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Preliminary report of the moderator of the Finance Committee

Preliminary report of the moderator of the Finance Committee to the Central Committee

02 September 2002

World Council of Churches
Geneva, Switzerland
26 August - 3 September 2002

Preliminary report of the moderator of the Finance Committee

This meeting of the Central Committee of the World Council of Churches will be a crucial one, as it will have to deal with a very difficult financial situation and to decide on a number of measures that unavoidably will reshape the Council in terms of its organisational set up and in terms of its activities. Management has exhausted possibilities to decrease costs within the current structure and it will be the responsibility of this Committee, during this meeting to address the situation and to recommend policy measures to restore the financial stability of the organisation.

This presentation will cover the following topics :

- a brief review of the financial results for the year 2001,
- a discussion of the situation to date, as at June 30 and of the prospects for the full year,
- a discussion of the budget 2003 and financial plans 2003-2005.

Results 2001: The audited results show an operating deficit of CHF 5.9 million and a decrease in Activity balances of CHF 5.0 million for the year. This compares with a budgeted operating deficit of CHF 1.6 million and a budgeted decrease in Activity balances of CHF 6.9 million. Operating deficit exceeded budget by CHF 4.3 million. This variance is explained by a shortfall on investment results of CHF 3.4 million, by a shortfall on contributions of CHF 1.0 million against budget and by a one time cost of an Early Retirement Programme made available to departing staff of CHF 0.9 million.

Results 2002 to date and full year forecast: The Executive Committee meeting in Denmark in February approved the 2002 budget subject to :

- an immediate reduction in non contractually binding costs of 10 %,
- a reduction of staff costs of 7 to 10 %, effective in 2003.

These measures were implemented and subsequently reviewed and approved by a delegation of the Executive Committee meeting in Geneva last April. The revised budget as approved anticipates a reduction in general reserves of CHF 1.1 million and a decrease in Activity fund balances of CHF 4.6 million. The financial results to date and the prospects for the full year will be discussed and presented to your Finance Committee against this revised budget.

For the period January to June 2002 the Council’s accounts show a total deficit of CHF 2.5 million, of which roughly CHF 0.6 million is a decrease in Activity fund balances and CHF 1.9 million chargeable to general reserves, due to poor investment results and to another projected shortfall in contributions against budget.

For the full year 2002, the Council anticipates further reducing its Activity Fund balances by the budgeted amount of CHF 4.6 million. The Council also sets a target for reduction of the General reserves by CHF 0.9 million only, effectively meeting its budget, in spite of adverse developments in Investment and Contributions income. However, there are risks inherent in meeting such a target: the Council will restructure its reserves, reducing certain property reserves in favour of the creation of an investment reserve to mitigate the investment losses which may be anticipated. In response to the decrease in contributions, meeting the target will also mean further reducing costs by substantial amounts during the remaining months of the year against an already very tight budget. In the Council’s position today these measures are likely to result in operational and programmatic difficulties.

The framework for the budget 2003: The Council today is in an unsustainable position, financially, and is about to assume substantial commitments towards banks in order to meet its obligations. The Committee therefore will be presented with a framework budget showing a total deficit of CHF 3.9 million entirely made up of further decreases in Activity balances demanded by the Council’s partners, but with no further reductions in General Reserves. However meeting these objectives will entail cost reductions of a structural nature – substantially beyond what is achievable today under the current set up - and for which the Central Committee will be asked to assume its strategy and policy setting responsibilities.

The Finance Committee will further be presented with a number of new features in the Council’s planning and funding approaches which are indispensable, in the judgement of staff, to streamline the organisation’s management and control processes. These features relate to:

- a reduction in the number of activities for which designated funding is requested,
- a better coordination between programme and financial planning,
- a ceiling to Activity expenditure that Programme staff can reliably use to plan activities for a full year.