May 2011 FINANCE (UPDATE) • No major changes from starting position. • 1-Jan-11 - Income Statement Deficit -$63.0m - Cash deficit -$51.0m • 31-May-11 - Income Statement Deficit -$63.0m - Cash deficit -$55.0m • Adverse increase in CAF (depreciation of NIS) -$3.0m offset by F/C in PSC Income +$3.0m. • Donor Income F/C $458.4m (exclude favourable FX $8.5m) = $449.9m. Budget of $453.0m • Favourable FX on Income +$8.5m – Offset by FX on Derivatives -$8.6m • Timing of future cash receipts critical to effect post July salary payments. • Difficult to meet November payroll, currently inadequate cash for December Payroll.
3 Questions ?
UNRWA Financial Situation 4 Key Areas: 1) Inadequate Working Capital 2) Relative Inadequate Annual Income 3) Adverse Internal and External Factors & 4) Financial Effect of Migration to IPSAS 4
Inadequate Working Capital – General Fund Usual Working Capital (WC) for most entities is in excess of 3 month’s expenditure UNRWA spends @ $50m per month, UNRWA’s WC has declined over last 10 years from @ $80m to be $42m at 1 Jan. 2011 UNRWA’s $42m – comprises only $8m cash 5
Relative Inadequacy of donor Income Due to relative inadequacy of income – UNRWA typically starts each year with a deficit Rate of growth in expenses has outstripped growth in income 2010 starting deficit - $53m 2011 starting deficit - $63m 2012 (draft) starting deficit - $73m 2013 (draft) starting deficit - $88m Structural deficit @ -$100m 6
Internal & External Factors Structurally costs increase at least $20m p.a. (Wages + $12m, Severance +$4m, Others +$4m) Excl. e-Health, Education Reform, ERP, etc Impact on wages through Middle East changes OECD countries economic challenges 2012/13 shaping up as a very challenging period 7
Severance Provision & IPSAS (Int. Public Sector Accounting Standards) UNRWA is legally required to pay severance to local staff – liability At 1 Jan. 2011 severance liability -$330m, expect 2012 to -$370m Due to IPSAS, severance liability first time on Balance Sheet Expect in 2013 UNRWA’s net equity will be negative – Audit implications. 8
9 Questions ?
UNRWA Financial Reforms UNRWA is serious about reforms and Finance with many Depts have been active in seeking to effect appreciable reform. Financial Reforms covering: Reporting Financial Reporting Project Reporting Inventory Management Treasury Management IPSAS, (Int. Public Sector Accounting Standards) ABC (Activity Based Costing) & Streamlining of Costs 10
Reporting From April 2010 UNRWA has effected a hard close of Monthly Accounts. Initially on working day (WD) 7, after 5 months WD5, April 2011 on WD 4 As per UNBOA – UNRWA one of very few UN entities effects monthly hard close of GL. GF fully accrued. Full Monthly Report from Dec 2010 – forwarded to donors. 11
Reporting New Fixed Assets and Accounts Receivable sub ledgers – go live July/August 2011 Re programme ERP to effect a clear delineation of all cash transactions per Fund Group (GF, Projects, EA & PF) Enhanced, standard system generated project reports, by donor, Field. For YTD, LTD and E EOY – go live August 2011 Freezing and aging of all hard commitments – new active Standard system generated report for all UN costs – replace manual processes – active July 2011 12
Financial Reporting Standard system generated donor reports – replaces tedious manual process – active July/August 2011 New standard system generated head count by occupation – per Field/Dept – active July/August 2011 New standard system generated expenditure reports for UNRWA’s largest project – Nahr El Bared – active July/August 2011 13
Project Reporting UNRWA commenced 1 Jan 2011 with 832 “active” projects. Just over 300 projects closed Work on closing over 250 projects by August 2011 Post August & pre December 2011, effect full accrual accounting for the top 80% of projects by value (@ $100m) Project reporting, in all material respects fully accrued pre end of 2011 14
Inventory Management Pre 2011, annual stock take for the 5 Field warehouses Commencing 2011, each quarter (March, June etc), quarterly stock take each warehouse Commencing June 2011 manual count of medical stores, One Field. 15
Treasury Management Effected inaugural FX hedges for 2011 donor income – stability of income & E EOY forecast Detailed 2 monthly & rolling 12 month cash flow forecast Having short listed preferred Bank, commence internet banking in August 2011 & roll out to all Fields within 6 months, bias – move away from cash & cheque transactions – quicker, safer, less time consuming 16
IPSAS UNRWA to be an early adopter of IPSAS – as from 1 January 2012 IPSAS not reliant on purchasing new ERP Projects – accrual accounting – August – December 2011 20 UNRWA Policies IPSAS compliant – effected 45 UNRWA Financial Technical Instructions IPSAS compliant – August 2011 New Sub-ledgers (Assets and Accounts Receivable) and Reports 17
Activity Based Costing (ABC) – General Fund Select preferred vendor end of June, 2011 Project commence in July and estimated to conclude December 2011 Project deliverables: Identification, definition and costing of all salient activities per Dept & Field Identification and weighting of the cost drivers per activity Full absorption costing of all key activities for all Fields – front line activities Clearer understanding of the cost differentials in provision of services per Field What can be done to stream line costs of comparable activities per Field ABC model, aligned with ERP system, each month generate system generated reports, costing key activities per Field Dept, actuals tie to each month’s actual costs Each key Field activity appraised with reference to performance metrics 18
Streamlining of Costs UNRWA Management have agreed to a series of initiatives that are planned to generate over $20m of savings per year I.e. – agreement of 2% head count reduction per year Finance – effect plan to centralize the current 6 Accounts Payable teams – to 1 central location, pre end of 2011 – savings $400K p.a. 19
20 Questions ?
21 Past Biennia Expenditure and draft 2012/13 Budget • Past Biennia Expenditure and draft 2012/13 Budget covering: • General Fund • Projects • Emergency Appeals in Gaza and WB
23 General Fund – Expenditure and Draft Budget
Emergency Appeal – Gaza and West Bank Expenditure and Draft Budget in US$M 25
Detailed Breakdown of Support Department Costs ($000 – Actual + Draft Budget)
Note 1 Adhoc increase in 2010 $300k due to construction and maintenance of HQ Jerusalem office Note 2 Increase in 2008 is due to Accrual of Area staff annual leave encashment of +$2.4m. Note 3 Increase in 2010 due to +$4m leave encashment and +$3m towards the costs of strike in West Bank Note 4 Increase of +$2m in 2007 is due to Construction & Remodeling of new building in HQA, and new building for Field Office Jordan. Note 5 Inventory credit of +$25m in 2007 is due to consumption from the previous years inventory. Note 6&7 Increase in costs +$1m due to expansion of SWAN network for users and disaster recovery plan costs Note 8 Increase of +$2m in 2007 due to accounting for depreciation / capitalization Note 9 Increase in 2011 is due to expected CAF expenditure increase + $3m, expected +$2m unbudgeted annual leave and +$2m other accruals. Note 10 Increase of +$400K in 2010 is due to increased staff and consultancy services. Note 11 Increase in 2011 EOY Forecast in ERD is due to transfer of PIO and Cairo office costs from Com Gen to ERD. Note 12&13 Represents the Head Quarters Reserves EOY(F/c) as on May 2011+$5.4m, $12.6m for 2012-13 and will be reallocated to other Programmes. 29 Explanation Note to Support Department Costs
MTS costing – Assumptions and Main Results 30 • MTS costing is based on the individual sections per field in the MTS • The majority of recurrent costs are staff cost and cost for relief services • One time cost mostly refer to additional installations mainly schools • Reform costs are only partially included • GFO has not yet calculated the recurrent costs for the additional schools nor the UNESCO teacher norm • SFO needs to confirm the recurrent or one time nature of the needs • Headquarters‘ initiatives are not included
MTS costing – What would it cost to implement the full MTS in 2011 in USD millions 31 USD m