United Nations Confronting Worst Liquidity Crisis in Recent Years, Top Management Official Says, Presenting Key Financial Indicators for 2019 to Fifth Committee

GA/AB/4332
11 October 2019
Seventy-fourth Session, 3rd Meeting (AM)

United Nations Confronting Worst Liquidity Crisis in Recent Years, Top Management Official Says, Presenting Key Financial Indicators for 2019 to Fifth Committee

The United Nations senior management official told members of the Fifth Committee (Administrative and Budgetary) today that the Organization is confronting its worst liquidity crisis in recent years as she laid out the Organization’s key financial indicators for 2019.

Catherine Pollard, Under-Secretary-General for Management Strategy, Policy and Compliance, said the United Nations risks starting November with insufficient cash to cover even payrolls and uncertainty about paying its vendors on time.  Unpaid assessed contributions as of 4 October 2019 totalled nearly $1.4 billion, $299 million higher than last year.  Ms. Pollard detailed the Organization’s three main financial categories — the regular budget, peacekeeping operations and the international tribunals — for the Fifth Committee.

She said the cash shortfall in the regular budget exists despite the Secretariat’s attempts to curb costs since the beginning of the year by slowing hiring and curtailing several non-post expenditures.  It also shifted money from the Working Capital Fund in July and borrowed from the Special Account in August. “The cash deficits occur earlier in the year, linger longer and run deeper,” she said.  “For the second successive year, we have exhausted all regular budget liquidity reserves, despite several measures we had taken to reduce expenditures to align them with available liquidity.”

The ongoing financial uncertainty has compelled the Organization to manage expenditures based on liquidity rather than programme delivery, which runs counter to the Secretariat’s efforts to focus less on inputs and more on results, she said.  “Unless these structural and liquidity issues are addressed expeditiously, our work and our reforms will be at increasing risk,” she warned.

[According to Chart 6, the United States was responsible for the largest portion of unpaid regular budget assessments, owing $1.05 billion as of 4 October 2019, compared with $842 million in 30 September 2018.  Brazil followed by owing $143 million to the regular budget as of 4 October 2019.]

Turning to peacekeeping operations, Ms. Pollard said assessments during 2019 totalled close to $8 billion, with nearly half being assessed in July for the 2019/2020 fiscal year.  Collections as of 4 October 2019 lagged behind at $5.7 billion, which meant the total amount outstanding as of 4 October 2019 is $3.7 billion, compared to $1.5 billion as of 31 December 2018.  [According to Chart 11, the United States was responsible for the largest unpaid portion, owing $2.38 billion as of 4 October 2019, compared with $1.2 billion on 30 September 2018.  Brazil followed by owing $287 million versus $268 million over the same period.]

Ms. Pollard says Chart 15 shows that as of 10 October 2019, $6 million was owed to Member States for troops and formed police units. For contingent-owned equipment claims, $64 million was owed for active missions and $86 million for closed missions.

Regarding the financial conditions of the international tribunals, Ms. Pollard said that as of 4 October 2019, the total contributions outstanding for the International Criminal Tribunal for Rwanda, International Criminal Tribunal for the Former Yugoslavia, and the Mechanism for International Criminal Tribunals tallied $76 million.

In other business, delegates exchanged views on the reports of the Office of Internal Oversight Services (OIOS) and the Independent Audit Advisory Committee (IAAC), acknowledging the important role the OIOS and other oversight bodies play in strengthening the Organization’s accountability.

Delegates stressed the need for evaluation functions to be independent from management.  Speaking for the “Group of 77” developing countries and China, an observer for the State of Palestine pointed out that while 17 United Nations entities had shifted their reporting line during the biennium 2016-2017 to the head of entity, others — among them the Department of Peace Operations and the Economic Commission for Africa — had shifted towards less independence.

Switzerland’s representative, also speaking for Liechtenstein, said that the OIOS plays a crucial role in stemming the violation of ethical standards and different types of misconduct, including retaliation and sexual abuse, across the Organization.  The speaker for the United States cautioned that the number of outstanding OIOS recommendations significantly increased, from 71 in 2015 to 661 in 2018.  “This trend is concerning because OIOS’s recommendations are meant to protect the Organization from risk and ensure internal controls are working,” she emphasized.  In the same vein, the Philippines’ delegate sought an update from the Secretariat on recommendations pending implementation.

The Fifth Committee also heard the introduction of the report of the United Nations Office for Partnerships, followed by a discussion on this subject.

The Fifth Committee will reconvene at 3 p.m. on Tuesday, 15 October, to discuss special political missions under the proposed programme budget for 2020.

Improving the Financial Situation of the United Nations

CATHERINE POLLARD, United Nations Under-Secretary-General for Management Strategy, Policy and Compliance, said the Secretary-General wrote to all Member States on 2 August and again on 4 October, about the Organization’s deepening liquidity crisis, especially in relation to the regular budget operations.  Noting a growing downward trend in liquidity issues in the regular budget in recent years, she said: “The cash deficits occur earlier in the year, linger longer and run deeper.  For the second successive year, we have exhausted all regular budget liquidity reserves, despite several measures we had taken to reduce expenditures to align them with available liquidity.”

As of 9 October 2019, the regular budget cash deficit reached its deepest point in the year at $386 million, which meant it exhausted the $150 million from the Working Capital Fund as well as the $203 million from the Special Account and  borrowing $33 million from the closed peacekeeping mission, she said.  The Secretariat began borrowing from the Working Capital Fund in July and from the Special Account in August.  By late September, it had to borrow from closed peacekeeping missions as regular budget cash reserves were so severely depleted that the Organization risked problems with payroll payments or default in vendor payments.  By October’s end, the Organization is poised to surpass the 2018 record cash deficit of $488 million and risks exhausting closed peacekeeping cash reserves also.

She said that Chart 2 of her presentation summarizes the status of regular budget assessments as of 4 October 2019, compared to 30 September 2018.  In 2019, assessments were issued at a level of $2.85 billion, the highest for the decade and $362 million above the 2018 level.  The higher assessment in the second year of the biennium is largely in line with the pattern of assessments for biennial budgets, where the budgetary methodology creates a tendency for assessments to lag behind appropriations and expenditures.  Payments received by 4 October 2019 totalled $1.99 billion, $61 million more than around the same time last year.  However, payments received represent only 70 per cent of the assessments, compared to 78 per cent at this time last year, resulting in a gap of nearly $230 million. “Consequently, the unpaid assessed contributions as at 4 October 2019 are higher than last year by $299 million, and amount to $1.4 billion,” she said.

As seen in Chart 3, 128 Member States had fully paid their regular budget assessments by 4 October 2019, compared to 141 Member States at the end of September 2018, she said.  She thanked the 128 Member States listed in Chart 4 for their regular budget contributions, including those whom have also paid a partial advance for 2020.  Chart 5 shows the 65 Member States who are yet to fully pay their regular budget dues — owing a combined total of $1.39 billion — as of 4 October 2019, 13 more than 30 September last year.  Since the cut-off date, Mozambique, Sri Lanka and Syria have paid in full, bringing the total of fully paid Member States to 131.  Chart 6 provides a comparative view of the largest outstanding assessments for the regular budget as of 30 September 2018 and 4 October 2019.  [According to the chart, the United States was responsible for the largest portion of unpaid regular budget assessments, owing $1.05 billion as of 4 October 2019, compared with $842 million in 30 September 2018.  Brazil followed by owing $143 million compared with $93 million, and then Argentina, owing $52 million compared with $39 million, over the same period.]

This year’s regular budget liquidity crisis is detailed in Chart 7 and shows there is about $955 million of unspent funds from the 2018-2019 biennial budget, comprised of about $464 million of post-related expenses and $491 million of non-post expenses, including commitment authorities and unforeseen and extraordinary expenses, she said.  “Despite slowing down hiring from early in the year and also curtailing several non-post expenditures, we have barely enough liquidity to pay the post costs for October, even by using the balance of about $147 million still available from closed peacekeeping missions,” she said.  “As we confront the worst liquidity crisis in recent years, we risk starting November with not enough cash to cover even payrolls and uncertainty about paying vendors on time.”

To fully expend the budget, the Organization would need to collect at least $808 million within the last quarter, she said.  “However, there is significant uncertainty about the amount and timing of the payment of the remaining assessments,” she added.  While nearly half of the unspent budget is for post-related expenses that cannot be postponed, the remaining $491 million also includes non-post expenses that cannot be deferred without significant impact on mandate delivery.  The large, unspent non-post budget also reflects the impact of postponing such expenditures throughout the year to conserve cash to meet salary and other urgent costs.  “The ongoing financial uncertainty relating to collections compels expenditure management based on liquidity rather than programme delivery,” she said.  The use of average vacancy rates and limitations on transfers of funds across budget sections and budget classes exacerbate resource management problems, which undermine mandate delivery and go against the Secretariat’s efforts to focus less on inputs and more on results.  “Unless these structural and liquidity issues are addressed expeditiously, our work and our reforms will be at increasing risk,” she added.

Turning to the Organization’s peacekeeping operations, Ms. Pollard noted the different financial period for the missions, which runs from 1 July to 30 June rather than the calendar year of the regular budget.  Chart 8 details the status of peacekeeping assessments and collections during 2019, which totalled almost $8 billion, with nearly half assessed in July for the 2019/2020 fiscal year.  As collections as of 4 October 2019 lagged behind at $5.7 billion, the total amount outstanding as of that date is $3.7 billion, compared to $1.5 billion as of 31 December 2018.  As shown in Chart 9, as of 4 October 2019, 30 Member States had paid all peacekeeping assessments in full.  This was 11 less than 30 September 2018.  Since the cut-off date, Austria, Cuba, Cyprus, Hungary, India, Monaco and Tuvalu had also paid their assessment in full.

Chart 10 provides an overview of the outstanding amounts related to specific peacekeeping missions, she said.  The $3.7 billion outstanding as of 4 October is comprised of $3.3 billion owed for the operations of active missions and $409 million for closed missions. Chart 11 details the Member States with unpaid peacekeeping assessments as of 4 October 2019.  [According to the chart, the United States was responsible for the largest portion of unpaid peacekeeping assessments, owing $2.38 billion as of 4 October 2019, compared with $1.2 billion on 30 September 2018. Brazil followed by owing $287 million as of 4 October 2019, compared with $268 million on 30 September 2018].

In an effort to improve the Organization’s financial situation, the General Assembly approved resolution 73/307, which directed the Secretary-General to issue assessments for peacekeeping operations for the full budget period.  This would include the estimated budget for the budget period for which the mandate has not yet been approved by the Security Council.  There would be an understanding that this amount is considered due within 30 days of the effective date of the peacekeeping operation’s mandate.

Chart 12 details the impact of the Assembly’s decision, she said.  In July 2019, $2.4 billion was assessed for peacekeeping operations for the “non-mandated” period.  The chart details the amounts paid voluntarily by Member States against these assessments.  Together with the Assembly decision detailed in 73/307 to remove the restriction on cross-borrowing of cash for active missions, the assessment and collection for non-mandated periods shows an improvement in the overall liquidity of active peacekeeping operations.  Chart 13 shows the 10 Member States that have paid in full for the entire peacekeeping year, including the non-mandated period.

Chart 14 shows the status of peacekeeping cash over the last three years, and as of 10 October, the cash balance consisted of about $2 billion in the accounts of active missions; $99.6 million in closed missions accounts; and $141 million in the Peacekeeping Reserve Fund, she said.  The cash of each mission is delineated in a separate account as directed by the General Assembly.  The use of the Peacekeeping Reserve Fund is restricted to new operations and expansion of existing operations.  Chart 15 shows, as of 10 October 2019, $6 million was owed to Member States for troops and formed police units and for contingent-owned equipment claims, $64 million was owed for active missions and $86 million for closed missions. Chart 16 shows the breakdown of the overall amount owed for troop and formed police units and for contingent-owned equipment for active missions by Member States.

Chart 17 reflects the impact of recent Assembly decisions to allow cross-borrowing, or cash pooling, across active missions and also levy assessments for a full year, she said.  For the quarterly payment cycle ending September 2019, the chart shows that without these measures, the outstanding payables to Member States would have been $285 million.  With the new flexible measures, the outstanding amount tallies only $70 million, due to the ability to cross-borrow nearly $215 million.  Ms. Pollard said the Secretary-General is committed to meeting obligations to Member States providing troops and equipment as expeditiously as possible, as the cash situation permits.  The Secretariat monitors the peacekeeping cashflow situation continuously and makes maximizing the quarterly payments, based on available cash and data, a high priority.

Chart 18 lays out the financial situation of the international tribunals, she said.  As of 4 October 2019, the total contributions outstanding for the tribunals tallied $76 million.  This includes amounts outstanding for the International Criminal Tribunal for Rwanda, which was last assessed in 2016; for the International Criminal Tribunal for the Former Yugoslavia, which was last assessed in 2018; and the Mechanism for International Criminal Tribunals, assessed in 2019.

Chart 22 summarizes the status of assessments and unpaid assessments for each of the three categories of operations at the end of the last two years, as well as around the end of the third quarter.  [Unpaid assessments for all three categories are higher this year compared to a similar period last year. As of 4 October 2019, unpaid assessments for the regular budget tallied $1.39 billion, $3.7 billion for peacekeeping and $76 million for the tribunals.]  Chart 24 details the 35 Member States that have paid their assessments in full as of 11 October 2019.  “On behalf of the Secretary-General, I would like to express my deep appreciation to these Member States,” she said.

Ms. Pollard pointed out that the Organization’s financial health depends on Member States meeting their financial obligations in full and on time.  The full and efficient implementation of its programme of work depends on the financial support of Member States through the adoption of realized budget levels and provisions of timely contributions to ensure a stable and predictable financial situation throughout the years.  “For our part, the Secretariat is committed to using the resources entrusted to it in a cost-effective and efficient manner, and to provide information to Member States with utmost transparency,” she said.

Office of Internal Oversight Services and Independent Audit Advisory Committee

DAVID KANJA, Assistant Secretary-General, Office of Internal Oversight Services (OIOS), introduced the report on the activities of his office (document A/74/305 (Part I) and its addendum Add.1).  He said that OIOS issued 444 oversight reports, including 11 reports to the General Assembly.  The reports included 1,177 recommendations to improve internal controls, accountability mechanisms and organizational efficiency and effectiveness, of which 48 were classified as critical to the Organization.

The Internal Audit Division issued 72 non-peacekeeping audit reports during the period and ensured that its risk-based work planning process was fully aligned with the Organization’s enterprise risk management strategy, he said.  The Division adjusted its workplan to reflect implementation of the Secretary-General’s reforms, including the establishment of the resident coordinator system, the new delegation of authority framework and related change management initiatives.  The results of these engagements will be reflected in the next annual report.

The Investigation Division issued 83 non-peacekeeping investigation and closure reports, an increase of 46 per cent from the previous year, he said.  The average time taken to complete an investigation and issue the report was 10.2 months.  For sexual harassment investigations, the average completion time was 6.3 months.  The Division delivered several awareness-raising sessions on various topics, including anti-fraud and anti-corruption, misconduct and sexual harassment.  The Inspection and Evaluation Division issued four non-peacekeeping evaluation reports, which were considered by the Committee for Programme and Coordination at its fifth-ninth session.  The Division continued to focus on professional development of staff and launched several change initiatives to align its evaluations with United Nations reform and the Sustainable Development Goals.

PATRICIA ARRIAGADA VILLOUTA, Chair of the Independent Audit Advisory Committee, introduced the report of that body (document A/74/280).  She said the first aspect of this Committee’s mandate is to advise the Assembly on measures to ensure compliance of management with audit and other oversight recommendations of United Nations oversight bodies.  The Committee examined the rates of implementation of recommendations of the three oversight bodies.  It noted an unusually low implementation rate of the Board of Auditors’ recommendations when it comes to some entities of the Secretariat such as non-peacekeeping operations, where the rate stood at 8 per cent. 

Turning to risk management and internal control framework, top management needs to actively lead enterprise risk management to ensure that identifying and managing risks become standard ways of doing business across the Organization, she said.  On the functions of OIOS, the Committee previously recommended that it should clearly identify the steps it plans to take to improve its capability to conduct performance audits.  In response, OIOS noted that it conducts many audits where the audit objective refers to economy, efficiency, effectiveness, and thus is systematically including elements of performance auditing in most of its audits.  The Investigation Division’s vacancy rate had worsened from 11.5 per cent in 2018 to 22.1 per cent in 2019, with the peacekeeping section of the Division registering a vacancy rate of 25.8 per cent as of 30 June this year.

The Committee believes that the timeliness with which an investigation is completed is an essential element of an effective accountability system, she stressed.  The average length of 11.5 months still exceeds the six-month period prescribed by OIOS in its own programme impact pathways.  The Committee continues to welcome the progress achieved in implementing Umoja and calls on management to complete its implementation by the December 2019 deadline.  The Committee supports management’s decision to expand the scope of the statement of internal control by including controls over operations, as such a statement is an important accountability tool through which the Organization provides assurances that it is managing its resources appropriately.

SAED KATKHUDA, observer for the State of Palestine, speaking for the “Group of 77” developing countries and China, acknowledged the important role of OIOS in strengthening the internal oversight of the Organization.  Noting that the report provides an assessment of the state of evaluation across the 31 United Nations entities during the biennium 2016-2017, he stressed that the organizational independence of evaluation functions is defined, to a significant extent, by their structural arrangement.  While 17 entities had shifted their reporting line to the head of entity, the Department of Field Support [currently the Department of Operational Support], Department of Peacekeeping Operations [currently the Department of Peace Operations], the Economic Commission for Africa (ECA) and the Department of Management [currently the Department of Management, Strategy, Policy and Compliance] shifted their reporting line towards less independence.  Only 6 of 30 entities met the minimum threshold for evaluation spending, with most spending less than 0.5 per cent of programme budgets on evaluation.  No evaluation reports were produced by the Department of Management, the Office for Disarmament Affairs, the Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, the Office for Outer Space Affairs, the United Nations Office at Geneva, the United Nations Office at Nairobi and the United Nations Office at Vienna, although these entities budgeted for evaluation.

MIKE MARTIN AMMANN (Switzerland), also speaking for Liechtenstein, said that an appropriate level of real and perceived independence from management is a vital precondition for OIOS to effectively perform its duties.  OIOS is and must be a central instrument to strengthen accountability at the United Nations on all levels.  Shifting away from micromanagement requires transparency and accountability.  OIOS also plays a crucial role in the United Nations efforts to stem the violation of ethical standards and different types of misconduct, including retaliation and sexual abuse.  OIOS should further strengthen investigations into cases of misconduct by ensuring a victim-centred approach and specialist response.

ANCA S. DIGIACOMO (United States) said her delegation is interested in hearing more about how organizational culture can be evaluated and what elements will focus on change management initiatives in the context of management reform.  Noting a 63 per cent increase over the previous year in matters referred for investigation, she encouraged the inclusion of a year-to-year comparison on sexual harassment and sexual exploitation and abuse in future reports.  She said her delegation agrees with the Independent Audit Advisory Committee’s encouragement of the Division to analyze and solve the root causes of why investigations exceed time frames.  She went on to express concern that the number of outstanding OIOS recommendations jumped from 71 in 2015 to 661 in 2018.  “This trend is concerning because OIOS’s recommendations are meant to protect the Organization from risk and ensure internal controls are working,” she said.

ARIEL RODELAS PENARANDA (Philippines), associating himself with the Group of 77, said that his delegation would like to hear an update from the Secretariat on critical recommendations pending implementation.  Calling for a stronger culture of accountability and evaluation, he said the establishment of the Department of Management Strategy, Policy and Compliance, in particular its Evaluation Section, presents an opportunity to help close the existing gaps.  His delegation is interested in the breakdown of OIOS’ $61.55 million budget for 2020 to ascertain which particular divisions of the Office would need more support and enhancements.

United Nations Office for Partnerships

WILLIAM KENNEDY, Senior Programme Officer, United Nations Office for Partnerships, introduced the Office’s related report (document A/74/266).  He said that the Office is comprised of two trust funds, the United Nations Fund for International Partnerships (UNFIP) and the United Nations Democracy Fund.  Its other principal function is to provide partnership advisory and outreach services to the United Nations system, Member States, and non-State actors in facilitating partnership initiatives and advocacy events in support of the Sustainable Development Goals.  The relationship agreement between the United Nations and the United Nations Foundation has been renewed twice.  In 2018, the Foundation disbursed most of its funding towards global health.  The total number of United Nations projects supported by the Foundation through UNFIP stood at 657, which were implemented by 48 United Nations entities in 128 countries.  In 2018, the United Nations Democracy Fund funded 48 projects amounting to $8.7 million.

Mr. KATKHUDA, observer for the State of Palestine, speaking for the Group of 77, welcomed the activities of the Office as the gateway for public-private partnerships in furthering the Sustainable Development Goals.  The Group attaches importance to the issue of the youth demographic dividend and hopes to see greater initiatives of the Office in this regard.  The Group further encourages the Office to also continue working closely with regional and subregional organizations to support the development efforts of developing countries.

For information media. Not an official record.