1 EURO REPORTING – Doing Business With The EC –

2 Index  Relationship Overview  The FAFA Principles  Gain/Loss Scenarios  Financial Risk  Possible Solutions  Objective of the Reports  Description of Reports

3 Relationship Overview  The Financial and Administrative Framework Agreement (FAFA) governing our partnership with the European Commission (EC) was last signed in April of 2003  UNDP’s overall track record in Euro reporting has not been satisfactory  Need for significant improvements in our reporting performance if the current level of funding is to be maintained

4 The Principles (I) Reporting  Covers the whole of the Action whether it ’ s wholly financed or co-financed  Report to be submitted in Euro  Report may be drawn from financial statements denominated in US Dollars  Budgetary control to be done in Euro Payment Schedules  Advance payment of 80%-95% for full action or 12 months of the Action  Additional payment requested provided at least 70% expenditure has been incurred

5 The Principles (II) Multi vs. Single Donor  All the advantages in signing a multi-donor contract  5%-7% participation by second donor Eligible Direct Costs  Currency exchange losses are not considered Interest Rates  EC can claim bank interests except if they are participating in a multi-donor action Amendments  When a transfer between budget headings means a variation of 15% or more of the original amount, UNDP must request an amendment to the budget

6 Gain/Loss Scenarios Payment Schedule Pre-Financing  Delay in initial payment at beginning of project Last Payment  UNDP pre-finances up to 20% of the final agreed percentage from other funding sources Currency Fluctuation  Occurs due to exchange rates fluctuation and can lead to gains or losses  Funding mismatch as we receive in Euros and pay in Dollars

7 Possible Solutions  Strong negotiation of a lower last tranche w/ minimum being 5%  Regular monitoring of both the Euro and the Dollar budget  Procurement of goods and services should include a requirement for pricing in Euros (does not matter if using the report)  Contracts related to the projects should be issued in Euros (same as above)  To the extent possible, all disbursements should be in Euros (same as above)  Creation of a reserve fund (RBEC)

8 Objective of Reports  To provide COs with a management tool for monitoring budget, fund availability and expenditures in both USD and Euro in order to manage their currency exposure  To facilitate timely reporting and improve our overall reporting performance  To implement a standard approach for converting non- euro expenditures into Euro  To automate the preparation of the report and reduce the current extensive manual effort required for reporting to the EC  To facilitate budget monitoring in multi currency to meet both the EC’s, as well as UNDP’s own financial reporting requirements.

9 External Report  For submission to the EC  Provides a summary of budget, contribution, available budget and fund, and expenditure  Provides the % of the contribution received that has been utilized, and is the first step in initiating a request for the next installment.

10 Internal Report  Report shows budget and expenditure data both in USD and in Euro.  Shows the outstanding (or pending contributions) by deducting the total contributions received so far from the total budget entered in Atlas. The pending contributions are computed both in Euro and USD.  Pending contributions in Euro are “revalued” by applying the latest exchange rate of Euro to USD.  Difference of the revalued pending contributions and the original pending contributions based on the USD budget would represent the Gain/(Deficit) that the office would incur as of the reporting date.  “Computed” Gain/(Deficit) impacts the budgetary spending limit and requires a revision of the budget to reflect the Gain/(Deficit) to avoid any overspending which could happen if the office monitors project using only the USD budget status.  The gain/deficit only generates a budget revision but no accounting entry in the Atlas results.

11 EU Categories  EU budget categories have been optimized to generate the reports in the format required by the EC.  Expenditures are reported based on the Account chartfield used when processing financial transactions, but the expenditure accounts are mapped to the EU budget categories to generate the reports in EC format.  When signing a project with the EC there might be more sub-categories than the ones present in Atlas, so when signing new projects it would be ideal that the budget is not agreed upon at the detailed level but rather at the broader lever. UNDP only has to report what it signs with the EC.  The report displays the budget data based on the EU category entered in Atlas. If EU categories are not entered in the budget, the report will use the budgetary account chartfield originally entered, mapped to the corresponding EU category.

12 Budget  The FAFA calls for both budgetary control and financial reporting in Euro. UNDP’s base currency is USD and thus all of its budgetary controls have been enforced only in USD.  Reports have been developed to facilitate budget monitoring in multi currency to meet both the EC’s, as well as UNDP’s own financial reporting requirements.  An EU Budget Category EUX12 (Adjustment of Budgetary Spending) has been introduced to allow for the adjusting of budgetary spending limit resulting from currency fluctuation without this showing on the budget  The figures represent the budget for the fiscal year(s) of the reporting period shown at the top of the report. Budget figures mirror the latest budget revision for each fiscal year, converted into Euro, using the exchange rate of the date that the budget revision was sent to commitment control.

13 Expenditures  Expenditure includes encumbrances and disbursements processed during the reporting period.  The Euro values are determined by converting the USD disbursement figures using the UN exchange rate of the transaction accounting date.  Encumbrances are converted to Euro based on the accounting period of the Purchase Order.  Expenditures are summarized by EU categories, through a mapping process that links existing UN Charts of Accounts to these categories.

14 Contributions The Euro and USD values of contributions are derived based on the exchange rate of the contribution accounting date as received in the Bank Account.

15 Procurement  A funding mismatch associated with Euro reporting is that we receive Euros or Euro- denominated currencies for our projects, yet we make disbursements made in other currencies.  Procurement of goods and services should include a requirement for pricing in Euros (does not matter if we use the report).  Contracts related to the projects should be issued in Euros (same as above).  To the extent possible, all disbursements should be in Euros (same as above).