ILO is a specialized agency of the United Nations
ILO-en-strap
Governing Body

GB.271/10/1 and Corr.
271st Session
Geneva, March 1998

TENTH ITEM ON THE AGENDA

Reports of the Programme, Financial
and Administrative Committee

First report: Financial and general questions

Contents

Programme and Budget for 1996-97

Programme and Budget for 1998-99

Report of the Building Subcommittee

Follow-up on the report of the Chief Internal Auditor for the year ended 31 December 1996

Report of the Chief Internal Auditor for the year ended 31 December 1997

Delegation of authority under article 18 of the Standing Orders of the International Labour Conference

Other financial and general questions

Appendix: Amendments to the appendix to the Financial Regulations of the International Labour Organization

1. The Programme, Financial and Administrative Committee of the Governing Body met on 18 March 1998 under the chairmanship of Mr. A. A. El Amawy, Chairperson of the Governing Body. Mr. U. Kalbitzer (Government, Germany) was the Reporter.

Programme and Budget for 1996-97
(First item on the agenda)

Regular Budget Account and
Working Capital Fund as at
31 December 1997

2. The Committee had before it a paper(1)  containing information on the 1996-97 Regular Budget Account and the position of the Working Capital Fund as at 31 December 1997.

3. Mr. Marshall, on behalf of the Employer members, congratulated the Office for producing an excellent result in the difficult conditions experienced over the last biennium. He asked whether any major programmes were seriously affected as a result of spending constraints. The Employers hoped that the Office would reflect this result in future budgets and continue its search for savings wherever possible.

4. Mr. Blondel, on behalf of the Worker members, said that the Office paper clearly showed that the 1996-97 biennium had been difficult from a financial point of view and had resulted in a deficit of just over US$1 million. Behind the figures, however, a more complex situation existed. In June 1995 the Conference had approved a budget of $579.5 million at a time when the Swiss franc was very strong, but in November 1995, even before the beginning of the biennium, the Governing Body had decided to reduce the expenditure budget by $21.7 million. Furthermore, the Office had been obliged to operate under severe financial constraints during the first few months of 1996. When the 1998-99 budget was approved the Conference decided that if the income due for 1996 and 1997 was received in full the resulting cash surplus should be carried forward and shown as budgetary income in 1998. Table 1 of the Appendix to the Office paper showed that even though the Office had spent $50.9 million less than the reduced budget, that is $72.7 million less than the original budget, it had nevertheless ended the financial period with a deficit of more than $1 million. Paragraphs 6 and 10 of the Office paper explained how and why actual expenditure was less than budgeted. The Office had benefited from lower than anticipated cost increases for staff costs of $29.9 million and from $10.9 million of savings from the financial restrictions imposed during the early part of 1996. In respect of the latter, however, the restrictions meant that $10.9 million of regular budget activities had not been carried out, which was regrettable. The Workers would indeed be concerned at any circumstances in which the ILO's ability to carry out its core activities was hampered in any way.

5. The Workers were particularly concerned to see that the total of contributions owed to the Organization at 31 December 1997 amounted to almost $249 million. The Office could not carry out its programme of activities if member States persisted in delaying the payment of their contributions. They should honour their obligations by paying in full and on time.

6. The representative of the Government of the United States applauded the efforts of the Office in its search for savings. Uncertainty over the timing and amount of some sources of income also added to the complexities of financial management in the Office but the Committee should remember that under article 18 of the Financial Regulations a cash surplus must be used to reduce the contributions due from member States.

7. The underspending of almost $51 million mentioned in the Office paper was symptomatic of shortcomings in the budgetary process in the ILO and could indicate a need for more careful scrutiny in budget discussions. The Office should also provide more detailed comparisons between actual and approved expenditure levels so that the Governing Body could make informed decisions on programme priorities. The Office should bear these matters in mind as it began work on the budget for the biennium 2000-2001.

8. The representative of the Government of Canada was concerned to see almost $51 million of underspending in 1996-97 as described in the Office paper. Uncertainty about the financial contribution of the major contributor created difficulties at the beginning of the biennium and the Governing Body did appreciate the efforts of the Director-General to ensure that expenditure would not exceed a realistic estimate of revenue. These measures included an expenditure reduction of $21.7 million as well as internal measures to limit commitments until the situation was clarified.

9. The Canadian Government had no concerns about issues of financial management and control in the ILO. However, as mentioned by the previous speaker, there were a number of serious questions on aspects of programme planning, management and control that should be examined: how budget levels in the ILO were set; how did the Office monitor actual against approved expenditures at the aggregate level; what flexibility existed to reallocate funds; what was the real reason for the underspending of $51 million -- was it that planning levels were seriously inflated or were programme managers not meeting their obligations in programme delivery? Although on occasion there was a need for budgetary restraint, the primary interest was to see a quality programme of work based on clear objectives, properly funded, efficiently delivered and with effective and verifiable results. The Office paper suggested that this may not be happening and that there were possibly some systemic shortcomings in both planning and programme management.

10. First, the system did not seem to provide an overview for senior management of the extent to which underspending was regularly occurring throughout the Organization, nor did it monitor actual expenditure against budgetary allocations in such a way as to identify problems early enough either to alter or to shift activities within programmes. Second, the paper did not indicate that any programme was not sufficiently funded because all programmes had been underspent. The interim report for the 1996-97 biennium presented to the Governing Body in November 1997 suggested a very positive report on achievements so it was difficult to justify the level of approved resources. Either they were set too high or programme managers were not delivering the agreed programme. This information was not evident from reports being made to the Governing Body.

11. Finally, there was the question of flexibility for timely reallocations. By 31 December 1996 it was clear that there would be considerable savings in the 1996-97 biennium -- revenues were comfortably on target; there was no evidence of a coming financial crisis, as had occurred at the beginning of the biennium; and at the mid-point of the biennium, with 12 months still available for reallocation, there was an excess of income over expenditure of $75 million. The question was, at that point was any consideration given to making adjustments in programme allocations?

12. This question was particularly pertinent because in November 1996 the IPEC Programme Steering Committee had requested additional technical, administrative and management support from regular budget funds in accordance with the resolution on child labour passed by the Conference in June 1996.

13. Turning to the explanations given in paragraph 6 of the Office paper for the underspending, the Office deserved to be commended for the high degree of efficiency savings that had been achieved on expenditure for the Conference and for meetings, in particular as they seemed to be permanent economies due to new technologies and methods of work. However, the explanations outlined in paragraphs 6(c) and 10 were not convincing. It was true that there were restrictions because of uncertain revenue and the Director-General had reported this to the Governing Body. Programmes had been frozen at 80 per cent of the commitment level but these restrictions were lifted after seven months, which left some 17 months to reorganize activities or reallocate funds in respect of the frozen 20 per cent. It was for these reasons that Canada and a number of colleagues in the Government group had been requesting changes in the current system of programme budgeting for greater transparency and accountability. A programme framework should be aimed at achieving outcomes and be measured against clear statements of priorities, with the provision of timely information on expenditure and evaluation results, in order to allow for adjustments and the reallocation of programme activities during a biennium. This would also provide a firmer basis for planning programme activities for future periods, and the decision taken last March by the Governing Body to adopt a new presentation for the programme and budget was welcome. The new approach might help to address some of the points raised and the Committee would look forward to seeing it introduced in the Programme and Budget for 2000-2001.

14. It was clear that no regular budget programme required additional resources but there had been regular calls for extra-budgetary funds for more technical cooperation and for high priority programmes that could have perhaps benefited from more regular budget support. There were a number of global programmes of interest under way or emerging which could be advanced further with more regular budget support. A greater allocation of resources to these programmes in the early stages would set them on a firm footing to attract voluntary funding. This would indicate the strong commitment of the ILO to those programmes and the programmes would have concrete activities to demonstrate to donors. For all these reasons the Canadian Government was concerned at the questions that the Office paper raised for programme planning, management and control, and the implications for future budgetary levels.

15. The representative of the Government of Italy associated himself with the remarks of the previous speaker. All members of the Committee would wish to have a clear understanding of the reasons for the underspending of $51 million and to look for ways in which these funds could be redistributed, particularly to technical cooperation activities and to IPEC. Postponing expenditure raised the question of how the funds should be redistributed and for this decision it would be useful to have a list of priorities as a guide.

16. The representative of the Government of France recalled that as Chairman of the Governing Body in 1995 he had worked closely with the Director-General during a period of severe financial constraints. That was now in the past and it was surprising not to find a happier atmosphere in this Committee.

17. Paragraph 6 of the Office paper showed that the largest component of the underspending of $51 million resulted from decisions by the ICSC, which were binding on the ILO as a member of the common system. Some of the cost savings referred to in paragraph 6(b) in the Office paper had affected the smooth running of the Conference and it was a relief to see, for example, that the Provisional Record was to be reinstated. The Committee should also remember that during early 1996 the Director-General had been forced to introduce certain restrictions on recruitment. It was wrong for an organization such as the ILO to have such a high proportion of staff on fixed-term contracts and it was time now for this policy to be reversed. For the future, the Committee should remember that it was not possible to budget for expenditure without budgeting for income. The Organization could not function properly if some member States did not pay their contributions.

18. The representative of the Government of the Russian Federation expressed appreciation for the Office paper and the information describing the financial results for the ILO in 1996-97. The fact that expenditure was lower than income for the period showed that a number of matters had not been properly resolved at the point when the budget was adopted. It seemed that some budgetary allocations had been set too high and if a budget was being prepared on the basis of zero real growth it seemed unwise to allow for an increase in contributions if some cost increases were still uncertain. A more cautious approach should be taken in future.

19. The representative of the Government of the United Kingdom agreed with the comments of the representatives of Canada and Italy concerning the need for greater flexibility in the budget. The budget should be prepared in such a way that when savings became apparent they could be redeployed to priority areas with a minimum of delay. With regard to the $29.9 million of savings referred to in paragraph 6(a) in the Office paper, it would be interesting to know at what point these savings became apparent and why they were not redeployed at that juncture. A similar question could be asked about the savings of $10.9 million mentioned in paragraph 6(c). These savings had accumulated over the first seven months of the 1996-97 biennium but this still left a period of 17 months in which it should have been possible to reallocate these resources. As a concluding comment, he agreed with the comments of the representative of Canada that the level of underspending in 1996-97 would have implications for the budget discussions for 2000-2001.

20. The representative of the Government of Chile fully supported the statements by the representatives of Canada, Italy and the United Kingdom, particularly with regard to the handling of financial surpluses.

21. Mr. Blondel recalled that standard-setting activities had been affected by the budgetary cuts but the Workers wished to correct any impression that they were complaining now after having accepted the cuts two years ago. Indeed, the ILO was to be congratulated for reducing to the minimum the impact of cuts on programmes. The Workers were also aware that the Conference had decided that budgetary cuts should not affect technical cooperation activities. They also wished to associate themselves with the concerns expressed by the representative of France about the high proportion of ILO staff still on fixed-term contracts.

22. The representative of the Government of Japan agreed with the comments of the representatives of Canada, Italy and the United Kingdom and asked for more transparency and accountability in the budgetary process.

23. Mr. Marshall pointed out that the Office paper dealt with the results of a previous biennium and neither that nor the budget for the current biennium, which had been designed to achieve certain specific objectives, should be obscured with discussions about priorities for future biennia. The Employers believed the Office had been very careful in its choice of programme cuts which seemed to be distributed fairly across all departments. In practice it often happened that efficiency gains continued even after austerity measures were lifted and changed attitudes could often generate even further savings. It was not the Organization's job simply because it had it to spend money -- it should always monitor performance and results against objectives to be achieved.

24. The representative of the Director-General (the Treasurer and Financial Comptroller) said that the most important directive guiding the Director-General in the execution of the programme and budget was the very clear statement by the major contributors that programme expenditure should be adjusted to match the amount of income actually received. Under no circumstances should expenditure exceed this amount, notwithstanding the fact that the Financial Regulations authorized the Director-General to incur expenditure up to the full amount of the approved programme and budget irrespective of the receipt of income. There had been an understanding between the Office and the member States in recent years that expenditure should be managed in this way, even during periods of extremely difficult conditions. The Office had no control whatsoever over the timing and amounts of income receipts.

25. In every biennium except one in the last 12 years, the Director-General had been obliged to propose budgetary cuts and programme reductions to the Governing Body because of shortfalls in income. Ever since the beginning of 1986 in fact the Office had been living in a climate of financial uncertainty. This had forced the Office to err on the side of prudence in its plans for programme expenditure but, as a previous speaker had said, it was difficult to reassure programme managers on the rare occasions when finances were back to normal.

26. The 1996-97 biennium began under very difficult circumstances as the United States representative had advised that full funding of the budget for that biennium should not be taken for granted. The Governing Body accordingly agreed to expenditure reductions totalling $21.7 million in November 1995 but it was not at all clear at the time whether this was too much or not enough. In the early part of 1996, the Director-General imposed further restraints under which programme expenditure was limited to 80 per cent of the total approved for the biennium. By mid-1996, the financial picture appeared to be brightening and the Director-General authorized programme managers to resume activities at the original level. However, a stop-start approach to project management not only wasted resources but also severely disrupted the programmes of the Organization. The Office had a duty to ensure not only that expenditure was incurred for approved purposes but also that it received value for money, otherwise it was better not to spend the money at all. This problem was more serious when programmes were interrupted and then resumed but it was preferable to be criticized for not spending than for spending unwisely.

27. The Treasurer then drew attention to paragraph 6(a) of the Office paper, which mentioned savings of $29.9 million resulting from ICSC decisions which produced lower than anticipated cost increases for staff costs. In 1994, the Geneva-based agencies had met as instructed to agree assumptions on inflation, post adjustment movements and General Service salaries for the 1996-97 biennium. When the budget for that biennium was discussed at the June 1995 Conference, the Director-General informed the Finance Committee that, on the basis of new economic data, he was able to take the initiative to reduce cost increases by $7.6 million. Later that same year, in November, the Director-General informed the PFAC that the ICSC had frozen existing General Service salaries for the foreseeable future and introduced a lower scale for new staff and that a provision of $6.5 million for GS salary increases would no longer be required. Why were these savings not immediately reallocated by the Governing Body? Because it was early in the biennium, and an ICSC recommendation for Professional salary increases had not been included in the budget. As it happened, that recommendation was later rejected by the General Assembly but these events clearly showed how difficult it could be to make accurate financial predictions. He emphasized that there was virtually no provision for increases in staff costs in the 1998-99 budget.

28. A number of speakers had referred to the question of flexibility for the reallocation of resources. The Director-General had no authority whatsoever to transfer funds from one major programme to another. Article 16 of the Financial Regulations provided that transfers within the same part of the expenditure budget were to be effected by special resolutions of the Governing Body. However, the usual practice in the Office was to discourage requests for additional funds, even for high priority activities, until approved allocations had been committed in full.

29. Finally, a number of speakers had referred to paragraph 6(b) of the Office paper, which described savings in the functioning of the International Labour Conference and service and support to meetings in general. Although some activities had been reinstated, most of these savings in 1996-97 had been fully reflected in the Programme and Budget for 1998-99 which showed a programme decrease of $7.2 million alone for major programme 220 (Relations, meetings and document services).

30. The representative of the Director-General (Director of the Bureau for Programming and Management) provided additional information concerning paragraph 6(b). When the Governing Body and the International Labour Conference requested improvements in productivity during a biennium, it was essential to prepare for this in the previous biennium. The amounts in question were considerable and meant that measures had to be taken in time to achieve the planned savings.

31. As regards paragraph 6(c), which concerned the financial restrictions imposed at the beginning of the biennium, he stated that the amount in question had represented some 2 per cent of the budget. Although this was only a small percentage, the Office regretted that it had been unable to achieve all it had undertaken to do. He confirmed that activities relating to standards and other departments had had to be abandoned, as remarked by Mr. Blondel. He explained that when programme implementation was delayed by six to seven months, certain activities could no longer be resumed.

32. As regards the concern expressed by the representative of the Government of Canada, supported by other speakers, concerning programming and supervision of programme implementation, he recalled that the Office had been working on this issue for some four years and that the representative of Canada in particular had followed the Office's efforts in this field with interest and had supported them. Such efforts were continuing. He reassured the Committee that the programming of activities and supervision were taken very seriously, and he offered to acquaint all Governing Body members with the apparatus used for this purpose. He thanked the Employers' and Workers' spokespersons for the understanding they had shown of the Office's efforts during the biennium.

33. The Committee took note of the Office paper.

Programme and Budget for 1998-99
(Second item on the agenda)

Collection of contributions from
1 January 1998 to date

34. The Committee had before it a paper(2)  giving details of regular budget contributions received since 1 January 1998.

35. The representative of the Director-General (the Treasurer and Financial Comptroller) reported that since the preparation of the Office paper, contributions had been received from the following member States:
 

Swiss francs

Chile

114 447

Croatia

439 686

Finland

2 061 812

Tunisia

98 383

Poland

1 872 601

Total

4 586 929

The amounts received from Chile, Finland and Poland had brought the number of member States that had paid their 1998 contributions in full to 35.

36. Mr. Blondel, speaking on behalf of the Worker members, pointed out that the situation regarding the collection of contributions was very similar to that of the previous year. Of the 35 member States that had paid their 1998 contributions in full, ten had paid before 1 January 1998. He hoped that more member States would follow such a commendable example. On the negative side, however, 130 member States had not paid any part of their 1998 contributions. This compared with 133 at the same time the previous year. Member States should make greater efforts to pay their contributions when they fell due.

37. The most significant difference between the situation this year and that of a year ago was the receipt of arrears of contributions of 95.2 million Swiss francs in early 1998, of which 84.6 million Swiss francs was received from the United States. This represented 38.2 per cent of arrears due, as compared to 8.3 per cent for the previous year. It was disturbing to note that 47 member States were in arrears for two years or more and had lost their right to vote. The difficulties faced by some of these member States were understandable, but the loss of the right to vote had a considerable negative impact on the smooth running of the Organization and the member States concerned were urged to rectify the situation.

38. Mr. Marshall, speaking on behalf of the Employer members, appreciated the information concerning additional contributions received, and agreed with the Workers' group that an element of prudence was called for, particularly with regard to the financial difficulties and exchange rate implications that were affecting certain member States and the impact of those problems on the payment of contributions.

39. The Committee took note of the Office paper.

Report of the Building Subcommittee
(Third item on the agenda)

40. The Committee had before it the report(3)  of its Building Subcommittee describing progress in the extension of the ILO Regional Office for Africa in Abidjan and the construction of the ILO premises in Islamabad.

41. Mr. Chotard, Chairperson of the Building Subcommittee, introduced the report and stated that the Subcommittee had been pleased to note that the extension work at the Abidjan Regional Office had been completed and that costs had been maintained within the prescribed budget, which represented excellent value for the Office in the light of current property values in Côte d'Ivoire.

42. Construction of the Islamabad office had been more problematic as, although this had been scheduled for completion by the spring of 1998, difficulties had been experienced with regard to cost overruns, for which no explanations had been received from the contractor or the architect. The Office had informed the contractor that it was unable to make any further payments until the situation was clarified. This had resulted in the stoppage of construction work, and the Office had rightly requested the External Auditor to carry out a complete audit of the project and it was agreed that a construction specialist would accompany the external audit staff.

43. The External Auditor's preliminary findings confirmed that the contractor had a good reputation and that the quality of the work carried out so far had been good. The architect was a reputable professional, but had not been sufficiently effective in the supervision of the construction work. Under these circumstances the Office would continue to negotiate with the consultant and the contractor in order to complete the construction of the Islamabad premises under the best possible conditions.

44. Mr. Blondel, speaking on behalf of the Worker members, pointed out that, although he welcomed the completion of the Abidjan Regional Office, the ILO was not in the real estate business, which had always involved a certain element of risk. On a more serious matter, the construction of the Regional Office had resulted in the accidental death of one of the workers on the building site. It was hoped that in line with the ILO's ongoing commitment to safety at work, all possible controls would be in place to ensure an accident-free record in the future.

45. Mr. Khurshid Ahmed, a Worker member, also welcomed the completion of the extension work on the Regional Office in Abidjan. He agreed that a negotiated settlement should be sought with the contractor engaged for the Islamabad premises construction, and that special care should be taken to ensure a safe working environment for all building projects in future.

46. Mr. Tabani, on behalf of the Employers, thanked the Chairperson of the Building Subcommittee for his explanation of the situation in Abidjan and Islamabad. He welcomed the completion of the Abidjan building and supported the proposals concerning the Islamabad premises.

47. The representative of the Government of Panama requested more information regarding the original cost of the Islamabad premises. If the increased cost was a result of design changes, details as to who authorized those changes were required. More information concerning costs in general would also be welcomed.

48. Mr. Chotard, Chairperson of the Building Subcommittee, stated in reply that no figures had been provided in the report in order to permit the Office to negotiate under the best possible conditions. In view of the situation in Pakistan, it was probable that there would be some increases in costs due to inflation.

49. The Committee took note of the Office paper.

Follow-up on the report of the Chief Internal Auditor
for the year ended 31 December 1996
(Fourth item on the agenda)

50. The Committee had before it a paper(4)  on the follow-up action taken by the Office on the report of the Chief Internal Auditor for the year ended 31 December 1996.

51. The representative of the Government of the United States welcomed the adoption of a mechanism that made follow-up reports available. The reports provided substantive information and were an important sign to member States of the Office's commitment to increased transparency and accountability. The follow-up paper was found to be particularly useful for its explanation of the delays in correcting problems related to the Staff Health Insurance Fund and the Office's timetable for taking action to correct deficiencies.

52. Mr. Blondel, speaking on behalf of the Worker members, said that although the report had not revealed any major problems, he was particularly concerned about the references to backlogs and unprocessed claims relating to the Staff Health Insurance Fund. He hoped that the Office was giving a high priority to the elimination of those backlogs so that the inconvenience and hardship suffered by the staff would be kept to a minimum. He was also concerned to see references to the possible privatization of the Fund in the paper, and the Workers' group and the Staff Union had serious misgivings about such a solution.

53. On the subject of travel, he welcomed the new contract with the in-house travel agency, which should ensure further savings on air tickets as well as immediate reimbursement for unused tickets. He also welcomed the work done by the Chief Internal Auditor in respect of field offices and noted the disciplinary measures taken where necessary.

54. Mr. Marshall, speaking on behalf of the Employer members, noted that although some delays in follow-up action were evident from the report, the two major issues had been clearly addressed. With regard to the decentralization policy, it was very important that good training programmes as well as financial control procedures were in place and that the Committee should be kept informed of the mechanisms that were utilized to ensure effective control over decentralized procedures.

55. The representative of the Government of the Russian Federation stated that although it was the first such report, he did not consider the follow-up paper to be a completely successful experiment. The paper was too short and showed that none of the main recommendations made by the Chief Internal Auditor had been completely carried out. Details of deadlines set for the implementation of the recommendations should have been included, as well as further details showing which specific section of the secretariat was responsible for implementation. He hoped that future papers would be more effective, more specific and more transparent. Strengthening the role of the Chief Internal Auditor was not an end in itself, but only one of the components available for improving the general effectiveness of the secretariat.

56. The representative of the Director-General (the Treasurer and Financial Comptroller) pointed out that the Office had limited control over the Staff Health Insurance Fund, which was operated jointly by the ILO and the ITU and was managed by a Management Committee of the Fund. The recommendations made by the Chief Internal Auditor had been conveyed to the Management Committee as soon as these were available, and whereas a number of the recommendations had been acted upon, others would require more time to implement. The recommendation concerning the lack of a formal agreement between the ILO and the ITU referred to a situation which had existed since 1922 and involved a number of legal implications which were currently being reviewed by both the ILO and the ITU. The severe delays in the settlement of claims referred to by the Workers' group were indeed an important issue. However, following a review by the Management Advisory Services Unit, the situation had improved considerably and the backlog had been reduced to a reasonable level.

57. With regard to the Workers' concern on the possibility of privatization, various options were being studied to resolve a number of problems being faced by the Fund but no decision had yet been taken. Any proposal to privatize would, of course, be referred to the Governing Body.

58. The Employers had raised an important issue concerning additional controls required for the decentralization process. Decentralizing to numerous ILO offices around the world where directors were not necessarily specialists in finance and management certainly entailed some additional financial risks, but special measures were being taken to minimize these. These measures included a thorough briefing of the directors of external offices prior to their taking up their positions, as well as periodic meetings with external office directors collectively. Intensive training and retraining programmes had also been set up for administrative staff of external offices, and computer programmes used by external offices for financial and budgetary applications had been designed to include built-in checks and controls which, if overridden, would be flagged at headquarters for investigation and verification.

59. The comments made by the representative of the Government of the Russian Federation called for clarification concerning the issue of follow-up on the Chief Internal Auditor's report. The follow-up report had been requested by the Governing Body in March 1997 and it was made very clear that that report was to be issued in March 1998. There was therefore no question of the report being late. The recommendations of the Chief Internal Auditor, although recognized by the Office as being an important aspect of the overall control procedures available to management, had to be prioritized together with other matters which might require even more urgent action. It was not correct to say therefore that none of the Chief Internal Auditor's recommendations had been implemented in full, as all recommendations had been carefully considered and action had been completed or scheduled to be completed in the future.

60. The Committee took note of the Office paper.

Report of the Chief Internal Auditor for the
year ended 31 December 1997
(Fifth item on the agenda)

61. The Committee had before it the report(5)  of the Chief Internal Auditor for the year ended 31 December 1997.

62. Mr. Blondel, on behalf of the Worker members, said that some of his comments on the previous agenda item applied equally to this one. They took note of the observations of the Internal Auditor concerning his work at headquarters, but had no particular observations to add. As far as field audits were concerned, it was reassuring to know that the process of decentralization would be subject to computerized controls. However, it would be interesting to hear more about the problem of illegal computer software and what action the Office proposed to take. It was curious to note the Chief Internal Auditor's view that follow-up and implementation by field offices of 1996 internal audit recommendations had been totally satisfactory, whereas responses by headquarters had been slow initially before picking up later in the year. He requested an explanation of why this had happened.

63. Mr. Marshall, on behalf of the Employers, was pleased that the Chief Internal Auditor had found no major issues of concern. However, a distinction should be made between major issues and important issues. Important issues deserving attention would include, for example, procedures concerning payroll administration and the award of printing contracts and payments to contractors. The Employers also requested reassurance that training activities would facilitate the process of decentralization and would be extended beyond the administrative staff in the field. Advice was also needed on how the Office fixed priorities for these training activities, and at a later stage some further information on follow-up action taken by the Office on this report should be provided. The Employers congratulated the Board and management of the Institute for the efficient way in which they were carrying out their activities.

64. The representative of the Government of the Russian Federation expressed concern at the very brief responses by the Director-General last year and this year to the report of the Chief Internal Auditor. A more comprehensive response would help the Committee in its discussions of the issues raised in the report. A similar comment could be made about the report itself. The internal audit team was an important part of the Office, and its work should be reported at greater length. The Office should also consider expanding the mandate of this unit.

65. The representative of the Government of the United States also expressed appreciation for the paper before the Committee, but regretted that the full reports of the Chief Internal Auditor were not available for further analysis. The internal audit unit had carried out a number of reviews both at headquarters and in the field, and had made valuable recommendations concerning banking arrangements and possible reductions in telephone costs. The Office should give special priority to the recommendations on travel arrangements. The Committee looked forward to the next report, which would contain follow-up information on the recommendations and a review of the Personnel Department.

66. The Treasurer, in reply to the points raised, assured the Committee that it was the strict policy of the Office not to use pirated software. The Office had licence agreements for all software on networks and stand-alone personal computers and would not tolerate officials using unauthorized copies of software. The case in question was an isolated one, involving one external office.

67. In reply to comments by the Workers, the recommendations in the report were probably more institutional than cyclical because, once introduced, new procedures were intended to stay in place permanently.

68. The Employers were quite correct to distinguish between major and important issues. The Office was already acting on important matters identified by the Chief Internal Auditor, and they would be the subject of a report to the Governing Body.

69. In reply to the comments by the representative of the Russian Federation concerning the brevity of the Director-General's response, he explained that the statement by the Director-General was never intended to be anything more than a covering note. When the modalities of the report had been discussed with government representatives the previous year, it was agreed that the Director-General would issue a covering note and would have the right to make comments on the recommendations of the Chief Internal Auditor. Some of the audit reports had been received only quite recently. Detailed responses were not due at this stage, but would be given at the March session of the Governing Body in 1999. Members should, however, understand that not one of the recommendations in the report was embarrassing to the Director-General and there was no reason whatsoever for the Governing Body to suspect that the Office would make light of the recommendations in the report. However, it was impossible to run an organization the size of the ILO without some shortcomings, and the Office was grateful to the Chief Internal Auditor for identifying them and suggesting how they could be overcome.

70. Replying to the suggestion that the mandate of the Chief Internal Auditor should be widened, the Treasurer said that no restrictions were placed on the work of the Chief Internal Auditor, and he would no doubt comment if there were. Replying to the request for full reports, the Treasurer recalled that those Government representatives who had requested the report of the Chief Internal Auditor had stated quite categorically that they did not wish to see the full reports because of issues of due process and confidentiality. Quite apart from these considerations, the cost would be prohibitive. On the question of economies of travel, the Office tried to reduce travel costs in three ways: through agreements with major carriers for rebates based on volume, through the use of grey market tickets for promotional and discount fares, and by grouping separate missions into one ticket to benefit from the consequent lower fares. The savings were worthwhile -- in 1997 the average ticket paid by the ILO had been 21.7 per cent below the published fare.

71. The Chief Internal Auditor confirmed that the illegal copying of computer software had been an isolated case but was reported because of the potential consequences for the Office. In reply to a comment concerning the length of the report, under the terms of the Conference resolution he was required to report major findings resulting from his investigations. During 1997 the internal audit office had carried out audit reviews at headquarters and at 15 field locations, and had issued 21 recommendations for headquarters and 203 recommendations for the field. The reports themselves ran to 34 pages for headquarters and 145 pages for the field, and the document before the Committee summarized the most important issues arising during the year.

72. In reply to comments concerning the detailed findings contained in individual internal audit reports, the Committee should be aware that all of these reports, without exception, were copied to the External Auditor. All these documents were reviewed by the External Auditor and retained for his own work.

73. The delay in follow-up on recommendations mentioned by one member had resulted mainly from the particular problems in the Staff Health Insurance Fund. Follow-up procedures had recently been streamlined, and action had already been taken in respect of some 70 per cent of the 1997 recommendations.

74. The Committee took note of the Office paper.

Delegation of authority under article 18 of the
Standing Orders of the International Labour Conference
(Sixth item on the agenda)

75. The Committee had before it a paper(6)  on the delegation of authority to the Officers of the Governing Body for the duration of the 1998 Conference.

76. The Committee decided to delegate to its Officers (the Chairperson and the spokespersons for the Employer and Worker members of the Committee), for the period of the 86th Session (June 1998) of the Conference, the authority to carry out its responsibilities under article 18 of the Standing Orders of the Conference in relation to proposals involving expenditure in the 66th financial period ending 31 December 1999.

77. The Committee recommends that the Governing Body make a similar delegation of authority to its Officers under Article 18 of the Standing Orders of the Conference.

Other financial and general questions
(Seventh item on the agenda)

Amendments to the Financial Regulations:
Additional terms of reference governing
external audit

78. The Committee had before it a paper(7)  proposing a resolution for submission to the Conference concerning amendments to the Financial Regulations of the ILO.

79. Mr. Marshall expressed the Employers' support for the point for decision.

80. Mr. Blondel expressed the Workers' agreement also for the point for decision. The Workers agreed with the new text in the Financial Regulations.

81. The Programme Financial and Administrative Committee recommends to the Governing Body that it approve the amendments to the Financial Regulations set out in the appendix to this report and submit the following draft resolution for adoption by the Conference at its next session:

Financial arrangements for the sending of
a tripartite mission of the Governing Body
to the Republic of Korea within the framework
of the examination of a complaint pending
before the Committee on Freedom of Association

82. The Committee had before it a paper(8)  proposing financial arrangements for this mission.

83. Mr. Marshall said that the Employers in principle did not favour retrospective approvals but on this occasion were prepared to support the point for decision.

84. Mr. Blondel, for the Worker members, recognized that this mission could not have been provided for in the 1998-99 programme and budget and therefore expressed their support for the point for decision.

85. The representative of the Government of the United States welcomed the decision of the Republic of Korea to accept a mission from the ILO in order to facilitate the work of the Committee on Freedom of Association, and he expressed support for the point for decision. Nevertheless, these costs should be absorbed within existing resources, and he asked why approval for such a small amount of expenditure was required from the Committee.

86. The Treasurer agreed that the amount was insignificant but explained that the Governing Body was required to give its approval for the activity as it was not included in the original programme and budget.

87. The Committee recommends to the Governing Body that the travel costs of the tripartite mission to the Republic of Korea, estimated at US$15,000, be financed in the first instance from savings in Part I of the Programme and Budget for 1998-99, on the understanding that, should this subsequently prove impossible, the Director-General would propose alternative methods of financing at a later stage in the biennium.

Report of the Joint Inspection Unit of the
United Nations on its activities for the
period from 1 July 1996 to 30 June 1997

88. The Committee had before it a report(9)  describing the activities of the Joint Inspection Unit of the UN for the year ended 30 June 1997.

89. Mr. Marshall observed that paragraph 5 of the Office paper referred to the need for more concrete action in respect of follow-up on the JIU reports and that the Office intended to report on this matter in November 1998. The Employers looked forward to a paper on the Office's intended response. The reports of the JIU were extremely useful documents and it was important that both the Governing Body and the Office responded to them.

90. Mr. Blondel, on behalf of the Worker members, said that the Chairperson of JIU had drawn the attention of the Director-General to Annex I of the JIU report which proposed more effective follow-up on reports of the JIU. It should be understood that these proposals would require the Governing Body to devote more time and resources to the consideration of JIU reports. The Workers were not convinced that this was justified. Certainly the JIU reports deserved to be considered, but under current procedures. He recalled that in 1995 the Workers had proposed that the ILO should withdraw from the JIU, but this had been strenuously resisted by governments. It would be interesting if those governments could give some examples of how the ILO had been able to save money or improve itself as a result of JIU recommendations.

91. The representative of the Joint Inspection Unit referred to paragraph 2 of the document before the Committee which referred to the programme of work of the Joint Inspection Unit for 1997-98. This included a planned report by the Unit to review the management and administration in the ILO. This was follow-up on a system-wide report which the Unit had prepared on accountability, management improvement and oversight in the United Nations system. The planned report would focus on a number of reforms and initiatives that the ILO reported to the JIU. This included the development of a new computerized personnel system (PERSIS), the establishment of new information technology and communication systems (ITCOM), the implementation of the Active Partnership Policy, including the multidisciplinary teams in the field, and the introduction of a comprehensive monitoring, self-evaluation and reporting system (MERS).

92. This was not the first report on the management and administration of a single organization that had been undertaken by the JIU. It had recently produced a comprehensive management report on the United Nations secretariat and was planning to do the same exercise with another organization.

93. The JIU was encouraged by the positive view expressed in the Office paper. As regards the follow-up system on JIU reports, which was described in an annex to its annual report, it appreciated the ILO taking up this important question and introducing it to the Committee. The JIU was ready at any time to answer questions concerning that system, the main reasons for which were the concerns and demands by legislative bodies of the participating organizations for more systematic follow-up on JIU reports and recommendations. The principle governing the system was that of shared responsibility between the three partners, namely the legislative organs and secretariats of the various organizations and the JIU, as set out in UN General Assembly resolution 50/233 of 7 June 1996. The JIU hoped that all legislative bodies, including that of the ILO, would act positively on it since its main objective was compliance and follow-up on reports and recommendations for the benefit of all constituents.

94. The representative of the Government of the United States welcomed the JIU initiative in frequently asking the legislative bodies of the specialized agencies for suggestions regarding appropriate reports and their topics. In the General Assembly member States had clearly stated their preference for focused reports as opposed to broad reviews, but the effectiveness of either depended to a great extent on the timely analysis and implementation of its recommendations by the Organization. The JIU should therefore concentrate its efforts on ILO programmes, where its recommendations would have an impact. The United States Government had always been a strong supporter of both internal and external oversight, and hoped that these comments would contribute to the effectiveness of the JIU and the usefulness of its reports to the ILO and its Governing Body.

95. The representative of the Government of the Russian Federation welcomed the intention of the JIU to carry out a detailed review of certain ILO activities and would look forward to its report in due course.

96. Mr. Blondel expressed the Workers' appreciation for the statement by the JIU representative. Although the Unit's activities concerning matters of control, inspection and verification were fully justified for the implementation of UN decisions, anything further would amount to surveillance and call into question the ILO's autonomy and independence. The Workers still had reservations about the role of the JIU.

97. Mr. Marshall, for the Employers, expressed appreciation for the statement from the representative of the JIU. The planned report would effectively be a management audit of certain ILO activities, and as it would primarily be a review of systems rather than policy it would provide valuable information to the Committee on the effectiveness of various activities

98. The representative of the Government of China expressed appreciation for the Office paper and also for the statement by the JIU representative. The reviews carried out by the Unit and its recommendations were extremely valuable not only to the ILO but also to other organizations in the common system, and he expressed full support for their activities.

99. The Committee took note of the Office paper.

Report of the Joint Inspection Unit of the United Nations:
"Strengthening field representation of the
United Nations system"

100. The Committee had before it a paper(10)  containing the ILO's responses to the recommendations made in this report.

101. Mr. Marshall expressed the Employers' appreciation for the JIU recommendations on this subject and the Office's responses. They also held the reservations expressed by the Director-General concerning access to premises shared with other UN organizations, but otherwise expressed general agreement with the recommendations.

102. Mr. Blondel, on behalf of the Worker members, drew attention to the general response contained in paragraph 2 of the Office paper, and wondered to what extent the JIU's recommendations had already been overtaken by the reforms introduced by the UN Secretary-General. They expressed support for all the ILO responses to the individual recommendations, especially the response to recommendations 1 and 2. The ILO needed to retain its capacity to open and close field offices according to its needs. It was neither realistic nor acceptable to pretend that a UN Resident Coordinator should have full authority to speak for all specialized agencies, including the ILO.

103. The representative of the Government of the United States appreciated the Office's responses to the JIU recommendations. Feedback of this sort was critical if the UN was to succeed in improving coordination among members of the common system.

104. The representative of the Government of India had reservations about recommendation 7(ii), which would only create additional levels of bureaucracy. He supported the ILO response, because countries should be able to develop their own procedures for coordination.

105. The representative of the Joint Inspection Unit said they were continuing discussions on this matter with organizations in the common system, but the main objective of the report was to develop a more unified United Nations family in the field, not necessarily in a single office. The report was based on research and interviews both at headquarters and in the field, as well as views of member States and JIU staff. The report highlighted the wider presence of the various organizations in the field and reinforced their individual mandates by stressing the importance of a more rational division of labour among organizations which were lead agencies in their specialist fields.

106. The main recommendations, especially those relating to a more unified presence in the field under the leadership of the Resident Coordinator, and more effective leadership at headquarters in support of the Resident Coordinator system, were meant to bring about more coherence and harmonization to operational activities and better value for money through the more rational use of available resources. Many of the specific recommendations were met with different views from different organizations, but this was only to be expected in view of their different roles and activities, and it reinforced some of the conclusions in the report. The JIU expressed appreciation to the Office for taking the time to consider the report and comment as it had.

107. The Committee took note of the Office paper.

Increasing interpretation resources
for meetings of groups

108. The Committee had before it a paper(11)  concerning increased costs for interpretation facilities at group meetings.

109. Mr. Oechslin, speaking on behalf of the Employer members, stated that he had no objection to the point for decision. It was beneficial to the Organization and to the functioning of the Office to have more consultations within the Government groups, and this increase in interpretation resources would give more flexibility in managing the personnel involved in interpreting. It had become increasingly difficult for the Office to arrange the interpretation required, because although there was a clear need to increase interpretation resources for meetings during the Governing Body, it was not so easy for meetings held at other times. It seemed that in the past the problem had not been so serious.

110. Mr. Blondel, speaking on behalf of the Worker members, noted that the increase in interpretation resources was for the sole benefit of the meetings of Government groups. A supplementary allocation of $351,000 had been requested which, in addition to the $178,000 already included in the programme and budget, brought the total to $529,000, and was to satisfy the growing demands of the Government groups during the Governing Body and at other periods during the biennium. It was important to understand the difference between the two types of meetings. During Governing Body sessions it was a question of principle that each group should be able to prepare adequately for the tripartite meetings. The Worker and Employer members used their meetings to reach a consensus and to express a single opinion on topics for discussion, but this did not often seem to be the case with the Government members who, despite their group meetings preceding plenary discussions, still continued to make numerous individual interventions. Extra group meetings might be expected to help government members develop more coordinated approaches to debates.

111. For meetings held outside the Governing Body sessions, if requests by the Government members for interpretation facilities were to be met it would be only reasonable to accord similar facilities to the Workers. They were not opposed to increasing resources for the Government group meetings during the Governing Body sessions, but they could not agree to the increase of $351,000 without an assurance that this would not give a right to unlimited interpretation services.

112. The representative of the Government of Mexico, on behalf of the Government group, stated that in recent years the regional groups of the Government delegations had considerably increased their consultations and this had meant an increase in the number of their meetings before and during the sessions of the Governing Body. This was due to the growing number of substantive issues requiring extensive consultation within the regional groups and to the more dynamic interaction between Government delegations. It was difficult to predict if this trend would continue, but it was clear to Government representatives that this increased consultation was very positive. On behalf of the Government group, he thanked the Director-General for the prompt and effective service which had been rendered to the regional groups when requests for interpretation had been made. In addition, and on behalf of the regional and IMEC coordinators, he expressed his appreciation and support for the proposal made in the document.

113. The representative of the Government of China agreed with the proposal but requested clarification as to how the decision had been made on the number and type of languages to be used. If language services were provided, it should be on the basis of needs and according to the principles of equality.

114. The representative of the Government of the Russian Federation agreed with the comments made by the previous speaker. Considering that difficulties had been experienced by Russian-speaking delegations in regional group meetings, the question of increasing Russian interpretation services should also be addressed.

115. The representative of the Government of Hungary, as Regional Coordinator for the Central and Eastern European countries, stated that during recent group meetings and joint meetings with IMEC, Russian interpretation had been provided. The need for this service was not reflected in the document before the Committee.

116. The representative of the Government of Canada associated herself with the comments made by the representative of the Government of Mexico. In recent years there had been growing complexity in the agenda and an increased need for consultation, not only among Government members, but also among the Employers and Workers. There had been a need for more time for all groups, including the social partners. It had also led to more regional statements being made in the Governing Body discussions. A considerable effort had been made by all concerned to minimize the costs of these increased consultations, but the point had been reached where services were no longer able to cope with the demand. In some instances, two teams of interpreters were required for each of the social partners, leaving only one team available for the Government group meetings. The proposal, which was a realistic response to the current situation, was supported by the IMEC group.

117. The representative of the Government of the United States, while supporting the proposal in principle, requested that the source of funds be identified or an assurance given to the effect that the increase would be funded from within existing resources.

118. A representative of the Director-General (the Director of the Relations and Meetings Department) explained that the cost estimates and the number of languages contained in the document were based on an analysis of the trend for increased group meetings. The Government group meetings were regional meetings and the IMEC meetings were interregional. They all required English interpretation, many required French, the African and Asian groups required Arabic. Chinese was only required for the Asian and Pacific regional group, and Russian for the Eastern European group, which tended to meet less often. The IMEC group, which met most frequently, did not require Chinese or Russian. An assessment of this situation showed that Russian and Chinese interpretation needs could be provided without an increase in current levels. If, however, there was an increase in the number of meetings requested by the Eastern European group and the Asian and Pacific group, Russian and Chinese interpretation services would also have to be increased. The cost of additional Russian interpretation during a Governing Body would be over $100,000, while for Chinese the cost would be considerably higher, as three interpreters per cabin were required and the interpreters were recruited from Beijing. The cost of the meetings to be held outside Governing Body sessions represented just over half of the figure shown in the document, based on an analysis of current trends.

119. Mr. Blondel, speaking on behalf of the Worker members, asked if the additional resources were to be used exclusively by the Government groups or whether the principle of equality between the groups would be respected. More than half of the amount requested in the document was for meetings outside the Governing Body session, which seemed excessive.

120. A representative of the Director-General (the Director of the Relations and Meetings Department) stated that Worker and Employer group meetings had always been serviced as and when requested. With increased demand from regional Government groups the point had now been reached where it was no longer possible to service all requests from the three groups. The cost of extra interpretation was very high, and the number of requests that could be met was limited by the budgetary funds available. Once that limit was reached, either the Governing Body would have to be approached once again for further funding or the availability of interpretation services would have to be reviewed.

121. Mr. Blondel, speaking of behalf of the Worker members, noted that their requests for meetings would be met, as would those of the Employer members, and in that case, he had no objection to the point for decision.

122. The representative of the Government of the Russian Federation asked that the assurances given by the Office in respect of interpretation in the Russian language were fully reflected in the report.

123. The Programme, Financial and Administrative Committee recommends that the Governing Body decide that the additional cost referred to in the Office paper, estimated at US$351,000, should be financed primarily through savings in Part I of the Programme and Budget for 1998-99, it being understood that if this were to prove impossible, the Director-General would submit proposals for other means of finance during the biennium.

Proposals by the Director-General for expenditure
from the Programme Flexibility Reserve

124. The Committee had before it a paper(12)  concerning expenditure to be financed from the Programme Flexibility Reserve.

125. Mr. Marshall, speaking on behalf of the Employer members, fully sympathized with the request for the allocation of more resources to the IPEC programme. It was critically important that the activities of this programme were given sufficient administrative support, but he questioned the use of all of the Programme Flexibility Reserve so early in the biennium. It would be better if resources were reallocated either from a reorganization of priorities or from savings.

126. Mr. Blondel, speaking on behalf of the Worker members, strongly supported the intention to reinforce the core team responsible for IPEC. However, it would seem that the need for this reinforcement would have been evident at the time the regular budget was being discussed, and he wanted to know why this was not foreseen in the budget. If the proposal in the document was accepted, there would be no resources left for other urgent problems which may arise during the biennium. He also requested more information concerning the current financing of the IPEC programme, particularly how many people actually worked in the IPEC team, in Geneva and elsewhere, what proportion of the $25 million donor contributions was used to cover administrative costs, and how the $480,000 requested would be used. Only in the light of this information could the Worker members make a decision on the proposal.

127. The representative of the Government of the United Kingdom also recognized the need to provide more resources from the regular budget to reinforce IPEC staffing, but was not convinced that the Programme Flexibility Reserve should be entirely exhausted for this purpose. It had never been intended that the Reserve should be used only for one activity, and it would be preferable to have a proposal stating where savings could be made to provide the funds required. The decision paragraph should be amended to request the Director-General to replenish the Fund to its previous level through savings, and the Office should report the details later to the Governing Body for approval. In the future, long-term core projects such as IPEC should be adequately funded from the regular budget. In the case of the IPEC programme, did the 13 per cent agency cost paid by the donors cover the real cost to the ILO of carrying out the programme?

128. The representative of the Government of Germany understood the concerns expressed by previous speakers on the exhaustion of the Programme Flexibility Reserve Fund so early in the biennium. However, the need to add extra resources to the IPEC programme could not be ignored. The expansion of this activity could not have been foreseen when the programme and budget was prepared, and he agreed with the proposal by the representative of the Government of the United Kingdom.

129. The representative of the Government of Canada supported the initiative to increase resources to IPEC, which should be carried out as early as possible, but agreed with previous speakers about the total depletion of the Programme Flexibility Reserve at such an early stage in the biennium. She preferred the proposal made by Mr. Marshall, unless this would delay the transfer of funds, in which case she supported the recommendation by the representative of the Government of the United Kingdom to transfer funds immediately and then replenish the Programme Flexibility Reserve when savings were found.

130. The representative of the Government of the United States also expressed concern about the premature depletion of the Fund. Nevertheless, the IPEC programme was an important example of collaboration between the United States and the ILO, and he supported mainly the proposal made by Mr. Marshall and as an alternative that by the representative of the Government of the United Kingdom, if waiting for savings would create a delay in providing funds to IPEC. The information given by the Office unfortunately did not identify any clear areas for savings at this stage.

131. The representative of the Government of France emphasized the important support provided by his Government to IPEC in the current year and did not wish to see IPEC activities jeopardized in any way. He supported the proposal made by Mr. Marshall.

132. The representative of the Government of Italy favoured any measure that would increase funding to IPEC, but was uncomfortable about the depletion of the Programme Flexibility Reserve at such an early stage. It would be preferable to finance the increase to IPEC from savings in other areas, but if this was not possible he would support the proposal put forward by the United Kingdom representative.

133. The representative of the Government of Japan agreed that the IPEC programme was becoming increasingly important and should be fully financed through the regular budget. It would not be wise to exhaust the Programme Flexibility Reserve at this stage. As requested by Mr. Blondel, much more detailed information on the exact use of the funds should be provided to the Committee.

134. The representative of the Director-General (Director of the Bureau for Programming and Management) observed that most of the statements had not questioned the need for additional resources for the IPEC programme. It had been a big success, and had developed considerably and clearly beyond what was foreseeable when the programme and budget had been prepared. The acceleration in its development meant that resources must be allocated to it to ensure that it was managed to the satisfaction of both beneficiaries and donor countries.

135. In reply to Mr. Blondel, he stated that ten Professional and five General Service staff were working for IPEC in Geneva. At present IPEC programmes were active in 29 countries. These employed in the field 21 Professional staff, ten associate experts and some 30 General Service staff. The regular budget resources allocated to the elimination of child labour were of two kinds. At headquarters they were allocated to very specific regular budget work which now, according to calculations incorporating exchange rate adjustments, amounted to $2.3 million for the 1998-99 biennium. The regular budget resources allocated to the elimination of child labour in the regions were estimated at $4.9 million, making a total of $7.2 million for headquarters and the regions combined.

136. IPEC had an allocation of $2.2 million in the current biennium for agency costs concerning the implementation of a programme of extra-budgetary expenditure currently estimated at $17.7 million. As donor contributions increased, the programme was developing, meaning that its level of implementation was probably higher than the estimate of $17.7 million. The allocation of $2.2 million for agency costs showed that the programme received priority treatment, as requested by the Conference in 1996.

137. The agency costs, representing 13 per cent, were not solely earmarked for support for programme implementation, but also for the logistical support that the Office had to provide to the programme, including the accounts that donors were entitled to receive. The additional resources would be used to make additional staff available to the IPEC programme.

138. The alternative to using the Flexibility Reserve that seemed to be preferred by the Committee was to make use of savings occurring during the current biennium. This was perfectly possible, if that was the Committee's decision or recommendation. The Office proposed using the Flexibility Reserve as the situation fully satisfied the criteria for its use, that is, it was a development that because of its rapid growth required greater support than that foreseen when the budget had been prepared. In reply to the representative of the United States Government, who had again expressed concern that the Office was unable to identify accurately the savings that might be made on specific expenditure items during the biennium, he stated that the biennium had only just begun and that the secretariat was unable now to question what was the outcome of bargaining and agreements resulting from detailed discussions in the Committee and in the Governing Body.

139. Mr. Blondel noted that clarification on the amount of $480,000 had not been fully provided and that, although it had been stated that it was for staffing, exact numbers had not been given. However, they agreed to go along with the proposal to provide funds through savings as proposed by Mr. Marshall on behalf of the Employers' group.

140. The representative of the Government of Guinea thanked the Office for the quality of the proposals concerning the IPEC programme as well as for the organization in Kampala in February 1998 of the Tripartite Meeting on Child Labour. On behalf of the African countries, he emphasized the importance of the Office proposals and agreed with previous speakers who had expressed support for the proposal by the Director-General to increase resources for the IPEC programme.

141. The representative of the Government of the United States said that financing the $480,000 for IPEC from savings during the biennium could create difficulties, and his agreement with Mr. Marshall's proposal was on the assumption that there would be an immediate transfer of funds. Furthermore, existing funding from the regular budget for IPEC appeared to be insufficient, and this could make the situation even worse. Paragraph 5 of the Office paper referred to an increased allocation for the programme from $0.9 million in 1996-97 to $2.3 in 1998-99. Was the Office sure that $480,000 was the only additional amount required?

142. Mr. Marshall understood the concerns expressed by the representative of the Government of the United States about possible delays in funding IPEC. However, he recalled that the $480,000 was for the full biennium and the total amount was not required immediately, so the proposal to use savings should not create a problem.

143. A representative of the Director-General (Director of the Bureau for Programming and Management) replied that, when savings were used, the Committee and the Governing Body would be informed where they had come from.

144. There seemed to be some misunderstanding regarding paragraph 5. In referring to the work performed by the ILO on the elimination of child labour, this did not only mean work performed under IPEC. IPEC was only one part of such activities. In reply to the question by the representative of the United States Government, he stated that, when expenditure on programme implementation increased by comparison with what was foreseen at the outset, then the management resources of IPEC also increased proportionately. The answer was hence in the affirmative. This increase had been some $700,000. The $480,000 needed were a simple addition to the regular budget to complement the resources made necessary by the implementation of the programme itself.

145. The representative of the Government of the United States requested the Office to assure the Committee regarding its expectation that sufficient funds be made available to IPEC through savings and that immediate and medium-term needs be met in full.

146. The Treasurer replied that, if the Governing Body approved this additional funding to the IPEC budget on the understanding that savings would be found elsewhere in the regular budget, the procedure would be to allocate an additional amount to IPEC immediately. As savings were identified they would be accumulated until they covered the amount transferred. In this way the IPEC programme would not suffer any delay.

147. The Programme, Financial and Administrative Committee recommends to the Governing Body that the additional amount of US$480,000 to strengthen headquarters' support for the operational activities of IPEC, should be financed through savings in Part I of the Programme and Budget for 1998-99.

Addressing the year 2000 problem in the ILO

148. The Committee had before it a paper(13)  describing the effect of the year 2000 problem on ILO activities.

149. Mr. Marshall repeated the concern expressed by the Employers at a previous meeting that there was no budgetary provision for such a well known problem. Nevertheless, it was a critical issue and had to be addressed. The proposal was for an extra-budgetary account to be established and funds from arrears in income received during the 1998-99 biennium and future biennia be utilized to finance the cost of the project. The Office should clarify this proposal as it was different from those adopted in the past.

150. Mr. Blondel noted that in paragraph 2 of the document it was stated that the ideal solution was to replace the financial systems and wondered how much that solution would cost. He wondered also whether the $5.6 million would be sufficient for the solution proposed by the Office or whether further requests for funding could be expected. It would be useful to have some information on how the amount requested compared to that which would be required for the solution referred to in paragraph 2 of the Office paper, and also some clarification on the financing method proposed in paragraph 7(b). However, as the Employers had said, the problem had to be dealt with and they were prepared to accept the point for decision.

151. The Treasurer, referring to the question why an amount had not been included in the programme and budget, recalled that the 1998-99 budget did include a statement about the problem and explained that it was difficult to give accurate information about the financial resources required until a detailed review was completed. The ILO, in common with many other organizations, was behind with the problem because the main software and hardware suppliers who had been contacted were not able to help. Only recently had some vendors been able to come up with possible solutions and software packages in an effort to address the problem. In fact, even until 1997, the personal computers bought by the Office were not Y2K compatible because no such computer existed. The ILO's own programmes, such as PERSIS and ILOLEX, were Y2K-proof, but Y2K-proof standard software for network and personal computers had only been available since 1995. In reply to Mr. Blondel's query about the replacement of financial systems, the Office had been reviewing the matter in recent years and the budget texts for 1996-97 and 1998-99 had provided ample warning about the ILO's antiquated financial computer systems, which dated back to 1970. It was important for the Office to have a completely new computerized financial system, but this would cost some $15 million and take about five to six years to install. Projects of this nature were very ambitious. As far as the amount of $5.6 million was concerned, approximately $3.8 million would be utilized for fixing the financial systems, and the balance to address the other year 2000 problems in the Office. The proposed financing solution was indeed unusual but, this resulted from an unusual financial situation in the current biennium. As explained in the document, the Office had already received large arrears of contributions, and this meant that the current biennium would probably finish with a surplus. The proposed solution would preclude the possibility of additional assessments on member States. If, on the other hand, the Committee wished to adopt a decision that would authorize the Director-General to use savings in Part I of the budget, then Part II, and thereafter the Working Capital Fund, the Committee should be aware that under the Financial Regulations, the Working Capital Fund would be reimbursed from additional assessments on member States. Under the financing proposal in the Office paper members could rest assured that there was no possibility of supplementary assessments for this purpose. The $5.6 million would be deducted directly from the surplus and the amount refunded to members would be that much less. The figure of $5.6 million was the most accurate figure that could be provided by the consultants, but much would depend on the tenders received in the bidding process. It was becoming increasingly difficult to find good programmers, so an adjustment to the figure could not be precluded.

152. The representative of the Government of Canada also expressed concern at the method of funding and the precedent that could be set. However, funds had to be found to solve the problem and she wondered whether a similar solution to those proposed earlier could be found, whereby the proposal was financed first from savings, with the Office's current proposal as a back-up plan.

153. The Treasurer said there were two other possibilities. The first was to modify the decision paragraph to say that in the first instance the cost of solving the year 2000 problem would be financed from savings in Part I of the budget and, to the extent that this was not possible, the cost would be charged to the extra-budgetary account. The second alternative was again to recommend that it be financed in the first instance from savings in Part I of the budget but that the Director-General would, if necessary, return at a later date with the proposal in the Office paper. The Committee should bear in mind, however, that the proposal in the Office paper required the approval of the Conference: the Governing Body alone could not approve it.

154. The representative of the Government of the United States expressed concern that the ILO had not yet completed its impact analysis to determine what in its inventory needed to be Y2K compliant. Certainly fixing computers, operating systems, applications, dates and interfaces and undertaking an independent verification were expensive and it was possible that the $5.6 million did not fully reflect the total of Y2K expenditure. He could not support the point for decision as it stood, but the approach proposed by the representative of the Government of Canada was acceptable. He would be open to other suggestions provided they were made within existing approved resource levels.

155. The representative of the Government of Germany also understood that the problem had to be resolved, but it was unfortunate to be receiving this proposal so late and he could not support it as it stood. Arrears of contributions should not be made available for this purpose, and he associated himself with the views expressed by the representatives of the Governments of Canada and the United States that the financing should be made from savings in the budget. A derogation from the Financial Regulations should not be considered.

156. The Treasurer assured the Committee that the Office would do all it could to finance this activity from savings within the Programme and Budget for 1998-99, as proposed by the representative of Canada and supported by the representatives of the United States and Germany, but he stressed that he could give no guarantee that the whole of such a substantial amount could be found in this way.

157. Mr. Marshall said that it was assumed that if the Office was unable to fund the proposal entirely from savings it should return to the Governing Body in March 1999 seeking approval for any additional amount required.

158. The Treasurer confirmed that most of the work would be undertaken in 1998 and, as had been decided for IPEC, the activity would be implemented regardless of the extent to which savings could be identified at this stage, on the understanding that the Director-General might have to return to the Committee with other proposals in 1999.

159. The Committee recommends to the Governing Body that the cost of ensuring that computer-based systems in the ILO will function properly at the year 2000, which is estimated at US$5.6 million, be financed in the first instance from savings in Part I of the Programme and Budget for 1998-99, on the understanding that, should this subsequently prove impossible, the Director-General would propose alternative methods of financing at a later stage in the biennium.

Cooperation between the ILO and the
European Commission (EC)

160. The Committee had before it a paper(14)  describing efforts by the ILO to conclude project agreements with the European Commission.

161. Mr. Marshall emphasized that the Employers considered the European Commission to be a valued partner in relation to ILO technical cooperation activities. From the document it seemed that some of the reciprocal arrangements in respect of financial matters were somewhat imbalanced. However, it was necessary to be pragmatic and the Employers recognized the need for the Office to raise the issue with the Governing Body in this manner. They actively encouraged the Office to continue negotiations with the European Commission to try to achieve a mutually acceptable agreement but, in the interim, endorsed the recommendation in paragraph 14 of the document. With respect to subparagraph (c) of the proposed decision on future budgeting arrangements, they wondered whether this should be restricted to the European Commission. It might be better to establish a separate provision for continuing additional costs rather than restrict a budgetary provision to only one donor.

162. Mr. Blondel regretted that the European Commission had been so slow in responding to ILO communications. Other organizations had similar experiences, but even after agreements had been concluded there seemed to be lengthy delays in payments and differences over interest rates and exchange rates. The Workers supported the proposal that the Director-General continue to work closely to develop a positive partnership with the European Commission and also the other paragraphs of the point for decision, including the draft resolution for submission to the Conference. The Workers looked forward to the paper in March 2000 concerning technical cooperation activities funded from voluntary sources.

163. The representative of the Government of the United States said that it was very difficult to discuss this matter in any depth because the document had been issued quite late. Funding from voluntary sources including the EC was extremely important for the ILO, but there were a number of concerns in the paper before the Committee that needed to be addressed. The European Commission was insisting on regular audits, but did not provide for these costs in project budgets, and as regards exchange rate movements, the EU wanted to keep the gains for itself and pass the losses to the ILO. It was also asking for other supporting documents such as entry visas and boarding passes but had not built allowance for providing them into the project budget. It had not even replied to the Director-General's letter of April 1996. The Committee was now being requested to recommend a derogation from the Financial Regulations in order to facilitate what were clearly disadvantageous arrangements for the ILO. In fact, the point for decision required the use of the Working Capital Fund for purposes for which it was not intended. Although the document before the Committee requested derogation only for EU-funded projects, it could easily be broadened to include any voluntary source of funding. The importance and value of ILO cooperation with the European Commission was not being questioned -- the issue was the derogation from the Financial Regulations and the use of the Working Capital Fund for the purposes described in the paper.

164. In view of the extremely brief time available for consideration of this subject, he suggested either that the proposal be sent to the Conference without a recommendation in order not to prejudge its decision, or that it be taken up at the next Governing Body session to allow sufficient time for proper consideration.

165. The representative of the Government of Canada observed that some deeper underlying issues needed to be addressed, as it was not simply a question of resolving problems with the European Commission. The point for decision suggested moving away from the general trend of simplifying and streamlining administrative procedures for technical cooperation projects. Admittedly, it was not easy to deal with the various demands of many donors, but this seemed to be a proposal to solve the administrative problems of one particular donor.

166. As suggested in paragraph 13 of the document, it would be preferable to work on this issue in a more systematic manner with a longer-term perspective and explore ways of finding more practical and flexible administrative arrangements. For these reasons, she favoured the proposal to revert to this issue in future and therefore could not support the decision proposed in paragraph 14(b) of the document.

167. The representative of the Government of Chile requested that, if the resolution was approved, the Spanish translation of paragraph 14(b) of the document would need to be verified.

168. The representative of the Government of the Russian Federation stated that, in view of the short time available for consideration of the document, it could not be discussed in detail at the moment, and he endorsed the proposal to defer discussion on this issue.

169. Mr. Blondel, on behalf of the Worker members, stated that they had only received the document that morning and regretted that the Committee found itself engaged in a debate on form rather than substance. Cooperation with external organizations was not a new issue; it had been under discussion for some years now, and the essence of the problem in this particular case was that the European Commission was extremely slow in releasing funds.

170. The Workers asked how much the investment of $180,000 would bring to the Organization and what amount could be expected from the EU to finance activities that the ILO would not normally finance itself. There was a risk that the non-European members of the Governing Body could eventually be criticized for not making greater efforts to develop a partnership with the EU. This was the core of the problem, and if it were not possible to address it immediately, it would be better to refer the whole question to the Conference.

171. The Treasurer said that at present there were seven EC-funded projects executed by the ILO which totalled $5.7 million. The total of $180,000 referred to in the Office paper represented the best estimate of what the additional administrative costs would be and included interest on amounts owed by the EC.

172. The subject of cooperation with the EC had been discussed on a number of occasions in the past. During programme and budget discussions the Office had been criticized for not developing its relationship with the EC and other organizations and for being too inflexible in the application of its regulations and procedures. But it was beyond the Director-General's authority to decide these matters. The course of action proposed in the Office paper would meet the demands that had been made, but would require the approval of the Governing Body and then the Conference.

173. The representative of the Government of the United States suggested that this issue be postponed to the Conference without a recommendation by the Governing Body.

174. The representative of the Government of Canada agreed with the comments made by the representative of the Government of the United States and by Mr. Blondel. However, the whole issue of relationships with external donors should be considered in more detail, especially as the Office had explained that the 13 per cent charged for support costs did not represent the total amount of the actual costs incurred.

175. The representative of the Government of Panama agreed with the previous speaker that discussion of this proposal should be postponed until a more comprehensive paper was available from the Office.

176. The representative of the Government of the United States agreed that the more detailed discussion should cover relationships not only with the European Union but with all external donors.

177. The Chairperson stated that there seemed to be a consensus in favour of the proposal first put forward by Mr. Blondel, and subsequently amended by the representative of the Government of Canada, that further discussion should be postponed until the Conference in June 1998, and that the Employers and Workers should have an opportunity to put their views to the Conference.

178. The Committee decided that further discussion of this issue should be postponed until the 86th (June 1998) Conference, and asked the Office to prepare a paper containing the information requested during the course of discussion. The Office was also asked to ensure that the Employers and Workers were given an opportunity to address the Finance Committee of Government Representatives on this issue.

Geneva, 24 March 1998.

(Signed) U. Kalbitzer, Reporter.

Points for decision:

Appendix

Amendments to the appendix to the Financial Regulations
of the International Labour Organization

(Additions are shown in bold type; deletions are indicated by square brackets)

Additional terms of reference governing external audit

...

[5. The external auditor shall express and sign an opinion in the following terms: "I have examined the financial statements numbered ... to ... and relevant schedules of the Organisation for the financial period ended 31 December .... My examination included a general review of the accounting procedures and such tests of the accounting records and other supporting evidence as I considered necessary in the circumstances." The external auditor's opinion shall state, as appropriate, whether:

(a) the financial statements present fairly the financial position as at the end of the period and the results of the operations for the period;

(b) the financial statements were prepared in accordance with the stated accounting principles;

(c) the accounting principles were applied on a basis consistent with that of the preceding financial period;

(d) transactions were in accordance with the Financial Regulations and legislative authority.]

5. The external auditor shall express and sign an opinion on the financial statements of the Organization. The opinion shall include the following basic elements:

(a) the identification of the financial statements audited;

(b) a reference to the responsibility of the entity's management and the responsibility of the auditor;

(c) a reference to the audit standards followed;

(d) a description of the work performed;

(e) an expression of opinion on the financial statements as to whether:

(f) an expression of opinion on the compliance of transactions with the Financial Regulations and legislative authority;

(g) the date of the opinion;

(h) the external auditor's name and position; and

(i) should it be necessary, a reference to the report of the External Auditor on the financial statements.

 1. GB.271/PFA/1.

2. GB.271/PFA/2.

3. GB.271/PFA/3.

4. GB.271/PFA/4.

5. GB.271/PFA/5.

6. GB.271/PFA/6.

7. GB.271/PFA/7/1.

8. GB.271/PFA/7/2.

9. GB.271/PFA/7/4.

10. GB.271/PFA/7/5.

11. GB.271/PFA/7/3.

12. GB.271/PFA/7/6.

13. GB.271/PFA/7/7.

14. GB.271/PFA/7/8.


Updated by VC. Approved by NdW. Last update: 26 January 2000.

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