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Letters of transmittal
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.
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.
3. The distribution of expenditures for educational services by activity and location is shown below:
5. The distribution of health programme expenditures by activity and location is depicted below:
7. The charts below reflect the distribution of relief and social services expenditures by activity and location:
9. The distribution of operational and common services expenditures is depicted below:
figure from botton d.p. 5
(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)
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.
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.
(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.
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.
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.
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.
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.
26. The Board recommends that notes to the financial statements include the method of valuation of non-expendable equipment and motor vehicles.
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.
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.
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.
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.
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.
(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.
30 June 2000
2 Ibid., Fifty-first Session, Supplement No. 5C (A/51/5/Add.3), chap. II.
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.
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.
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.
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.
United Nations Relief and Works Agency for Palestine
Refugees in the Near East Headquarters (Gaza)
offset d. pp. 46-51
(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.
Offset d.pp. 57-100