UNRWA – Financial report

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Abbreviations

Letters of transmittal

22 March 2000

Sir,

Pursuant to financial regulations 11.4 and 12, I have the honour to submit the accounts of the United Nations Relief and Works Agency for Palestine Refugees in the Near East for the biennium ended 31 December 1999, which I hereby approve. The financial statements have been prepared and certified as correct by the Comptroller.

Please accept, Sir, the assurances of my highest consideration.

Yours faithfully,

(Signed) Peter Hansen

Commissioner-General

United Nations Relief and Works Agency for Palestine

Refugees in the Near East Headquarters (Gaza)

The Chairman of the Board of Auditors

United Nations

30 June 2000

.

Sir,

I have the honour to transmit to you the financial statements of the United Nations Relief and Works Agency for Palestine Refugees in the Near East for the biennium 1998-1999 ended 31 December 1999, which were submitted by the Commissioner-General. These statements have been examined and include the audit opinion of the Board of Auditors.

In addition, I have the honour to present the report of the Board of Auditors with respect to the above accounts.

Accept, Sir, the assurances of my highest consideration.

(Signed) Sir John Bourn

Comptroller and Auditor General of the United Kingdom

of Great Britain and Northern Ireland and

Chairman United Nations Board of Auditors

The President of the General Assembly of the United Nations

New York, N.Y

Chapter I

Financial report for the biennium ended 31 December 1999

A.   Activities of the United Nations Relief and Works Agency for Palestine Refugees in the Near East

1. The United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) provides educational, health and relief and social services to about 3.6 million Palestine refugees in Jordan, Lebanon, the Syrian Arab Republic and the West Bank and Gaza Strip. The headquarters of the Agency are located in Gaza and Amman.

1. Education programme

2. During the biennium 1998-1999, 458,716 and 465,755 children were enrolled for the school years 1998/99 and 1999/00 respectively in the Agency’s 640 elementary, preparatory and secondary schools (the latter in Lebanon only), which were staffed by 13,323 teachers. In addition, a total of 182,455 pupils attended other government and private elementary, preparatory and secondary schools at no cost to UNRWA. During the biennium, vocational, technical and teacher education was provided at the Agency’s eight training centres and three education science faculties to 6,262 and 6,084 trainees enrolled for the 1998/99 and 1999/00 training years respectively. A total of 568 and 370 instructions taught in those training centres respectively. In-service teacher training courses were provided by the Institute of Education at UNRWA headquarters in Amman through the five education development centres in the field for 527 and 516 education staff members in the two school years respectively. In addition, 732 and 500 contract teachers were trained in the West Bank and Gaza Strip during the two school years. University scholarships were awarded to 891 and 866 students for the academic years 1998/99 and 1999/00 respectively under the Agency’s scholarship programme. The Agency’s expenditure on the education programme during the biennium was $302.4 million against a budget of $325.3 million. Educational expenditures represented 57.4 per cent of the Agency’s total expenditure, while the education budget was 48.4 per cent of the total budget.

3. The distribution of expenditures for educational services by activity and location is shown below:

2. Health programme

4. The Agency offers comprehensive primary health care services to Palestine refugees, comprising medical care, disease prevention and control and maternal and child health care, including family-planning services. These services are provided through 122 primary health care facilities. During the biennium, a total of 14,201,807 visits were made to these clinics by refugee patients for medical and dental consultations and other treatment, such as injections and dressings. Assistance towards hospitalization is provided either at contractual hospitals or through partial reimbursement of costs. UNRWA also runs a small hospital in Qalqilia, West Bank, and operates six maternity units integrated within the largest health centres in the Gaza Strip. Under the hospitalization assistance programme, refugees treated during the biennium at UNRWA hospitals and maternity units and at contracted hospitals utilized a total of 265,572 bed-days. Environmental health services are also part of the health programme as is the supplementary feeding programme for pregnant women and nursing mothers. Total expenditure on the health programme for the biennium amounted to $98.6 million against a budget of $126.9 million. The health programme accounted for 18.7 per cent of the Agency’s total expenditure, while the health budget was 18.9 per cent of the total budget.

5. The distribution of health programme expenditures by activity and location is depicted below:

3. Relief and social services programme

6. The Agency’s relief and social services programme provides socio-economic support for the most vulnerable of the Palestine refugees and help to facilitate self-reliance. At the end of 1999, 211,050 refugees (of whom 192,502 were ration recipients) were enrolled in the special hardship programme, representing 5.58 per cent of the total registered refugee population. They belonged to 54,009 families, with an average of four persons per family receiving special hardship assistance. This assistance consists of food, a small cash subsidy, shelter repair, preferential access to vocational and teacher training and small grants or loans to establish individual or group self-support projects. Social workers provided counselling and support to help families cope with the difficulties causing or aggravating their socio-economic problems. Selective cash assistance for those in extreme distress had to be discontinued because of the Agency’s difficult financial situation. The social services department continued its poverty alleviation programme (providing credit opportunities) and related skills training. Technical and financial support focused on building up the capacity of 132 community-based organizations (for women, youth and the disabled) to become managerially and financially sustainable. In 1999, approximately 43,000 refugees participated in the activities of those organizations. The Agency’s eligibility and registration staff continued to update the field registration system database on 3.6 million refugees. In addition, the newly installed field social study system database began to track socio-economic data of the special hardship cases. The total expenditure on the relief and social services programme during the biennium amounted to $57.7 million against a budget of $86.2 million. Relief and social services accounted for 10.9 per cent of the Agency’s total expenditures, while the relief and social services budget was 12.8 per cent of the total budget.

7. The charts below reflect the distribution of relief and social services expenditures by activity and location:

4. Operational and common services programme

8. To strengthen and support the three substantive programmes described above, the Agency provides services relating to supply and transport, architecture and engineering, general management and administration. Expenditures during the biennium for those services amounted to $68.6 million against a budget of $133.7 million. This represented 13.0 per cent of the Agency’s total expenditure, while the budget represented 20.0 of the regular budget.

9. The distribution of operational and common services expenditures is depicted below:

5. Special programmes

10. In addition to the ongoing services mentioned above, UNRWA implemented the following special programmes to improve the living conditions of Palestine refugees, with earmarked funding from donors.

Peace Implementation Programme

11. The UNRWA Peace Implementation Programme was launched in October 1993 following the signature of the Israeli-Palestinian Declaration of Principles in September 1993. Under this Programme, the Agency undertook special construction and development projects in the West Bank and Gaza Strip with the objective of developing infrastructure, improving living conditions and creating employment opportunities. Those objectives were pursued mainly in areas where UNRWA was already playing a significant role, such as in education and vocational training, health care and environmental sanitation, income generation activities and relief assistance and social services. Those development projects were later extended throughout the Agency’s area of operations for the benefit of all Palestine refugees. During the biennium, the Programme received $38.3 million, and expenditures amounted to $41.8 million. From its inception in 1993, the Programme has funded a total of 375 projects at a total cost of $235.2 million. The distribution of expenditures by main activity is shown below:

figure from botton d.p. 5

Income Generation Programme

12. Since June 1991, the Income Generation Programme in the West Bank and Gaza has helped to promote small business development, create employment, improve the income of microenterprises and reduce poverty through the establishment of a number of targeted credit programmes aimed at small businesses, microenterprises and women. The Programme is organized around three revolving loan funds in Gaza and two in the West Bank. The programme supports businesses varying in size from micro-vending, employing just one or two individuals, to small industries, and aims to satisfy a variety of needs such as capital funding and working capital financing. Since it was established the Programme has distributed $36.7 million through 26,639 loans (23,933 loans valued at $31.5 million in Gaza and 2,706 loans in West Bank valued at 5.2 million). The total disbursement for the biennium was $19.4 million for 15,845 loans, distributed as follows:

Lebanon Appeal

13. The Lebanon Appeal was issued to help alleviate the socio-economic conditions of the 365,000 Palestine refugees registered in Lebanon. Most of those refugees suffered from deplorable living conditions and depended almost entirely on UNRWA for basic services. The deteriorating socio-economic situation in the country, combined with the inability of those refugees to gain full access to the job market or to avail themselves of public health facilities, heightened their desperation and misery. As the regular funding available to UNRWA was insufficient to cope with the growing needs of the refugees in Lebanon, the Agency launched a special emergency appeal in July 1997 in Geneva, seeking $11 million in additional contributions to support essential health, education and relief and social services. During the biennium, total expenditure incurred on specific project activities was $7.3 million, using funding received in 1997. Contributions received in 1998-1999 totalled $1.6 million. The distribution of 1998-1999 expenditures for the Lebanon Appeal is shown below:

Capital and special projects

14. Activities funded under capital and special projects are undertaken only if earmarked funding is available. Capital projects represent investment to upgrade and expand facilities in connection with the Agency’s regular programmes, namely schools, health clinics and community centres. Special projects consist of ongoing activities related to the Agency’s regular programmes, which donors have agreed to fund separately on a recurrent basis but which are not considered part of the Agency’s regular programmes, such as training centres and scholarships. Expenditures on capital and special projects during 1998-1999 totalled $2.6 million against an income of $1.0 million.

Expanded Programme of Assistance

15. The Expanded Programme of Assistance was established in 1988 to improve living conditions in refugee communities and to upgrade the Agency’s infrastructure throughout its area of operations, with special emphasis on the West Bank and Gaza Strip. The Programme was subsumed into the Peace Implementation Programme in October 1993, and the Agency began to phase it out as projects were completed. A total of $0.8 million was spent to complete Expanded Programme of Assistance projects during the biennium under review.

European Gaza Hospital

16. The European Gaza Hospital project was initiated in 1990 to alleviate the serious shortage of hospital beds and adequate medical services, such as outpatient care and diagnostic, therapeutic and support services. With the assistance of the European Community and European donors, the construction of the hospital commenced in 1993 and was completed in 1996. After its commissioning and initial operation by an international management team working under a tripartite project board comprising members of UNRWA, the European Community and the Ministry of Health of the Palestinian Authority, the 232-bed hospital will become an integral part of the Palestinian Authority’s health care system. During the biennium, the Agency received $0.9 million towards the costs of the hospital project, and spent $1.2 million.

6. Headquarters move to Gaza and Amman

17. The physical move of the Agency’s headquarters from Vienna to Gaza and Amman was completed in July 1996. According to the Agency’s records, all financial obligations related to the move have been completed, and no expenditure was incurred during the biennium 1998-1999. However, the total expenditures incurred up to 1997 amounted to $17.3 million, whereas the contributions received totalled $12.1 million. Contrary to the original intention that the move would not be a burden on the Agency’s regular budget, the deficit of $5.2 million had to be financed out of the Agency’s regular budget funds.

B. Financial results

18. During the biennium, the Agency’s overall surplus amounted to $2.1 million on its operations, as shown in statement 1, which also shows the balances of the Agency’s working capital and other funds. The balances of the other funds are earmarked for specific purposes. The working capital under the Agency’s regular budget fund is not a statutory operating reserve, but is the difference between the assets and liabilities of the fund. The working capital account is used for three specific purposes, namely: (a) to meet temporary, current-year imbalances in the cash flow; (b) to finance unforeseen needs; and (c) to meet any extraordinary liquidating liabilities in the event of a curtailment of the Agency’s activities. As shown in statement 5, the working capital account of the regular budget had a positive balance of $10.4 million. This is accounted for by the following:

(a) A positive working capital balance of $14.5 million earmarked for in-kind purchase of basic commodities;

(b) A negative working capital balance of $4.1 million on all other regular cash budget operations during the biennium.

19. For efficient cash flow management, the Agency centrally manages all cash received by the Agency for both the regular and non-regular budgets. The statement of cash flow for the period, statement 3, shows the sources and application of funds during the biennium and reflects the consolidated cash balance of $31.0 million at the end of the biennium.

20. Statement 4 shows the Agency-wide budgeted and actual expenditures for 1998-1999. The Agency expended $584.0 million during the biennium against a budget of $759.5 million on all its activities. On the regular budget alone, the expenditure was $527.2 million against a budget of $672.1 million. A graphic comparison of the regular budget actual expenditures versus the budgeted expenditure is shown below.

21. The accounts of the Area Staff Provident Fund, shown separately in this report, indicate that the total assets of the Fund rose from $824.3 million to $856.6 million during the biennium. Net investment income for the biennium was $102.1 million compared with $145.6 million for the previous biennium, and $20.9 million is available for distribution to the participants.

22. A diagram of UNRWA accounts for the biennium 1998-1999 follows.

strip large figure here (d.p. 10)

Chapter II

Report of the Board of Auditors

Summary

The Board of Auditors has audited the operations of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). The Board has also validated the financial statements of UNRWA for the biennium ended 31 December 1999.

The Board’s main findings are as follows:

(a) The United Nations Relief and Works Agency for Palestine Refugees in the Near East declared a surplus of $2.08 million of income over expenditure for the biennium 1998-1999, as against a deficit of $21.2 million for the biennium 1996-1997;

(b) The value of land and buildings of $298.7 million was not capitalized and included in the statement of assets, liabilities and fund balances as at 31 December 1999, resulting in the understatement of total assets, recorded at $68.7 million, by $298.7 million. The Board has decided not to qualify its audit opinion on this matter pending the outcome of the revision of the UNRWA Financial Regulations;

(c) A total of $24.2 million from regular budget funds that had been applied to specific-purpose projects prior to the receipt of funds from donors was outstanding as at 31 December 1999;

(d) Two Governments subjected the Agency to direct taxes and customs duties totalling $24.58 million, which is contrary to the Convention on the Privileges and Immunities of the United Nations;

(e) Out of the overpayment of extended monthly evacuation allowance and educational grants totalling $299,142.99 made to 14 staff members, an amount of $37,959.25 had been recovered by the Administration, leaving a balance of $261,183.74 outstanding as at 31 March 2000;

(f) The Agency could not physically locate some 500 non-expendable property items on its inventory listing. The inventory listing had not been updated since 1996, and it showed incorrect locations of non-expendable property items.

The Board recommended that UNRWA review its policy on the pre-financing of donor-specified projects and strengthen its efforts to recover outstanding tax reimbursement and all overpayments relating to extended monthly evacuation allowances and education grants. Also, the Administration should improve its asset management system and the presentation of its financial statements.

A list of the Board’s main recommendations is included in paragraph 10.

A. Introduction

1. The Board of Auditors has audited the financial statements of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) for the period from 1 January 1998 to 31 December 1999, in accordance with General Assembly resolution 74 (I) of 7 December 1946 and article XII of the Financial Regulations of UNRWA. The audit has been conducted in conformity with article XII of the Financial Regulations of UNRWA and the annex thereto, and with the common auditing standards of the Panel of External Auditors of the United Nations, the specialized agencies and the International Atomic Energy Agency. Those standards require that the Board plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement.

2. The audit was conducted primarily to enable the Board to form an opinion as to whether the expenditures recorded in the biennium 1998-1999 had been incurred for the purposes approved by the governing bodies, whether income and expenditures had been properly classified and recorded in accordance with the Financial Regulations and Rules and whether the financial statements of UNRWA presented fairly the financial position at 31 December 1999 and the results of the operations for the period then ended. The audit included a general review of financial systems and internal controls and a test examination of accounting records and other supporting evidence to the extent the Board considered necessary to form an opinion on the financial statements.

3. In addition to the audit of the accounts and financial transactions, the Board carried out reviews under article 12.5 of the Financial Regulations and Rules of the United Nations. The reviews concerned the efficiency of financial procedures, the internal financial controls and, in general, the administration and management of UNRWA. The audit was carried out at UNRWA headquarters at Gaza and Amman and field offices in Gaza, Lebanon and the Syrian Arab Republic.

4. During the period under review, the Board continued its practice of reporting the results of specific audits through management letters containing detailed observations and recommendations to the Administration. This practice helped to maintain an ongoing dialogue with the Administration on audit issues.

5. The present report covers matters which, in the opinion of the Board, should be brought to the attention of the General Assembly. The Board’s observations and conclusions were discussed with the Administration, whose views, where appropriate, have been reflected in the report. The report covers the audit of both financial and management issues.

6. A summary of the Board’s main recommendations is contained in paragraph 10. The detailed findings are reported in paragraphs 12 to 56.

7. In accordance with section A, paragraph 7, of General Assembly resolution 51/225 of 3 April 1997, the Board has reviewed the action taken by the Administration to implement the recommendations made in its report for the biennium ended 31 December 1995 and confirms that there are no outstanding matters.

8. In accordance with General Assembly resolution 48/216 B of 23 December 1993, the Board also reviewed the measures taken by the Administration to implement the recommendations made in its report for the biennium ended 31 December 1997. Details of the action taken and the comments of the Board are set out in the annex to the present report.

9. The General Assembly, in its resolution 52/212 B of 31 March 1998, accepted the recommendations of the Board of Auditors for improving implementation of its recommendations approved by the Assembly subject to the provisions contained in the resolution. The Board’s proposals, which were transmitted to the Assembly in a note by the Secretary-General (A/52/753, annex), included the following main elements:

(a) The need for specification of timetables for the implementation of recommendations;

(b) The disclosure of office-holders to be held accountable;

(c) The establishment of an effective mechanism to strengthen oversight in regard to the implementation of audit recommendations. Such a mechanism could be in the form of either a special committee comprising senior officials or a focal point for audit and oversight matters.

The Board noted that the Administration had generally complied with those requirements.

Main recommendations

10. The Board recommends that UNRWA:

(a) Review its policy on the pre-financing of donor-specified projects in view of the adverse effect on the cash flow of the Agency (para. 41);

(b) Recover the $24.2 million outstanding from donors and reimburse the regular budget funds (para. 41);

(c) Strengthen its efforts to recover the outstanding tax reimbursements of $23.72 million and make further appeals to the two Governments to accept the tax-exempt status of the Agency (para. 44);

(d) Recover all overpayments relating to extended monthly evacuation allowances and education grants (para. 51);

(e) Review the various administrative instructions relating to extended monthly evacuation allowances and education grants to remove ambiguities in their interpretation and application (para. 51);

(f) Develop and implement a computerized asset management system in order to better manage and control its non-expendable property items (para. 55).

11. The Board’s other recommendations are shown in paragraphs 19, 21, 26, 28 and 34.

B. Financial issues

1. Accounts and financial reporting

Operational results

12. The total combined income for all funds of $586.05 million for the biennium ended 31 December 1999 was lower than that of $630.3 million for the biennium 1996-1997. Similarly, total expenditure of $651.5 million for the biennium 1996-1997 decreased to $584.0 million for the biennium 1998-1999. There was a surplus of $2.08 million of income over expenditure for the biennium 1998-1999, as against a deficit of $21.2 million for the biennium 1996-1997.

13. Contributions to regular budget funds, which continue to be the main source of the Agency’s income, increased to $538.2 million for the biennium 1998-1999 compared with $524.9 million for the previous biennium. Contributions to non-regular budget funds, on the other hand, decreased from $101.2 million for the biennium 1996-1997 to $42.6 million.

14. The Administration attributed the increase in income under the regular budget to its intensified efforts to generate revenue. It further explained that the reduction in non-regular budget funds for the biennium 1998-1999 was due to the fact that most of the income relating to the Peace Implementation Programme was received during the previous biennium.

15. The Board is pleased to note that the Administration’s efforts achieved an increase in its regular budget income, but considered that much work needed to be done in the area of the non-regular budget income.

United Nations accounting standards

16. The Board assessed the extent to which the financial statements of UNRWA for the biennium 1998-1999 conformed to the United Nations accounting standards. The review disclosed that the presentation of the financial statements was generally consistent with the standards; however certain aspects of the presentation needed to be modified to bring the financial statements fully in line with those standards. The main areas for attention were the presentation of the cash flow statement, disclosure of contingent liability, land and buildings, non-expendable property and prior years’ adjustments.

Cash flow statement

17. The presentation of the cash flow statement for the biennium ended 31 December 1999 (statement 3) was not in accordance with the indirect method prescribed by the United Nations accounting standards. The statement disclosed sources and application of funds for the biennium rather than disclosing cash flows from operating and investing and financing activities as well as from other sources. The cash flow statement for the biennium ended 31 December 1999 also did not include comparative figures in respect of the previous financial period.

18. The Administration explained that the cash flow statement prescribed in the United Nations accounting standards was not suited to the Agency’s system of accounting, as its cash resources, including other income, are derived from operational activities. The Agency will, nonetheless, refine the format of its report for the biennium 2000-2001 in accordance with the United Nations accounting standards.

19. The Board recommends that for more accurate and transparent financial reporting, the Agency should disclose information on its cash flow statement in line with the United Nations accounting standards, including the disclosure of current and prior year’s comparative amounts.

Contingent liabilities

20. The contingent liabilities disclosed in note 12 to the financial statements omit estimates of salary arrears and entitlements in respect of staff members whose appeals are pending before the respective appeal boards and the United Nations Administrative Tribunal in New York.

21. The Board recommends that full disclosure of the Agency’s contingent liabilities be included in the notes to the financial statements in accordance with United Nations accounting standards.

Land and buildings

22. In its report for the biennium ended 31 December 1997,1 the Board of Auditors expressed concern about the omission of the value of land and buildings from the statement of assets, liabilities and fund balances, contrary to the requirements of the United Nations accounting standards. The Board of Auditors recommended that the financial statements be improved further to include the value of land and buildings.

23. The Board noted that the value of land and buildings, totalling $298.7 million, was not capitalized and was not included in the statement of assets, liabilities and fund balances as at 31 December 1999. The effect of this omission is that total assets figure of $68.7 million has been understated by $298.7 million. The Board also noted that the value of buildings of $28.7 million was charged to the expenditure account instead of the land and building account; therefore, the total expenditure of $584.0 million reported in the financial statement for the biennium was overstated by $29.9 million (5 per cent).

24. The Administration informed the Board that in order to bring the Agency’s accounting treatment of its land and buildings in conformity with the United Nations accounting standards, it has proposed to the United Nations a draft amendment to its Financial Regulations. The process, which requires consultation with the Advisory Committee on Administrative and Budgetary Questions and the approval of its Executive Board before the recommendation can be implemented, is scheduled to be completed before the end of the biennium 2000-2001. The Board has decided not to qualify its audit opinion on this matter pending the outcome of the revision of the Financial Regulations.

Valuation of non-expendable property

25. The Board noted that the method of valuation of non-expendable equipment and motor vehicles valued at $65.1 million was not disclosed in a note to the financial statements as required in paragraph 49 of the United Nations accounting standards.

26. The Board recommends that notes to the financial statements include the method of valuation of non-expendable equipment and motor vehicles.

Prior years’ adjustments

27. In the presentation of the statement of income and expenditure and changes in reserves and fund balances for the biennium ended 31 December 1999, prior years’ adjustments totalling $0.18 million were not taken into account in determining the net excess/shortfall of income over expenditure as required by the United Nations accounting standards. This presentation was also inconsistent with the presentation in previous financial statements. As a result, the shortfall of income over expenditure of $17.7 million for the biennium 1996-1997 was restated as $21.2 million in the financial statements for the biennium ended 31 December 1999.

28. The Board recommends that the format of presentation of the statement of income, expenditure and changes in reserves and fund balances be improved further to disclose net excess/shortfall of income over expenditure in accordance with the United Nations accounting standards.

2. Write-offs of losses of cash, receivables and property

29. In line with financial regulation 11.5, the Administration provided the Board with details of losses of cash and other non-expendable property written off during the biennium 1998-1999. This included loss of cash amounting to $217 and non-expendable property totalling $12,546.47 (based on original cost), which were written off in accordance with financial regulation 5.3. The amounts written off in respect of non-expendable property resulted mostly from thefts that were reported to the Headquarters Property Survey Board.

3. Ex gratia payments

30. The Administration informed the Board that no ex gratia payments had been made during the biennium 1998-1999.

C. Management issues

1. Programme management

Programme implementation

31. The Board’s review of the level of overall programme implementation, expressed in terms of expenditures as a proportion of the budget, disclosed that implementation of regular and non-regular budget programmes combined decreased slightly, from 78 per cent for the biennium 1996-1997 to 76.9 per cent for the biennium 1998-1999. The level of implementation of non-regular budget programmes of 65 per cent for the biennium 1998-1999 lagged behind that for regular budget programmes of 78 per cent.

32. The Board noted instances of low utilization of project funds received during the biennium. For example, out of a total of $425,704 donated for the procurement of medical supplies for Gaza and the West Bank, only $20,852 (5 per cent) was utilized. Similarly, of the $12.8 million received during the biennium to implement 14 projects under the Peace Implementation Programme, only $3.4 million (26 per cent) was utilized. In yet another case, the Lebanon Appeal Programme, out of the total contributions of $362,627 for the rehabilitation of shelters in Lebanon, only $54,893 (15 per cent) was utilized.

33. The Board noted that the Agency had not developed programme performance indicators or benchmarks to enable the Agency to assess programme performance.

34. The Board recommends that the Agency develop specific generic performance indicators as a basis for assessing programme performance.

Reduction in approved budget

35. The Agency provides education, health and relief and social services to Palestine refugees in Jordan, Lebanon, the Syrian Arab Republic, the West Bank and the Gaza Strip. The contributions to the regular budget and the growth in the refugee population during the past three bienniums are analysed below:

36. Using the biennium 1994-1995 as the base, while refugee populations increased in the subsequent two bienniums by 9 per cent and 13 per cent respectively, contributions, decreased by 6 per cent and 3 per cent. This decreasing trend in contributions caused the Administration to reduce its approved budget from $672,073,019 to $527,210,925 during the biennium 1998-1999, as shown below:

37. The Board noted that a portion of the reduction in the approved budget affected programme delivery during the biennium. For example, under the education programme, the Agency could not introduce the tenth grade in schools in the West Bank as planned. Teachers were hired on a contractual basis, which did not attract qualified and experienced teachers. No additional teacher posts were created, and no elementary-school teachers were promoted in the West Bank. There were also reductions in the number of university scholarships for students, and a freeze was put on staff recruitment.

38. The Administration informed the Board that, in addition to the cost-reduction measures, the Agency had embarked on a number of measures to attract more funding, such as expanding its donor base by establishing relations with non-traditional donors and holding ongoing discussions with various Arab representatives to increase their contributions. UNRWA was also seeking donor assistance in non-traditional areas such as technical assistance rather than material assistance.

39. The Board noted that over the years the Administration had relied on regular budget funds to pre-finance donor-specified and earmarked projects for which donors had failed to honour their pledges of contributions. A total of $24.2 million from the regular budget that had been applied to specific-purpose projects prior to the receipt of funds from donors was outstanding as at 31 December 1999. Of that total, $11.2 million had been outstanding since 31 December 1997.

40. In their reports on the operations of the Agency for the bienniums 1994-19952 and 1996-1997,1 the Board of Auditors raised concerns about the negative effects that advance authorization of funds to start implementation of specific-purpose projects prior to the receipt of funds from donors has on the cash flow of the Agency.

41. The Board welcomes the positive steps taken by the Administration to obtain more funding to support approved projects. However, the Board recommends that the Administration review its policy on the pre-financing of donor-specified projects in view of the adverse effect on the cash flow of the Agency. Also, the Administration should recover the $24.2 million outstanding from donors and reimburse the regular budget funds.

Direct taxes and customs duties

42. The Board noted that two Governments had subjected the Agency to direct taxes and customs duties totalling $24.58 million, contrary to the Convention on the Privileges and Immunities of the United Nations. In spite of the serious efforts of the Administration, it was able to recover only $0.86 million out of the total amount, leaving a balance of $23.72 million outstanding against the two Governments as at 31 March 2000.

43. The Board was concerned about the significant amounts of the Agency’s working capital that had been locked up in customs duties and value-added taxes.

44. The Board recommends that the Agency strengthen its efforts to recover the outstanding tax reimbursements of $23.72 million and that it make further appeals to the two Governments to accept the tax-exempt status of the Agency.

Overpayment of extended monthly evacuation allowance

45. Based on the provisions of the United Nations Security Handbook, UNRWA has issued personnel directives stating that extended monthly evacuation allowance is payable to UNRWA international staff based in Gaza with recognized dependants based outside Gaza. The personnel directives preclude concurrent payment of the allowance and the boarding element of the education grant. Rates of post adjustment and the threshold for the calculation of the allowance have also been established in the directives.

46. In 1998, the Administration conducted a review of the payments of extended monthly evacuation allowance and education grant to staff members and determined that overpayments totalling $229,142.99 were made to 14 staff members.

47. The overpayments had resulted from the application of incorrect rates of post adjustment and an incorrect threshold for the calculation of the extended monthly evacuation allowance and the concurrent payment of the allowance and the boarding element of the education grant. In a report on the review, it was recommended that the Administration recover the overpayments — some of which dated as far back as 1996 — from the affected staff members, as analysed below:

48. Of the overpayments of $299,142.99, the Administration has recovered $37,959.25 (13 per cent), leaving a balance of $261,183.74 as at 31 March 2000.

49. The Board noted that the overpayments were also caused by ambiguities in the rules relating to the extended monthly evacuation allowance and education grants, failure of the Administration to promptly rectify incorrect payments and the failure of officers to take into account information provided by beneficiaries in determining the calculation of the extended monthly evacuation allowance.

50. The Administration informed the Board that to forestall the occurrence of such overpayments it has instituted corrective measures, such as the introduction of a system of yearly verification of the status of dependants and their location for purposes of the extended monthly evacuation allowance, the assignment of qualified and experienced staff to handle the claims schedule and the revision of EMEA claim forms. The Administration further stated that it understood that United Nations Headquarters would be revising the instructions on the extended monthly evacuation allowance. However, since this had not yet occurred, the Administration intended to issue its own revised instructions by the end of May 2000.

51. The Board recommends that the Administration recover all overpayments relating to extended monthly evacuation allowances and education grants. The Board also recommends that the Administration review the various administrative instructions relating to extended monthly evacuation allowances and education grants to remove ambiguities in their interpretation and application.

Management of non-expendable property

52. In 1996, the Agency transferred its non-expendable property during the relocation of its headquarters from Vienna to Gaza. In 1998, the Field Supply and Transport Office consolidated the inventory records on all non-expendable property items. The Board noted that the consolidated inventory listing, covering 1,227 non-expendable property items, was incomplete and inaccurate, as described below:

(a) Some 500 of the non-expendable property items on the inventory listing could not be physically located at the headquarters premises;

(b) A total of 564 non-expendable items written off or transferred to field offices and the Amman headquarters, some dating as far back as 1991, were retained on the inventory listing;

(c) In most cases, the value of items was not provided;

(d) The location column of the inventory listing still shows room numbers at the Vienna headquarters.

53. The Board also noted that 228 non-expendable property items on the inventory listing were not provided with decal numbers.

54. In April 2000, the Administration started an exercise to reconcile records and physically count equipment and non-expendable property items, after which it intends to produce comprehensive inventory records on the items at the Gaza headquarters.

55. The Board is concerned about the deficiency in the management and control of non-expendable property items. The Board recommends that the Administration develop and implement a computerized asset management system in order to better manage and control its non-expendable property items.

2. Cases of fraud and presumptive fraud

56. The Administration informed the Board of the four cases of fraud that had come to its attention during the biennium 1998-1999. The four cases, which involved a total loss to the Agency of $9,026.98, were perpetrated by four staff members and one non-staff member. The Administration recovered $4,806.74, leaving a balance of $4,220.24 outstanding as at 31 December 1999. Two staff members were reprimanded, and the appointments of two others were terminated.

D. Acknowledgement

57. The Board of Auditors wishes to express its appreciation for the cooperation and assistance extended to its staff by the Commissioner-General, senior officers of UNRWA and members of their staff.

(Signed) Sir John Bourn

Comptroller and Auditor General of the

United Kingdom of Great Britain and Northern Ireland

(Signed) Osei Tutu Prempeh

Auditor-General of Ghana

(Signed) Celso D. Gangan

Chairman, Philippine Commission on Audit

30 June 2000

Notes

1 Official Records of the General Assembly, Fifty-third Session, Supplement No. 5C (A/53/5/Add.3), chap. II.

2 Ibid., Fifty-first Session, Supplement No. 5C (A/51/5/Add.3), chap. II.

Annex

Follow-up on action taken to implement the recommendations

of the Board of Auditors in its report for the biennium ended

31 December 1997

Recommendation 8 (a)

1. Allotments for specific-purpose projects should be issued only after sufficient contributions have been received from donors.

Measures taken by the Administration

2. The External Relations Office at Headquarters was now monitoring advance authorizations closely and was constantly in touch with donors regarding unpaid pledges. The appointment of a new Chief for the External Relations Office, in autumn 1998, and moves to fully staff the Office were facilitating the exercise.

Comments of the Board

3. The Board’s comments on this issue are discussed in the present report.

Recommendation 8 (b)

4. The statement of assets, liabilities and fund balances should be improved to include the value of land and buildings. Also, the title deeds should be obtained and kept at headquarters to confirm UNRWA ownership of its capital assets.

Measures taken by the Administration

5. The Administration informed the Board that in order to bring the Agency’s accounting treatment of its land and buildings into conformity with the United Nations accounting standards, an amendment to financial regulation 10.2 had been proposed to United Nations Headquarters. However, to reflect a more complete picture of total fixed assets in the financial statements for the biennium 1998-1999, total historical cost with a contra amount had been reflected in the accounts. Also, to facilitate implementation of the proposed change in the financial regulation, a physical verification exercise for the entire stock of the Agency’s land and buildings had been undertaken. The deeds had been received by the Gaza headquarters and were on file.

Comments of the Board

6. The Board’s comments on this issue are discussed in the present report.

Recommendation 8 (c)

7. The Administration should provide the Finance Department with the resources required for the Department to function more effectively.

Measures taken by the Administration

8. The Administration informed the Board that the Agency had reorganized its Finance Department by appointing a Comptroller and that it had filled vacancies in the Accounts Division with qualified personnel. A new financial management system that will significantly improve the Agency’s capability to present financial reports in a timely manner would be implemented during the biennium 2000-2001.

Comments of the Board

9. The improvement in staffing at the Finance Department resulted in the timely preparation of the financial statements for the biennium 1998-1999. The Agency’s computer systems for procurement and stock control, payroll and project management were yet to be improved to reflect concerns raised by the Board. The Board will, in its future audits, evaluate the impact of the reform measures being implemented by the Administration.

Recommendation 8 (d)

10. The Agency should review its fund-raising strategies and closely monitor its donor agreements and contract award procedures.

Measures taken by the Administration

11. The Administration continued to discuss with donors the financial requirements of the Agency to enable it to provide services to the Palestine refugee community. Support was being sought from new donors, and additional support was being requested from traditional donors. Also, contract award procedures were being considered in the context of the internal audit and were the subject of an external review of donor-funded consultants. Thorough attention would be given to recommendations for the strengthening of internal control procedures and contracting effectiveness. The recommendations of the external review were discussed internally and approved by the Administration in April 2000.

Comments of the Board

12. The Board notes and appreciates the Agency’s efforts to expand its donor base in order to attract more funding for its activities. The Board’s comments on this issue are discussed in the present report. The Board, in its future audits, will also review the effectiveness of ongoing reviews of contract award procedures.

Recommendation 8 (e)

13. The Project Monitoring Unit should be equipped with the resources required for more efficient monitoring of UNRWA projects.

Measures taken by the Administration

14. The Agency had enhanced staffing at the Project Monitoring Unit. Directives had also been issued to field project monitoring offices instructing them to improve on the timeliness and accuracy of field project reporting. Additionally, a Project Review Board had been established to improve the management of the Agency’s priority project list. A draft project manual approved by the Agency’s Management Committee in autumn 1999 was being revised prior to its finalization. Among the issues discussed in the manual was the financial reporting format.

Comments of the Board

15. Despite improvements in the staffing position of the Project Monitoring Unit, its effectiveness in project monitoring and reporting is hampered by the lack of an updated project procedure manual to provide standard guidelines and instructions to be applied and enforced by the Unit. The Administration should expedite action in compiling an updated project manual.

Recommendation 8 (f)

16. UNRWA should take steps to recover the amounts outstanding from donors and reimburse the General Fund for the $11.2 million spent on the Gaza General Hospital project.

Measures taken by the Administration

17. The European Union’s scheduled audit of the Gaza General Hospital project was completed in June 1999. UNRWA had been discussing the matter with European Commission officials in order to obtain more funds to reimburse the regular budget funds.

18. The responsibility of commissioning the hospital was with the European Union. An international management team had been contracted to prepare the grounds to begin operating the hospital in July 2000.

Comments of the Board

19. The General Fund has not been reimbursed for the funds outstanding from donors. The Administration, moreover, continued to incur more expenditures in the maintenance and other costs of the hospital project. The deficit funding of $11.2 million, which was the subject of comments by the Board in the previous biennium, had increased to $11.3 million at the end of the biennium 1998-1999. The Board reiterates its recommendation that the Administration pursue reimbursement of the outstanding amount of $11.3 million.

Recommendation 8 (g)

20. UNRWA should ensure that all systems are tested for year 2000 compliance, with sufficient lead time to address any deficiencies.

Measures taken by the Administration

21. The Agency tested all its applications for year 2000 compliance. The review process was completed in March 1999, which allowed sufficient time to make any necessary changes before the Agency’s internal deadline of September 1999. Consequently, no major hitches were encountered by the Agency during the rollover period.

Comments of the Board

22. The Board’s year-end audit disclosed that the Agency spent a total of $402,461 on preparing and implementing its year 2000 project, which included changing and upgrading its non-Pentium computers, servers and operating systems for servers and workstations.

Recommendation in paragraph 22

23. For more accurate and transparent financial reporting, UNRWA should disclose information on the changes in reserves and fund balances in its statement II in accordance with the requirements of the United Nations accounting standards.

Measures taken by the Administration

24. Statement 1 of the financial statements on the accounts of the Agency for the biennium 1998-1999 was prepared in accordance with the accounting standards.

Comments of the Board

25. The recommendation has been implemented.

Recommendation in paragraph 41

26. The Administration should comply fully with the established instruction that before projects are accepted, the necessary land permits should be obtained.

Measures taken by the Administration

27. The Administration explained that it was cognizant of the need to establish clarity as to availability of sites and ownership at the project planning stage and was making every effort to do this. However, problems often arose at a later stage, emanating from issues and aspects beyond the Agency’s control. The projects that had not been executed during the previous biennium as a result of disputes over land acquisition were implemented during the biennium 1998-1999. The newly established Project Review Board would apply the criterion that approval of a project requires the documented availability of the site.

Comments of the Board

28. The Board will continue to follow up on compliance with the established instructions.

Recommendation in paragraph 57

29. UNRWA should refine the procedures for the selection and award of contracts and update the register of vendors in a timely manner to ensure that only competent contractors are considered for the Agency’s projects. Also, the Administration should closely supervise its contracts to ensure that contractors’ work meets the required standards, that cost and time overruns are avoided and that the clause on liquidated damages is strictly enforced.

Measures taken by the Administration

30. The Agency responded that it rigorously applied established contracting procedures. Contractors who qualified for projects but who underperformed were not considered for other projects. Field contract committees were aware of past contractor performance when evaluating contractors and awarding contracts. The Headquarters Committee on Contracts also reviewed contracting processes.

31. On the subject of project supervision, project managers were aware of the comments of the Board of Auditors and were maximizing their effort to ensure that contractor performance met required standards. Instructions had been issued to field directors to ensure greater compliance with the policy.

Comments of the Board

32. The Board observed that the deficiencies in contractor performance, inadequate supervision and delays in the implementation of projects that characterized construction contracts in the previous biennium were significantly fewer during the biennium under review. The Board will continue to monitor the implementation of the instructions in the field in its future audits.

Recommendation in paragraph 61

33. A decision should be made by the Provident Fund on investments with the countries that do not grant tax exemption to the Fund. Also, more effective measures should be undertaken to recover the outstanding taxes withheld from the Fund.

Measures taken by the Administration

34. During the biennium, the Provident Fund secretariat issued directives to its fund managers to minimize the incidence of withholding of taxes by selling securities prior to the ex-dividend date in countries that fail to provide tax exemptions to the Fund.

35. The Provident Fund secretariat, during the biennium, was able to secure from the Italian and Spanish authorities tax exemptions for its investments. Direct tax exemptions are being sought from other Member States that do not provide exemptions to the Fund.

Comments of the Board

36. The Board will keep in view the continued efforts of the Provident Fund secretariat to secure tax exemptions for its investments. The Provident Fund secretariat should continue to give high priority to the recovery of total outstanding withheld taxes, which amounted to $1.4 million as at 31 December 1999.

Recommendation in paragraph 63

37. The Administration should ensure that the internal audit manual is revised to take account of the changes in the Agency’s operations.

Measures taken by the Administration

38. The Agency had obtained copies of the audit manuals used by the Office of Internal Oversight Services at United Nations Headquarters and by the United Nations Board of Auditors for comparison and incorporation of the most relevant and best practices. The revision had been scheduled to be completed by the end of 1998, but was rescheduled to the end of summer 1999 owing to the retirement of the head of the Agency’s Internal Audit Office.

Comments of the Board

39. The audit manual had not been finalized as at April 2000. Only one chapter had been completed to date. The Administration should give priority attention to this exercise by ensuring that the manual is completed as soon as possible.

Recommendation in paragraph 66

40. In order to improve the efficiency of the internal audit staff, UNRWA should make budgetary provision for enhancing the training of such staff.

Measures taken by the Administration

41. The Administration had instituted significant changes to strengthen the audit operation. Three new audit positions had been approved. The Audit Office was continuing its discussions with the office of the Auditor-General of a Member State about participation in courses. One senior auditor had been sponsored to attend a special investigation training course at the Law Enforcement Academy of a Member State.

Comments of the Board

42. The implementation of the Board’s recommendation, which is ongoing, will be reviewed in future audits.

Chapter III

Audit opinion and certification of the financial statements for the biennium ended 31 December 1999

Audit opinion

We have audited the accompanying financial statements, numbered 1 to 6, appendices 1 to 5 and the supporting notes of the United Nations Relief and Works Agency for Palestine Refugees in the Near East for the financial period ended 31 December 1999. The financial statements are the responsibility of the Commissioner-General. Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with the common auditing standards of the Panel of External Auditors of the United Nations, the specialized agencies and the International Atomic Energy Agency. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Commissioner-General, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the audit opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position at 31 December 1999 and the results of operations and cash flows for the period then ended in accordance with the Agency’s stated accounting policies set out in note 2 to the financial statements, which were applied on a basis consistent with that of the preceding financial period.

Further, in our opinion, the transactions of the United Nations Relief and Works Agency for Palestine Refugees in the Near East, which we have tested as part of our audit, have in all significant respects been in accordance with the Financial Regulations and legislative authority.

In accordance with article XII of the Financial Regulations, we have also issued a long-form report on our audit of the Agency’s financial statements.

(Signed) Sir John Bourn

Comptroller and Auditor General

of the United Kingdom of Great Britain

and Northern Ireland

(Signed) Osei Tutu Prempeh

Auditor-General of Ghana

(Signed) Celso D. Gangan

Chairman, Philippine Commission on Audit

30 June 2000

Certification of the financial statements for the biennium

1998-1999

22 March 2000

I certify that the appended financial statements of the United Nations Relief and Works Agency for Palestine Refugees in the Near East are correct.

(Signed) Subhash K. Gupta

Comptroller

United Nations Relief and Works Agency for Palestine

Refugees in the Near East Headquarters (Gaza)

Chapter IV

Financial statements for the biennium ended 31 December 1999

offset d. pp. 46-51

A. Financial statements

Annex

Notes to the financial statements

Note 1

The Agency’s objectives

The mission of the United Nations Relief and Works Agency for Palestine Refugees in the Near East is to provide services to Palestine refugees by enhancing socio-economic conditions within the Palestine refugee community through the provision of education, health and relief assistance and social services, infrastructure development projects and related activities within its area of operations.

Note 2

Summary of significant accounting policies

(a) The accounts of the Agency are maintained on a modified accrual basis. In accordance with the Agency’s Financial Regulations and on the assumption of a going concern and principles of prudence, the accounts of the Agency are maintained on a cash basis with regard to contributions for its general operations and on an accrual basis regarding all other income and expenditure.

(b) At the request of donors, contributions received in the current period for a future financial period are treated as “income received in advance” in the accounting records.

(c) Using the donor’s valuation, contributions in kind are recorded as income when they are received by the Agency.

(d) The Agency operates a system of fund accounting by which it maintains separate accounts for the regular budget, the project funds and the Provident Fund. the Agency’s system of fund accounting provides a full identification of income and expenditure by purpose and the complete separation of the assets and liabilities of each fund. Contributions or allocations to funds other than the regular budget are assigned individual prefixes, which are maintained as distinct financial and accounting entities, with separate double-entry groups of accounts. Whereas the financial statements of the regular budget and project funds are included in the preceding pages, the financial statements of the Provident Fund form a separate section of the present report.

(e) Contributions to the regular budget, which are received without restriction regarding their use, can be used to finance projects for which special contributions are sought but not received if the financial situation permits or the Commissioner-General deems it appropriate.

(f) The accounts of the Agency are maintained in United States dollars. Transactions in other currencies are translated into United States dollars using the United Nations operational rate of exchange prevailing at the time of the transaction. At the end of a financial period, assets and liabilities not in United States dollars are reflected in United States dollars at the rate of exchange applicable at the end of the period. Gains or losses on exchange of currencies are treated as an addition to or deduction from income.

(g) Costs for the purchase of equipment and supplies, including construction costs, are charged to expenditure at the time the goods are received and paid for. As a consequence, stocks or inventories are not included as assets, with the exception of production units, in any of the Agency’s funds. Although the Agency’s stocks and inventories are not treated as assets, stock records and strict inventory controls are maintained. The approximate value of the Agency’s stocks and inventories as at 31 December 1999, based on historical cost, amounted to $11.9 million.

(h) The Agency has three self-supporting production units. These are the Embroidery Centre, the Carpentry Unit and the Contracting Section, all of which are located in Gaza. Up to 1987, those units were part of the General Fund. From 1988 they were set up as separate units to be governed by a new set of instructions for effective management control and performance assessment. Therefore, as an exception to the Agency’s accounting policies, inventories of the production units are reported at cost under assets in the financial statements.

(i) The Agency’s financial period consists of two consecutive calendar years. An interim closure of accounts is carried out at the end of the first year and a final closure at the end of the second year.

(j) A provision is made in the budget for separation payments made to staff members who leave the Agency during a financial period. However, reserves have not been established for separation costs for future years. Hence, such payments would be expected to be met from future income and operating reserves. In the event of the closing down of UNRWA, the accumulated termination benefits for area staff as from 31 December 1999 is estimated at around $144.7 million.

Notes applicable to the regular budget

Note 3

Income from other sources

This income represents miscellaneous contributions received in cash and in kind from individuals, charitable institutions, social bodies and merchants.

Note 4

Miscellaneous income

Miscellaneous income comprises income derived from the following:

Note 5

Accounts receivable

Accounts receivable reported in statement 2 include the following items:

Note 6

Production units inventory

Production unit inventories (see note 2 (h)) consist of the following:

Note 7

Due from Area Staff Provident Fund

The amount due from the Area Staff Provident Fund consists of the following:

Note 8

Fixed assets

Fixed assets, which are expended at the time of purchase, are included in statement 2 and comprise the following:

Note 9

Accounts payable

Accounts payable include:

Note 10

Provision for unliquidated obligations/goods in transit

The provisions for unliquidated obligations and goods in transit are provisions made in prior years but for which the goods or services have not yet been received.

Note 11

Provision for carry-forwards

The provision for carry-forwards is a provision for items budgeted in the current year for which justification has been given that these items are charged to the current year’s expenditure.

Note 12

Contingent liabilities

A number of personnel appeals that could involve payment of back wages and entitlements are pending with the respective appeals boards of the international and area staff as well as with the United Nations Administrative Tribunal in New York.

Note 13

Reclassifications

Certain accounts in the biennium 1998-1999 were reclassified to comply with the recommendations made by the Board of Auditors and to improve the presentation of the financial statement.

Offset d.pp. 57-100

B. Appendices to the financial statements

C. Provident Fund statements

Annex

Notes to Provident Fund financial statements

Note 1

The Fund

The Provident Fund is a benefit that applies to all area staff members, except for contract teachers who participated in the Post-Employment Fund, and is the equivalent of a defined-contribution pension plan. The Provident Fund, which was established in 1955, had 18,523 participants as at 31 December 1999. This figure does not include 1,999 separated staff members who still hold credits in the Fund under Provident Fund rules. The monthly contribution amount is based on a mandatory 7.5 per cent payroll deduction for each staff member plus the Agency’s share of 15 per cent. Under the Provident Fund rules, staff members are allowed to make additional voluntary contributions up to a maximum of 50 per cent of monthly payroll. Loans against staff credits for educational, medical and housing needs are granted to the members. These loans must be repaid within a period of 10 years. As at 31 December 1999, an amount of $52,721,208 was outstanding as loans. All participants receive the lower of book or market value return on the Fund for the period of employment or membership in the Fund. The Fund is administered by the Provident Fund secretariat jointly under the supervision of and with guidance provided by two committees, the Provident Fund Committee and the Investment Advisory Committee.

Note 2

Investment management and investments

The Fund employed seven investment managers, five for the global bond portfolio and two for the global equity portfolio. The approved guidelines for investments allowed for an asset allocation mix of 85 per cent for bonds and 15 per cent for equities. However, an allocation of 80 per cent bonds and 20 per cent equities was implemented with the approval of the Provident Fund Committee in November 1999. A global custodian, the Northern Trust Company, has custody of the assets. A securities lending programme is also administered by the Northern Trust Company under which the assets of the Fund are lent to approved borrowers for short duration for a commission. An independent company, the WM Company, calculates the performance numbers for the Fund. During the biennium, four new investment managers were appointed and two were terminated. The investments are valued, for purposes of generating an income figure, at the lower of cost or market value on a portfolio basis. The value of investments at 31 December 1999 was $856,565,219 for the Dollar Fund and $110,705 for the Austrian Schilling Fund. The investment managers’ valuation based on market value was $913,145,963 for the Dollar Fund. Subsequent to the transfer of the members’ balances to the Dollar Fund in July 1998, the investment management function of the Austrian Schilling Fund was delegated to the Treasurer of the Agency.

Note 3

Investment income

Gross investment income for the biennium comprises the following:

Note 4

Foreign currency transaction

The Provident Fund accounts are maintained in United States dollars. Transactions in other currencies are translated to United States dollars at the United Nations operational rate of exchange prevailing at the time.

Note 5

Administration costs

Direct expenses of the Provident Fund secretariat and expenses computed, based on time spent by staff, on the Provident Fund scheme at Headquarters and field offices are included under administration costs. This expenditure has been allocated between general administration and loan scheme administration.

Note 6

Prior year adjustments

A prior year adjustment was made in respect of the custodian fees payable to the global custodian for the fourth quarter of 1997.

Note 7

Reserve for loan administration expenditure

A reserve account has been established to compensate for the difference between the 1 per cent administrative fee levied on Provident Fund loans and loan administration expenses in case of any future shortfalls.

Note 8

Contributions and fund balances

The movement of funds and the resulting amount due to the Agency by the Provident Fund as at 31 December 1999 is given below.

Note 9

Post-Employment Fund

The Post-Employment Fund, which was established for the teachers employed on contractual terms, was to be merged with the main Provident Fund in March 2000.