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GEN/FIN 4 Report of the Finance Committee

22 February 2005

1. Approval of the financial statements 2003

The Finance Committee reviewed the audited financial statements of 2003, which reported a net surplus of CHF 1.4 million. The financial statements had been reviewed and approved by the Executive Committee in August 2004.

The Finance Committee recommends that the Central Committee ratify and adopt the 2003 financial statements as audited and published.

2. KPMG Management Report 2003

The audit partner and staff from KPMG and representatives of the Audit Committee met with the Finance Committee to present to management the report on observations arising from the audit mandate 2003. The audit partner confirmed that controls are functioning well in general. Issues of staffing and steps taken to improve accounting standards and controls in the remote offices were discussed.

The Finance Committee received the report, with thanks to the auditors and members of the Audit Committee for their participation.

3. Draft results 2004

The Committee reviewed the draft results for 2004. The results before consolidation indicate a net increase in Unrestricted and Designated Funds of CHF 1.7 million, which is close to the target of CHF 1.8 million. The drawdown in Restricted Funds was CHF 0.7 million, compared with budget of CHF 2.8 million. It was recognized that although improvements had been made in terms of budgeting and forecasting expenditure, results still tended to expose significant variances from plan.

The trend of decreasing income continued. Setting aside membership income and undesignated contributions, programme contributions had decreased by 5% compared with 2003. The Finance Committee affirmed that the target for the General Reserves of CHF 5.2 million at the end of 2005 must be maintained.

The Finance Committee acknowledged and appreciated the work undertaken by the Finance staff. The Finance Committee requests the Staff Leadership Group and programme staff to give greater attention to the quality and accuracy of expenditure forecasting.

4. Appointment of auditors 2004

Further to completion of the tender process reported to Executive Committee in August 2004, the Finance Committee recommends that the Central Committee appoint KPMG as auditors for 2004.

5. Budget 2005

A revised budget 2005 was discussed.

  • Addition of CHF 200,000 to budgeted operating income of CHF 1.2 million for Bossey, bringing the target to CHF 1.4 million, in the light of CHF 1.3 million operating income realised in 2004 and the commitment to raise funds to cover additional loan expenses for the recent renovation of Petit Bossey.
  • Recognition of an expected closing Programme Fund balance of CHF 700,000 at Bossey, being principally the Scholarship Fund, thus correcting an assumption that the Scholarship Fund might be drawn down by more than CHF 300,000 in one year.
  • As a result of the above adjustments, an allocation of undesignated income of CHF 350,000 to be recognized for Bossey.
  • A reduction in budgeted other income for Publications of CHF 350,000 in the light of results below budget in 2004, thus recognizing the need to allocate additional undesignated income to the programme.
  • An overall reduction in direct costs of CHF 350,000 to be implemented in order to ensure that an increase to Unrestricted Funds for General Reserves of CHF 1.3 million is ensured in 2005, together with an increase in the fund for renovation of the Ecumenical Centre of CHF 0.3 million. Thus the target of CHF 5.2 million by the end of 2005 set by the Central Committee in 2003 will be achieved. (For information, the Funds and Reserves Policy approved by the Central Committee in 2003 is attached as Annex A).

With the incorporation of the adjustments above, the revised budget is as set out below:

Restricted

Unrestricted

Designated

Total

CHF million

CHF million

CHF million

CHF million

Funds & Reserves brought forward

21.57

4.16

15.86

41.59

Membership & unrestricted income

6.58

6.58

Contributions income

32.40

32.40

Other income

2.95

2.94

1.04

6.93

Distribution of unrestricted income

5.40

-5.40

0

Total income

40.75

4.12

1.04

45.91

Programme & other costs

26.17

2.50

1.04

29.71

Salaries

14.46

4.37

18.83

Infrastructure

4.33

-4.33

0

Transfers

-0.02

0.03

0.01

Total costs and transfers

44.96

2.52

1.07

48.55

Surplus/(fund drawdown)

-4.21

1.60

-0.03

-2.64

Closing Funds & Reserves

17.36

5.76

15.83

38.95

The Finance Committed further noted that the Staff Leadership Group has undertaken to carry out a review of staff-time allocations in relation to the Assembly. The Finance Committee requests that such allocation be met from within the Council's budget 2005.

The Finance Committee recommends that Central Committee approve the revised budget 2005.

6. Cash Flow Plan, Capital Expenditure and Proposed New Loan 2005

The Finance Committee reviewed the document Cash Flow Plan 2005, which proposed CHF 1.73 million in capital expenditure. The capital expenditure projects are as follows:

Funded by grants received
Completion of Ecumenical Research Centre CHF 0.48m

To be funded from General Reserves
Bossey conference hall equipment, lodge renovation, car park 0.28m
Computers and other equipment, Ecumenical Centre 0.12m

To be funded by a loan guaranteed by mortgage of Ecumenical Centre
Heating system and ventilation, Ecumenical Centre 0.85m
Total CHF 1.73m

The cash flow plan demonstrated that sufficient net current assets would be available to cover CHF 5.2 million of General Reserves after the above investments, assuming a long-term loan of CHF 800,000 is negotiated mid-year for the necessary replacement of the heating system. The interest cost concerned for 2005 over six months would be CHF 15,000; this has been accounted for in the revised budget for 2005.

The Finance Committee requires that the terms for the loan and the reimbursement plan, when negotiated, be submitted to the Officers of the Finance Committee for approval.

The Finance Committee recommends that Central Committee approve the capital expenditure plan for 2005.

7. Functioning of Assembly Finance Committee

The Committee considered the tasks of the Assembly Finance Committee (GEN 5.1).

The Finance Committee believes that helping delegates or advisors to understand the Council's finances and the financial situation represents a challenge, and that the Assembly Finance Committee would therefore be greatly assisted by support from members of the current Finance Committee present at the Assembly.

The Finance Committee recommends to the Central Committee that:

  • one of the Officers of the Finance Committee be appointed to moderate the Assembly Finance Committee;
  • any Finance Committee members present at the Assembly as delegates be appointed to the Assembly Finance Committee;
  • any Finance Committee members present at the Assembly as advisors be invited to attend the Assembly Finance Committee.

8. Conference hall transformation

The Committee heard a presentation and viewed a model of a proposed transformation of the conference hall, following an architectural study performed at the request of the Executive Committee. The proposal included orientation of the hall length-wise, a raised stage, parquet flooring, removal of wood panelling on the walls to improve acoustics, installation of special window vents on the roof for natural lighting, and the opening of the end wall by sliding windows onto a terrace. The overall project cost is CHF 1.1 million.

The Committee observed that the width-wise orientation of the hall during Central Committee is generally preferred, as it brings participants and speakers closer together. Any podium structure ought to be movable to allow for different orientations of the hall. Attention would be required in the orientation of ceiling window vents, considering the impact of light at different times of day and different seasons. The tapestry might be hung in the main entrance hall, the chapel or elsewhere in the conference hall.

The Committee received the proposal with interest and thanks, and requests maximum flexibility in the configuration of the hall to facilitate a variety of uses.

The Finance Committee recommends that both architectural and financing plans be prepared for submission to the Finance Sub-Committee of the Executive Committee in September.

9. Budget 2006

The Finance Committee reviewed the revised framework budget for 2006, recognizing that this framework incorporated a reduction in direct Core Programme costs of CHF 3.2 million compared to 2005. The reduction is due to reduced contributions income and the successful drawdown on restricted programme fund balances in 2005.

The framework budget and its implications were discussed with the Programme Committee. 2006 is recognized as a challenging year, in light of the Assembly and the evaluation of the programmatic work.

Given the uncertainties of the financial year and the need to ensure a contingency, an increase to General Reserves of CHF 1.8 million is proposed.

The Finance Committee believes that the 3 months coverage of salaries in the General Reserves, which will be achieved by the end of 2005, is the minimum level of coverage for the Council. The Committee wishes to move towards a 6 months reserve over the next few years.

A detailed budget is to be developed by the Staff Leadership Group, for approval by the Officers in June.

The framework budget for 2006 is as follows:

Restricted

Unrestricted

Designated

Total

CHF million

CHF million

CHF million

CHF million

Funds & Reserves brought forward

17.36

5.76

15.83

38.95

Membership & unrestricted income

6.58

6.58

Contributions income

27.48

27.48

Other income

2.79

2.94

1.04

6.76

Distribution of unrestricted income

4.77

-4.77

0

Total income

35.04

4.74

1.04

40.82

Programme & other costs

22.18

2.50

1.59

26.27

Salaries

13.52

4.27

17.79

Infrastructure

4.23

-4.23

0

Transfers

0.01

-0.03

-0.02

Total costs and transfers

39.94

2.55

1.56

44.05

Surplus/(fund drawdown)

-4.90

2.19

-0.52

-3.23

Closing Funds & Reserves

12.46

7.96

15.31

35.73

The Finance Committee recommends that Central Committee approve the revised framework budget 2006 and delegate to the Officers the task of approving the revised detailed budget 2006.

10. Petit Bossey Renovation

The renovation of Petit Bossey, the main student residence, was completed at a total cost of CHF 1,018,000 compared with an approved capital expenditure budget of CHF 1,000,000. The Committee reviewed a report describing and illustrating the renovations, which included new plumbing, renewed electricity installation, renewed flooring and complete refurbishment of equipment.

The construction loan of CHF 1,000,000, which was approved by the Officers in June 2004, is now to be converted to a long-term loan. Annual interest costs are CHF 30,000, and will be met by increased net operating income from Bossey. It is planned that Bossey reimburse at a target level of CHF 75,000 per annum.

The Finance Committee received the report and approved the reimbursement plan for the loan.

11. Endowment Fund investment tender

The Finance Committee heard a brief report on the tender offer now in progress.

The Finance Committee received the report, and requested that the results and conclusions be reported to the Officers of the Finance Committee, in order that the appointment of the new investment manager be approved by them, in accordance with the Investment Policy.

12. Report on meeting with representatives of the Pension Fund Board

The Moderator and a member of the Finance Committee had met with the representatives of the Pension Fund Board. The report prepared by the Pension Fund Board moderator, showing a modest lack of coverage in the Pension Fund, was reviewed. The request from the Pension Fund Board that an extraordinary contribution to the Pension Fund be made was discussed. The Finance Committee took note of the Pension Fund Board's request to be informed in advance of decisions concerning staff which might have impact upon the Fund.

The Finance Committee recalled that a legal agreement had been entered into in 2003 to contribute a fixed amount annually to the Pension Fund in the medium term. The Finance Committee considered that, at this time, an additional or extraordinary contribution could not be made.

The Finance Committee requested that the Officers of the Pension Fund Board be invited to the next meeting of the Finance Sub-committee of the Executive Committee in order to:

  • present a report on the Fund's progress following the implementation of corrective measures taken to address the Fund's lack of coverage of pension fund obligations;
  • review and discuss the current strategies of the Pension Fund Board, to be carried forward with the support of both the Finance Committee and the Finance Sub-committee of the Executive Committee.

13. Income development strategy

The Finance Committee heard a report on the WCC's income development strategy, which focuses on strengthening relationships through the WCC Round Table, well-planned visits, and improvements in the quality of administrative work in the funding and reporting cycle.

In 2005, a fund-raising executive will be appointed for the US Office. With a strategy for increased involvement of US member churches in the life of the Council, a substantial increase in income from US sources is expected over time.

A renewed focus on non-traditional funding is encouraged, provided that additional staff time is identified for this purpose.

The Finance Committee received the report with thanks. An in-depth discussion in the light of the pre-Assembly evaluation document raised a number of significant issues:

  • The Council has a unique role; it is in the sharpening of that role and in our communication of that role that our future funding opportunities lie.
  • The management culture and programme methodology need new approaches and increased visibility of programme work and results.
  • Continued efforts in improving the quality of WCC programmatic work and communicating this to funding partners are essential; improved planning, monitoring and evaluation are likely to be of considerable aid in building confidence, trust and the continued support of the major funding partners.

The Finance Committee urges the Staff Leadership Group to give serious consideration to these issues and to take timely action.

14. Membership campaign

The Finance Committee received the report on the membership campaign with gratitude. The Finance Committee agrees to a revised membership contribution figure of CHF 6.3 million for the period 2006-2008 for budgetary purposes.

This figure takes account of the different economic situations in various parts of the world which affect the CHF amount that certain churches can pay. Nevertheless the Committee reminds the Central Committee that the Harare Assembly set a target for membership contributions of CHF 10 million.

The Finance Committee reaffirmed the importance of focusing on steadily increasing the numbers of churches participating financially in the work of the Council through membership contributions.

The Finance Committee reminds the Central Committee of the decision at its 2003 meeting concerning churches which have not paid membership since Harare becoming "non-active members" (a copy of the decision, CC 2003 GEN15, "Report of the Policy Reference Committee I", is attached - see Annex B).

The Finance Committee requests the General Secretary to send letters to churches that have not paid membership since 1998, declaring them to be non-active members, with the attendant consequences - these letters to be sent immediately after this Central Committee meeting.

15. Assembly budget

The Finance Committee reviewed the revised budget for the Assembly. The plans for fundraising to cover the costs of the Assembly, and specifically in relation to the Mutirão, were discussed.

The budget shows a total income of CHF 6.7 million and total expenditure of CHF 7.1 million, including a contingency of CHF 600,000. The difference will be covered by transfers of CHF 400,000 from Restricted Programme Funds.

The Committee expressed concern about the reduction in the communication budget from CHF 1 million to CHF 660,000. It was explained that creative ways of using new communication methods have been developed, reducing the number of printed materials, thus making it possible to reduce the original budget for communication. The Finance Committee commends such innovations in communication methodologies and hopes that thereby the Assembly may be made as broadly accessible as possible.

The Finance Committee recommends that the Central Committee adopt the revised Assembly budget.

ANNEX A

Appendix 4

FUNDS AND RESERVES POLICY

(i) Funds and Reserves Categories

WCC continues to take the necessary steps to categorize its Funds and Reserves into the usually recognized classifications applied by charities, namely:

Unrestricted Funds

Designated Funds (being Unrestricted Funds assigned by internal authorities)

Designated Funds - Fixed Assets

Restricted Funds

Endowment Funds

General Reserves

General Reserves are defined as those funds available to the WCC after meeting its obligations and commitments, without realising fixed assets.

Work is undertaken in consultation with auditors as appropriate, to ensure continued compliance with International Financial Reporting Standards. Report on progress is made to the Finance Committee, and between its meetings to the Finance Sub-committee of the Executive Committee.

(ii) Annual Review of Programme Funds

The Council holds the same obligations towards Programme Funds as if they were Restricted Funds. As above, efforts are made to ensure that as closely as possible, the Programme Funds actually be Restricted Funds.

Programme Fund balances may be divided into two categories, namely Funds to be held for over one year, being principally funds for particular conferences, and Funds for disbursement within the usual 12 month period of their receipt.

An annual review of Programme Funds will be conducted to ensure:

  • the completeness of documentation justifying the categorization as Programme Funds
  • continued correct classifications,
  • appropriate disposition of outstanding balances in accordance with donor wishes,
  • planned timing of disbursement, if disbursement outstanding beyond one year.

Normally, the Programme Funds balances for disbursement within the year for each Core

Programme should remain level, at a value approximately equal to 1/12 to 2/12 of general annual contributions to Programme, excluding multi-lateral sharing. Should there be exceptions to this pattern at the time of review, reasons are investigated and appropriate action taken, including contact with partners to negotiate solutions acceptable to all.

The review is documented by responsible Finance Officers.

(iii) Other Funds categories

Other Funds categories will be kept to a minimum. Reasons for such categories will be documented, and should derive from specific requirement of International Financial Reporting Standards, or from audit recommendation. The Finance Committee will approve any changes in Other Funds categories.

(iv) Transaction authority

Transactions through Reserves accounts as defined in the Balance Sheet of December 31, 2002 are to be approved prior to finalization of the Financial Statements by the Officers of the Finance Committee.

(v) General Reserves

The required balance of General Reserves, as defined at point (i), is three months' salary costs. The WCC Finance Committee monitors the level of General Reserves, and reviews the required balance as appropriate.

(vi) Reporting

The Balance Sheet of the WCC prepared under International Financial Reporting Standards does not require disclosure of the amount of General Reserves as defined at point (i). However, responsible Finance department staff will include in their regular management reports assessments of the available Reserves and inform both the Finance Sub-Committee and Finance Committee of the evolution.

ANNEX B

Extract from 2003 Central Committee Document GEN 15

Report of the Policy Reference Committee I

Compulsory Membership Contribution

Art. I.6.c of the Rules of the World Council of Churches reads:

"The implications of not fulfilling such obligations (as stipulated in Rule I.6.a and b) shall be such as the Central Committee shall decide."

In compliance with this Rule, the Central Committee at its meeting from 26 August - 2 September 2003 decided:

a) Churches who have not paid their membership contribution for a given year are not eligible to receive subsidies for their representatives or delegates to attend meetings of WCC governing bodies, committees and the Assembly and other WCC meetings or events in the subsequent year. A church can at any time recover its eligibility to receive such subsidies by paying its membership contribution of the previous year as well as the year in progress.

b) Churches which have not paid any membership contribution at mid-point between one WCC Assembly and the next will be listed as non-active member churches. This measure will become effective as of 1 January 2004. The status of non-active member church implies that the church is not eligible to send representatives or delegates to meetings of WCC governing bodies, committees and the Assembly, and is not eligible to receive subsidies for other WCC meetings or events. The enforcement of the status of non-active membership shall take effect six months after the church has been informed in writing by the General Secretary.

c) A church which is listed as a non-active member, or has been informed that it will be listed as such, can at any time be restored as an active member by paying the equivalent of two years of the minimum annual membership contribution, or such amount as is agreed in negotiation with the WCC.

Enclosure with 12 December 2003 letter from Konrad Raiser to Official Correspondents of Member Churches.