . The Director-General has considered two basic formulae for the apportionment of interest earnings which would reward Member States in accordance with the timing of payment of their contributions, as follows : (a) Alternative ~ "Straight line" method Incentive points would be assigned to each month of each "base year" of the two-year "base period" for which assessed contributions are payable and daring which interest is earned, according to tne fol 丄 owing scale: Month of receipt of contribution payments for the base year Incentive points Prior to year for whicn contribution is due January February Mar en April May June July August September October November December After December of the year for which contribution is due оeach Member State would be awarded a certain number of incentive points determined by multiplying the amounts of its contribution payment or payments (to the nearest thousand dollars) by the incentive points assigned to the month of receipt of each payment. Each Member State would have credited against its assessment a percentage of the amount of interest earnings subjected by the Health Assembly to the incentive scheme which is equal to its percentage share of the tota 丄 number of incentive points awarded to all Member States. Thus, the formula for calculation of the share of interest earnings to be apportioned to a Member State under the incentive scheme could be expressed as follows : Amount of interest earnings apportioned to a Member = State in accordance with incentive formula Number of incentive points awarded to that Member State Total number of incentive points awarded to all Member States X Amount of interest earnings subjected to the incentive scheme (b) Alternative 一 "S-curve" method Incentive points would be assigned to each day (as opposed to month in the "straignt line" method) of each "base year" of the two year "base period" for which assessed contributions are payable and during which interest is earned, according to the formula indicated in Annex, which is an extract of a document presented to the Executive Committee of ICAO in September/October. The effect of this formula is essentially to break up the year into three segments; the first segment covering the five months from January to May, providing a gradual decline in the incentive points applied (from. on January to. oil May), the second segment covering tfte two months June and July, during which there would be a sharp decline in the number of points earned (from. on June to. on July), and a third segment covering the last five months from August to December, during which there would be a gradual decline in the number of points earned (from. on August to. on December). This formula has already been adopted by ICAO with effect from January and by WHO with effect from I January. A table indicating the incentive points applicable to the day number and actual dates of payment is provided in Annex.

4 Relative merits of the two alternative incentive formulae. In considering the relative merits of the alternative incentive formulae it will be seen that the "straight line" method appropriately grants an additional incentive to Member States which pay their contributions before ttie due date of payment, i.e., prior to January of the year for which contributions are due. The formula is less complex than that applied in the "S curve" method. This method also gives greater recognition to the fact that some Member States have different fiscal periods than that of the Organization, thus rendering it more difficult for them to pay early in the calendar year, and that, because of the usual de 丄 ays experienced in obtaining payment clearances from the various Ministries concerned and in the transmission of payments through banks, Members frequently cannot determine the exact date on which payment will be received by the Organization. However, the "S-curve" formula provides a greater incentive to Member States to advance tne dates of payment of their contributions; this formula also appeared to receive more support at the seventy-ninth session (January ; of the Executive Board. The Director-General therefore recommends the adoption of the "S-curve" formula for application in WHO. Casual income to be subjected to the incentive scheme. The Director Genera 丄 considers that for an incentive scheme to be effective the maximum amount of financial benefit should be provided to Members which pay their contributions early. He had therefore originally proposed that the entire amount of casual income appropriated to help finance the regular budget be apportioned to Member States on the basis of an incentive formula, as recommended by the Joint Inspection Unit,l or that at least the components of casual income represented by interest earned and arrears of contributions collected should be subjected to the incentive formula. However, in view of the reservations expressed at the seventy-ninth session of the Executive Board in January, the Director-General proposes that the apportionment on the basis of the M S-curve" formula be limited to tne "interest earned" component of casual income. The balance of casual income appropriated to help finance the budget would, as in the past, be apportioned, together with the expected reimbursement of support costs by the United Nations Development Programme, to Members in accordance with the WHO scale of assessments. A statement of casual income received and utilized during the period to is attached as Annex.. The various steps that would need to be taken to determine the insta 丄 merits of contributions payable by Member States in each year of a financial period are listed in Annex. Effective date of implementation. If ttie Executive Board and the World Health Assembly should agree to the proposals of the Director-General in, the incentive scheme could become fully effective, to the extent that casual income is appropriated to help finance the budget, as from the programme budget for the financial period - 丄, to be adopted in, based on the record of Members payments of assessed contributions for the years and and the interest income subjected to the incentive scheme that is earned in those two years. The normal text of the programme budget appropriation resolution would require minor modifications as indicated in Annex in which the changes have been underlined for emphasis. The current status in the United Nations and specialized agencies of related measures already adopted or present 丄 y under consideration is shown in Annex. Amendment to the Financial Regulations 丄. Adoption of the Director-General s proposal would require amendment of Financial Regulation., which would read as follows (with the changes underlined for emphasis): Document JIU/REP//, p..

5 . The Health Assembly shall adopt a total budget level and scale of assessments for the following financial period The assessed contributions of Members based on the scale of assessments shall be divided, after applying credits due to Members in accordance with any financial incentive scheme that may be adopted by the Health Assembly, into two equal annual instalments, the first of which shall relate to the first year and the second of which shall relate to the second year of the financia 丄 period. In the first year of the financial period, the Health Assembly may decide to amend the scale of assessments to be applied to the second year of the financial period.. If the Board should agree with the Director-General s proposal, it may wish to consider adoption of a resolution along the following 丄 inesî Proposed resolution The Executive Board, Having noted the report by the Director-General on an incentive scheme to promote timely payment of assessed contributions by Members, RECOMMENDS the following resolution for adoption by the Forty-first World Health Assembly. "The Forty-first World Health Assembly, Noting that in accordance with Financial Regulation. annual instalments of contributions are considered as due and payable in full as of the first day of the year to which they relate, Recalling the past efforts of the Healtn Assembly, the Executive Board and the Director-General to ensure timely payment of contributions, Noting the serious deterioration in the rate of payment of contributions in recent years, Having been informed of the Joint Inspection Unit's recommendation to the effect that the Governments which have met all their financial obligations concerning the payment of contributions should benefit from any surpluses to be credited to them, proportionate to the scale of contributions and in accordance with the timing of their payment during the previous budgetary period, Agreeing that some incentive should be provided to Members to encourage them to advance the dates of payments of their contributions, Considering that the proposals made by the Director-General and endorsed by the Executive Board for an incentive scheme to promote timely payment of assessed contributions by Members are appropriate in the context of WHO s financial mechanisms;. DECIDES that an incentive scheme to promote the timely payment of assessed contributions by Members to the Organization s regular budget as proposed by the Director-General and the Executive Board shall be effective as from the programme budget for -, to be approved in, based upon the record of Members payments of assessed contributions in the years and and the record of the casual income earned in those two years and subjected to the scneme;. DECIDES further that, pursuant to this incentive scheme and to the extent Chat casual income is appropriated to help finance the budget, the component of such casual income consisting of interest earned will be apportioned among Members in the form of credits against their gross assessments in accordance with an S-curve formula which takes into account not only the scale of assessments but also the dates and amounts of the payments of assessed contributions made by Member States in respect of and during each year of the two-year period prior to the year in which a programme budget is adopted;

6 . CONFIRMS that casual income exclusive of interest earned, which is appropriated to help finance the regular budget, will continue as in the past to be apportioned to Members in accordance with the WHO scale of assessments;. DECIDES to amend the text of Financial Regulation. to read as follows:. The Healtn Assembly shall adopt a tota 丄 budget level and scale of assessments for the following financial period. The assessed contributions of Members based on the scale of assessments shall be divided, after applying credits due to Members in accordance with any financial incentive scheme that may be adopted by the Health Assembly, into two equal annual instalments, the first of which shall relate to the first year and the second of which shall relate to the second year of the financial period. In the first year of the financial period, the Health Assembly may decide to amend the scale of assessments to be applied to the second year of the financial period.".

7 ОС oiannex FORMULA FOR CALCULATION OF INCENTIVE POINTS BASED ON DATE OF PAYMENT (as presented to the Executive Committee of IСAO). The following graph represents the proposed method for determination of the number of incentive points to be awarded for each one thousand dollars of current year contribution received by the Organization on any particular day of the current year.. The vertical scale (y) represents the incentive points to be awarded, ranging from ten points for payments made on or before January of the current year, to zero points for payments made on the last day of the year. The horizontal scale (x) represents the time scale of the current year as days.. The formula represented in the graph is a variation of the equation x=-y^, which describes an "S" curve. Use of an "S" curve formula takes into account the number of days during the year for which funds paid are available to the Organization, but giving comparatively greater reward for payments made in the first half of the year and {aleosлsuodэ>гиэиcomparatively lesser reward for payments made in the second half of the year. JAN FEB MAR APR MAY JUN JUL AUG SEP Elapsed time in days (x scale) NOV DEC Factors have been added to the basic equation to make it applicable to the parameters which have been selected, that is, the ten point incen tive scale and the day time scale. The formula representing the "S" curve shown is:

8 Annex Example A Contracting State being assessed at the rate of 丄 % (or 农 ) contribution for 丄 makes full payment on March (day ) Assume the total incentive points earned by all Contracting States for was 丄 and the incentive amount was equivalent to the Organization*s interest earnings for, $, Ttie incentive share would be determined in two steps. Step. At time of receipt of contribution Awarding of incentive points a) Calculation of incentive points for payment on day + - (day of payment x Ô + - ( x 错 ) =. incentive points (per ^ 丄 payment) b) Calculation of incentive points for payment of $ =. x amount of payment (in thousands) =. x incentive points awarded Step. a) At time of Assembly Sharing of incentive amount between eligible States Calculation of incentive amount applicable to each incentive point earned by all Contracting States for the year. =$ г =$. per incentive point b) Calculation of incentive amount applicable to the contribution of $ made on March =i. x (from Step ) =$ 丄 representing a rebate of.% of the contribution, Had the same would have been: contribution been paid on say September (day ), the incentive amount =i representing a rebate of.% of the contribution.

9 ANNWXTaage/CALCULATION OF INCENTIVE POINTS USING "S-CURVE" FORMULA January February March April May June I Q Л.У Q 丄 У / / L / , S

10 CALCULATION OF INCENTIVE POINTS USING "S-CURVE" FORMULA (continued) July August September October November December L / L / L / ,.. / EB/pâgeAnnex

11 CASUAL INCOME RECEIVED AND UTILIZED, TO (Expressed in US dollars) Income received Utilization Balance Unobligated Year brought balance at forward from Interest Other Total Financing Other Total year end previous year earned income of regular budget > и : CD td Sí OQ

12 ANNEX STEPS TO BE TAKEN TO DETERMINE THE PAYABLE BY MEMBER STATES IN EACH INSTALMENTS OF CONTRIBUTIONS YEAR OF A FINANCIAL PERIOD Step. Step. Step. Step. Step. Step. Step. Determine the total number of incentive points awarded to each Member State in each of the two base years. by multiplying each payment (to the nearest thousand dollars) received from a Member State in respect of its regular budget contribution for each of the two base years by the incentive points assigned to the date of receipt of the payment (i.e., value date of credit to the Organization s bank account or, if payment is made by cheque, the date of receipt of the cheque by WHO) and adding the resulting figures. Determine the total number of incentive points awarded to all Member States in each of the two base years by adding the figures obtained in step for each Member State. Determine each Member State s percentage share (calculated to six décima 丄 places)il of the total number of incentive points awarded to all Member States in each of the two base years by expressing the figure obtained in step as a percentage of the figure obtained in step. Calculate the amount of interest income to be apportioned to each Member State (to the nearest ten dollars) in accordance with the incentive formula in respect of each of the two base years by applying the percentages obtained in step to half of the interest income subjected to the incentive scheme. Add the amounts of interest income apportioned to each Member State in accordance with the incentive formula in respect of each year of the two-year base period to arrive at the total amount of interest income to be credited against the gross assessment of each Member State for the financial period. Gross assessments in this context represent the total budget level for the financial period after deduction of UNDP support costs and that portion of casual income appropriated to help finance the budget which is not subjected to the incentive formula. Determine the net contributions payable by Member States during the financial period by crediting against their gross assessments (as adjusted by their share of the credit in the Tax Equalization Fund) the amounts of interest income apportionable in accordance with the incentive formula as obtained in step Half of the net contributions of each Member State for the financial period as obtained in step shall be payable in the first year of the financial period and the remaining half in the second year of the financial period in accordance with Financial Regulation.. Notes The base years for calculation of incentive points are the third and second calendar years immediately preceding the financial period of the budget for which casual income is being appropriated, e.g., for ttie financial period 丄 - the base years for calculation of incentive points would be the years and. The base years are thus the years in which the interest income to be appropriated and to be apportioned among Member States is actually received. The share of interest income apportioned to each Member State in accordance with the incentive formula will be indicated on a year-by-year basis in statements showing, together with the scale of assessments, tne gross assessment, the credit from the Tax Equalization Fund, the interest earned apportionable in accordance with the incentive formula, and the net contribution of each Member State, Timely annual payments of consolidated prior years arrears of contributions made in accordance with a deferred payment plan approved by the Health Assembly do riot earn incentive points.

13 ANNEX WHA. Appropriation resolution for the financial period - 丄 The Forty-fourth World Health Assembly RESOLVES to appropriate for the financial period follows : 丄 an amount of US A. Appropriation section Purpose of appropriation Amount US... Direction, coordination and management Health system infrastructure Health science and technology: health promotion and care Health science and technology: disease prevention and control Programme support Effective working budget.. Transfer to Tax Equalization Fund Undistributed reserve Total B, Amounts not exceeding the appropriations voted under paragrapn A shall be available for the payment of obligations incurred during the financial period January 一 December in accordance with the provisions of the Financial Regulations. Notwithstanding the provisions of the present paragraph, the Director-General shall limit the obligations to be incurred during the financial period - to sections -. C. Notwithstanding the provisions of Financial Regulation., the Director-General is authorized to make transfers between those appropriation sections that constitute the effective working budget up to an amount not exceeding % of the amount appropriated for the section from which the transfer is made, this percentage being established in respect of section exclusive of the provision made for the Director-General s and Regional Directors Development Programme (US$ ). The Director-General is also authorized to apply amounts not exceeding the provision for the Director-General T s and Regional Directors Development Programme to those sections of the effective working budget under which the programme expenditure will be incurred. All such transfers sha 丄丄 be reported in the financial report for the financial period -. Any other transfers required shall be made and reported in accordance with the provisions of Financial Regulation.. D. The appropriations voted under paragraph A shall be financed by assessments on Members after deduction of the following: (i) reimbursement of programme support costs by the United Nations Development Programme in trie estimated amount of US (ii) casual income (other than interest earned)

14 Annex thus resulting in assessments on Members of US$. In establishing the amounts of contributions to be paid by individual Members, their assessments shall be reduced further by (a) the amount of interest earned, US^, credited to them in accordance with the incentive scheme adopted by the Health Assembly in resolution WHA., and (b) the amount standing to their credit in the Tax Equalization Fund, except that the credits of those Members that require staff members of WHO to pay taxes on their WHO emoluments shall be reduced by the estimated amounts of such tax reimbursements to be made by the Organization.

15 iw^pages/incentives OR PENALTIES BASED ON TIMING OF PAYMENT OF CONTRIBUTIONS (Status and relevant developments in the United Nations system) UN/Agency Applies at present incentives or penalties based on timing of payment of contributions Governing bodies are currently considering (or have considered) proposals for introduction of such measures WHO FAO Incentives for early payments and penalties for late payments have been considered at the Thirty-seventh session of the General Assembly in, but after the debate on the subject in the Fifth Committee it may be concluded that there was little support at the time for the introduction of new procedures in this respect. Nevertheless, in view of the financial crisis faced by the United Nations in the General Assembly, by its resolution /, requested the Secretary-General "to continue to study various options to alleviate the financial difficulties of the Organization, taking into account the views expressed by Member States, including, inter alia, a review of the practices of other organizations of the United Nations system for achieving prompt and full payment of assessed contributions and to report to the General Assembly at its forty-second session". The Health Assembly rejected a few years ago an interest charge proposal. Report of the Joint Inspection Unit on cash management in the United Nations Organization and four specialized agencies reviewed by WHO Executive Board in January. Executive Board generally in agreement with idea of incentive scheme for distribution of interest earnings. Director-General requested to provide study for review by Executive Board at January session. The Council of FAO at its June session requested the FAO Secretariat to prepare a resolution for consideration of the autumn session of the Council and the November session of the FAO Conference, recommending a positive incentive scheme by distribution of interest earned among Member States which have paid their assessed contributions in full by the end of the biennium, on a weighted basis, in accordance with the amount and timing of payment of their contributions. UNESCO Twenty-third session of General Conference requested Director-General to study feasibility and desirability of introducing positive incentive measures and report to Executive Board for submission to the General Conference at its twenty-fourth session.

16 UN/Agency Applies at present Governing bodies are currently considering (or have considered) incentives or penalties proposals for introduction of such measures based on timing of payment of contributions ILO At its June session the Governing Body of ILO considered a proposal from the Employers Group to improve the rate of collection of contributions, by granting rebates on assessed contributions to those Member States that pay their contribution in a timely manner. The Governing Body took no decision on this proposal but will pursue the question of an incentive scheme. It is to receive a new paper on the subject at a future session (probably November ). IAEA UNIDO ITU No No Yes () No current consideration. No further current consideration. I CAO WIPO Yes effective January Incentive scheme approved by Assembly held September/October. No No current consideration; Governing Body discussed matter in and, but decided in not to approve a proposal that a study be made concerning the possibility of charging interest on unpaid contributions. WMO No Congress decided in May to introduce an incentive scheme effective January by distribution of General Fund interest in accordance with timing and amount of contributions paid, using the ICAO s "S curve" formula. IMO No No current consideration; Council in considered interest credit scheme, but did not adopt it. UPU Yes () No further current consideration. () A contribution (in Swiss francs) not received by January is subject to % interest charge during first six months and % per annum thereafter. () Interest charges similar to ITU.