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SEVENTH ITEM ON THE AGENDA

Other financial and general questions

Addressing the year 2000 problem in the ILO

1. The year 2000 problem, often referred to as Y2K or the Millennium Bug, arises when computer hardware and software which use two digits instead of four to record a year (e.g. 98 instead of 1998) produce erroneous results by interpreting 00 as 1900 rather than 2000. Computer application developers and analysts have been aware of this problem ever since the first computer programs using dates were written. Early computers had small amounts of very expensive memory, and programmers had no choice but to truncate the year to two digits to save space. When computer memory became less expensive, older programs were not modified to record the year as four digits since it was considered inadvisable to modify well-established applications that performed critical functions such as payroll, general ledger, personnel, budgeting, etc. Instead, available resources were applied to the development of new applications to support other administrative functions.

2. The ILO is not alone in dealing with the Y2K issue. All organizations that still rely on older mainframe-based applications are in the same situation. A crucial question in addressing the Y2K problem and making computer systems Y2K-compliant is whether existing systems should be modified or replaced. The ILO at present uses a variety of administrative applications developed within the ILO on an IBM mainframe computer, some of which date back to 1970. These applications will have to be modified to function correctly in and beyond the year 2000. The ideal solution would have been to replace the present outdated budgetary, accounting and general ledger systems. Such an exercise would however take several years and would require very heavy investment. Due to budgetary constraints, resources for this purpose have not been available in recent years. The Y2K problem at the ILO is not restricted to the IBM mainframe environment, but also extends to personal computers (PCs) and other platforms such as the Hewlett Packard mini-computer. Fortunately, initial analysis indicates that there are very few problems, if any, related to the functioning of the ILO headquarters building (lifts, power, heating, fire alarms, etc.).

3. The Y2K issue was first brought to the Committee's attention in the paper on the Information Technology Strategy submitted at the 270th Session of the Governing Body (November 1997).⁽¹⁾  During the discussion of that paper the Office underscored the difficulty of providing adequate budgetary resources for an activity such as information technology which required large investments from time to time rather than steady funding from one biennium to the next. It will also be recalled that the Y2K problem was referred to in the context of the 1998-99 Programme and Budget text for programme 185 -- Information technology and communications (paragraph 185.8).

4. The Office is currently conducting a Y2K impact analysis to determine and examine the extent of the problem throughout the ILO and estimate the cost of ensuring that all ILO computer-based systems will function properly at the turn of the century. This study is expected to be completed at the end of April 1998. A preliminary estimate of the cost of enabling Y2K compliance has been established based on information gathered up to the end of February 1998. The cost of carrying out the necessary modifications is estimated at US$5.6 million, a breakdown of which is set out in the Appendix to this paper. As expected, the bulk of the cost relates to the modification of IBM mainframe-based applications. There is still some degree of uncertainty regarding costs, as much of the work to be done involves the use of outside contractors who will be selected through competitive bidding. This cost estimate does not include work already planned or under way as part of the Office's normal upgrading and maintenance program, for which resources have been provided in the Programme and Budget for 1998-99.

5. The Director-General has examined various ways of financing the Y2K costs and has given particular attention to a method of financing that would not result in additional assessments being raised on member States, such as would be the case under article 7 of the Financial Regulations, under which the Director-General may propose a supplementary budget to the Conference. In January 1998 large amounts of arrears of contributions were received, amounting to some US$64.3 million. Of this amount, US$1.2 million will be applied to reimburse the 1996-97 cash deficit.⁽²⁾  Assuming that major contributors pay the approximate equivalent of their contributions for 1998 and 1999 before 31 December 1999, it is highly probable that, under normal circumstances, the biennium will close with a substantial cash surplus.

6. In the expectation, therefore, that the budgetary income for 1998-99 will be well in excess of the approved level of budgetary expenditure, it would be preferable to apply a part of this anticipated surplus to finance the Y2K problem rather than resort to a supplementary budget. The Director-General therefore proposes that the Y2K costs, estimated at $5.6 million, be charged to an extra-budgetary account to be funded from arrears of income received during the 1998-99 biennium to the extent that these arrears are in excess of amounts required to reimburse the 1996-97 cash deficit and to finance the programme and budget. Should the arrears prove to be insufficient, arrears of income received in future biennia would be used under the same conditions. The financing of the extra-budgetary account from arrears of income would require Conference approval of a derogation from article 18 of the Financial Regulations, which provides that any cash surplus is to be used to reduce member States' contributions.

7. The Committee may therefore wish to recommend to the Governing Body that it --

(a) approve, subject to the authorization referred to under (b) below, the proposal 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 charged to an extra-budgetary account established for that purpose;

(b) propose to the 86th Session (June 1998) of the International Labour Conference that it authorize, in derogation from article 18 of the Financial Regulations, the financing of the said extra-budgetary account from arrears of income received during the 1998-99 biennium and, if necessary, future biennia, which are in excess of amounts required for the reimbursement of any cash deficits and the financing of the programme and budget, and that it adopt a resolution in the following terms:

The General Conference of the International Labour Organization,

Decides that, in derogation from article 18 of the Financial Regulations, the extra-budgetary account set up to finance the cost of ensuring that computer-based systems in the ILO will function properly at the year 2000 shall be funded from arrears of income received during the 1998-99 biennium to the extent that these arrears are in excess of amounts required to reimburse the 1996-97 cash deficit and to finance the programme for the 1998-99 biennium, and that, should the arrears received during the 1998-99 biennium prove to be insufficient, arrears of income received in future biennia shall be used under the same conditions.

Geneva, 5 March 1998.

Point for decision: Paragraph 7.

Appendix

Addressing the year 2000 problem: Estimated costs

1. GB.270/PFA/8.

2. See GB.271/PFA/1, table 1.