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RUEHRN/USMISSION UN ROME 1210

UNCLAS SECTION 01 OF 03 UN ROME 000052 
 
SENSITIVE 
SIPDIS 
 
NSC FOR CHRIS PRATT, USDA FOR RIEMENSCHNEIDER/DOUVELIS 
 
E.O. 12958: N/A 
TAGS: EFIN EAGR EAID PREL UN FAO
SUBJECT: FAO FINANCE COMMITTEE REVIEWS SIGNIFICANT BUDGET INCREASE 
REQUEST; REPORT OF 128TH FINANCE COMMITTEE SESSION 
 
REF: A. STATE 84087 (NOTAL) - DEMARCHE ON PWB 
     ¶B. UNUN 51 (NOTAL) - FAO FIN CHIEF ON REVISED PWB 
 
¶1.  (U) This message is sensitive but unclassified.  Please 
handle accordingly. 
 
 
 
Summary 
 
------- 
 
¶2.  (SBU) The FAO Finance Committee (FinCom) held its 128th 
session from July 27-31 in Rome, giving particular attention to 
a controversial biennial budget proposal tabled by FAO 
management, representing not only an entirely new system for 
results-based budgeting but also a proposed budget increase 
totaling near ten percent over the previous biennium.  Of 
particular concern to members was a FAO proposal to fund the 
bulk of its reform program through voluntary contributions, vice 
the core assessed budget.  Responding to member concerns, 
management agreed to provide additional information on the new 
budget framework to allow comparisons with the previous budget. 
Likewise, the Finance Committee agreed to hold a "special 
session" in mid-September to review the proposed Program of Work 
and Budget.  On other issues, members discussed financing for a 
planned November food summit hosted by FAO, including a Saudi 
offer to pay logistical costs of up to USD 2.5 million.  Members 
also heard details of FAO plans to address "Enterprise Risk 
Management" via internal means, plans by FAO to re-advertise for 
its Inspector General position, deferred agreement on draft 
terms of reference on a "Ethics Committee, and confirmed that an 
Ethics Officer should be hired by September.  (Note:  Septel to 
provide latest news on FAO plans to revise its draft PWB, 
including funding modalities for its reform package.  End note). 
 End summary. 
 
 
 
Draft PWB - Significant Increase Requested; More Info Needed 
 
--------------------------------------- 
 
 
 
¶3.  (SBU) Earlier in July, FAO released a controversial draft 
"Program of Work and Budget" (PWB) for the 2010-2011 biennium. 
Despite repeated assurances over the past year from Director 
General Diouf and his senior staff that this "maintenance" PWB 
would not include real growth, and would include the costs of 
FAO's reform program (the "Immediate Plan of Action, or IPA"), 
the draft PWB represents a seven-plus percent increase (not 
including exchange rate calculations).  Most troubling, however, 
was FAO's inclusion of 80 percent, or roughly USD 48 million, of 
the cost of IPA implementation under a "Core Voluntary 
Contribution" column of the PWB.  Diouf explained his decision 
by pointing to the November 2008 Conference resolution which 
states that IPA implementation will be "treated under the PWB" - 
an approach that nearly all members flatly rejected during 
Finance and a concurrent Program Committee session.  During a 
prepared speech to a joint session of the Finance and Program 
Committees on July 29, Diouf told members FAO would review the 
cost estimates associated with the IPA but did not commit to 
adding IPA costs under the net appropriation. 
 
 
 
¶4.  (SBU) Responding to the draft PWB, particularly its 
significant proposed budget increase, the U.S. delegate (Vice 
Chair of the FinCom) complained that the proposal ran counter to 
earlier assurances by Diouf and his senior managers regarding 
its size and IPA funding.  While the new results-based structure 
and format - as called for in the IPA - was a welcome reform, 
the claim by FAO that the draft PWB represented a "maintenance 
 
UN ROME 00000052  002 OF 003 
 
 
budget" was incorrect, since the document contained significant 
programmatic and budgetary shifts.  In the absence of two 
documents - one in the former budget format and another in the 
new format - clear comparison and analysis was extremely 
difficult.  Following U.S. insistence on this point, echoed by 
many other delegations, management agreed to provide additional 
information to enable a programmatic comparison of the old and 
new budgets, "to help in their further understanding and 
deliberation of the proposals."  The same outcome resulted from 
the joint session of Finance and Program Committees, whose 
report likewise questioned the proposed IPA funding modalities 
and the need for additional information.  Responding to the need 
for additional clarification and debate, the Finance Committee 
agreed to a one-day "Special Session" in mid-September. 
 
 
 
Finances for November Food Summit; Saudi "Generosity" 
 
---------------------------------- 
 
 
 
¶5.  (SBU) During discussions on planned financing for the 
November Food Security Summit in Rome, members were informed 
that the Saudi Arabian King had written the DG on 24 July 
offering to pay the full logistical costs for the Summit, 
estimated by FAO at USD 2.5 million.  Through questioning by the 
U.S. Vice Chair, it was clear that no other contributions for 
the Summit had been confirmed, apart from commitments by the 
cities of Rome and Milan for side events during the Summit. 
With little to no help from other FinCom members, the U.S. Vice 
Chair insisted on language in the final report regarding the 
paramount importance of FAO's IPA implementation, the absence of 
calculations of staff costs for the Summit, and insistence on a 
further review of Summit finances during the next FinCom meeting 
in September.  A request by the Vice Chair for additional 
information and transparency on the two trust funds being 
created for Summit financing was resisted by both Management and 
the Egyptian FinCom Chair (Note:  Shortly after the "generous" 
Saudi pledge was announced, news leaked that a new head for the 
FAO's Regional Office in Cairo had been selected, with no other 
candidates interviewed - a Saudi prince.  End note). 
 
 
 
Enterprise Risk Management; Inspector General Replacement 
 
-------------------------------- 
 
 
 
¶6.  (SBU) FinCom members endorsed Management plans to implement 
an organization-wide Enterprise Risk Management (ERM) strategy 
that would be internally-led, vice a more expensive external 
consultant-led process as called for in the IPA (and by USUN 
Rome).  The effort would be conducted by the Office of the 
Inspector General (OIG) and would be assisted by consultants 
from Deloitte.  Furthermore, the ERM concepts would be 
mainstreamed within the organization and included as an aspect 
of the new performance evaluation system (PEMS) being 
implemented in FAO.  Some delegates requested terms of 
reference, a roadmap, and cost details on the new ERM strategy. 
(Note:  In private, the FAO DDG, an Amcit, told USUN Rome that 
FAO was currently suffering "consultancy fatigue" after 
conclusion of the Root and Branch Review by Ernst and Young, and 
the decision to handle ERM internally was influenced heavily by 
that factor.  Both privately to the DDG and in FinCom meetings, 
the U.S. representative pointed to the value of continued 
external evaluations of FAO management and structures, as a 
means to avoid "stove-piping" and "risky" management practices. 
This included an admonition to FAO regarding the importance of 
"proper financial prudence throughout the Organization" - a 
 
UN ROME 00000052  003 OF 003 
 
 
point included at USUN insistence in the final report.  End 
Note.)  Finally, the FinCom was informed that the selection 
process for a new OIG (the current OIG, an Amcit, will retire by 
the end of 2009) remained ongoing, and the position would be 
re-advertised shortly, as the initial process did not result in 
a selection by the DG.  In any case, FinCom members were told 
that the process should be completed by end-2009. 
 
 
 
Ethics Committee, Ethics Officer 
 
--------------------------- 
 
 
 
¶7.  (SBU) During discussions on draft terms of reference for a 
proposed Ethics Committee at FAO (a recommendation included in 
the IPA), the U.S. Vice Chair called for deferral of the issue, 
pending the outcome of a UN system-wide approach on ethics being 
pursued by the UN Secretariat and the UN Chief Executives Board. 
 Members agreed to the U.S. suggestion, which also paralleled a 
recommendation found in the 2008 External Auditor's report to 
first hire an Ethics Officer who could support formation of an 
Ethics Committee.  On the hiring issue, members were informed by 
Management that the hiring process for a new Ethics Officer was 
near completion, and the officer should be on board by 
September.  This new officer would be responsible for 
implementation of a new system-wide ethics program, a new 
whistle-blower policy, and a financial disclosure policy for 
senior FAO employees and those with financial responsibilities. 
 
 
 
Comment 
 
------- 
 
 
 
¶8.  (SBU) The issue of the draft PWB and its new results-based 
budgeting format dominated discussions of both the FinCom and 
Program Committees, especially the issue of IPA funding.  This 
issue will continue to be at the center of FAO discussions 
leading up to the November Conference (to be chaired by the 
United States, and following immediately upon the Food Summit). 
While it may not be surprising that FAO is seeking a funding 
increase given the renewed international focus on food security, 
the manner in which it has presented its draft PWB has left many 
delegations disappointed.  In particular, no states openly 
supported FAO's inclusion of the IPA costs under "voluntary 
contributions."  Regarding the proposed PWB, which appears to 
contain a nearly ten percent increase in member assessments (if 
IPA costs are included), many states are opposed to the plan, 
and are likely to join us in demanding a lower budget.  Canada, 
Australia, Mexico, Japan, Germany, Switzerland, and other key 
partners are likely to demand "zero nominal growth" as a 
starting point for negotiations, and will likely insist that IPA 
costs be included in the net assessment.  As we begin 
consultations with key partners on the budget, we may want to 
stress the large number of members already in arrears, the 
difficult global financial situation, and the need for FAO 
reform to precede  any major budget increase for the 
organization - particularly after the 17 percent increase for 
the '08-09 assessment.  We also need to be specific with FAO on 
what information we need to help us make the necessary 
comparisons and analysis on programmatic budget requests. 
GLOVERMP