UNEP/OzL.Pro.14/INF/3
UNITED
NATIONS /EP
/United Nations
Environment
Programme
/ Distr.GENERAL
UNEP/OzL.Pro.14/INF/3
15 November 2002
ORIGINAL: ENGLISH
13
UNEP/OzL.Pro.14/INF/3
Fourteenth Meeting of the Parties to the Montreal Protocol on
Substances that Deplete the Ozone Layer
Rome, 25-29 November 2002
Item 7 of the annotated provisional agenda for the preparatory segment[*]
Financial statements and budgets for the trust funds for the Vienna Convention and the Montreal Protocol
THE DEVELOPMENT OF THE TRUST FUND FOR THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER
Report of the Secretariat
1. The present working document has been prepared in response to decision XIII/30, paragraph 10, of the Thirteenth Meeting of the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer, held in Colombo, 16-19 October 2001, whereby the Secretariat was to prepare, for review at the 14th Meeting, a working document on the continuing growth in the operating surplus and interest being accumulated by the Trust Fund with a view to identifying the optimal way in which to balance the Protocol’s operational funds.
2. The present working document spans 12 years of the operation of the Trust Fund, from 1990 to 2001, and provides details of the development and growth of the Fund since its inception. It covers, among other things, the following issues: pledges and contributions made by the Parties; the Secretariat’s budget allocations and expenditures; interest and other income generated; and the total fund balance.
Introduction
3. Negotiations for the Vienna Convention, and later its Montreal Protocol, were commenced by the United Nations Environment Programme (UNEP) in 1981, 10 years before the establishment of the Trust Funds. Funding for those activities was contributed by UNEP from various funds, and by the Governments of the following countries: Australia, Canada, Denmark, Finland, Germany, Hungary, Japan, Netherlands, Norway, Sweden, United Kingdom of Great Britain and Northern Ireland and United States of America. Funding from Governments was recorded as counterpart contributions.
4. The Vienna Convention was successfully concluded and signed in 1985, followed by the Montreal Protocol in 1987. Under Article 7, paragraph 2 of the Vienna Convention for the Protection of the Ozone Layer, the secretariat functions of the Convention were initially to be carried out on an interim basis by UNEP until the completion of the first meeting of the Conference of the Parties to the Convention. Moreover, under paragraph 1 (c) of the same article, the Convention Secretariat must perform the functions assigned to it by any protocol to the Convention. In accordance with the terms of those provisions, UNEP established an interim Secretariat for the administration of both the Convention and the Protocol in early 1989, with financial assistance from a number of Governments which were Parties either to the Convention or to both instruments, pending the outcome of the first ordinary meeting of the Conference of the Parties. In its Decision VC I/8, the Conference of the Parties, at its first meeting, held in Helsinki in April 1989, officially designated UNEP as the Secretariat of the Convention, and of its Protocol.
5. The Vienna Convention and Montreal Protocol Trust Funds were established in 1990 in accordance with the financial rules and regulations of the United Nations and the general procedures governing operations of the Fund of the United Nations Environment Programme, and after securing the necessary consents of the Secretary-General and of the Governing Council of UNEP (see Decision I/9 of the Conference of the Parties, decision I/14A, paragraph (a) of the First Meeting of the Parties to the Montreal Protocol and paragraphs 2 of the terms of reference[1] for the administration of the Vienna Convention and Montreal Protocol Trust Funds.
I. INCOME TO THE MONTREAL PROTOCOL TRUST FUND
A. Pledges
6. Pledges are treated in the financial accounts as voluntary contributions. Whether paid or unpaid, they form part of the total income of the Fund as recorded in the books. The total pledges over 12 years amounted to $37,019,857 (see table 1 (in annex)).
B. Contributions (actual payments)
7. The total of contributions received over 12 years was $33,225,208 (see graph 1 (in annex)). Over the period covered in the study, during the year payments of the current year’s pledges normally trickled in during the first few months, with up to 30 per cent of the total payments received by May and June of each year. By the end of the third quarter, an average receipt of 42 per cent of the current year’s pledges was recorded. Payments by the year end averaged 59 per cent of total pledges over the years 1990 to 2001 (see graph 2 (in annex)).
C. Interest income
8. Under paragraph 14 of the terms of reference for the administration of the Trust Fund for the Montreal Protocol on Substances that Deplete the Ozone Layer, contributions not immediately required for the purposes of the Fund must be invested at the discretion of the United Nations and any interest so earned must be credited to the Fund.
9. From 1990 to 1999, funds not immediately required were invested in time deposits. Interest income rose from $34,124 in 1990 to $224,538 in 1999. Interest earned over that period amounted to $1,273,839. From 2000, Montreal Protocol funds have been included in a cash pool invested by the United Nations, and the interest accumulated over 2000 and 2001 totaled $1,108,441. The total interest income accrued over 12 years amounts to $2,381,222 (see table1(in annex)). It should to be noted, however, that performance in 2002 is unlikely to match 2000 or 2001 as the return on investments has dropped.
D. Unpaid pledges for prior years
10. For Governments that have unpaid pledges from prior years, payments made during a particular year are first credited against prior years’ pledges before any excess is set against the current year’s pledges. To date, 90 per cent of the total pledges over 12 years have been paid (see table 1 and table 2 (in annex)).
11. Unpaid pledges (receivable) to date amount to $3,794,649, or 10 per cent of the total pledges over 12 years. Over the years, payments towards prior years’ pledges have been received on a regular basis. During the 2000-2001 biennium alone, $2,392,760 was credited against outstanding pledges. Regular payments towards prior years’ pledges confirm the resolve of the Parties to continue meeting their commitments to the Montreal Protocol.
12. Unpaid or uncollected pledges form part of the receivables recorded in the system, are therefore included in the total reserve and fund balance and consequently remain on the books of the Trust Fund’s accounting system until they are paid in full. As maintenance of unpaid pledges for long periods adds to the financial and administrative burden on the Organization, certain longoutstanding pledges to the United Nations regular budget fund have, in the past, been written off on a case-by-case basis when they were deemed irrecoverable (financial rule 110.14[2]). The United Nations Office of Internal Oversight Services, following its audit of the Ozone Secretariat in 2000, recommended that the Secretariat should take up the matter of unpaid pledges with the Parties.
13. Although decisions affecting the Montreal Protocol and Vienna Convention Trust Funds may be taken only by the Contracting Parties, the United Nations Controller has put forward draft guidelines for the Parties to consider in order to harmonize the United Nations practices on collection and/or writing off of long-outstanding pledges. Under the draft guidelines:
(a) The recoverability of unpaid pledges which have been outstanding for more than two years should be reviewed. Collection letters should be sent. If a donor advises the Secretariat its intention not to pay, the pledges in question should be submitted for write-off immediately;
(b) After efforts to collect has been made, unpaid pledges which have been outstanding for more than three years should be reviewed in order to determine whether write-off is appropriate. As a general rule, unless donors express a firm commitment to pay, such pledges should be written off so that they are reflected as appropriate in the financial statement of the next financial period ending 31 December;
(c) Pledges may be retained for longer than four years only when an express and written commitment by the donor to settle within a defined time frame has been received.
14. Given the above information, the Parties may wish to consider options to address the issue so that the fund balance at the end of a given period may be reflected accurately.
II. BUDGET
15. The budget allocation as approved by the Parties over 12 years amounted to $39,571,016(see graph 3 (in annex)). Total pledges, however, amounted to $37,019,857, $2,551,159 less than the approved budget. The difference is attributable to a number of decisions to adjust pledges. For example, as the expenditure in 1990 had been lower than had been budgeted, in March 1991 the Bureau of the Parties agreed to a proposal by the Executive Director of UNEP to reduce the contribution of the Parties from $3.4 million to $2.4 million (see document UNEP/OzL.Pro.3/10, paragraph 5). Similarly, paragraphs 5 and 6 of decision XI/21 of the Eleventh Meeting of the Parties stipulated that the contributions of the Parties should be reduced by drawing down $675,000 each year from the unspent balance in 2001 to 2004inclusive.
III. EXPENDITURES
16. The Secretariat’s aggregate expenditure against the Trust Fund over 12 years amounted to $28,429,825. The expenditure rate was 72 per cent of the total budget approval or 77 per cent of the total pledges. However, if additional resources are taken into account, including contributions of host Governments towards holding meetings away from Nairobi (see table 3 (in annex)), the Secretariat’s expenditure was higher than that amount.
A. Additional contributions and their effect on the Secretariat’s expenditure levels
17. Additional resources made available to the Secretariat by host Governments for organizing Meetings of the Parties, and counterpart contributions by some Governments towards specific activities, amounted to $3,154,318 (see table 3 (in annex)). This represents 8 per cent of the total approved budgets, or 8.52 per cent of the total pledges. The availability of this additional funding meant that the Secretariat’s recorded expenditure against the Montreal Protocol Trust Fund was below the level of expenditure originally planned. It should be noted, however, in connection with additional contributions towards organizing Meetings of the Parties, that offers by Governments to host Meetings of the Parties were normally received by the Secretariat only after the relevant budgets had already been approved. Consequently, the full conference cost had already been incorporated. The only exception to this was the decision taken by the Seventh Meeting of the Parties, in Vienna in 1995, in which the venues of the next three meetings were decided.
B. Careful use of resources, constant monitoring and stringent controls
18. Prudent use of resources, stringent controls and constant expenditure monitoring to ensure that spending remains within the allocated resources account for expenditures that are lower than was expected when budgets were formulated. Not relying on consultancies, together with careful processing of participants’ travel, holding of Working Group meetings in Geneva and Montreal rather than Nairobi, some back-to-back meetings of the Executive Committee and Meetings of the Parties, strict compliance with United Nations procurement controls, and internal controls and monitoring of the use of communication facilities and consumables, are examples of the prudent use of resources.
IV. TOTAL RESERVE AND FUND BALANCE
19. The total fund balance as at the end the 2000-2001 biennium was reported as $12,417,911(see table 1 (in annex)). Considering that unpaid pledges of $3,794,649 formed part of this total, the actual fund balance based on actual payments (contributions), interest and other income was $8,623,262.
V. OBSERVATIONS
20. The current reserve and fund balance is the result of:
(a) Steady accumulation of interest income;
(b) Additional contributions from Governments towards specific activities, such as support to the activities of Technology and Economic Assessment Panel, support for increased participation by delegates from Article 5 countries in Meetings of the Parties, and contributions towards the incremental costs in holding Meetings of the Parties at locations other than Nairobi;
(c) The liquidation in 2001 of obligations which were no longer valid (see section 1 of annex I to document UNEP/OzL.PRO.14/4);
(d) Other savings resulting from the prudent use of resources and stringent controls.
Also, the 13 per cent programme support costs precept payable to UNEP/UNON for administrative support to the Secretariat and for the management of the trust funds is based on actual expenditure, and as expenditure levels were lower than the proposed budgets, the total support costs charged to the Trust Fund over 12 years were consequently less than budgeted.
21. Receipts of contributions are generally slow at the beginning of the year and pick up only towards the year end, as graph 2 (in annex) shows. Since paragraph 9 of the terms of reference for the administration of the Trust Fund[3] stipulates that commitments against the resources of the Fund may be made only if they are covered by the necessary income, and since activities must be funded notwithstanding the balance of the Fund, the Parties may wish to authorize UNEP to establish an operating reserve to enable the Secretariat to meet commitments of the first six months of the year, when cash receipts for the current year’s pledges are generally low.
22. Over 12 years, a considerable amount has been paid by the Parties towards their unpaid pledges. To date, only $3,794,649 of $37,019,857 remains unpaid. However, until the total amount is paid, those pledges are recorded every year as income to the Fund, as is the practice in the Organization. The Parties may wish to provide the Secretariat with guidance on the way forward in this regard.
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UNEP/OzL.Pro.14/INF/3
Annex
Table 1
Statement of income and expenditure and changes in fund balance for the years 1990 - 2001 and cumulative
INCOME / 1990 / 1991 / 1992 / 1993 / 1994 / 1995 / 1996 / 1997 / 1998 / 1999 / 2000 / 2001 / TotalVoluntary contributions / 2,443,812 / 2,513,401 / 2,315,220 / 2,729,084 / 3,048,735 / 3,700,851 / 2,820,990 / 3,544,579 / 3,679,702 / 3,615,739 / 3,679,679 / 2,928,065 / 37,019,857
Interest income / 34,124 / 91,031 / 64,539 / 37,894 / 101,079 / 138,071 / 158,939 / 233,727 / 188,839 / 224,538 / 542,330 / 566,111 / 2,381,222
Miscellaneous income / - / - / (46) / 46 / - / - / 2,887 / 10,709 / - / - / 240 / 346 / 14,182
Gain in Exchange / - / - / - / - / - / - / - / - / - / - / 33 / 33
TOTAL INCOME / 2,477,936 / 2,604,432 / 2,379,713 / 2,767,024 / 3,149,814 / 3,838,922 / 2,982,816 / 3,789,015 / 3,868,541 / 3,840,277 / 4,222,282 / 3,494,522 / 39,415,294
EXPENDITURE
Expenditure / 828,954 / 1,608,974 / 2,257,250 / 1,477,875 / 2,503,417 / 1,715,835 / 2,143,298 / 2,360,414 / 2,832,527 / 2,449,852 / 2,403,402 / 2,577,482 / 25,159,280
Programme support costs / 107,764 / 209,167 / 293,443 / 192,123 / 325,444 / 223,059 / 278,629 / 306,815 / 368,200 / 318,424 / 312,409 / 335,068 / 3,270,545
TOTAL EXPENDITURE / 936,718 / 1,818,141 / 2,550,693 / 1,669,998 / 2,828,861 / 1,938,894 / 2,421,927 / 2,667,229 / 3,200,727 / 2,768,276 / 2,715,811 / 2,912,550 / 28,429,825
EXCESS OF INCOME OVER EXPENDITURE / 1,541,218 / 786,291 / (170,980) / 1,097,026 / 320,953 / 1,900,028 / 560,889 / 1,121,786 / 667,814 / 1,072,001 / 1,506,471 / 581,972
Prior period adjustment / 6,080 / (32,883) / 3,872 / 1,454,315
FUND BALANCE AT THE BEGINNING OF THE PERIOD / 1,058 / 1,542,276 / 2,328,567 / 2,163,667 / 3,260,693 / 3,581,646 / 5,481,674 / 6,042,563 / 7,164,349 / 7,832,163 / 8,871,281 / 10,381,624
FUND BALANCE AT THE END OF THE PERIOD / 1,542,276 / 2,328,567 / 2,163,667 / 3,260,693 / 3,581,646 / 5,481,674 / 6,042,563 / 7,164,349 / 7,832,163 / 8,871,281 / 10,381,624 / 12,417,911
LESS UNPAID PLEDGES (RECEIVABLES) / 3,794,649
FUND BALANCE AS AT 31 DECEMBER 2001 / 8,623,262