MANAGEMENT OF CASH RESOURCES
Cash management plays an important role in ensuringthat activities continue without interruption, that
funding is readily available to address new anddeteriorating emergencies, and that surge capacity can be promptly deployed when required. For OCHA, this is all the more critical given its heavy reliance on voluntary contributions which are unpredictable, and uneven in their disbursement.
Unlike regular budget funds, available at the beginning of the year, extra-budgetary funds are only available for use upon actual receipt of cash contributions. Pledges made by donors are firm indications of resources that will become available in the future, but their utilization depends on the receipt of cash against the pledges.
Management of cash resources depends on a number of factors: the timeliness of contributions and the
manner in which donors provide such contributions; the way resources are used for the implementation of activities; UN rules and procedures, which set the parameters governing cash management; the establishment of financial obligations, which set aside the full value of the expenditures, whether or not they have been disbursed; allotment advices; maintenance of operating reserves; and the actual amount of cash on hand.
Timely receipt of contributions is critical for effective cash management.Without the funds, activities
cannot commence or continue uninterrupted. Late receipt of funds results in delayed implementation
of activities. It is thus critical to keep the time lag between pledges and receipt of donor contributions
to a minimum.
The degree of earmarking of contributions by donors also affects the manner in which funds can be used, since earmarked contributions do not allow the flexibility to channel resources where they may be most needed. Excess funds from generously-funded programmes cannot be used for other activities that are underfunded and the implementation of activities can be delayed or postponed subject to the availability of unencumbered cash resources.
UN rules and regulations governing cash flow management stipulate that the financial groundwork for annual programming of extra-budgetary activities must commence in the last quarter of the prior year, through the preparation of cost plans that show overall requirements for the next year and distinguish between authorised staffing and operating requirements. Staff costs comprise the major component of OCHA’s cost plans due to its coordination mandate. To allow for timely renewal of staff appointments, UN rules demand that the funds needed to cover salaries for the following year be available by November of any given year.
OCHA’s management of cash resources is also affected by the financial obligations it raises during the year. Under UN financial rules and regulations, expenditures over US$ 2,500 require the establishment of financial obligations setting aside the full value of the envisaged expenditure, which cannot be used for other purposes until such obligations are liquidated.
In the field, where most of OCHA’s financial obligations exist, the situation is somewhat more complex. Given the inevitable delays in financial reporting from the field, funds set aside for these obligations remain encumbered for longer before they can be released for use in the implementation of activities.
The funding of extra-budgetary activities is further governed by three mechanisms under UN financial regulations and rules: the issuance of allotments, the maintenance of operating reserves, and provision for programme support costs. All these translate to encumbered funds. Thus, only unencumbered cash after allotments have been issued and provision has been made for operating reserves and programme support costs can be used for programming purposes.
Regardless of the level of cash resources appearing in the financial statements, therefore, their use if governed and controlled by the factors described above. These constraints clearly influence and inhibit OCHA’s management of its funds, and results in occasional cash flow problems. This is most evident around the last quarter of the year, when OCHA starts programming activities for the following year and has to set aside the cash resources needed to meet its statutory and management obligations. In order to ensure the uninterrupted implementation of its programmed activities, OCHA has to commit funds for the extension of staff contracts for another year, and the coverage of its operational needs for at least the first quarter of the new year. It was for that reason that OCHA appealed to donors in 2004 for contributions to a Budgetary Cash Reserve Fund (BCRF) of US$ 30 million to meet these statutory commitments.
While it may appear that sufficient funds are available from the carry-overs of the respective accounts, project funding is mostly earmarked. Therefore, the extension of staff contracts and provision for operating costs depend largely on sufficient funding earmarked for each project, or the availability of unearmarked funds that can be used for underfunded projects. Unless donors revert to more unearmarked or loosely earmarked funding, and more timely payment of their contributions, some of the projects that have been chronically underfunded will continue to face severe cash management problems.
Cash Management in 2005
In 2005, OCHA’s cash flow management showed some improvement on previous year. Donors provided a larger share of their contributions unearmarked, allowing OCHA to exercise flexibility in allocating the funds to underfunded activities and other priority requirements, and reducing the imbalance that inevitably occurs with earmarked funding. However, the timeliness of contributions
received was down (See Donor Funding in 2005).
OCHA managed to continue its planned activities with relatively little interruption, given healthy carry-overs from the previous year, but delays in receipt of contributions for field coordination –almost half of which were received only in the last two months of the year – resulted in the postponement of some activities.
For the tsunami disaster, for which there was generous donor support, the level of funding enabled OCHA to meet its operational needs and, as mandated, channel contributions to UN Agencies for their priority needs.
Other than that, the demands of new and deteriorating emergencies clearly taxed OCHA’s cash resources, creating a gap between funding and urgent requirements. Such was the case with the
South Asia earthquake later in the year and in the crises in Sudan and DRC, where the increase in
emergency needs outpaced cash contributions. In these instances, as in other sudden-onset disasters and protracted emergencies, OCHA was compelled to secure advance funding from the FCRF and/or the Unearmarked Sub-Account.
While the shortfalls were adequately covered from these sources to ensure the uninterrupted implementation of OCHA’s most critical activities in these countries, they put considerable strain on the funds in the FCRF and the Unearmarked Sub-Account, depleting OCHA’s cash reserves for new emergencies at the start of 2006.
While there was a marked increase in grants for natural disasters and other humanitarian response
funds earmarked for agencies and NGOs, and channelled through OCHA, these funds are not OCHA’s and cannot be used for its own funding requirements.
In an effort to achieve better use of unearmarked contributions, OCHA reviewed its cash flow on a continuous basis, including the opening balance of both the disaster response and the strengthening trust funds, as well as funds received since the beginning of the calendar year, the prospect of funds on the basis of pledges received, predictable contributions on multi-year arrangements or funds from other sources such as the Special Account for Programme Support.
Tighter monitoring of project implementation and of expenditures allowed for improved cash flow management throughout the year. Since OCHA has to ensure that its extra-budgetary core requirements are fully resourced, the distribution of unearmarked contributions is particularly important.
A Programme and Funding Review Group was also established within OCHA to review and advise on matters related to the management of regular budget and extra-budgetary resources. In particular, the group is tasked with reviewing cash flows against OCHA requirements, identifying trends, constraints
and funding shortfalls, and recommending redeployment of resources whenever necessary. The group also reviews and recommends the allocation of unearmarked donor contributions across different priorities, activities and projects, and reviews requests for advances against the Unearmarked Sub-Account.