General Assembly A/72/5/Add.1* Official Records Seventy -second Session Supplement No. 5A United Nations Development Programme Financial report and audited financial statements for the year ended 31 December 2016 and Report of the Board of Auditors United Nations  New York, 2017 * Reissued for technical reasons on 11 September 2017. Note Symbols of United Nations documents are composed of letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. ISSN 0257 -0815 Contents Chapter Page Letters of transmittal and certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 I. Report of the Board of Auditors on the financial statements: audit opinion . . . . . . . . . . . . . . . . 7 II. Long -form report of the Board of Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 A. Mandate, scope and methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 B. Findings and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1. Follow - up of recommendations from previous years . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2. Financial overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3. Financial reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4. Programme and projects management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5. Multi -Partner Trust Fund Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6. Harmonized approach to cash transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 7. Procurement and contract management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8. Human resources management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 9. Assets and inventory management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10. Information and communications technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 C. Disclosures by management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 1. Write -off of losses of cash, receivables and property . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2. Ex gratia payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3. Cases of fraud and presumptive fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 D. Acknowledgement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Annexes I. Status of implementation of recommendations up to the year ended 31 December 201 5 . . . 51 II. Disclosure by management of cases of fraud and presumptive fraud . . . . . . . . . . . . . . . . . 85 III. Financial report for the year ended 31 December 201 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 B. Financial performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 C. Budgetary performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 D. Financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 E. Accountability, governance and risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 17-11215 3/187 F. Looking forward to 2017 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 IV. Financial statements for the year ended 31 December 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 I. Statement of financial position as at 31 December 201 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 II. Statement of financial performance for the year ended 31 December 2016 . . . . . . . . . . . . 107 III. Statement of changes in net assets/equity for the year ended 31 December 201 6 . . . . . . . 108 IV. Cash flow statement for the year ended 31 December 2016 . . . . . . . . . . . . . . . . . . . . . . . . 109 V. Statement of comparison of budget and actual amounts (regular resources) for the year 111 ended 31 December 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to the financial statements 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 4/187 17-11215 Letters of transmittal and certification Letter dated 18 April 2017 from the Administrator, the Assistant Administrator and Director, Bureau for Management Services, and the Chief Finance Officer and Comptroller of the United Nations Development Programme addressed to the Chair of the Board of Auditors Pursuant to financial regulation 26.01, we have the honour to submit the financial statements of the United Nations Development Programme (UNDP) for the year ended 31 December 2016, which we hereby approve. Copies of these financial statements are also being transmitted to the Advisory Committee on Administrative and Budgetary Questions. We, the undersigned, acknowledge that: • The management is responsible for the integrity and objectivity of the financial information included in these financial statements. • The financial statements have been prepared in accordance with the International Public Sector Accounting Standards (IPSAS) and include certain amounts that are based on management’s best estimates and judgments. • Accounting procedures and related systems of internal control provide reasonable assurance that assets are safeguarded, that the books and records properly reflect all transactions and that, overall, policies and procedures are implemented with an appropriate segregation of duties. UNDP internal auditors continually review the accounting and control systems. Further improvements are being implemented in specific areas. • The management provided the Board of Auditors and UNDP internal auditors with full and free access to all accounting and financial records. • The recommendations of the Board of Auditors and UNDP internal audito rs are reviewed by the management. Control procedures have been revised or are in the process of being revised, as appropriate, in response to those recommendations. We each certify that, to the best of our knowledge, information and belief, all material transactions have been properly charged in the accounting records and are properly reflected in the appended financial statements. (Signed ) Helen Clark Administrator (Signed ) Jens Wandel Assistant Administrator and Director Bureau for Management Services (Signed ) Darshak Shah Chief Finance Officer and Comptroller Bureau for Management Services 17-11215 5/187 Letter dated 30 June 2017 from the Chair of the Board of Auditors addressed to the President of the General Assembly I have the honour to transmit to you the report of the Board of Auditors on the financial statements of the United Nations Development Programme for the year ended 31 December 2016. (Signed ) Shashi Kant Sharma Comptroller and Auditor General of India Chair of the Board of Auditors 6/187 17-11215 A/72/5/Add.1 Chapter I Report of the Board of Auditors on the financial statements: audit opinion Opinion We have audited the accompanying financial statements of the United Nations Development Programme (UNDP), which comprise the statement of financial position (statement I) as at 31 December 2016 and the statement of financial performance (statement II), the statement of changes in net assets/equity (statement III), the cash flow statement (statement IV) and the statement of comparison of budget and actual amounts (statement V) for the year then e nded, as well as the notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of UNDP as at 31 Decemb er 2016, and its financial performance and cash flows for the year then ended, in accordance with the International Public Sector Accounting Standards (IPSAS). Basis for opinion We conducted our audit in accordance with the International Standards o n Auditing. Our responsibilities under those standards are described in the section below entitled “Auditor’s responsibilities for the audit of the financial statements ”. We are independent of UNDP, in accordance with the ethical requirements relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with those requirements. We believe that the audit evidence that we have obtained is appropriate and sufficient to provide a basis for our opinion. Information other than the financial statements and the auditor’s report thereon The Administrator is responsible for the other information, which comprises the financial report for the year ended 31 December 2016, contained in Chapter III below, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, on the basis of the work that we have performed, we conclude that there is a material misstatement in the other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the financial statements The Administrator is responsible for the preparation and fair presentation of the financial statements in accordance with IPSAS and for such internal control as management determines to be necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 17-11215 7/187 A/72/5/Add.1 In preparing the financial statements, management is responsible for assessing the ability of UNDP to continue as a going concern, disclosing, as applicable, matters related to the going concern and using the going - concern basis of accounting unless management intends either to liquidate UNDP or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the financial reporting process of UNDP. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of those financial statements. As part of an audit in accordance with the International Standards on Auditing, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is appropriate and sufficient to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting one resulting from error, as fraud may involve collusion, forgery, intentional omission, misrepresentation or the overriding of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of UNDP. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Draw conclusions as to the appropriateness of management’s use of the going concern basis of accounting and, on the basis of the audit evidence obtained, whether a material uncertainty exists in relation to events or conditions that may cast significant doubt on the ability of UNDP to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our o pinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause UNDP to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, amo ng other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 8/187 17-11215 A/72/5/Add.1 Report on other legal and regulatory requirements Furthermore, in our opinion, the transactions of UNDP that have come to our notice or that we have tested as part of our audit have, in all significant respects, been in accordance with the Financial Regulations and Rules of the United Nations and legislative authority. In accordance with article VII of the Financial Regulations and Rules of the United Nations, we have also issued a long - form report on our audit of UNDP. (Signed ) Shashi Kant Sharma Comptroller and Auditor General of India Chair of the Board of Auditors (Signed ) Mussa Juma Assad Controller and Auditor General of the United Republic of Tanzania (Lead Auditor) (Signed ) Kay Scheller President of the German Federal Court of Auditors 30 June 2017 17-11215 9/187 A/72/5/Add.1 Chapter II Long-form report of the Board of Auditors Summary The United Nations Development Programme (UNDP) was established in 1965 by the General Assembly. UNDP partners with entities and people at all levels of society to help build nations that can withstand crisis and drive and sustain growth that improves the quality of life for everyone. UNDP has its headquarters in New York, but works primarily through its offices in 170 countries and territories. UNDP provides a global perspective and local insight to help empower lives and b uild resilient nations. The Board of Auditors has audited the financial statements and reviewed the operations of UNDP for the year ended 31 December 2016. The audit was carried out at headquarters in New York and through visits to the country offices in Albania, Bangladesh, Honduras, Montenegro, the Republic of Moldova and Uruguay. Scope of the report The report covers matters that, in the opinion of the Board, should be brought to the attention of the General Assembly and has been discussed with UNDP management, whose views have been appropriately reflected. The audit was conducted primarily to enable the Board to form an opinion as to whether the financial statements presented fairly the financial position of UNDP as at 31 December 2016 and its financial performance and cash flows for the financial year then ended, in accordance with the International Public Sector Accounting Standards (IPSAS). The audit included a general review of financial systems and internal controls and a test examination of the accounting records and other supporting evidence to the extent that the Board considered necessary to form an opinion on the financial statements. The Board also reviewed UNDP operations under regulation 7.5 of the Financial Regulations and Rules of the United Nations. This requires the Board to make observations with respect to the efficiency of the financial procedures, the accounting system, internal financial controls and, in general, the administration and management of UNDP operations. The report also includes commentary on the status of implementation of recommendations of previous years. Audit opinion The Board has issued an unqualified audit opinion on the financial statements of UNDP for the period under review, as reflected in chapter I of this report. Overall conclusion The Board did not identify significant deficiencies in the preparation and presentation of the financial statements. However, the Board continues to note issues similar to those reported in its previous reports including on delays in certification of the combined delivery reports, inadequacies in project oversight, monitoring and reviews and delays in the closing of completed projects. Others deficiencies include recurring cases of duplicate active vendors and vendors who had bank accounts with the same account number and account details, lack of a joint harmonized approach to cash transfers assurance plan for implementing partners shared by UNDP with other United Nations agencies, and weaknesses in clearance of aged prepayments to vendors 10/187 17-11215 A/72/5/Add.1 and in the IPSAS dashboard, documentation of significant changes in enrolment records of UNDP retiree participants in after - service health insurance which was used to determine actuarial valuation results and after -service health insurance liability, and defining the business requirements for disaster recovery plans, including reviews and testing of disaster recovery plans. The Board urges UNDP to act on the deficiencies noted with a view to preventing recurrences and improving its operations. Key findings The Board highlights the following key findings: Financial reporting Delayed clearance of prepayments to vendors and IPSAS dashboard In its previous report (A/71/5/Add.1), the Board reported cases of delayed clearance of prepayments that had exceeded the IPSAS dashboard indicator of 180 days from the scheduled dates of payments. In 2016, the Board continued to note similar cases, where prepayments amounting to $13.71 million (35 payment vouchers), which were made between 2013 and 2016, had not been cleared as at 31 December 2016. According to management, the prepayments noted related to Global Fund to Fight AIDS, Tuberculosis and Malaria procurement of drugs and civil work contracts, which have a long lead time of more than 180 days. Therefore, while the prepayments are classified as “red -rated” because their periods of clearance exceed the cut -off of 180 days in the IPSAS dashboard, the delivery of the related items are still within the period stipulated in the contract. However, the Board considers that UNDP needs to configure the IPSAS dashboard properly so that there is a red rating of prepayments only when clearance exceeds the period stipulated in the contract rather than a blanket rating for all prepayments exceeding 180 days, which distorts the purpose of the dashboard in drawing management’s attention to genuine delays that need management follow -up. Enrolment records of UNDP retiree participants in after -service health insurance The actuarial valuation results in the actuarial report for 2016 were based on a roll -forward number of the retiree after - service health insurance participants from the enrolment records of 31 December 2015 which had 3,327 participants. The roll - forward number of retirees differed by 167 fewer participants from the figure of 3,494 participants, which was confirmed by the Health and Life Insurance Section as the actual number of UNDP retiree after -service health insurance participants according to the enrolment records as of 31 December 2016. While the financial effect of this difference has not been determined, the Board considers that it may affect the actuarial valuation results and after - service health insurance liability at year end. Management explained that by using the roll -forward and demographic assumptions, the actuary projected an expected increase of 148 retirees in the model, which thus made the remaining figure of 19 retirees insignificant. However, the Board is concerned that what constitutes a significant difference has not been anywhere defined or specified. Programme and project management Review and evaluation of United Nations Development Assistance Framework According to the United Nations Development Assistance Framework (UNDAF) calendar at two country offices visited, the annual reviews of the Development Assistance Framework were to have been conducted from 2012 to 2016, with the progress review to be completed in 2014 and a final evaluation in 17-11215 11/187 A/72/5/Add.1 2015. However, Framework annual reviews were not conducted as scheduled. In one country office, the Framework annual reviews had not been conducted for four years, from 2012 to 2016, while the Framework progress review had not been conducted in 2014. In another country office, the United Nations Development Assistance Framework annual reviews had not been conducted for 2014 and 2015. Management attributed the failure to perform the reviews to the change of officials of implementing partners, inadequate ownership and lack of a timely response from the implementing partners’ counterparts. The Framework annual reviews and progress review are crucial to enabling the United Nations country team and partners to m ake timely decisions based on evidence of results that will enhance subsequent performance throughout the programme cycle. Certification of the combined delivery reports In its previous reports (A/71/5/Add.1 and A/70/5/Add.1), the Board reported on delays in the certification of the combined delivery reports. In the current period, the Board continued to note delays in the signing of the reports in four out of six country offices visited. Of the 228 combined delivery reports reviewed by the Board for the first, second and third quarters, with due dates in April, July and October 2016, respectively, 186 (from 76 projects) were signed with delays rangin g from one to six months. The delays in the certification and signing of the reports means that any errors and misstatements in expenditure reports in previous periods would not be corrected in a timely manner; and this would consequently affect the projec t’s overall expenditure figures. UNDP attributed the delays in the signing of combined delivery reports to the unavailability of the responsible desk officers or the national project directors and frequent changes of those directors. Other country offices used to include reports for the whole year as part of the project’s final revisions instead of signing off on quarterly reports. Project oversight, monitoring and reviews In its previous reports (A/71/5/Add.1 and A/70/5/Add.1) the Board noted inadequate updating in Atlas of project risks and issues logs, and mitigating actions. In 2016, the Board continued to note similar weaknesses, that is, of the 9 0 projects reviewed at six country offices visited, 21 projects (23 per cent), at four country offices, had no updates in Atlas on logs for risks issues and monitoring of risks, while for 69 projects (77 per cent), either risks and issues logs were updated late or only a few risks and issues were updated in Atlas and their monitoring logs were not updated adequately and regularly. Management explained that there were cases where monitoring, issues and risks’ logs were updated not in Atlas, but offline: thos e risks and issues were then reflected in project progress reports, and discussed in meetings of the project board and other technical meetings. As the Board considers Atlas the primary source of project information, it notes that weaknesses in timely reporting on projects risks, infrequent review and updating of risks and issues logs in Atlas may result in a delay in the taking of mitigation measures designed to address the risks. Delays in closing completed projects The Board noted delays in project closures at three out of six country offices visited, where 26 out of 49 projects (53 per cent) that had been operationally closed took more than 12 months to be financially closed. This is not in line with paragraph 5 of the UNDP Programme and Operations Policies and Procedures, where it is stated that a project is required to be closed financially not more than 12 months after it was operationally closed. Delayed financial closure of projects may cause challenges in respect of verification of aged transactions, and determination of project 12/187 17-11215 A/72/5/Add.1 expenditure and related information. Management attributed the delay in project closure to frequent changes of implementing partners’ officials, the time taken to agree with donors on either reprogramming or refunding projects balances, and subsequent reopening of some financially closed projects by Headquarters in order to clear transactions. Harmonized approach to cash transfers framework 1 Preparation of the joint harmonized approach to cash transfers assurance plan UNDP has been sharing implementing partners with other United Nations agencies: specifically six implementing partners in Bangladesh (with the United Nations Children’s Fund (UNICEF) and the United Nations Population Fund (UNFPA)); one implementing partner in Honduras (with UNICEF); and one implementing partner in Uruguay (with UNFPA). However, the country offices did not share a joint harmonized approach to cash transfers assurance plan with the other United Nations agencies. Management attributed the lack of a joint assurance plan to differences in the definition of “implementing partner” among the agencies, in the auditing threshold for implementing partners among the agencies and in the timelines for the national implementation modality/non -governmental organization audits. The Board considers that the absence of a joint assurance plan might result in differences among the organizations in risk ratings for implementing partners and inconsistencies in respect of decisions on cash transfers modalities for the same implementing partners, which could thus affect the assurance activities on the implementing partners. Procurement and contract management Vendor data management The Programme and Operations Policies and Procedures under financial resources management requires that when creating a new vendor, the buyer should review Atlas vendor records to avoid creating duplicates. At three out of six country offices visited, the Board noted that there were 74 duplicate active vendors and that 26 approved vendors had bank accounts with the same account number and details. Management attributed the weaknesses to input errors and delays in making corrections to vendor data and in updating data. The Board considers that these deficiencies — duplication of active vendors and possession by vendors of the same bank account number and details — pose the risk of inappropriate transactions with vendors. Human resources management Service contract management In 2016, one country office renewed contracts for 12 service contract staff members. The 12 staff members included 2 (ages 48 and 55) who had worked for UNDP for over 20 years. Serving notice to the two staff in October 2016, UND P explained that their contracts would not be renewed upon expiration in January 2017. They were both dissatisfied with the decision on the grounds that, as there was no possibility of their being employed in other agencies, they were expecting to spend their remaining working years within UNDP before retirement. Management explained that they were engaged in consultations with those staff in order to resolve the matter amicably. The Board considers that UNDP needs to ensure that the policy in place does not allow for such a long period of employment in the service contract category, __________________ 1 The harmonized approach to cash transfers framework establishes common principles and processes for managing cash transfers among United Nations agencies that have adopted the harmonized approach across all countries and operational contexts. 17-11215 13/187 A/72/5/Add.1 which creates an expectation of permanency and is likely to give rise to lawsuits brought by long -serving holders of service contracts when those contracts are terminated. Information and communications technology “Tolerance downtime” and “acceptable data loss” are not defined for the disaster recovery plan at Headquarters The International Computing Centre has a service delivery agreement with UNDP whereby it agrees to provide Atlas hosting, IT infrastructure and other data - processing services to UNDP. However, the service delivery agreement on hosting of Intranet has not specified the recovery time objective 2 for the domain name system and corporate active directory which are used to authenticate users of applications. Specifying the recovery time objective would ensure that recovery procedures, which include promotion of a secondary site at the International Computing Centre to a primary site, were activated within the tolerable time period and mitigated possible information loss and disruption of operations. Moreover, the recovery time objective and the recovery point objective 3 have not been defined for three applications, namely, the Simple Mail Transfer Protocol (SMTP) mail hub at the International Computing Centre, the Lyris List Manager for email infrastructure, and Swift Client. While UNDP explained that the recovery time and recovery point objectives for the SharePoint application at the International Computing Centre UNICC are four hours and one hour, respectively, the Board noted that those durations were not specified in the service delivery agreement with the Centre. The absence of defined recovery time and recovery point objectives for these critical applications will affect the level of assurance to be obtained with respect to whether the systems will be restored within an acceptable time and whether an acceptable amount of data will be restored in the event of a disaster. Review and testing of disaster recovery plans The Board noted that six out of seven disaster recovery plans at UNDP headquarters had not been reviewed since 2014 as required by the information security policy, despite the reminders sent by the cybersecurity unit to disaster recovery plan focal points. Further, disaster recovery plans for four systems (the domain name system and corporate activity directory, the SMTP ail hub, the web authentication system and the private automatic branch exchange (PABX) syste m) had not been tested in 2016. UNDP argued that reviews of DRP were not conducted because there were no changes in recovery procedures, contacts information and recovery arrangements which would require such reviews. However, the information security policy requires the review to be conducted annually regardless of the changes mentioned by UNDP. The Board was informed that lack of resources had resulted in non -performance of tests on the disaster recovery plans for four systems. The failure to conduct disaster recovery plan -related tests affects the level of assurance to be obtained by UNDP with regard to whether the existing procedures remain appropriate to operating requirements so as to enable effective and efficient resumption of business in the event of a disaster. Recommendations The main recommendations of the Board are that UNDP: __________________ 2 The recovery time objective is the maximum tolerable length of time during which a computer, system, network or application can be down after the occurrence of a failure or disaster. 3 The recovery point objective is the maximum acceptable amount of data loss as measured in time. 14/187 17-11215 A/72/5/Add.1 Delayed clearance of prepayments to vendors (a) Review aged prepayments and indicators of the IPSAS dashboard with a view to reconfiguring the dashboard in order to accommodate the prepayments under contracts whose delivery period exceed 180 days without red-rating them. Thus, the IPSAS dashboard could red-rate only the prepayments that exceeded the delivery due dates indicated in the contracts instead of using 180 days as the red-rating cut-off for all types of prepayments; Enrolment records of UNDP retiree after -service health insurance participants (b) (i) Determine the threshold for significant change in the population in after-service health insurance enrolment records which will require the performance of a full valuation of after -service health insurance liability at year end and (ii) include in the actuarial report the estimated change in population as part of the key information; (c) Ensure that in future, before closing financial statements, it obtains confirmation from the United Nations on enrolment records of retiree participants in after-service health insurance as part of year-end certifications and reconciles the differences (if noted) with records in Atlas, the actuarial valuation report and after-service health insurance liability in the financial statements; Review and evaluation of the United Nations Development Assistance Framework (d) Also ensure that the Bangladesh and Honduras country offices (i) continue to liaise with implementing partner counterparts in order to facilitate timely implementation of the United Nations Development Assistance Framework, annual reviews and progress reviews and (ii) consider adopting strategies that enable the Development Assistance Framework annual reviews and progress reports in the next programme cycle to be completed on time; Certification of the combined delivery reports (e) Strengthen communication and follow -up with counterparts and take appropriate measures to address this recurring deficiency and ensure that quarterly combined delivery reports are signed in a timely manner by UNDP and implementing partners; Project oversight, monitoring and reviews (f) Review and update in a timely manner the projects’ risks, issues and monitoring logs and document them in Atlas as the primary source of projects information; Delay in closing projects (g) Take proactive measures to (i) ensure that all operationally closed projects are financially closed within 12 months, in accordance with the Programme and Operations Policies and Procedures, by obtaining in a timely manner the donors’ approvals on refunds or reprogramming of amounts unspent; and that all transactions related to projects are thoroughly reviewed and effected before they are closed financially; and (ii) address challenges in projects closures, such as obtaining donors’ approvals on unspent amounts in a timely manner; 17-11215 15/187 A/72/5/Add.1 Preparation of the joint harmonized approach to cash transfers assurance plan (h) Ensure that the Bangladesh, Honduras and Uruguay country offices (i) liaise with the agencies under the joint harmonized approach to cash transfers assurance plans in order to resolve challenges noted and prepare the assurance plans for shared implementation partners; and (ii) also ensure that the assurance plans are endorsed by the country representatives and implemented; Vendor data management (i) (i) Perform regular vendor data checks to maintain accurate and up - to-date data including removal of duplicate active vendors, (ii) review and correct vendors’ bank information to ensure that vendors do not bear the same bank account numbers and (iii) also review transactions processed into accounts shared by multiple vendors, to ensure that no transactions that are inappropriate are included; Management of service contracts (j) Consider updating the human resources policy to restrict the number of years during which a person can serve under a service contract, after which time a post should be established and filled by a person on a fixed -term appointment; Tolerance downtime and acceptable data loss not defined for the disaster recovery plan at Headquarters (k) (i) Specify the recovery time objective for the domain name system and active directory in the service delivery agreement and (ii) also specify, in the service delivery agreement, the durations for the recovery time and recovery point objectives for the Simple Mail Transfer Protocol mail hub, the Lyris List Manager and Swift Client applications; Review and testing of disaster recovery plans (l) (i) Review all disaster recovery plans, (ii) consider budgeting for the testing of the disaster recovery plans and (iii) test the disaster recovery plans and document the tests conducted. Key facts 170 Countries and territories where UNDP operates $744.25 million Budget for 2016 approved by the Executive Board for regular resources (core resources). Other resources do not fall within the remit of the approved budget of the Board although they are accounted for in the financial statements $5.10 billion Total revenue $4.66 billion Total expenses $6.94 billion Total assets $2.23 billion Total liabilities 16/187 17-11215 A/72/5/Add.1 A. Mandate, scope and methodology 1. The United Nations Development Programme (UNDP) was established in 1965 by the General Assembly of the United Nations. UNDP partners with entities and people at all levels of society to help build nations that can withstand crisis and drive and sustain growth that improves the quality of life for everyone. UNDP has its headquarters in New York, but works primarily through its offices in 170 countries and territories. UNDP provides a global perspective and local insight to help empower lives and build resilient nations. 2. The Board of Auditors has audited the financial statements and reviewed the operations of UNDP for the year ended 31 December 2016 in accordance with General Assembly resolution 74 (I) of 7 December 1946. The audit was conducted in conformity with article VII of the Financial Regulations and Rules of the United Nations and the annex thereto, as well as the International Standards on Auditing. Those standards require that the Board comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. 3. The audit was conducted primarily to enable the Board to for m an opinion as to whether the financial statements present fairly the financial position of UNDP as at 31 December 2016 and its financial performance and cash flows for the year then ended, in accordance with the International Public Sector Accounting Sta ndards (IPSAS). This included an assessment as to whether the expenses recorded in the financial statements had been incurred for the purposes approved by the governing bodies and whether revenue and expenses had been properly classified and recorded in accordance with the Financial Regulations and Rules of UNDP. The audit included a general review of financial systems and internal controls and testing of the accounting records and other supporting evidence to the extent that the Board considered necessary to form an opinion on the financial statements. 4. In addition to the audit of the accounts and financial transactions, the Board carried out reviews of UNDP operations under regulation 7.5 of the Financial Regulations and Rules of the United Nations. This allows the Board to make observations with respect to the efficiency of the financial procedures, the accounting system and the internal financial controls and, in general, the administration and management of UNDP operations. The General Assembly had also requested the Board to follow up on previous recommendations and to report thereon accordingly. Those matters are addressed in the relevant sections of the present report, and the summary of the results is included in annex I to the present chapter. 5. The Board has also performed the annual audit of the regular resources of the UNDP -Global Environment Facility Trust Fund, and issued an unqualified audit opinion for the year ended 31 December 2016. 6. The Board coordinates with the Office of Audit and Investigations of UNDP in the planning of its audits to avoid duplication of efforts and to determine the extent of reliance that can be placed on the work of the Office. The present report relates to audits performed at the country offices visited by the Board (in Albania, Bangladesh, Honduras, Montenegro, the Republic of Moldova and Uruguay) and at UNDP headquarters. 7. The present report covers matters that, in the opinion of the Board, should be brought to the attention of the General Assembly. The Board’s observations and conclusions were discussed with UNDP management, whose comments have been appropriately considered in the report. 17-11215 17/187 A/72/5/Add.1 B. Findings and recommendations 1. Follow -up of recommendations from previous years 8. The Board noted that of the 40 recommendations from previous years that had been outstanding as of 31 December 2015, 29 (73 per cent) were fully implemented, 10 (25 per cent) were under implementation and 1 (2 per cent) was overtaken by events. Details of the status of implementation of those recommendations are shown in annex I to the present chapter. While the Board acknowledges management efforts towards implementation of its recommendations, it considers that further efforts are needed to address the recommendations with great er emphasis on the recurring recommendations. 9. The Board noted that the recommendations under implementation require that UNDP finalize pending activities before they are considered fully implemented. 2. Financial overview Revenue and expenses 10. UNDP revenue includes regular resources (core funds), other resources (non -core funds), investment revenue and other revenue. During the period under review, total revenue amounted to $5.10 billion compared with $4.82 billion for the previous period, representing an increase of 5.8 per cent. Total expenses amounted to $4.66 billion, compared with $5.06 billion for the previous year, representing a decrease of 7.9 per cent. In 2016, UNDP had a surplus of $443.05 million of revenue over expenses which is an improvement compared with a deficit of $237.25 million reported in the previous period. The surplus was the result of an increase in revenue (due mainly to a greater number of voluntary contributions) coupled with decreased expenses in 2016 (due mainly to fewer costs for contractual services, staff costs, and supplies and consumables) compared with 2015. 11. Overall, UNDP had cash and investments totalling $6.38 billion as at 31 December 2016 (2015: $5.83 billion). Total liabilities as at 31 December 20 16 were $2.23 billion (2015: $2.15 billion). In accordance with the Financial Regulations and Rules approved by its Executive Board, UNDP held $325.13 million in reserves (2015: $341.13 million) and $4.38 billion as accumulated surpluses (2015: $3.93 billion). Total revenue and expenses for the financial periods 2015 and 2016 are shown in figure II.I. 18/187 17-11215 A/72/5/Add.1 Figure II.I Revenue and expenses (Billions of United States dollars) Source : Analysis by the Board of UNDP financial statements for the perio ds ended 31 December 2015 and 31 December 2016. Note : Graph not to scale. 12. Revenue increased by $0.28 billion (5.8 per cent) owing mainly to an increase in voluntary contributions, revenue from exchange transactions and other revenues, whereas expenses decreased by $0.4 billion (7.9 per cent) owing mainly to a decrease in contractual services costs and grants and other transfer payments in 2016 compared with 2015. Other factors included a decrease in contractual costs, staff costs, supplies and consumables as well as in general operating expenses. 13. UNDP revenue includes voluntary contributions, revenue arising from exchange transactions (revenue generated by exchange of goods or services), investment revenue and other revenue. During the year under review, voluntary contributions amounted to $4.79 billion (2015: $4.47 billion), representing 94 per cent of the total revenue for the year. The amount included the following: cost sharing, $3.08 billion (64 per cent); regular resources, $0.66 billi on (14 per cent); trust funds, $0.96 billion (20 per cent); and reimbursable support services and miscellaneous activities, $0.09 billion (2 per cent). Comparative contributions for regular and other resources for 2015 and 2016 are shown in figure II. 14. Figure II.II below shows the analysis of UNDP revenue and expenses by segment for the years 2016 and 2015. The analysis shows that in 2015 the revenue from three segments (cost sharing, regular resources, and reimbursable support and miscellaneous activities) were less than the related expenses, except for trust fund where revenue was greater than expenses by $236.7 million. In 2016, the revenue from two segments (cost sharing and trust funds) was greater than the relevant expenses, while in the other two segments (regular resources and reimbursable support and miscellaneous activities) the revenue was lower than the relevant expenses. 17-11215 19/187 A/72/5/Add.1 Figure II.II Revenue and expenses by segment (Millions of United States dollars) Source : UNDP financial statements for the periods ended 31 December 2015 and 31 December 2016. Ratio analysis 15. There is a favourable trend of revenue from contributions in consecutive years 2015 and 2016, and the ratios set out in table II.I indicate a healthy overall financial position for UNDP. Current assets are more than four times the current liabilities and total assets are more than three times the total liabilities. The current ratio shows an increasing trend over a period of the last three years. This trend ind icates the increasing level of liquidity, signifying that the ability of UNDP to pay off its short -term liabilities is increasing slightly. Table II.I Ratio analysis Description of ratio 31 December 2016 31 December 2015 31 December 2014 Current ratio a Current assets: current liabilities 4.48 3.59 3.65 b Total assets: total liabilities 3.11 2.99 2.82 Cash ratio c Cash and investments: current liabilities 4.12 3.18 3.13 d Quick ratio Cash, investment and accounts receivable: current liabilities 4.28 3.41 3.37 Source : Analysis by the Board of Auditors of UNDP financial statements for the periods ended 31 December 2014 and 31 December 2016. a Current ratio: a high ratio indicates an entity’s ability to pay off its short - term liabilities. b Total assets: total liabilities: a high ratio is a good indicator of solvency. c Cash ratio: as a measure of the amount of cash, cash equivalents or invested funds present in current assets to cover current liabilities, the cash ratio is an indicator of an entity’s liquidity. d Quick ratio: the quick ratio is more conservative than the current ratio because it excludes inventories and other current assets, which are more difficult to turn into cash. A higher ratio signifies a more liquid current position. 20/187 17-11215 A/72/5/Add.1 3. Financial reporting 16. Since the implementation of IPSAS in 2012, UNDP has recorded good progress in the preparation and presentation of financial information. The Board has nevertheless identified areas where there is scope for improvement in financial reporting, as highlighted directly below. Delayed clearance of prepayments to vendors and the IPSAS dashboard 17. In its previous report (A/71/5/Add.1), the Board raised concern over the number of prepayments vouchers that had not been cleared by the country offices for 180 days or more from the scheduled dates of their settlement. In 2016, the Board continued to note similar weakness through the review of the IPSAS dashboard in Atlas. The review showed that as at 31 December 2016, prepayments amounting to $13.71 million (35 payments vouchers), which were made between 2013 and 2016, had not been cleared by the country offices for more than 180 days from the scheduled dates of payments. Clearance is completed when items for which the prepayment is made are delivered. The IPSAS dashboard “red -flagged” deliveries for such prepayment as delayed when 180 days had expired. 18. Management explained that the prepayments noted related to G lobal Fund to Fight AIDS, Tuberculosis and Malaria procurement of drugs and civil work contracts involving long -term agreements with a long lead time of more than 180 days. Therefore, while the prepayments were classified as red -rated because their periods exceeded the cut -off of 180 days in the IPSAS dashboard, the delivery of the related items are still within the periods stipulated in the contracts. 19. However, the Board considers that UNDP needs to properly configure the IPSAS dashboard so that prepayments are red -rated only when they exceed periods stipulated in the contracts rather than a blanket rating for all prepayments exceeding 180 days, which distorts the purpose of the dashboard in drawing management attention to genuine delays that need management follow -up. 20. UNDP agrees with the Board’s recommendation that it review aged prepayments and indicators of IPSAS dashboard with a view to reconfigure the IPSAS dashboard in order to accommodate the prepayments from contracts whose delivery period exceed 180 days without “red rating” them. Thus, the IPSAS dashboard could “red rate” only the prepayments that exceeded the delivery due dates indicated in their contracts instead of using 180 days as the red - rating cut -off for all types of prepayments. Inactive trust funds 21. Note 36.8 to the UNDP financial statements for the year ended 31 December 2016 included details on the financial performance of 157 trust funds established by UNDP. From the review of 30 trust funds, the Board noted that (a) 8 trust funds had neither movement of revenue nor expenses since 2015 and had minimal net assets balances for the year 2016; (b) 5 trust funds had neither movements of revenue nor expenses during 2016; and (c) 2 trust funds had no opening balances as of January year 2016 although they had incurred minimal expenses during the year 2016. According to the UNDP Programme and Operations Policies and Procedures and 2016 UNDP year -end closure instructions, such inactive trust funds should be closed. 22. Management assured the Board that UNDP headquarters will work with regional bureaux to monitor and close inactive trust funds. It also explained that some of the trust funds were not active but rather had wrongly transferred funds or 17-11215 21/187 A/72/5/Add.1 erroneous charges. Such trust funds are normally kept open to clear the pending transactions and then closed. 23. While noting explanations by management, the Board is concerned that inactive trust funds are related to projects that are ongoing while those trust funds, as reported in the financial statements, had neither revenue nor expenses for the current and prior years. This presentation is in non -compliance with UNDP year -end closure instructions and the Programme and Operations Policies and Procedures and may affect the relevancy of trust fund -related information in the financial statements. 24. UNDP agreed with the Board’s recommendation that it (a) enhance monitoring of trust funds and review the status of their projects in order to determine which trust funds are inactive and (b) close in a timely manner all trust funds identified as inactive. Enrolment records of UNDP retiree participants in after -service health insurance 25. At a meeting of UNDP, the United Nations and organizations that participate in the United Nations - led health insurance programme, held on 31 December 2012, it was agreed that the formal valuation of end -of-service liability has to be conducted every year with a review of key assumptions associated with the discount rate, salary and medical inflation rates. If significant changes in the population are expected, then full valuation of the liability needs to be performed. The Board position on this decision was that it had no reservations regarding the proposed approach provided that there was no major restructuring or change in staffi ng profiles. 26. In the actuarial valuation report of 2016, the valuation results were based on data for participants as provided to actuaries by the United Nations for the 2015 valuation, which involved 3,327 participants., The actuary explained that thr ough the conduct of a roll forward, it was determined there had been no significant change in the covered population over the year 2016. 27. However, the actual enrolment records of UNDP retiree participants in the after - service health insurance programme as of 31 December 2016, confirmed to the Board by the Health and Life Insurance Section, included 3,494 participants, an increase of 167 participants compared with the 2015 enrolment records. The Board considers that the decision to roll forward prior -year data should have been based on a clear, predefined threshold for significant change in the staffing profile which would determine the need for a full formal valuation using current data or a roll - forwarding of prior -year data. The Board is concerned that the agreement between UNDP, the United Nations and other agencies that participate in United Nations -led health insurance programmes did not define or specify a specific threshold for significant changes in population so that when the number was exceeded, the full census of population would be introduced. A summary of the data is provided in table II.II below. 22/187 17-11215 A/72/5/Add.1 Table II.II Analysis of UNDP retiree participation in the after -service health insurance programme based on enrolment records Difference between actuarial Difference Data from data and between actuarial Data used UNDP Atlas United Nations data and UNDP Description Confirmation by actuaries records confirmation Atlas records Enrolment records of UNDP retiree after - service health insurance participants (a) 1 589 1 535 1 581 54 46 UNDP retiree after - service health insurance Medical Insurance Plan (MIP) (b) 1 905 1 792 1 905 113 113 Total (a + b) 3 494 3327 3 486 167 159 Sources : United Nations confirmation, actuarial report and UNDP Atlas data. 28. Management explained that the actuary who had performed the actuarial valuation used assumptions lying within the guidelines of IPSAS to arrive at the actuarial valuation results. According to the actuary, an increase of 148 retirees had been projected based on the retirement and death assumptions pursuant to the data used and included in the actuarial valuation. The Board was also informed that the figure of 19, the difference between the expected increase in the number of participants (148) and the actual increase (167), was insignificant. However, the Board considers that, since a threshold for significant change had not been defined or specified, neither the decision to take the figure of 19 retirees as the difference rather than the figure of 167 retirees based on actual data, nor the conclusion that such a difference was insignificant, cannot be taken as having been properly arrived at. While the financial effect of this difference has not been determined, the Board considers that the actuary was supposed to have used the reasonable assumptions and best estimates to ensure validity of the actuarial valuation results and correctness of the end -of-service liability. 29. The Board recommends that UNDP, in consultation with the actuary: (a) determine the threshold for significant change in the population of the after-service health insurance enrolment records which would require performance of a full census of staff for the valuation of after -service health insurance liability at year end; and (b) include in the actuarial report the estimated change in population as a part of the key information. 30. The Board also recommends that in future, UNDP obtain confirmation from the United Nations on retiree after - service health insurance enrolment records as part of year -end certifications and reconcile the differences (if noted) with records in Atlas, the actuarial valuation report and corresponding after-service health insurance liability in the financial statements. Long -outstanding balance of short -term payables 31. According to an UNDP IPSAS policy paper, the malicious acts insurance policy and medical insurance are categorized as monthly benefit entitlements. Therefore, the employer and employee contributions are also processed as part of the monthly payroll run, with no need for accrual. If payments are delayed for any reason, an accrual would reflect any unpaid monthly entitlement at year end. 17-11215 23/187 A/72/5/Add.1 32. The Board noted that there was an outstanding balance of $2.38 million as at 31 December 2016 in respect of insurance premiums payable for the malicious acts insurance policy scheme and medical insurance. Of the outstanding amount, $1.14 million was for medical insurance and $1.24 million related to the malicious acts insurance scheme. Owing to their nature as monthly benefit entitlements, they are short -term payables, which were supposed to have been settled within a short period. However, the amounts had been outstanding for the period from 2013 to 2016. 33. UNDP explained that those balances were due to changes in the accounts used for collecting malicious acts insurance policy premiums and medical insurance premiums for service contract holders at the time of adoption of IPSAS on 1 January 2012. UNDP started to use new accounts 23078 and 23096 for malicious acts insurance policy premiums and medical insurance premiums, respectively, instead of old accounts 23097 and 23090. Since the transition for payroll collection was conducted in phases in country offices, the transfer of those balances was not treated as a priority. The Board considers that UNDP needs to ensure that the long - outstanding obligations are cleared. 34. UNDP agreed with the Board recommendation that it (a) verify and transfer the noted liabilities of malicious acts insurance policy premiums and medical insurance premiums to proper accounts codes and (b) clear these long - outstanding liabilities on time. 4. Programme and projects management Review and evaluation of the United Nations Development Assistance Framework 35. The United Nations Development Assistance Framework is the strategic programme framework for the United Nation country team. It encompasses the collective response of the United Nations country team to the priorities within the national development framework, priorities that may have been influenced by the country team’s analysis. The United Nations Development Assistance Framework is a planning tool which considers the country’s priorities a nd the comparative advantages of the United Nations system in areas where it has decided to intervene in the context of the country’s programme cycle. Under the Development Assistance Framework, the coordination office is required to make a significant con tribution and facilitate the performance of Development Assistance Framework annual reviews, to coordinate the preparation of the Development Assistance Framework progress report and to coordinate the performance of the Framework final evaluation. 36. According to the United Nations Development Assistance Framework calendar of follow -up and evaluation at the Honduras and Bangladesh country offices, the Development Assistance Framework annual reviews were to be conducted from 2012 to 2016, the Framework progress report was supposed to be ready in 2014 and the final evaluation to be carried out in 2015. However, the Board noted that the Framework annual and progress reviews had not been conducted as planned. For example, at the Honduras country office, Development Assistance Framework annual reviews had not been conducted from 2012 to 2014 and the progress review had yet to be conducted for the year 2014, while at the Bangladesh country office, the Development Assistance Framework annual review had not been co nducted for the years 2014 and 2015. 37. The Honduras country office explained that there were a number of factors that affected United Nations Development Assistance Framework activities such as general election processes, changes in implementing partner officials, inadequate ownership and knowledge of the counterparts, and the counterparts’ delayed 24/187 17-11215 A/72/5/Add.1 response. Management also explained that in the absence of the Development Assistance Framework progress review, the United Nations country team in Honduras had decided to use the Development Assistance Framework action plan in 2015. The shortcomings noted have already been addressed in the design of the new United Nations Development Assistance Framework 2017 -2021, which was signed by the United Nations country team and the implementing partner. Under these initiatives, due consideration will be given to strict compliance with annual reviews and progress reviews and reports. The first meeting on the annual review with the implementing partner is scheduled for late 2017. The final progress report of the United Nations Development Assistance Framework 2012 -2016 has been prepared in accordance with the United Nations Development Group guidelines. 38. The Board notes that these deficiencies have been reported yearl y in the Board’s reports but that, despite the explanations of management, there have been no clear organization -wide measures to fully address the underlying causes of the issue. While UNDP has regarded the issue of deficiencies as country -specific, its persistent recurrence, as noted in each of the Board’s audits, highlights the need for measures designed to address the issue at a level high enough to ensure that an effect is produced across country offices. The absence of annual United Nations Development Assistance Framework reviews affects the implementation of the harmonized approach to cash transfers programme, since the harmonized approach programme, and the UNDP Programme and Operations Policies and Procedures, require that when a country office has conducted a harmonized approach macroassessment, then the summary of that macroassessment should be communicated through the United Nations Development Assistance Framework annual reviews. The Board is of the view that Development Assistance Framework annual reviews and progress reports are crucial to enabling United Nations country teams and partners to make timely decisions based on the evidence of results, which will enhance subsequent performance throughout the programme cycle. 39. The Board recommends that UNDP ensure that the Honduras and Bangladesh country offices (a) continue to liaise with implementing partner counterparts so that those offices fully own the United Nations Development Assistance Framework process and thereby facilitate timely Development Assistance Framework implementation, annual reviews and progress reviews and (b) consider adopting strategies to enable the United Nations Development Assistance Framework annual reviews and progress reports in the next programme cycle to be completed on time. Certification of the combined delivery reports 40. The combined delivery reports are mandatory official reports which encompass projects expenses and funds. They encompass all project expenses incurred by the implementing partners, by UN DP as direct support and by any other United Nations agencies as responsible parties to the project(s). It is required that the combined delivery reports be co -signed by the country office and the implementing partners. UNDP verifies all financial informat ion for accuracy and completeness as consistent with annual workplans and project budgets. The certification of a CDR is therefore an exercise that is crucial for determining the authenticity of project expenses and project fund balances. 41. The Board reviewed 76 ongoing national implementation modality projects (228 combined delivery reports) for the first, second and third quarters of 2016 and noted delays in the signing of combined delivery reports in four out of six visited country offices. Of the reviewed combined delivery reports, a total of 186 (82 per cent), for the first, second and third quarters, were signed after a delay of a period ranging from one to six months, as summarized in table II.III below. According to 17-11215 25/187 A/72/5/Add.1 the Programme and Operations Policies and Procedures on programme and project management, combined delivery reports are supposed to be signed, on a quarterly basis, within 15 days after they have been sent to implementing partners. This deficiency was also noted during our audits in 2013, 2014 and 2015. Table II.III Certification of quarterly combined delivery reports, selected country offices, 2016 First quarter Second quarter Third quarter Number of first, second and third Number of quarter reports projects that were whose unsigned or Country reports were Due date Actual date Due date Actual date Due date Actual date signed after office reviewed for signing of signing for signing of signing for signing of signing a delay September and Uruguay 21 April 2016 September 2016 July 2016 October 2016 15 October 2016 November 2016 63 of 63 Honduras 31 April 2016 October 2016 July 2016 October 2016 15 October 2016 October 2016 93 of 93 Bangladesh 13 April 2016 October 2016 July 2016 October 2016 15 October 2016 Signed on time 20 of 39 Albania 11 April 2016 July 2016 July 2016 September 2016 15 October 2016 November 2016 10 of 33 Total 76 186 of 228 Source : Auditor analysis of combined delivery reports. 42. The Board was informed that the delays in certification and signing of the combined delivery reports were due to factors such as unavailability of the desk officers concerned or the national project director for signing and frequent changes of national project directors in 2016. Management stated that UNDP was in the process of finalizing the updates of the policy designed to provide guidance in cases where combined delivery reports were not signed on time. This guidance will take into account the number of reports -related reminders sent by the country offices to implementing partners. 43. While acknowledging management’s explanation, the Board is of the view that delays in certification and signing of the combined delivery reports by country offices and implementing partners increase the risk that misstatements in previous periods, including incorrect postings of expenditure, will not be corrected in a timely manner, which will consequently affect the project’s expenditure. 44. The Board recommends that UNDP (a) introduce a clause in the cooperation agreements on the communication obligations of all parties involved in programme implementation, including measures for motivating implementation of those obligations, and (b) increase follow -up with counterparts so as to ensure that appropriate measures are taken to address the recurrence of delayed certification of combined delivery reports by both UNDP and implementing partners. Project oversight, monitoring and reporting 45. According to Programme and Operations Policies and Procedures, project monitoring is one of the most important responsibilities of the project manager. The project monitoring tools and mechanisms include regularly updating of the risks log in Atlas, field office visits to projects at least once yearly and preparation of annu al reports. 46. Further, Programme and Operations Policies and Procedures, under project implementation, requires that, with regard to enterprise risk management, all 26/187 17-11215 A/72/5/Add.1 planning, implementation, monitoring and evaluation, including associated decision -making, should involve a consideration of risks. At the planning stage, risk management serves to ensure that the programme, operation or activity is defined so as to maximize the probability of achieving desired objectives by pursuing opportunities while confining threats to acceptable levels. 47. At four out of the six visited country offices, project risk identification was conducted at the operational level when unit workplans were being prepared or at the start of projects, but there was inadequate risk id entification and updating in Atlas during implementation of the projects. From a sample of 90 projects, the Board found that for 21 projects (23 per cent), risks, issues and monitoring logs had not been updated on Atlas, nor were there reports on actions t aken to address risks identified. For the remaining 69 projects (77 per cent), either risks and issues logs were updated late or only a few risks, issues and monitoring logs were updated in Atlas. This information is summarized in table II.IV below. Table II.IV Project oversight and monitoring Project’s risks, issues and Project’s risks and issues logs were updated late or only a few Country office monitoring logs were not updated project risks, issues and monitoring logs were updated in Atlas Uruguay 3 out of 21 18 out of 21 Honduras 10 out of 31 21 out of 31 Bangladesh 3 out of 14 11 out of 14 Albania 5 out of 24 19 out of 24 Total 21 out of 90 69 out of 90 Source : Auditor analysis. 48. Furthermore, while project board meetings were scheduled to be conducted in November or December 2016 at the Honduras country office, no such meetings were conducted for 16 out of 31 projects reviewed by the Board in line with project documents which require the project boards to convene regular meetings during the year. 49. Management explained that, in other cases, monitoring, issues and risks logs were not updated in the system, but completed outside the system. The risks and issues are then reflected in project progress reports, discussed in project board meetings and other technical meetings and recorded in the minutes of meetings. Management informed the Board that country offices maintain records of risks logs, issues logs and project monitoring using a SharePoint - based tool. Management also stated that UNDP has developed a new tool, i.e., a quality assurance system, for all projects starting 2016. 50. The Board noted that, despite the explanations of management, Programme and Operations Policies and Procedures had yet to be updated on the use of the new quality assurance tool, nor had there been clarification on when the Atlas system would no longer be used to retain project information. Also, while noting management’s explanations, the Board is of the view that risks and issues logs should be recorded in Atlas, where all primary information pertaining to projects is kept. The Board is concerned that lack of timely reporting on project risks subsequent to the initial identification of risks, and infrequent review and updating of risks and issues logs in Atlas, may result in a delay in adoption of measures to mitigate those risks. Furthermore, an insufficiency in the number of meetings of project boards affects project implementation as a result of the lack of guidance 17-11215 27/187 A/72/5/Add.1 regarding project - related risks and issues, and particularly advice on measures for addressing the risks identified. 51. The Board recommends that UNDP ensure (a) timely review and updating of project risks, issues and monitoring logs and document this in Atlas as the primary source of project information and (b) that project boards conduct regular meetings as a means of continuously monitoring project implementation. Updating of the Evaluation Resources Centre 52. The Evaluation Resource Centre is the UNDP information management system, designed to support management accountability and transparency in evaluation. It provides timely data on evaluation planning, management response and follow -up. The Centre is also a repository of evaluation reports and serves as the organization’s primary tool for knowledge management in evaluation. Also, in accordance with the evaluation policy, all evaluations require the response of UNDP management to the evaluation’s key findings and recommendations and follow - up actions with clear timelines and responsible parties for delivery. The country office must enter follow - up actions, as outlined in the evaluation management response, and regularly update the status of their implementation in the Evaluation Resource Centre. Since the Centre is a public website, information uploaded to it must be accurate and up to date. 53. The Board reviewed evaluation results and recommendations in the Evaluation Resource Centre and noted that, at the Republic of Moldova country office, the timelines for implementing key actions were not set for two out of three project evaluations sampled by the Board in its 2016 audit. Also, three key actions with “overdue -not initiated” status had no comment and one key action had no de adline. In addition, the country office had not been regularly updating the implementation status of key actions in the Evaluation Resource Centre on their due dates. 54. Management assured the Board that it would take action to ensure that information was updated on time in the Evaluation Resource Centre. Also, in accordance with the evaluation policy adopted in September 2016, UNDP will ensure that all evaluations include management responses, which entail time - bound key actions, and that the status of implementation will be regularly updated in the Evaluation Resource Centre. Regional service centres will be requested to monitor completion of all key actions by their specific deadlines to ensure that evidence of the progress reported is being provided. While taking note of the explanations provided, the Board also observes that it has not seen evidence demonstrating how the actions described will be implemented. 55. The Board is of the view that since the Evaluation Resource Centre is the UNDP information management system, designed to support management accountability and transparency in evaluation, it should be updated regularly based on clear timelines so as to ensure that information in the Centre is appropria te and relevant. 56. The Board recommends that (a) the Republic of Moldova country office update information in the Evaluation Resource Centre in a timely manner and (b) that UNDP headquarters consider establishing a time frame for the updating by country offices of key actions in the Evaluation Resource Centre. Delay in implementation of projects 57. Programme and Operations Policies and Procedures on the project management initiating stage requires that the last step in the formulation and planning of a project before actual project activities begin be identified primarily by 28/187 17-11215 A/72/5/Add.1 a signed project document. The key approval required is the signing of the project document which constitutes a commitment to implement the project in accordance with the UNDP mandate, policies, regulations and rules. The project document is an agreement between UNDP, the Government and the implementing partner to implement a specific project; the signed project document therefore, constitutes a basis for the budget allocation, which is approved in Atlas by a UNDP staff member with the appropriate authority. 58. The Bangladesh country office had 31 ongoing projects in 2016. The Board noted a delay in commencement of the projects after the signing of the project documents for two national implementation modality projects. These were projects ID 00092054 on integrated community -based adaptation and ID 00087558 on expanding the protected area system so as to incorporate aquatic ecosystem DolphinLPIN. The documents for these projects, which were required to start soon after the signing of the documents in 2015, were signed on 27 May and 30 June 2015, respectively. 59. The budgets for projects ID 00092054 and ID 00087558 were $10.13 million and $5.65 million, respectively, and the completion period was four years, extending from 2015 to 2019. However, as of November 2016, the projects had not started, with a delay for each of over 17 months from the date of signing of the project documents. Further, through a review in the Atlas system, it was noted that no annual budgets had been allocated for these two projects and that no funds had been received from the donor. 60. Management explained that the delay in starting the two projects was due mainly to implementing partner delay in approving the technical project proposal, which was a step in the process preceding implementation of the projects in Bangladesh. Subsequently, in January and March 2017, after the engagement event held in early 2017 at which UNDP and all of the national stakeho lders examined the issues and recommended measures for rationalizing the approval process, the implementing partner approved the technical project proposal for the projects. 61. While noting the explanations provided on the delayed approval of the technical project proposal, the Board considers that management is supposed to be proactive so as to ensure that the proposal documents are approved by the implementing partners on time and that projects are started and completed as scheduled. The Board is of the view that such measures will reduce the delays in projects implementation, which have a negative impact on the achievement of the intended project objectives. 62. UNDP agreed with the Board recommendation that it review the documents for the two projects so as to accommodate the period of delay and ensure that the projects are completed within the scheduled time period. Delays in closing projects 63. Programme and Operations Policies and Procedures, under projects completion, requires the projects to be financially completed within 12 months after having been operationally completed or after the date of project cancellation. The Policies and Procedures also requires that for the period between operational and financial closure, the implementing partner should identify and settle all financial obligations and prepare a final expenditure report. 64. Moreover, Policies and Procedures also explains that, based on the project board decision to close the project, project status in Atlas will be set to “operationally closed”; and that from that point on, no further financial commitment can be made. Further, once closure of any project -based financial accounts or funds 17-11215 29/187 A/72/5/Add.1 is confirmed, project status in Atlas will be set to “financially closed” and no further financial transactions can be made. 65. Nevertheless, the Board noted that at three of the six visited country offices (in Bangladesh, Honduras and Uruguay), 26 of the 49 financial ly closed projects in 2016 (53 per cent) were, according to Atlas records, financially closed after more than 12 months, since they had been operationally closed, as summarized in a table II.V below. Table II.V Delay in project closure, Bangladesh, Honduras and Uruguay country offices Financially closed projects in 2016 Country office Total closed Closed after more than 12 months Honduras 32 15 Bangladesh 8 2 Uruguay 9 9 Total 49 26 Source : Auditor analysis. 66. Management explained that the delays in closure of projects in Honduras were due mainly to changes in administrative authorities of implementing partners, which caused delays in the signing of final combined delivery reports and the transfer of project assets. At the Bangladesh country office, due diligence was ongoing, including the review of grant agreements and discussions with donors on whether to reprogramme the funds or refund the balances to donors. The Uruguay country office stated that these projects had already been financially closed in prior years but were later reopened by UNDP headquarters in order to run system processes like depreciation and revaluations of existing balances and balances remaining in the financially closed projects. 67. Despite the justification provided, the Board considers that the reopening of a financially closed project is contrary to Programme and Operations Policies and Procedures which clearly states that once the project is financially closed in Atlas, no further financial transactions should be carried out, since all assets and balances have to be cleared before projects are financially closed. 68. The Board is also concerned that the delays in financially closing projects cause challenges in verifying aged transactions and in determining expenditures and other information related to projects. 69. UNDP agreed with the Board recommendation that it (a) take proactive measures to ensure that all operationally closed projects are financially closed within 12 months, in accordance with the Programme and Operations Policies and Procedures, which would entail obtaining in a timely manner donors’ approvals on refunds or reprogramming of unspent amounts; and thoroughly review and effect all transactions related to projects before they are financially closed; and (b) ensure that all asset balances are cleared before projects are financially closed. Inactive projects 70. Programme and Operations Policies and Procedures, under closing a project, explains that a project is finite, with a start and an end date, and that the project ends through both operational and financial closures. Also, Policies and Procedures 30/187 17-11215 A/72/5/Add.1 requires that the closure of a project be triggered (a) by the approach of the end of work under the final annual workplan, when a project delivers its planned outputs; or (b) by its becoming apparent that the project is no longer viable, thereby generating the decision of UNDP to cancel the project, based on the project board’s recommendation. 71. From the review of the ongoing project records in Atlas at visited country offices, the Board noted that at the Bangladesh country office, 6 out of 31 projects were listed as active and ongoing, although since March 2015, they had had no activities, expenditures or budget to demonstrate that they were indeed active. Management explained that these six projects were still active for the purpose of clearing pending issues such as donor refunds, and cleaning up purchase orders. 72. Management also explained that in order to closely monitor the timely closure of projects both operationally and financially, it had developed a SharePoint - based monitoring tool, which captured the relevant records and sent automatically generated email alerts to project and programme focal points three months before the operational closure, followed by two more alerts at certain intervals. Further, other projects were funded by a donor under a standing policy which required that the final reports be endorsed by the donor and that the final debit note be issued before the projects could be closed financially. 73. The Board acknowledges management’s efforts in projects management and monitoring activities. However, some of these projects had been inactive since March 2015 and as of November 2016, they were still classified as ongoing. The Board is concerned that the delay in closure of projects that have no transactions and the inability of the country office to close inactive projects that are incorrectly classified as ongoing, increases the risk of charging unrelated expenditure to inactive projects. 74. The Board recommends that UNDP (a) ensure that inactive projects in Bangladesh and all country offices are closed in line with the Programme and Operations Policies and Procedures and (b) obtain, in a timely manner, donors’ endorsements on final reports; approvals so that the last tranche or portion of funds can be disbursed to the country office and approvals so that the remaining project funds can be refunded to donors or reprogrammed, in order to ensure that all projects are closed on time. 5. Multi - Partner Trust Fund Office Multi -Partner Trust Fund Office policy on the administrative agent fee 75. Under paragraph 11 of the part of the Programme and Operations Policies and Procedures that covers pass -through fund management, UNDP is designated as administrative agent of the Multi -Partner Trust Fund Office. The United Nations Development Group decided that the administrative agent should be paid 1 per cent of donor contributions as administrative fees for funds administered under the Trust Fund Office, to cover the full costs of delivering the administrative agent functions. The Board noted that under Trust Fund Office policy, 15 per cent of this administrative fee income is allocated to UNDP headquarters and the remaining 85 per cent is allocated to the Trust Fund Office and UNDP country offices. However, there were no documented guidelines specifying the basis or criteria with regard to how the figures of 15 per cent of administrative agent fee revenue for allocation to headquarters and 85 per cent to other entities of the organization were arrived at. For the periods of 2013, 2014, 2015 and 2016, the 1 per cent administrative agent fees received for apportionment were $7.19 million, $8.90 million, $6.85 million and $6.98 million, respectively. For example, the received income of $6.98 million for 2016 was apportioned as follows: 17-11215 31/187 A/72/5/Add.1 $5.35 million (77 per cent) to the Multi -Partner Trust Fund Office, $1.05 million (15 per cent) to UNDP headquarters and $0.58 million (8 per cent) to UNDP country offices. 76. Management explained that the Multi -Partner Trust Fund Office is within the organizational structure of the Bureau for Management Services, thus no separate agreement is required: all cost centres pay into the central services of the organization. Fifteen per cent of Trust Fund Office administrative agent fee income as allocated to UNDP headquarters central services has been the effective rate for many years. Regarding the distribution of the administrative agent fee, UNDP explained that the Multi -Partner Trust Fund Office and the Bureau for Management Services had consulted and agreed that the fee would be split between the Trust Fund Office and central services at the rates of 85 per cent and 15 per cent, respectively. The Board considers it to be crucial that the basis and criteria for fees allocation be included in an approved guideline. Further, the basis of apportioning 85 per cent has to be specified and reviewed; otherwise, it can lead to over - or underapportionment of income in comparison with the actual division of labour and associated workload among the parties involved (namely, the Multi -Partner Trust Fund Office and UNDP headquarters and UNDP country offices). 77. UNDP agrees with the Board’s recommendation that it (a) review the basis, criteria and guidelines used for determining the percentage of administrative agent fees apportioned to central services; and (b) also review the Multi -Partner Trust Fund Office policy (on administrative agent fee income) and the justification for the basis and criteria for apportioning the administrative agent fees between the Trust Fund Office and UNDP country offices that have received a delegation of authority from the Trust Fund Office Executive Coordinator. 6. Harmonized approach to cash transfers Preparation of the joint harmonized approach to cash transfers assurance plan 78. Under paragraph 4 (f) of Programmes and Operations Policies and Procedures (on the harmonized approach to cash transfers), it is required that where agencies share an implementing partner, they should work together to ensure an appropriate balance between the agencies’ assurance requirements and the burden of oversight and assurance imposed upon the implementing partner. For shared implementing partners, agencies identify a lead agency for the purposes of managing the microassessment and audit processes. 79. The Board noted that the Bangladesh, Honduras and Uruguay country offices did not have a joint harmonized approach to cash transfers assurance plans although they shared implementing partners with other United Nations agencies. For instance, the Bangladesh country office was sharing six implementing partners with UNICEF and UNFPA; the Honduras country office was sharing one implementing partner with UNICEF; and the Uruguay country office was sharing one implementing partner with UNFPA. 80. Management attributed non -preparation of a joint harmonized approach to cash transfers assurance plan to factors such as differences in definition of implementation partners, threshold for implementing partners and timelines for national implementation modality audits and non -governmental organization audits, among agencies. Management informed the Board that a working group had also noted that these differences affected the modality regarding how agencies can coordinate activities for shared implementing partners. Management also explained that, despite the differences, under paragraph 5 of the Programme and Operations Policies and Procedures (harmonized approach to cash transfers), U NDP offices 32/187 17-11215 A/72/5/Add.1 were encouraged to seek opportunities to work jointly with interested members of the United Nations country team for the implementation of assurance activities where it made sense and was agreeable to the United Nations country team concerned. 81. The Board, while noting the explanations of management, still underscores the benefits of having a joint assurance plan, including a balancing of the oversight burden and increased assurance levels. The Board is concerned that the absence of a joint harmonized approach to cash transfers assurance plan might result in differences in the risk ratings assigned by agencies and inconsistencies in the bases for deciding on the cash transfer modalities for the same implementing partners, which will ultimately affect the agencies’ planned activities for obtaining assurance on how resources have been used by the implementing partners. 82. The Board recommends that the Bangladesh, Honduras and Uruguay country offices (a) liaise with other United Nations agencies using the harmonized approach to cash transfers to resolve the challenges noted and prepare joint harmonized approach to cash transfers assurance plans for shared implementation partners; and (b) ensure that those assurance plans are both endorsed by the country representatives and implemented. Harmonized approach to cash transfers assurance plan 83. Under paragraph 38 (a) of Programme and Operations Policies and Procedures (harmonized approach to cash transfers), the country offices are required to prepare an assurance plan at the beginning of the programme cycle and update it annually. Under Policies and Procedures (harmonized approach to cash transfers), agencies are also required to prepare assurance plans in order to efficiently carry out activities needed to determine if the funds transferred to implementing partners have been used for the intended purposes and in accordance with the workplans. The harmonized approach to cash transfers assurance plan is important for agency management and for assuring other stakeholders of the overall management of funds at the country level. 84. During its visit to six country offices, the Board noted that in 2016, the Honduras country office had updated its harmonized approach to cash transfers assurance plan, which included 10 implementing partners for activities with an estimated total amount of $52.91 million for the programme cycle 2012 - 2016. However, the assurance plan had not included some vital details nor had it followed the approval process required under the United Nations Development Group harmonized approach to cash transfers framework, as discussed directly below: (a) The plan had not been approved by either the country director or the resident representative; (b) The microassessment risk ratings for the implementing partners were missing; (c) Details on the distribution of cash transfer modalities (direct cash transfers, reimbursements and direct payments) were missing; (d) Names of other agencies, summarization of the scope of work and microassessment dates (in the area reserved for implementing partner -related information) were missing; (e) The spot checks area did not include key information such as the number of spot checks required and completed, the quarter planned for spot checks and the quarter in which they were actually performed, and the status and results of snap checks; 17-11215 33/187 A/72/5/Add.1 (f) The audit area lacked key information such as frequency and types of audits, the quarter planned for audits and the quarter in which they were actually performed, and the status and results of audits. 85. While acknowledging efforts by the country office to revise the assurance plan in November 2016, the Board noted that the revised plan still had areas that required improvements, since the cash transfer modalities (direct cash transfers, reimbursements or direct payments) were not specified for implementing partners, and also noted that there was no relationship between the implementing par tners’ risk ratings and the selected cash transfer modalities, which was contrary to paragraph 6 (f) of the Programme and Operations Policies and Procedures (harmonized approach to cash transfers), under which it was determined that the cash transfer modalities to be adopted shall be determined by the results of the assessments conducted for the implementing partners with due consideration to the specific programming context. 86. With the Honduras programme cycle approaching its end, it will be necessary for the Honduras country office to improve within this area in the next programme cycle (2017 -2021). The Board considers that an inadequate assurance plan will affect the implementing partner risk ratings, selection of the appropriate cash transfer modality, and planned activities for obtaining assurance on how the implementing partners have used resources which will eventually affect project implementation. 87. The Board recommends that UNDP ensure that for the next programme cycle, the harmonized approach to cash transfers assurance plan for the Honduras country office (a) is prepared at the beginning of the programme cycle, approved by the country director or resident representative and updated annually and (b) includes all required details such as implementing partner risk ratings, and cash transfer modalities. 7. Procurement and contract management Vendor data management 88. Procedure 3.2 of Programme and Operations Policies and Procedures (under financial resources management -expense management (creating and approving vendors)) the buyer is required to review Atlas records to avoid creating duplicates. For any change in an existing supplier’s details, the buyer has to amend an existing record using effective dating instead of creating a new record. In addition, under paragraph 3 of the standard operating procedure on vendor management, the country office is required to carry out regular vendor data maintenance with a view to establishing an accurate and up -to - date database through removal of duplicate vendors and archiving of non -performing vendors. 89. In its report A/71/5/Add.1, the Board highlighted cases of duplicate vendors and vendors with same bank account numbers. In the current audit, the Board continued to note such cases at three of the six visited country offices. The Board found 74 duplicate active vendors and 26 approved vendors which had bank accounts with same account numbers and details, as summarized in table II.VI below: 34/187 17-11215 A/72/5/Add.1 Table II.VI Duplicate active vendors and approved vendors with same bank accounts Number of duplicate Number of approved vendors with the Country office active vendors same bank accounts numbers and details Bangladesh 67 2 Honduras 4 22 Uruguay 3 2 Total 74 26 Source : Query run on Atlas vendors’ data, November 2016. 90. Management explained that the presence of duplicate active vendors and non -performing vendors was attributable mainly to input errors, delays in making vendor data correction and delays in ensuring maintenance of up -to -date data, including timely archiving of non - performing vendors for at least three years. Regarding the presence of approved vendors with the same bank account numbers, it was explained that headquarters will revisit their incidence and the query used by the Board in arriving at the conclusions for consistent results. 91. While acknowledging the explanations provided, the Board is of the view that management needs to institute preventive controls with regard to the presence of duplicate active vendors, and vendors with the same bank account numbers pose the risk of transacting and making payments to inappropriate vendors. 92. The Board recommends that UNDP (a) perform regular vendor data checks so as to maintain accurate and up -to-date data, including removal of duplicate active vendors (b) ensure regular review and correction of vendors’ bank information so as to eliminate the existence of vendors with the same bank account numbers and (c) review transactions processed through accounts shared by multiple vendors to ensure that no inappropriate transactions are included. Accuracy of information in the procurement dashboard and delivery delays 93. The procurement dashboard in Atlas is a monitoring tool designed to assist users and management in keeping track of all procurement actions as well as facilitate identifying any activity that may need corrective actions. The procurement dashboard was created for tracking (a) all staff with “buyer profiles” 4 and to ensure that they have the minimum level of procurement certification; 5 (b) price variances between the cost per purchase order and the invoiced amounts; (c) all vouchers above the $2,500 threshold to ensure that purchase orders are raised against such vouchers when they are processed; and (d) delays in the delivery of goods and services by suppliers. 94. The Board reviewed the procurement dashboards at the country offices and noted the following deficiencies: (a) Honduras: the procurement dashboard showed that 42 suppliers out of 69 had delivery delays ranging from 9 to 153 days; __________________ 4 A staff member with a buyer profile can perform procurement functions such as creating vendors and purchase orders. This staff member must have at least completed procurement certification level I. 5 Entailing an online procurement course for UNDP staff on transactional, tactical and strategic aspects of procurements. Staff must have procurement certification level I to be able to create purchase orders or vendors in Atlas. 17-11215 35/187 A/72/5/Add.1 (b) Uruguay: the procurement dashboard showed that 13 suppliers out of 57 had delivery delays ranging from 11 to 82 days; (c) Montenegro: the procurement dashboard indicated that one staff member with buyer profiles had completed procurement levels I and II and was a certified buyer but not that he was a certified buyer level II. Also, the dashboard incorrectly indicated that 36 purchase orders had no requisitions although they did in fact have requisitions. The country office explained that this was to be attributed to a technical mistake as a result of which the system had reported those purchase orders as having no requisitions. Further, the procurement dashboard indicated that 9 out of 14 reviewed suppliers had delivery delays ranging from 18 to 90 days beyond the lead times indicated in the purchase orders; (d) Republic of Moldova: the procurement dashboard indicated that two staff members had completed procurement level I but did not identify them as certified buyers level I. Also, five staff members with buyer profiles who had completed procurement certification level II were not identified by the dashboard as certified buyers level II. Further, the procurement dashboard showed that 34 out of 1,653 suppliers who had worked with the country office during the year had delivery lead times ranging from 18 days to 86 days beyond the delivery dates indicated in the purchase orders. 95. Management explained that the procurement dashboard does not reflect all of the data within the system. Further, it was explained that delivery delays were due to bureaucratic processes, including the long time taken by customs authorities to clear goods in country offices; and errors including inappropriate entries of due dates in some purchase orders, as some procured items did not comply with specifications, and amendments to the contract and/or agreement on extensions were not reflected in Atlas purchase orders. 96. The Board is of the view that inaccurate information in Atlas procurement dashboard affects management decisions negatively in respect of monitoring procurement processes so as to ensure compliance with UNDP procurement policies and procedures. The procurement dashboard is expected to contain accurate, complete, reliable and updated data at all times. Further, suppliers with long lead times present risks of delay in the implementation of project activities, thus affecting project delivery. 97. The Board recommends that UNDP (a) review time anomalies in the procurement dashboard and update so as to ensure greater accuracy, completeness and reliability of its information; (b) input reasonable delivery due dates during requisition; and (c) enhance follow -up with vendors to ensure that goods or services are delivered within the scheduled period and appropriate measures are taken against non -performing vendors, including enforcement of penalties under the contracts. Pending transactions in accounts payable (vouchers and purchase orders) 98. Under financial resources management of the Programme and Ope rations Policies and Procedures, regular maintenance and review of accounts payable and purchase orders are required to ensure that vouchers for expenses are fully processed for correct recording in projects and the general ledger. The reviews also seek to ensure that expenses recorded in the general ledger, commitment control and projects are accurate, complete and recorded in the correct accounting period. This is important for ensuring that the resources are not held up and used efficiently and that the donor reports are accurate. Despite the need to maintain correct records, the Board noted errors in processing expenses which had not been traced and rectified. From the results of the query run in Atlas on purchase orders, the Board noted that a 36/187 17-11215 A/72/5/Add.1 total of 10,491 purchase orders had been labelled “fully matched”, implying that those purchase orders were fully matched with budget, and hence that no additional activity was anticipated. However the purchase orders were still open in Atlas, some with status indicating “partially received” or “not received”. The last activity dates for these purchase orders lay between 2012 and 2016. There were 62 purchase orders for a total of $2.93 million which had errors: for example, 21 purchase orders had a status indicating that they are pending approval, while they were supposed to have been approved; and 31 purchase orders had budget status indicating “not checked” or “errors”, while they were supposed to have been cleared. Also, the Board noted that 17 pending general ledger journal entries with a value of $6.78 million were still open as of 31 December 2016, contrary to paragraph 1.28 of the IPSAS year -end closure instruction. 99. Further, the Board noted that 496 payment vouchers totalling $1.61 million were on hold from different operating units. Those vouchers had been pending for the periods ranging from 2004 to 2015 owing mainly to inadequate maintenance and reviews and untimely actions by UNDP. Also, a total of 420 accounts payable vouchers, with a value of $555,654.51, had errors in terms of their status. For example, status indicated that some payment vouchers had no match. However, such payment vouchers were supposed to have been matched with budget. In the case where they did not match owing to their having been created in error, they should have been cleared. 100. While UNDP stated that the errors identified in the findings had no material financial impact and that the country offices perform regular follow -up, the Board ascertained that pending transactions in accounts payable, both vouchers and purchase orders, affect timeliness of closure of UNDP projects. According to paragraph 21 of Programme and Operations Policies and Procedures on expenses management, projects cannot be closed until the respective pending vouchers are cleared. Therefore, inadequate maintenance and reviews of the accounts payable vouchers and purchase orders might result in the recording of inaccurate and incomplete expenses in the general ledger, project module. It might also affect the accuracy of commitment control, which in turn would lead to inaccuracies in donor reports and inefficiencies in the use of resources. 101. The Board recommends that UNDP strengthen reviews and monitoring of the purchase orders and accounts payable to ensure that (a) expenses recorded in the general ledger, commitment control and projects are accurate, complete and recorded in the correct accounting period; and (b) pending transactions (i.e., purchase orders, vouchers and general ledger journal entries with an accounting date on or before the last day of the month being closed) are cleared in accordance with year -end closure instructions. 8. Human resources management Evaluation and use of service contracts 102. In its previous report, for 2015 (A/71/5/Add.1), the Board raised concerns over delays in evaluation of service contracts contrary to Programme and Operatio ns Policies and Procedures (Human resources management: service contracts) service evaluation policy. 103. Under paragraph 43 (g) of Programme and Operations Policies and Procedures (Human resources management: service contracts), it is required that the service evaluation of service contract holders be completed ideally one month before the expiration of the service contract. 17-11215 37/187 A/72/5/Add.1 104. The Board reviewed reports of service contract extensions, contract documents and their related evaluation reports at six visited country offices and noted that in three country offices, the evaluation of 22 (25 per cent) out of 88 service contract holders was performed 3 - 25 days rather than one month before the expiry of the service contracts as required under paragraph 43 (g) of the service contract policy. Table II.VII below summarizes the delays in service contract evaluations: Table II.VII Evaluation of service contracts in 2016, country offices of Montenegro, Republic of Moldova and Uruguay Number of service contract staff Timing of evaluations Country office with delayed evaluations (days before contract expiration) Montenegro 11 out of 22 20 to 23 Republic of Moldova 8 out of 54 3 to 25 Uruguay 3 out 12 5 to 15 Total 22 out of 88 Source : Auditor analysis. 105. Management explained that the process of evaluations of service contracts is conducted at different levels and requires first supervisor and then cluster lead approval. Ensuring the consistency of ratings across all evaluations and neutralizing the differences in the “standards” of different supervisors make the process, which involves a number of supervisors, complex. Further, management referred to guidance from the Office of Human Resources Policy and Compensation Unit shared with country offices in November 2015 stating that it is possible to amend an initial service contract with an extension of two months after the first six months. 106. While the Board acknowledges that the process of evaluation of service contracts occurs at different levels and requires supervisors’ approval, delays in evaluation of service contract holders reduce the time required for supervisors to make guidance notes and feedback to be addressed by service contract holders before the expiration of the contract. 107. The Board recommends that UNDP ensure that future service contract evaluations are completed on time, ideally one month prior to the contract’s expiration, pursuant to policy, so as to provide offices with a reasonable amount of time for decision- making. Management of service contracts 108. Programme and Operations Policies and Procedures — (Human Resources: service contracts) explains that the service contract is a modality for hiring individuals under a non -staff contract (para. 3 (a)). The service contract is a decentralized contracting instrument which is cost -effective and flexible for use only by UNDP country offices and regional centres outside of headquarters (para. 3 (b). 109. At the Uruguay country office, the Board reviewed records of all 14 staff under service contracts and noted that 12 out of 14 staff had their contracts extended in 2016, while 2 staff joined UNDP in 2016. The 12 service contract staff included two staff members who had worked for UNDP for periods of over 20 years. The service contract functions of these two staff entailed developing the SMART/Financial Information Management software system, which was used by UNDP before the introduction of Atlas. While stationed in Uruguay, supervision of the two service contract staff members was provided from the UNDP headquarters. 38/187 17-11215 A/72/5/Add.1 After the introduction of Atlas, the two service contract staff members supported UNDP offices in different countries and agencies like the Food and Agriculture Organization of the United Nations (FAO) and UNICEF. UNDP served notice to the two service contract staff (ages 48 and 55) in October 2016, explaining that their contracts would expire on 31 January 2017 without renewal. As of 17 May 2017, those contracts had expired and had not been renewed. The two service contract staff members were dissatisfied with the decision on the grounds that, having no possibility of employment in other agencies, they had expected to spend their remaining working years before retirement within UNDP. 110. Management explained that it was in consultation with these Service Contract staff in order to resolve the matter amicably. The Board considers that UNDP needs to ensure that the policy in place does not allow for such lengthy service in a service contract category which creates expectations of permanency and is likely to give rise to legal action brought by long - serving service contract staff when their contracts come to an end. 111. The Board recommends that UNDP consider updating and enforcing the human resources policy to restrict the number of years during which a person can serve under a service contract, after which time a post should be established and filled by a person on a fixed -term appointment. Completion of mandatory trainings to staff 112. The Talent Development Centre, formerly known as Learning Management System, is a learning platform with specialized courses that have been developed internally, through partnering with subject - matter experts in the Organization and drawing on their knowledge of UNDP - and/or United Nations -specific topics. It provides mandatory training which needs to be completed by staff. The training includes courses on Basic Security in the Field, Advanced Security in the Field, the United Nations Programme on the Prevention of Harassment, Sexual Harassment and Abuse of Authority in the Workplace, the Gender Journey, ethics training and the UNDP legal framework. Mandatory courses, such as Basic Security in the Field and Advanced Security in the Field should be taken within the first three months of staff employment. 113. The Board reviewed status of staff in respect of completing mandatory training as of November 2016 at six visited country offices. From the review of 114 staff members eligible to undertake training in four of the visited countries, the Board identified staff members who had not completed some form of mandatory training, as summarized in table II.VIII below. 17-11215 39/187 A/72/5/Add.1 Table II.VIII Number and proportion of eligible staff who completed various mandatory training courses, at four country offices Number and proportion of eligible staff who completed: United Nations Programme on the Prevention The Gender Number of of Harassment, Journey: staff eligible Basic Advanced Sexual Harassment Thinking to undertake Security in Security in and Abuse Outside UNDP legal Ethics Country office training the Field the Field of Authority the Box framework training Uruguay 16 15 (94%) 16 (100%) 16 (100%) 16 (100%) 13 (81%) 16 (100%) Honduras 24 23 (96%) 18 (75%) 16 (67%) 11 (46%) 5 (21%) 14 (58%) Bangladesh 42 28 (67%) 26 (62%) 28 (67%) 34 (81%) 27 (64%) 27 (64%) Republic of Moldova 32 12 (38%) 8 (25%) 32 (100%) 32 (100%) 23 (72%) 32 (100%) Total staff 114 78 68 92 93 68 89 Number of staff who did not undertake training 36 46 22 21 46 25 Source : Talent Development Centre. 114. Management explained that staff members are periodically reminded to take new mandatory courses or retake expired ones. However, noting the low completion rate for mandatory training, the Board considers that the enforcement mechanism for staff completion of the training is inadequate. Management also added that it has a plan for developing an automatic quarterly reporting tool designed to enable headquarters and regional bureaux to monitor mandatory course completion. 115. The Board is of the view that non - completion of mandatory training means that the policy set to ensure staff awareness on safety and security risks and the UNDP objective of creating a good working environment through staff awareness — an environment that is free from intimidation, hostility, commission of offences and all forms of harassment and retaliation — will not be achieved as expected. 116. The Board recommends that UNDP ensure that all staff members complete mandatory training courses on time. 9. Assets and inventory management Reconciliation of additional assets 117. The Board noted that the value of additions of property, plant and equipment as reported in the financial statements was different from that in records of additions of assets in the assets in -service report for the year 2016. The cost of additional assets in four asset categories of property, plant and equipment reported in the financial statements was $20.21 million, whereas the in - service report indicated property, plant and equipment additions of $17.56 million, resulting in a difference of assets cost of $2.65 million which was not easily traceable in the in -service report. The details are summarized in table II.IX below. 40/187 17-11215 A/72/5/Add.1 Table II.IX Comparison of value of additional assets as reported in the financial statements with the value in records in the assets in -service report (United States dollars) Additions according Additions according to the in -service to note 16 in the report financial statements Difference Asset category (A) (B) (B - A) Vehicles 8 862 084.57 11 260 000.00 2 397 915.43 Furniture and fixtures 229 057.42 244 000.00 14 942.58 Communication and IT equipment 7 221 038.34 6 959 000.00 (262 038.34) Heavy machinery and other equipment 1 243 680.27 1 747 000.00 503 319.73 Total 17 555 860.60 20 210 000.00 2 654 139.40 118. The Board was informed that UNDP had conducted quarterly reconciliations of the trial balance against the in - service report, and that the differences noted were due mainly to factors such as a timing difference, whereby assets that were under construction that had started in 2015 were completed in 2016 and recategorized in the lease hold improvements category in 2016. 119. The Board noted clarifications and justifications of the differences noted for assets additions and quarterly reconciliations from country offices; however, these reconciliations identify only differences between the in -service report and the trial balance, but do not assist in tracing the recategorized assets, adjusted assets and assets under construction, as presented in note 16 (proper ty, plant and equipment) of the financial statements. While the financial statements might not be affected, the Board is of the view that UNDP needs to introduce a query or schedule that would assist in the reconciliation of the differences as regards asset additions between the in -service report and the note on property, plant and equipment in the financial statements. 120. UNDP agreed with the Board’s recommendation that it introduce a schedule that ensures easy reconciliation of the differences in respect of individual assets additions between the note in the financial statements on property, plant and equipment; and the in -service report. Contradicting policies and guidelines on inventory management 121. The Board noted that, while as of April 2017, Programme and Operations Policies and Procedures (under inventory management) still required country offices to physically count, value, recognize and report inventory as assets at the end of each quarter, this requirement had not been covered in the 20 16 year end closure instructions and the guidance note for reporting of inventory. For example, the guidance note for reporting of inventory sets a threshold of $5,000 for recording inventories per operating unit; therefore, if the value of inventory was l ess than $5,000, the Operating Unit was not required to submit certification or report inventory for the period. 122. In addition, the UNDP Global Shared Service Unit and headquarters issued directives on 27 September 2016 requiring the country offices to perform the semi -annual physical counting of the inventories instead of doing it at the end of each quarter in accordance with the Programme and Operations Policies and Procedures. 17-11215 41/187 A/72/5/Add.1 123. From a review by UNDP of the implementation of policies, procedures, guidance and instructions on inventory management, the Board found that, out of 61 operating units which reported inventory balances to headquarters, 26 operating units (43 per cent) reported inventories below the threshold of $5,000 in some of their inventory categories, contrary to item 1.20 of the 2016 year -end closure instructions which explained that counting and recording of all inventory items were not required for the threshold of $5,000 per inventory category. The total reported inventories from these 26 operating units amounted to $64,880.21. 124. Management explained that the guidance on inventory management issued in September 2016 was intended to streamline the process and reduce the workload for operating units. Further, management submitted the Programme and Operations Policies and Procedures updates of 17 May 2017, explaining that the Office of Financial Resources Management will be issuing instruction and guidance to be followed by country offices during the exercise of counting and certifying inventories. 125. The Board is of the view that correct timing is highly important when inventory instruction and guidance are issued to country offices. The harmonization of the changes pursuant to UNDP requirements before country offices start implementation of those changes is of great importance for achieving uniformity and consistency in respect of reporting the balance of inventory at year end. Harmonization of policies, procedures and guidance that is not carried out in a timely manner results in inconsistencies in implementation by the country offices and operating units. 126. UNDP agreed with the Board’s recommendation that it update in a timely manner the contents of the Programme and operations Policies and Procedures on inventory management and all related guidance notes, so as to accommodate and harmonize changes pursuant to UNDP requirements before country offices start implementation of those changes. 10. Information and communication technology Information security governance 127. The Office of Information Management and Technology at UNDP Headquarters maintains a register of information security risks which is managed by the cybersecurity unit. From a review of the information security risks log, the Board noted that two high risks that had been introduced in 2014 and 2015 remained open, as indicated in the table II.X below. Table II.X Cloud security risks introduced in 2014 and 2015 ID Title Description Severity Status Introduced 52 No second factor Single factor authentication in Atlas High Open 2014 authentication in or UNDP cloud applications is Atlas or UNDP vulnerable to keylogging and cloud phishing attacks 145 Enterprise: The cloud provider is breached by an High Open 2015 security breach external party and does not notify of cloud UNDP or the cloud provider gives computing information to a Government based providers on a secret request (legal or otherwise) of which UNDP is not told Source : Information security risks register/log. 42/187 17-11215 A/72/5/Add.1 128. Management stated that these risks remained open pending commencement of the information and communications technology (ICT) project on the cloud security gateway 6 because this project, which had been included in the ICT project pipeline in 2015, was expected to mitigate the identified risks. However, the project could not take off owing to a lack of funding. According to the 2016 -2017 ICT road map, UNDP planned to reduce costs and one of the cost reduction mechanisms entailed moving applications to the cloud; cloud security was therefore expected to be a priority in the funding of ICT projects, since it had been identified as a high - risk area. In UNDP, one of the criteria set for prioritizing projects based o n the ICT road map was the criticality to staff and data security. In that case, the Board believes that the ICT project was supposed to be considered a high priority owing to its criticality and taking into consideration that it was a carried -forward project from 2015. Further, management explained that the project had been subject to an exceptional delay owing to severe budget cutbacks for 2016. Going forward, the Office of Information Management and Technology will be prioritizing funding for those projects which are designed to address high cybersecurity risk. 129. The Board is of the view that high risks that have remained open in the register could affect controls in cloud applications authentication and eventually allow hackers to access the applications. 130. The Board recommends that UNDP strengthen control over ICT governance to ensure that ICT projects are prioritized and funded, especially those whose aim is to mitigate high risks. ICT governance 131. ICT governance involves processes that ensure the effective and efficient use of information technology in enabling an organization to achieve its goals focusing on performance and risk management. From the review of ICT structure and operations at the Bangladesh country office, the Board identified the following areas requiring management intervention for improvement: (a) The ICT plan and budget preparation did not adequately involve all business units. For example, human resources, projects and programm es business units were not involved in the preparation of the ICT plan and budget. The Board is of the view that preparation of the ICT plan and the allocation of budget should involve all business units so as to improve accountability and ensure that the ICT needs of the organization are well prioritized and the implementation of planned activities is closely monitored; (b) The 2016 ICT annual plan and its operational plans for 2016 were not well aligned with each other. For example, two activities in th e operational plan were not derived from the annual plan. The operational plan did not cover 5 out of 11 areas that were included in the annual plan. In addition, the country office was not tracking implementation of the activities included in the ICT oper ational plan; (c) Although section 4.9.6 of the information security policy requires country offices to make annual self -attestation that they are in compliance with the policy, the country office had no procedures for reviewing the level of compliance with information security policy. Therefore, the country office could not make the annual self - attestation that it is in compliance with the policy; (d) The country office had no formal documented procedures for access control, change control and media handling. The Board is of the view that __________________ 6 This is an application which authenticates and authorizes users to access another applications hosted in the cloud servers. 17-11215 43/187 A/72/5/Add.1 documented procedures ensure the correct and secure operation of information systems and incorporation of effective information security controls. 132. Management explained that the country office was planning to use the existing committee, called the head of unit group, comprising all heads of units from programme and operations and chaired by the country director, to endorse and monitor the ICT plan. It further explained that the country office will have the annual ICT plan and subsequent modifications endorsed by the head of unit group. The Group will also review progress of implementation of the plan. Also, the country office will develop standard operating procedures for access control, change control and media handling. 133. The Board recommends that the Bangladesh country office (a) use the existing head of unit group as an ICT governance group to approve the ICT plan and budget, and monitor budget implementation and vendor performance, as well as ensure compliance with information security policy; and (b) establish formal documented procedures for access control, change control, media handling and monitoring of information systems, pursuant to the UNDP information security policy. Third -party service delivery 134. At the Bangladesh country office, UNDP signed contracts for annual maintenance of the IP PBX (Internet protocol private branch exchange) system (29 February 2016, amount $14,292.96), for provision of ICT help desk manage ment support for one year (18 October 2015, amount $42,894.43), and for provision of service for the existing router configuration and enhancement of the Internet connection for one year (16 September 2015, amount $31,988.39). Further, on 16 October 2013, the resident representative of UNDP Montenegro, on behalf of other United Nations agencies, signed a contract worth €37,584 ($42,094) in respect of provision of an Internet leased line for a building with a lease term ended 28 February 2017. 135. Article 3.2 (a) of the above contracts requires the vendors to maintain an appropriate security plan which will take into account the security situation in the country where the services are being provided. Furthermore, article 3.3 of the contract grants UNDP the right to verify the plans and suggest modifications, where necessary. However, the Board noted that the two country offices did not request or verify whether the contracted vendors had maintained and implemented the appropriate security plan throughout the contracts periods. At the beginning of 2017, the Bangladesh country office prepared the security plans with third - party service providers and shared this with the Board for verification. 136. The Board was informed that it was contractor’s responsibility to assure the safety and security of their own personnel and that requisition of a plan depends on the contract cost. However, in the view of the Board, for contracts that entail vendors’ access to the organization’s information and premises, management o f the country office must obtain assurance that the vendor will comply with information security best practices. 137. The Board recommends that the Bangladesh and Montenegro country office improve the ICT monitoring mechanism to ensure that third -party service providers of ICT -related services maintain security plans. Maintenance of ICT equipment 138. Under paragraph 18 of UNDP Programme and Operations Policies and Procedures) (Information and Communications Technology), it is required that the 44/187 17-11215 A/72/5/Add.1 useful life of ICT equipment and laptops be set at four years, after which time they should be replaced. One of the visited country offices had a total of 20 laptops which were between five and eight years old and had therefore exceeded their useful lives. The country office ICT equipment replacement plans for 2016 showed that, out of 20 laptops, 2 laptops with a total cost of $2,226.90 had already been replaced, and 8 laptops with a total cost of $8,719 were in the process of being replaced, while 10 laptops with a total acquisition cost of $12,532.72 were still in use. The Board noted that there were no scheduled maintenance plans for the 10 laptops that were still in use and with no plans for replacement, although their manufacturer’s service warranty had already expired. 139. The Board was informed that 4 out of 10 computers are used rarely and only for training and testing purposes, and 4 are used for development projects, while 2 are used by staff members that are not critical users (a driver and a receptio nist). However, the Board is of the view that maintenance of ICT equipment in use is critical even if it involves aged equipment so as to avert the risk of an entity’s information being processed using equipment that is not serviced. 140. The Board recommends that the country office consider conducting periodic maintenance of ICT equipment in use even if it is aged. Disaster recovery plan: country offices 141. The Board found that the disaster recovery plan at the Bangladesh country office had been tested in January 2016. However, the testing involved only restoration procedures and excluded the contact persons and communications procedures. In addition, the test was not documented for future reference and lessons learned, as required by the disaster recovery standards for UNDP offices. The Board is of the view that an inadequate disaster recovery plan test reduces the assurance of successful restoration of the system after the occurrence of a disaster. It was also noted that the disaster recovery site is located only 10 kilometres away from the country office where the data centre is located. Such a short distance subjects the recovery site and data centre to the same natural disasters, for example, floods and earthquakes. 142. Further, the Board noted that there were no fire suppression systems, smoke detectors or system for alerting the data centre when the temperature or humidity changed at the recovery centre. Management explained that the entire city is impacted in a similar manner during major calamities such as cyclones and floods. The country office will consult the regional security adviser for technical advice. However, the office can arrange to establish the recovery site outside the current location. The office is also exploring the possibility of shifting the disaster recovery site to a better -equipped United Nations sister agency office. Currently, installation of smoke detection alarm systems at the existing disaster recovery site is being planned. 143. The Board recommends that the Bangladesh country office (a) conduct a full disaster recovery plan test which involves all contact persons, communication procedures and document test results; (b) consider identifying a recovery site in a location that is not subjected to the same natural disaster as the data centre; and (c) install a fire suppression system and smoke detectors at the recovery site. Tolerance downtime and acceptable data loss not defined for the disaster recovery plan at headquarters 144. The recovery point objective is the maximum acceptable amount of data loss measured in time. It refers to the time between the last backup and the actual 17-11215 45/187 A/72/5/Add.1 disaster occurring. The recovery time objective is the maximum tolerable length of time during which a computer, system, network or application can be down before being restored after a failure or disaster has occurred. The recovery point objective could be useful for an entity determining the frequency of the backup, whereas the recovery time objective would help entities decide how soon the system should be restored after the disaster. 145. For the disaster recovery plans of seven critical applications reviewed, the Board noted that the recovery time objective for the domain name system and corporate active directory which authenticate users of applications was not specified in the service delivery agreement with the International Computing Centre. Specifying the recovery time objective would ensure that recovery procedures, including promotion of the secondary site at the International Computing Centre to a primary site, 7 were activated within the tolerable time and reduce the possibilities of information loss and disruption of operations. 146. Also, the recovery time and recovery point objectives had not been de fined for three applications, namely, the Simple Mail Transfer Protocol mail hub at the International Computing Centre, the Lyris List Manager for email infrastructure, and SwiftClient. The Board noted that while UNDP had explained that the recovery point and recovery time objectives for the SharePoint application at the International Computing Centre were four hours and one hour, respectively, those durations had not been specified in the service delivery agreement with the International Computing Centre. Further, the Board was informed that the SharePoint service delivery agreement did not include the durations of both the recovery point and recovery time objectives because it had been signed in March 2014 before the International Computing Centre had beco me ISO/IEC 20000 - certified in February 2015. 147. The Board is of the view that the absence of defined recovery time and recovery point objectives for the above -mentioned critical applications would affect the level of assurance to be obtained on whether the systems would be restored within an acceptable time and an acceptable amount of data would be restored in the event of a disaster. In addition, the accountability of the service provider as required by the disaster recovery standard for UNDP offices co uld not be fixed. The Board is also of the view that it not clear how the durations of four hours for the recovery point objective and one hour for the recovery time objective will continue to be attained since the size of the SharePoint content database c ontinues to increase as businesses continue to use SharePoint. The Board was informed that there is a mechanism in place to ensure that the durations of recovery point and recovery time objectives will be retained and attained by UNDP. However, the Board n oted that the mechanism referred to was not documented in the service delivery agreement, as required under the disaster recovery standard for UNDP offices. 148. UNDP agreed with the Board’s recommendations that it (a) specify the recovery time objective for the domain name system and the active directory in the service delivery agreement; (b) consider amending the service delivery agreement with the International Computing Centre for the hosting of the SharePoint application to include agreed durations for recovery point and __________________ 7 UNDP has a primary domain name system at the premises of its headquarters; and a secondary domain name system which acts as a backup is hosted at the International Computing centre. In case of a failure of a primary domain name system, the secondary domain name system at the Centre has to be brought up or promoted to a primary domain name system in order to take over for the domain name system at headquarters. Thus, the process of promoting a secondary domain name system to a primary one has to be conducted within a tolerable time (recovery time objective) specified by the management depending on criticality of the domain name system. 46/187 17-11215 A/72/5/Add.1 recovery time objectives; (c) ensure, under the service delivery agreement, that, even with the growing database volume, the International Computing Centre will continue to meet the recovery point and recovery time objectives as specified by UNDP; and (d) specify durations for recovery point and recovery time objectives for the mail hub, the Lyris List Manager and SwiftClient applications. Review and testing of disaster recovery plans 149. UNDP information security policy requires that all business process owners review, test and document their business continuity plan and disaster recovery plans on an annual basis so as to ensure that they remain appropriate to the operating requirements of the organization. 150. The Board reviewed ICT disaster recovery plans for seven critical applications at UNDP headquarters and noted that six plans had not been reviewed since 2014 despite the reminders sent by the Cybersecurity Unit to plan focal points. The failure to review the plans makes it difficult for the focal points to validate relevance and updates. Also, the Board noted the existence of one ex -UNDP staff in the list of discovery recovery plan contact persons which implies that the person cannot be relied upon in case of disaster. 151. Management stated that there had been no changes in recovery procedures, contacts information and recovery arrangements that would have required the disaster recovery plan to be reviewed. However, the information security policy requires review to be performed annually regardless of the changes. The annual reviews of disaster recovery plans assist in confirming the validity of the recovery procedures. 152. In addition, the Board noted that disaster recovery plans for four systems (the domain name system and corporate active directory; the Simple Mail Transfer Protocol mail hub; the web authentication system; and the private automatic branch exchange (PABX) system) had not been tested in 2016. Management explained that non -testing of the systems mentioned was attributable to the lack of resources, especially human resources. The Board, however, considers that alternative tests such as paper tests and walk -through tests could have been used since they are less resource -intensive. 153. Inadequate DRP tests may affect the level of assurance on whether the existing procedures remain appropriate to the operating requirements for effective and efficient resumption of business in the event of a disaster. 154. UNDP agrees with the Board’s recommendation that it (a) review all disaster recovery plans, keep track of versions, and update names of staff responsible for disaster recovery plans, (b) consider budgeting for testing the disaster recovery plans, (c) test the disaster recovery plans and document the tests conducted for untested applications and (d) include disaster recovery plan tests and reviews as activities under the workplans of all sections of the Office of Information Management and Technology that manage critical applications. Inadequate training on the business continuity plan 155. Business continuity plan guidelines emphasizes that staff training on the plan is essential to ensuring that UNDP maintains the capability to properly and efficiently execute its business continuity plan. Staff members directly involved in plan implementation are supposed to attend orientation training sessions and refresher courses through workshops, classroom courses, and business continuity site visits. 17-11215 47/187 A/72/5/Add.1 156. The Board reviewed the business continuity plan and noted that UNDP has focal points for the plan in each unit and section charged with overseeing implementation of the plan in their unit or sections. Focal points are responsible for ensuring that all pertinent business continuity policies and guidelines in force are applied, and for communicating decisions and crisis management team items for action of to the crisis response team. 157. The Board interviewed 7 out of 26 focal points at the headquarters units and noted that 5 focal points had not attended orientation training on the business continuity plan. In the absence of orientation training for focal points, the business continuity plan would not be executed properly and efficiently. Management informed the Board that several webinars and sessions have been scheduled in 2017 for the training of business continuity plan focal points on business continuity planning and business impact analysis. 158. UNDP agrees with the Board’s recommendation that it conduct orientation training for business continuity plan focal points. Quality assurance in management of ICT projects 159. UNDP quality standard and assurance policy, requires that quality assurance assessments be performed for all UNDP programmes and projects, regardless of their budget, size, location, duration, characteristics, context and circumstances. In addition, the policy requires a quality assessor and quality approver to be appointed for accountability of projects’ quality assurance. According to the requirements section of the Office of Information Management and Technology project management guideline, the project should have a business case document, a project initiation document and a project plan document during the initiation and approval stages. Also, during the closure stage, the project should have a closure report and a post -implementation report. 160. The ICT projects status report as of 31 December 2016 showed that, out of eight active projects in 2016, one project was at the initiation stage, four projects were at delivery stage and three projects had been completed. The Board noted that the project that was at the initiation stage had no project plan, while three out of four projects which were at the delivery stage had no business case document. Of the three completed projects, one project had no project initiation document, while another one had no project plan. 161. The Board also noted that, of the eight projects, two projects had a business case document that did not meet the requirements of the Office o f Information Management and Technology project management guideline and another two projects had a project initiation document that did not meet the requirements of the guideline, while three projects had a project plan document that did not meet the requirements of the ICT project management guideline. 162. Management explained that for each project, an assessor is appointed and funds are not allocated until the project initiation document and the project plan are available. However, out of eight active projects at year end, three projects did not have quality assurance assessors and one project had expenditures without a project initiation document or a project plan document. 163. The Board is of the view that management needs to improve its follow - up to ensure that quality assurance activities are adequately performed for the ICT projects, because inadequate quality assurance activities may affect the achievement of projects’ results and the realization of investments in ICT projects. 164. UNDP agrees with the Board’s recommendation that it enhance performance of control activities in quality assurance for ICT projects to 48/187 17-11215 A/72/5/Add.1 ensure that (a) projects comply with quality assurance standards at all stages by having the proper project plans, project initiation documents and business case documents; (b) projects are not initiated without appointing a quality assessor; (c) a quality approver is appointed for each project to ensure the accountability of the assessor; and (d) the quality assurance checklist is developed at each stage of the project, especially at the initiation and closure stages; and that the checklist is completed and approved before the project advances to the next stages. C. Disclosures by management 1. Write-off of losses of cash, receivables and property 165. The Administration informed the Board that in accordance with financial rule 126.77, UNDP had write -offs at $2.95 million in the year 2016. 2. Ex gratia payments 166. As required by UNDP financial rule 123.01, the Administration reported ex gratia payments for the period under review amounting to $2,640. 3. Cases of fraud and presumptive fraud 167. In accordance with the International Standards on Auditing (ISA 240 ), the Board plans its audits of the financial statements so that it has a reasonable expectation of identifying material misstatements and irregularities (including those resulting from fraud). Our audit, however, should not be relied upon to identify all misstatements or irregularities. The primary responsibility for preventing and detecting fraud rests with management. 168. During the audit, the Board makes enquiries of management regarding its oversight responsibility for assessing the risks of material fraud and the processes in place for identifying and responding to the risks of fraud, including any specific risks that management has identified or brought to its attention. The Board also inquires as to whether management has any knowledge of any actu al, suspected or alleged fraud, and this includes enquiries of the Office of Audit and Investigations. The additional terms of reference governing external audit include cases of fraud and presumptive fraud in the list of matters that should be referred to in its report. 169. In 2016, UNDP reported 63 cases of fraud or presumptive fraud to the Board, with an estimated loss of $640,064. Of the 63 cases, UNDP has already resolved 21 cases (valued $487,889), while 42 cases (valued $152,175) are still pending. Recoveries in 2016 from 21 resolved cases were $240,052, while recoveries from two pending cases were $126,216. The details of all cases are provided in annex II to the present report. The Board considers that UNDP needs to thoroughly review the underlying circumstances that led to the cases, identify the possible gaps and develop a comprehensive anti -fraud strategy to minimize fraud risks and associated loss. 17-11215 49/187 A/72/5/Add.1 D. Acknowledgement 170. The Board wishes to express its appreciation for the cooperation and assistance extended to its staff by the Administrator of the United Nations Development Programme and his staff. (Signed ) Shashi Kant Sharma Comptroller and Auditor General of India Chair of the Board of Auditors (Signed ) Mussa Juma Assad Controller and Auditor General of the United Republic of Tanzania (Lead Auditor) (Signed ) Kay Scheller President of the German Federal Court of Auditors 30 June 2017 50/187 17-11215 Annex I 17-11215 Status of implementation of recommendations up to the year ended 31 December 2015 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 1. 2015 20 UNDP agreed with the Board’s On (a), UNDP has developed Implemented. On (a), we √ recommendation to (a) ensure standard operating procedures on reviewed the developed standard that operating units regularly the follow - up of pending operating procedures on the review contribution contract milestones which include follow - up of pending milestones agreements with pending escalation procedures where no which include escalation milestones and proactively follow action is taken. A copy of the procedures where no action is up with donors on milestones standard operating procedures taken. We noted reduction in with expired due dates; and was shared with the Board. This past - due milestones from 260 in (b) ensure that at year end every has resulted in a significant July 2016 to 192 in January 2017. operating unit reviews the reports reduction in past - due milestones Of the pending milestones in for contracts with pending from 260 in July 2016, before the January 2017, less than 5 per cent milestones and, where issues are standard operating procedure was were older than 12 months. We identified, communicate to the implemented, to 192 in January reviewed sample follow - up email Global Shared Service Centre 2017. Of the pending milestones messages sent out to country through the Document in January 2017, less than 5 per offices. On (b), we noted that the Management System and update cent were older than 12 months. 2016 year -end closing the status accordingly In addition, between January and instructions have guidance on December 2016, a total of actions that offices were to take 928 follow - up email messages on pending milestones in order to were sent out to country offices. reduce the pending milestones; On (b), the year - end closing details are found on page 36 of instructions provided guidance on the year - end closure instructions actions that offices were to take on pending milestones in order to reduce the pending milestones. Refer to page 36 of 2016 year - end closure instructions shared with the Board 2. 2015 24 UNDP agreed with the Board’s All three items have since cleared Implemented. We noted three √ recommendation to (a) review the from 2016. For Brazil, all the items being cleared in relation to list of contributions receivable on aged items were removed when 2016. For Brazil, all the aged a quarterly basis so as to identify the donor provided a cost - sharing items were removed when the their recoverability status, and the agreement termination notice, donor provided a cost - sharing A/72/5/Add.1 level of assurance that controls i.e., a notice that the funds would arrangement termination notice. are in place, as required by the not be received. For Viet Nam, For Viet Nam, the milestone was internal control framework, the milestone was pushed to pushed to 2017, as there was a 51/187 (b) keep documentary evidence at 2017, as there was a delay in delay in implementing the project A/72/5/Add.1 52/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events the country level of follow - ups implementing the project and an and an amendment was being made with donors to request amendment was being signed signed with the donor. As of payments for long - outstanding with the donor. As of March 7 March 2017, there are no long - contributions prior to their 2017, there are no long - outstanding accounts receivable recognition in Atlas at year end outstanding accounts receivable requiring impairment reviewed. and (c) make allowance for long - requiring impairment review. On (b), we reviewed the standing doubtful debts, based on Update 1: on (a) and (b), UNDP developed standard operating objective evidence of their has developed standard operating procedures on the follow - up of recoverability procedures on the follow - up of contributions receivable which contributions receivable which include escalation procedures include escalation procedures where no action is taken. We where no action is taken. A copy noted the significant reduction in of the standard operating open accounts receivable from procedures was shared with the 165 in July 2016 to 96 in January Board. This has resulted in a 2017. Of the open accounts significant reduction in open AR receivable in January 2017, only items, from 165 in July 2016 3 out of 96 items were older than before the standard operating 12 months. In addition, between procedures were implemented to January and December 2016, the 96 in January 2017. Of the open 2016 year -end closing accounts receivable items in instructions provided guidance on January 2017, only 3 out of 96 actions that offices were to take items were older than 12 months. on open accounts receivable In addition, between January and items. (c) is considered December 2016, a total of 928 implemented. We reviewed a follow - up email messages were sample of agreements between sent out to country offices. The UNDP and the donors regarding 2016 year -end closing recoverability with impairment instructions provided guidance on having been done on specific actions that offices were to take account balances on open accounts receivable items. On (c), given the agreements in place between UNDP and the donors, UNDP is of the view that there is no need for any impairment and is confident that the three long - outstanding accounts receivable items will be received 17-11215 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 3. 2015 29 UNDP agreed with the Board’s On (a), most country offices Implemented after assessment. √ recommendation to ensure that affected under this IPSAS For (a), the Board noted a (a) purchase orders are reviewed dashboard indicator are in crisis significant improvement in on a timely basis, and cancelled countries and regions such as the reviewing purchase orders. or updated as necessary, Sudan, Central Africa and Iraq, (b) and (c) were also (b) purchase orders are raised where delivery is sometimes implemented owing to before receipts of the goods and delayed beyond the expected due management monitoring actions services in accordance with the dates, and/or where there are that have been taken on internal control framework, and emergency procurement implementation of the standard (c) ex post facto purchase orders activities. A recent Programme operating procedures and internal are tracked to ensure that they are and Operations Policies and control framework on purchase justified Procedures update that provides orders with no Atlas receipts, clear policy and emphasis on through which such purchase purchase order closure and that orders have now been reduced by accepts multi - year purchase $4 million (8 per cent) from orders under certain $5 million as reported by the circumstances has also been Board released in December 2016. This allows for purchase orders to stay open for longer periods before receipting. On (b) and (c), the Office of Financial Resources Management has adopted a substantive monitoring mechanism in following up with country offices and regional bureaux on purchase orders with no Atlas receipts. In addition to the dashboard indicator, this item forms one of the key performance indicators for the comptroller performance index (CPI), where country offices are ranked based on their financial management performance. Building on this assessment in the comptroller performance index, the Office of Financial Resources Management A/72/5/Add.1 has been judiciously providing quarterly financial management 53/187 briefs to country offices and regional bureaux. The monitoring A/72/5/Add.1 54/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events dimension is also mainstreamed in the year - end closure instructions to ensure that country offices close all these items by 31 December. As a result of this intensive monitoring and follow - up, at the point when status was analysed in October 2016, a significant improvement was noted from the $5.5 million reported by the Board in the 2015 report. There was only $1 million worth of purchase orders with no Atlas receipts globally, and one country office in a crisis environment accounted for 32 per cent of this amount 4. 2015 31 UNDP agreed with the Board’s On (a) and (b), the Office of Considered implemented. √ recommendation to follow up Financial Resources Management (a) With the reviewed status of with the respective offices to has adopted a substantive December 2016, the Board noted ensure full compliance with the monitoring mechanism in a significant improvement made standard operating procedures by following up with country offices by UNDP where action was taken (a) uploading links to all and regional bureaux on purchase on ensuring that country offices supporting documents to the orders with no Atlas receipts. are complying with the standard Document Management System Several of the purchase orders operating procedures in uploading on a timely basis after being with no Document Management links to (purchase orders’) satisfied with the receipt of goods System links are from countries supporting documents to or services and (b) regularly in crisis with few staff. In Document Management System reviewing the IPSAS dashboard addition to the dashboard and (b) reviewing IPSAS on the Document Management indictor, this item forms part of dashboard on the Document System link in Atlas and the quarterly financial brief Management System and highlighting exceptions, for provided to country offices and highlighting exceptions for corrective actions, by the project regional bureaux where details management actions managers or management and actionable steps are provided. The monitoring dimension is also mainstreamed in the year - end closure to ensure that country offices have closed all these items by 31 December. At year end, country offices are also required 17-11215 to provide receipt accrual 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events certifications, which include receipts without Document Management System links to ensure their validity. At the point of analysing status in December 2016, a significant improvement was noted from the $5.5 million reported by the Board in its 2015 report. There were only 160 purchase orders amounting to $3.9 million with no Atlas receipts globally, and one country office in a crisis environment accounted for 2 per cent of this amount. Three samples of quarterly financial management reports sent from the chief financial officer are shared with the Board to indicate that the exception cases are reported on at least a quarterly basis to the resident representatives or heads of offices. In addition, regional and central bureaux are conducting regular monitoring with their respective offices on all areas of the IPSAS dashboard 5. 2015 35 UNDP agreed with the Board’s On (a), UNDP would like to The Board recognizes the √ recommendation to ensure that emphasize that accounts payable vigorous follow - ups and efforts operating units: (a) prepare vouchers that clear prepaid made by management to regularly accounts payable vouchers before amounts can be raised only when monitor prepayments the deadline, as stipulated in the the goods are received, an issue This recommendation has been year - end closure instructions so that has been closely monitored reiterated in the final audit 2016 as to liquidate corresponding through the certification process. (refer to audit observation No. 4). aged prepayments; and The existing aged prepaid The Board noted that as at (b) regularly monitor and perform amounts are valid and are related 31 December 2016, the IPSAS prepayment spot checks so as to mainly to pharmaceutical dashboard had 35 prepayment A/72/5/Add.1 verify and clear aged products (70 per cent of the vouchers ($13.7 million) having prepayments in a timely manner prepayments in total are Global not been cleared by the operating Fund - related, while close to units for more than 180 days from 55/187 80 per cent of the prepayments the scheduled dates of payments A/72/5/Add.1 56/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events greater than 180 days are related ($4.2 million: 2015). This to Global Fund - related reiterated recommendation is pharmaceutical products) with a included in the long - form report longer lead time and cannot be for 2016 vouched in accounts payable unless the good have been received. December 2015 status as of 5 January 2017 was shared with the Board. On (b), prepayments irrespective of their age have been regularly monitored throughout 2016. Particular attention was paid to aged prepayments in the periodic certification process and quarterly one - pagers are sent out to country offices on key areas that are monitored by the Office of Financial Resources Management. Vigorous follow - up with offices that had aged items was carried out to ensure that the aged items are receipted and immediately liquidated in line with Programme and Operations Policies and Procedures requirements for receipting. (Sample of actions were shared with the Board.) As of 31 December 2016, approximately 70 per cent of the prepayments were related to the Global Fund, which usually has a much longer lead time for delivery than 180 days, which is the dashboard cut - off for the red rating. Hence, the existing aged prepaid amounts are valid and cannot be vouched in accounts payable unless the goods are 17-11215 received 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 6. 2015 41 UNDP agreed with the Board’s System changes regarding general The Board noted the system √ recommendation that (a) in management support can only changes regarding general future, UNDP plan ahead on the commence after the executive management support and changes needed in project settings group makes its final decision. considers part (a) of the such as for the rates of the The executive board decision recommendation to be fully general management support fee regarding changes to internal implemented. However, for to minimize delays in signing general management support parts (b) and (c) of the quarterly combined delivery distribution was made at a recommendation, the Board has reports; (b) it submit the meeting in February 2016 and continued to note delays in combined delivery reports in a officially communicated in March signing the combined delivery timely manner, duly signed by 2016, after which the changes to reports by UNDP and UNDP and implementing partners general management support implementing partners during the in compliance with the testing in line with system change interim audit at the visited Programme and Operations procedures commenced. All country office. Therefore, the Policies and Procedures; and offices were informed of the Board has reiterated the (c) it liaise with implementing delay in monthly posting of recommendation partners on their accountability general management support regarding timely signing of during the first quarter and the combined delivery reports when first posting made out in May delays are encountered 2016. This is timely, as UNDP targets closure of quarters 2.5 months after the end of every quarter. Being able to post first - quarter general management support changes two months after the quarter is an achievement. On (b) and (c), a combined delivery report repository was launched to enable country offices to upload signed combined delivery reports and a reminder message sent out according to the agreed management action. Management considers this recommendation fully implemented 7. 2015 46 UNDP agreed with the Board’s In line with the new monitoring The Board has verified the √ recommendation that it institute policy which was launched in management response on actions A/72/5/Add.1 measures such as the hiring of March 2016, monitoring is not taken and considers the monitoring and evaluation restricted to updating risk logs recommendation to be officers or designate responsible but also includes (a) tracking implemented 57/187 programme staff to ensure timely performance through the A/72/5/Add.1 58/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events review and updating of projects’ collection of appropriate and risks, issues and monitoring logs credible data and other evidence; and document this in Atlas as the (b) analysing evidence to inform primary source of information on management decision -making, projects improve effectiveness and efficiency, and adjust programming, as necessary; and (c) reporting on performance and lessons to facilitate learning and support accountability. UNDP has been monitoring the spending and capacity allocated by each country office to monitoring, pursuant to the agreed management action. This is available in the results - oriented annual report (ROAR) site. Evidence of such monitoring has also been shared with the Board. It is to be noted that, given the reduction in available resources, there is no expectation that the ideal monitoring and evaluation capacities will be 100 per cent achieved. In 2015 monitoring, 5 per cent of offices, accounting for 6 per cent of total programme delivery, met the monitoring and evaluation staffing benchmark, while 4 per cent of offices with 38 per cent of programme spending were unable to meet the targeted requirements and therefore used existing staff capacities to carry out monitoring activities. UNDP considers this recommendation implemented, as it has developed a monitoring mechanism designed to assess compliance with established 17-11215 benchmarks pursuant to the monitoring policy 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 8. 2015 50 UNDP agreed with the Board’s On (a), both the Sri Lanka and Implemented. In (a) and (b), the √ recommendation that the UNDP Nepal country offices have Board reviewed samples of the Nepal and Sri Lanka country ensured that quarterly progress Nepal and Sri Lanka quarterly offices: (a) ensure that quarterly reports are prepared capturing all progress reports, project board progress reports are prepared, required elements; details in this meetings. For part (c), the Board harmonized and capture all key regard can be viewed in the Atlas reviewed the midterm review items related to projects; (b) also project module. A sample was carried out in 2015 that was being ensure that timely meeting of shared with the Board. On (b), the uploaded in the evaluation site. project boards are conducted as two country offices also ensured While for (d), the Board verified required by Programme and the timeliness of the project the developed standard operating Operations Policies and board’s minutes, of which two procedures and trackers to guide Procedures; (c) develop an action samples were shared with the timely monitoring of projects plan so that projects’ midterm Board. On (c), action plans review and annual reviews adopted to ensure midterm scheduled for 2015 are performed reviews and annual reviews without further delays; and scheduled for 2015 were (d) institute control measures to implemented and control ensure that monitoring for future measures were developed and project reviews occurs on time planned midterm review evaluations are in place. On (d), control measures were instituted to ensure that monitoring was conducted on time. Management considers that effective measures are in place to ensure monitoring is carried out in line with the newly released monitoring policy of March 2016 9. 2015 52 UNDP agreed with the Board’s The Liberia country office has Liberia: implemented. (a) and (b): √ recommendation that the Liberia addressed the pending project the Board verified the projects’ and Uganda country offices closure activities highlighted by completion checklists, final (a) ensure projects’ completion the Board and all supporting combined delivery reports and checklists are completed and final documents were emailed to the other documentations for combined delivery reports for Board (owing to their bulk) on financially closed projects and financially closed projects are 27 December 2016. The Uganda status of projects’ funds balances certified by responsible parties; country office has finalized the being cleared. Uganda: and (b) take efforts to refund process for a number of projects; considered implemented; on A/72/5/Add.1 amounts due to donors in line in addition, the note to file has (a) and (b), the Board reviewed with Programme and Operations been used for other projects the note to file dated 1 March Policies and Procedures and closed in previous years 2017 from the deputy country 59/187 donor agreements director of Uganda explaining the A/72/5/Add.1 60/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events status of project fund balances being cleared. Further, the country office confirmed the difficulties in obtaining proper projects documentations such as closure checklists for most of projects which were closed many years ago (between 2005 and 2013), thus the country office elected to use the note to file and close the projects 10. 2015 56 UNDP agreed with the Board’s Excellent progress has been made Considered implemented. The √ recommendation that it (a) obtain, in closing projects. Specifically, Board noted good progress made in a timely manner, donors’ compensating procedures were in reducing the magnitude of approvals on refunds or prepared for offices that were delayed closed projects, due to reprogramming of unspent unable to obtain required top management involvement and amount so as to minimize delays documentation in line with continuous monitoring activities in closing projects and (b) ensure requirements of the Programme in this area. On (a) and (b), the that all projects in operational and Operating Policies and Board noted the approved closure status are financially Procedures Subsequently, from compensating procedures for closed within 12 months July 2016, the Associate country offices with respect to Administrator sent messages to closing all projects that have been bureaux with regard to closing all in operational closure for at least inactive projects. The impact of 18 months. The Board also noted conscientious monitoring and the useful dashboard which follow - up on a regular basis assists UNDP in monitoring resulted in a reduction, from 908 inactive cost - sharing projects. projects with a fund balance of Despite the good progress made $14.5 million on 11 July 2016 to for 2015, however, during its 383 projects with a fund balance 2016 interim audit, the Board of 2.8 million on 20 December noted a number of country offices 2016. This represents an 81 per with delayed projects closures. cent improvement with respect to Therefore, we have closed this inactive project fund balances. recommendation for 2015, While UNDP can make every although we raised similar effort to follow up with donors, findings in 2016 during the ensuring their timeliness of interim audit response is not within the purview of UNDP management. The balance of inactive projects 17-11215 pending closure will never be nil 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events owing to this factor. However, with the significant progress made owing to involvement of top management and continuous monitoring, UNDP management considers this recommendation fully implemented 11. 2015 61 UNDP agreed with the Board’s UNDP achieved a remarkable The Board considers that (a) and √ recommendation that it ensure improvement in delivery, from an (b) have been implemented. The that country offices (a) set average of 7 per cent in financial Board noted progress made in realistic and attainable project year 2013 to over 8 per cent in all improving delivery rates in 2016 activities and budgets at key of the categories in 2015 against planning stages in line with strategic plan targets, and of over Programme and Operations 90 per cent against targets of Policies and Procedures so as to regional bureaux. As of June expedite projects budget 2016, the organization was on implementation; and (b) monitor target to achieve a similar result progress of projects’ in 2016, as reflected in the implementation on a timely basis, December 2016 executive and implement corporate action snapshot results. On (a), sample plans to minimize project delays messages sent by regional bureaux and responses from country offices on delivery targets were shared with the Board. Regional bureaux are entrusted with delivery monitoring. On (b), the executive group continued to monitor delivery targets through the regional bureaux with resoundingly successful results in 2015 12. 2015 66 UNDP agreed with the Board’s In line with the agreed The Board noted additional √ recommendation to consider management actions, UNDP guidance on unprogrammed improving its accelerated and provided guidance in the 2016 resources reports being included unprogrammed resources reports year - end closing instructions with in the 2016 year - end closing through additional guidance in respect to avoiding instructions year - end closure instructions misinterpretation of the report A/72/5/Add.1 aimed at ensuring that and tables. Such guidance in the management and other year - end closing instructions for stakeholders have a similar 2016 are found on pages 53 - 56 61/187 understanding of the meaning of A/72/5/Add.1 62/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events the reports 13. 2015 72 UNDP agreed with the Board’s Recommendation (a) and (b): The Recommendation (a) and (b) are √ recommendations that it Multi - Partner Trust Fund Office in progress. As of 31 December, (a) enhance and document the has invested a substantial amount 2015, the pending refunds for follow - up mechanisms, including of resources in improving project projects with closure dates of feedback from all delayed and Fund closure rates since 31 December 2013 or earlier was participating organizations, for 2014, through eliminating $32.752 million. The Board future improvements; non - essential requirements, reassessed the position as of (b) introduce measures designed streamlining processes and 31 December 2016 whereby to accelerate operational and strengthening its advocacy efforts refunds recovered related to these financial closure of all overdue with United Nations agencies. For projects were $10.83 million projects; and (c) propose, as the pooled funds, all United Nations (33 per cent) leaving a net largest United Nations fund agencies receiving funds under a balance of refunds as administration service provider, project must financially close $21.922 million (77 per cent). the idea of common policies and their own project and provide the The Board acknowledged procedures for inter - agency final refund and report, before the management efforts in pooled funding mechanisms so as Trust Fund Office can finalize its implementing these audit to harmonize practices so as to own project closure. Therefore, recommendations, and we suggest enhance accuracy in reporting delays in project closure by rating them as in progress. In and timing of the issuing of United Nations agencies every quarter and in future audits reports negatively impact Multi - Partner we will continue to assess the Trust Fund Office closure rates. recovery of pending refunds from With the introduction of a single participating United Nations certification for final project organizations. financial reports by United Recommendation (c): Is in Nations agencies, enabling an progress. The Board agency to certify all final reports acknowledged the management for project closure at the same efforts. However, the Board is time with one signature, reporting still waiting for the approval and rates of United Nations agencies feedback from United Nations have increased substantially. In Development Group on the 2013, only 193 projects had been proposed idea of common finalized by United Nations policies and procedures around agencies: by 2016, the figure had inter - agency pooled funding risen to 732 projects mechanisms so as to harmonize (representing a 37 per cent practices and thereby enhance increase). The increase is also accuracy in reporting and timing attributable to the extensive of the issuing of reports, as advocacy efforts implemented in recommended in the audit report 2016, through outreach to the of 2015 17-11215 Fiduciary Management and 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events Oversight Group (FMOG), the United Nations Development Group oversight body for pooled funds; increased bilateral discussions; and the provision of tailored information on outstanding actions. The figure for project report submission increased from 561 in 2015 to 732 in 2016 (representing a 3 per cent increase). This allowed the Multi - Partner Trust Fund Office to financially close 279 projects, with an additional 37 closed in first quarter 2017. On (c), within the United Nations Development Group inter - agency organizational structure, both the United Nations Development Group Business Operations Working Group (established at the Assistant Secretary - General level), and the above - mentioned Fiduciary Management Oversight Group (a parallel United Nations Development Group working group with an oversight role over inter - agency pooled funding mechanisms) took a keen interest in inter - agency pooled funds. The Multi - Partner Trust Fund Office followed up on the comments made at the Assistant Secretary - General level in the Business Operations Working Group by providing a detailed presentation on financial closure issues relating to the audit A/72/5/Add.1 recommendation, which included a proposal that common reporting 63/187 issues be addressed in the Fiduciary Management Oversight A/72/5/Add.1 64/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events Group in December 2016 14. 2015 81 UNDP agreed with the Board On (a), the Sri Lanka country Implemented. (a) The Board √ recommendation that the resident office carried out the United reviewed actions taken by coordinator ensure that the Sri Nations Development Assistance management with regard to the Lanka and Liberia country offices Framework midterm review for United Nations Development (a) communicate the summary of the current cycle 2013 - 2017. The Assistance Framework reviews the macro -assessment of 2015 harmonized approach to cash and harmonized approach to cash when conducting the annual transfers macroassessment which transfers macro - assessments and United Nations Development was carried out for the executive considers the recommendation to Assistance Framework review; committee agencies, was also have been implemented and (b) perform future shared with the consultants who macroassessments at least once used it as part of their background during the programming cycle in material. The Liberia country line with the harmonized office 2015 United Nations approach to cash transfers Development Assistance framework Framework review incorporated the 2013 macroassessment results, as instructed in a letter from the resident coordinator; the next Framework will enter into effect in 2019, following approval by the United Nations Development Group of the one extension (to December 2018) requested by the United Nations country team, and already endorsed by the Government. On (b), both the Sri Lanka and Liberia country offices are currently in compliance with the harmonized approach to cash transfers requirement of carrying out macroassessments at least once during a programme cycle. The recent macroassessment of the Sri Lanka country office as well as the 2013 and 2016 macroassessments carried out in Liberia were shared with the Board. UNDP considers this recommendation fully implemented in line with 17-11215 Programme and operations policies and Procedures 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events requirements 15. 2015 82 UNDP also agreed with the Board On (a), a macroassessment was Recommendation (a) has been √ recommendation that the resident carried out for the Uganda and implemented. The Board coordinator ensure (a) that the Sierra Leone country offices. On reviewed the macroassessment Uganda country office liaise with (b), the current UNDAF reports report of June 2016 for Sierra other United Nations agencies have incorporated elements of the Leone and the report of April and initiate the process of macroassessments 2015 for Uganda conducting macro - assessments at Recommendation (b): in progress least once during the country for Sierra Leone The Board office programme cycle and reviewed the current United (b) that the Uganda and Sierra Nations Development Assistance Leone country offices incorporate Framework for Sierra Leone the macroassessment, where which was signed in March 2014 available, in the United Nations for the programme cycle 2015 - Development Assistance 2018. The Board has not yet Framework reviews received the Sierra Leone Development Assistance Framework review which would incorporate the summary of 2016 macroassessment, in accordance with its recommendation to UNDP. For Uganda, the Board reviewed the new Development Assistance Framework for the cycle 2016 - 2020, which took into consideration macroassessment of April 2015 Therefore, the Board considers the overall implementation of this recommendation to be in progress 16. 2015 91 UNDP agreed with the Board On (a), regional bureaux Considered reiterated. Despite √ recommendation that it reviewed the harmonized good progress made by UNDP in (a) strengthen controls in approach to microassessment this area, deficiencies were noted reviewing the harmonized plans and sample review in our 2016 interim audit at approach to cash transfers messages sent to a country office country offices. Refer to microassessment plan for and training was rolled out as paragraphs 73 to 94 of the interim completeness and accuracy; agreed. On (b) and (c), management letter. Thus, the A/72/5/Add.1 (b) prioritize the microassessment prioritization and monitoring is Board reiterated this activities for implementing carried out by the regional recommendation. In its audit of 65/187 partners based on the assessment bureaux through the harmonized 2016 at country offices, the Board plan; and (c) monitor approach to cash transfers found that (a) most of the micro - A/72/5/Add.1 66/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events implementation and conduct an monitoring dashboard. There assessment plans were properly annual update of the assessment were revisions made to the carried out, although three plan microassessment methodology at country offices (those of the inter - agency level Honduras, Bangladesh and Uruguay) had shortcomings. (b) Most of the micro - assessment activities were prioritized. (c) Assessment plans were monitored and updated. Also, the Board noted the useful harmonized approach to cash transfers monitoring tool being developed by headquarters 17. 2015 98 UNDP agreed with the Board Regional bureaux monitor the Reiterated: the Board noted the √ recommendation that it ensure preparation and implementation developed dashboards which that country offices (a) prepare of assurance activity plans and monitor implementation of the complete set of assurance are expected to update the microassessments in country activities under the harmonized corporate dashboard which was offices to address audit approach to cash transfers plan in recently launched to monitor recommendations (a), (b) and (c). line with the harmonized implementation partner spot However in our 2016 interim approach template and include all checks. As this process is ongoing audit (paras. 73 - 94), the Board of the required information; and being permanently updated, noted deficiencies in the (b) conduct all assurance the dashboard is not complete preparation of the harmonized activities as planned; and with respect to its current status. approach to cash transfers (c) monitor and improve annual assurance plans and in conducting assurance plans based on the assurance activities in three out lessons learned from harmonized of six visited country offices. approach transitional assurance Therefore, the Board reiterates activity plans of 30 April 2015 this recommendation in 2016. Since monitoring is an ongoing activity, the Board will continue to assess this area in our future audits 18. 2015 102 UNDP agreed with the Board Liberia and Uganda prepared Implemented. The Board has √ recommendation that the offices joint harmonized approach to reviewed the approved (October of the resident coordinators for cash transfers assurance plans in 2016) joint harmonized approach Uganda and Liberia ensure that October 2016 to cash transfers assurance plans the country offices continue to for Liberia and Uganda country liaise with the harmonized offices 17-11215 approach inter - agency coordinators for preparation and 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events endorsement of the joint harmonized approach to cash transfers assurance activities plan without further delays 19. 2015 108 UNDP agreed with the Board’s On (a), UNDP has established a Implemented. On (a), the Board √ recommendation that it (a) speed long - term agreement with a third - reviewed the long - term up the process of engaging a party provider on performing agreement signed in December third - party service provider for microassessments. On (b) and (c), 2015 between UNDP and a third - micro - assessments and ensure UNDP has developed a dashboard party provider for performing that the assessments are which monitors the micro - assessments. On (b) and conducted without further delays; implementation of (c), the Board reviewed the (b) institute controls mechanisms microassessments and cash developed dashboard which so that future microassessments transfers monitors the implementation of are conducted on time before microassessments and cash funds are provided to transfers to implementing implementing partners; and partners (c) continue consultations with implementing partners to ensure that the micro - assessments are completed before the start of future programmes, since the national implementation modality audits do not replace the microassessments 20. 2015 112 UNDP agreed with the Board’s The Uganda country office Implemented. The Board √ recommendation that the Uganda prepared its resource mobilization reviewed the Uganda resource country office prepare and strategy for 2016 - 2020 which mobilization strategy for 2016 - include, in its resources maps partners and opportunities. 2020 (revised version of mobilization strategy, the UNDP considers this 25 September 2016) mapping of partners and recommendation implemented resources mobilization opportunities 21. 2015 117 UNDP agreed with the Board’s The Uganda country office has Implemented. The Board √ recommendation that the Uganda finalized its 2016 - 20 resource reviewed the Uganda resource country office (a) improve its mobilization strategy and action mobilization strategy of 2016 - resources implementation plan by plan with (a) implementation time 2020 (revised 25 September including the resources targets frames; (b) a monitoring tool and 2016) and action plan which A/72/5/Add.1 over years, indicate clearly the clear - cut process for tracking addressed the audit time frame for meeting goals for resource mobilization; and (c) a recommendation, i.e., they 67/187 outputs and actions; (b) establish reporting system for the timely (a) have implementation time a clear - cut process and tracking of resources and frames; (b) have a monitoring A/72/5/Add.1 68/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events monitoring tool for tracking accountability. UNDP considers tool and clear - cut process for resources mobilization by this recommendation fully tracking resource mobilization; improving donor reporting implemented and (c) have indicated a reporting through robust reporting; and system for timely tracking of (c) review and enhance its donor resources and accountability reporting system for quality and timely resources tracking and ensure monitoring of resources mobilization 22. 2015 123 UNDP agreed with the Board’s By year - end 2015, UNDP had Implemented. The Board will √ recommendation that it enforce succeeded in increasing continue to monitor the the compliance at country offices dramatically compliance with performance management and with performance management performance management development compliance rate in development timelines in respect development processes, our future audits at country of completion, review, especially annual performance offices and corporate level documentation and approval of assessments and plans, with an midyear and final reviews by excellent success rate of 80 per managers cent (previous year: 38.66 per cent). The deadline for the 2015 performance assessments was eventually extended to 15 April. UNDP met and even exceeded, albeit very slightly, the integrated results and resources framework target of 80 per cent as reported to the Executive Board at its June 2016 session. For the completion of the 2015 performance assessments, several follow - up messages were sent out in line with the agreed management action plans, including one for the midyear performance review. It is important to highlight that management does not consider it mandatory to update Atlas through midyear performance discussions 17-11215 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 23. 2015 128 UNDP agreed with the Board’s The service contract user guide Implemented. The Board has seen √ recommendation that it institute was converted to prescriptive the updated content of new control mechanisms so that a content (Programme and Programme and Operations timely evaluation is conducted, in Operations Policies and Policies and Procedures stating order that, in future, service Procedures) and updated on the that service contracts evaluation contract evaluations may be requirements for evaluating must be completed by the completed two months prior to service contracts performance on supervisor prior to contract contract expiration, pursuant to a timely basis. A sample expiration, ideally one month guidance, in order to allow for evaluation form is shared with prior to expiry timely valuable decisions during users. In addition, the Programme renewal of contracts and Operations Policies and Procedures, now states (p. 24): “(d) The service contract evaluation must be completed by the supervisor prior to contract expiration, ideally one month prior to expiry.” The updated Policies and Procedures was circulated globally by the Director of the Office of Human Resources, and specifically the requirement that service contractors be evaluated, as highlighted in a memo, in line with the agreed management action plan. It was noted that such actions are carried out at the country office level 24. 2015 133 UNDP agreed with the Board’s A SharePoint list has been shared The Board recognizes the efforts √ recommendation that it with the regional bureaux; and of management and country (a) perform regular vendor data the country offices have offices in this area. However the checks to maintain accurate and commenced the clean - up with a Board wished to reiterate this up - to - date data, including through deadline of 30 April 2017. The recommendation in 2016, as removal of duplicate active launched email and feedback similar cases were noted in the vendors, (b) ensure regular from country offices that have interim management letter of review and correction of vendors’ started to correct the vendor data 2016: refer to the bank information to prevent were shared with the Board recommendation on vendor data duplicates and (c) review management (paras. 96 - 103) A/72/5/Add.1 transactions processed in bank accounts shared by multiple vendors to correct inappropriate 69/187 transactions A/72/5/Add.1 70/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 25. 2015 138 UNDP agreed with the Board’s On (a), the data for Advisory The Board reiterated these √ recommendation that it Committee on Procurement recommendations in the interim (a) provide regular updates on the online indicators are now management letter of 2016; i.e., non - Atlas procurement indicators integrated into the procurement on vendor data management for greater accuracy, dashboard. Buyer certification (paras. 96 - 103) and accuracy of completeness and reliability of level I is now updated weekly information in the procurement information, (b) ensure that using the data from the Office of dashboard and delivery delays requesters at country offices input Human resources. Certification (paras. 104 - 109). These reiterated reasonable delivery due dates in level II is updated monthly using recommendations are included in the e - requisition in such a way as data from the Chartered Institute the long - form report for 2016 to reduce the workload for data of Purchasing and Supply. On (b) clean - up of delivery dates for red - and (c), a message has been rated purchase orders in the posted in Yammer to remind IPSAS dashboard and (c) enhance country offices to input the follow - up with vendors so that correct delivery dates and goods or services are delivered continually monitor supplier within the scheduled period performance 26. 2015 147 UNDP agreed with the Board’s On (a), please find the signed, All parts of the recommendation √ recommendation that it (a) liaise executed addendum to the have been implemented: with the consultant and sign an statement of work which confirms (a) statement of work addendum addendum to the initial statement the updated understanding of the signed on 18 October 2016 by of work that includes actual tasks statement of work and that UNDP and Capegimini performed in line with the long - everything delivered by (consultant) has been verified. term agreement and approved Capgemini was highly (b) The Board has verified the statement of work, satisfactory and cost - neutral, that signed - off financial reports from (b) periodically review financial is to say, there was no change to Hyperion Financial Management reports from Hyperion Financial cost due to the minor changes to being reviewed by UNDP in June Management and correct the the statement of work signed off and September 2016 and differences in a timely manner so on and agreed. On (b), shared compared with the United as to ensure the accuracy of with the Board is the sign - off Nations accounting tree and financial statements at year end, evidencing review of the financial controls totals. (c) The Board (c) institute compensating reports from Hyperion Financial reviewed standard operating controls for checking the ageing Management, which are reviewed procedures on Hyperion access, and balances generated by quarterly in June, September and mapping and metadata changes Hyperion Financial Management December, and compared with the being approved by management which need to be corrected before United Nations accounting tree on 19 October 2016. The standard preparing financial statements detail control reports for the trial operating procedures have key and (d) ensure that the evaluation balance, as well as review of the controls, steps and processes checklist for vendor performance key financial statements and concerning Hyperion, e.g., is completed on time for other notes that are agreed to be correct mapping in Hyperion 17-11215 future contracts produced in those quarters. from four accounting trees in 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events Recommendation (c): a standard Atlas (p. 13); sign - off from operating procedure document business owners on the ageing has been prepared and signed off reports and others that are semi - on. The document incorporates automated. (d) The Board noted a key controls, steps and processes clause in these standard operating concerning Hyperion. The procedures (p. 22), to the effect standard operating procedures that when a consultant or firm is require written sign - off from used to support implementation business owners on the ageing of any aspects of the project, reports and others that are pursuant to UNDP guidelines, an semi - automated, e.g., NEX evaluation checklist for vendor ageing reports. performance is to be completed Recommendation (d): a standard within one month of completion operating procedure document of the project has been prepared and signed off on. The document incorporates the view that any future projects where a vendor is utilized should ensure completion of the vendor performance evaluation within a specified timely period, e.g., one month from the end of the project 27. 2015 157 UNDP agreed with the Board UNDP has received confirmation Implemented. The Board has √ recommendation that it (a) clearly from the International Computing reviewed standard operating document procedures for Centre on compliance with procedures and the controls that managing changes to account password requirements. have been instituted by mapping and metadata so as to Management considers this management in response to the ensure that all changes are recommendation fully recommendation; therefore, the recorded and authorized, implemented Board considers this (b) enable data audit to track and Update 1: the standard operating recommendation to be fully manage changes to account procedures, monitoring reports implemented mapping and metadata for (on access and activity) and the auditing and accountability tracking tool in Hyperion. The purposes, (c) strengthen controls monitoring exercises are now to ensure frequent review mainstreamed with the next activities of administrators in the review due the week of system, (d) clearly document 5 December 2016. We thank the procedures for the granting and A/72/5/Add.1 Board for drawing these matters authorization of access to the to our attention. We have found system based on the role matrix the reviews to be highly 71/187 and ensure that a periodic review enlightening A/72/5/Add.1 72/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events of the access list to both the application and back - end databases is conducted and (e) strengthen controls to ensure a strong password policy for the default database system accounts 28. 2015 162 UNDP agreed with the Board On (a), the Office of Human Overtaken by events. The Board √ recommendation that it Resources, pursuant to considers this recommendation as (a) consider making the training instructions from the Special having been “overtaken by on information security Adviser to the Administrator, has events” owing to the Office of awareness mandatory for staff put a freeze on designating Human Resources decision not to and (b) establish enforcement additional courses as mandatory designate any additional training mechanisms such as including for UNDP staff as mandatory staff members’ completion of information security awareness training sessions in the employee’s performance review 29. 2015 166 UNDP agreed with the Board On (a), controls have been Implemented per action. √ recommendation that it strengthened through regular Management efforts are noted. (a) strengthen controls when review of roles and the actions (a) Implemented. We reviewed granting access to the Atlas taken utilizing the accounts that minutes of the quarterly risk and database so as to ensure that the have Atlas database access. The configuration change meetings principle of segregation of duties Office of Information for first, second and third quarters is adhered to and so that Management and Technology has of 2016. (b) and (d) implemented. programmer and security instituted a review process under We reviewed documents administrator have only minimum the agenda of the quarterly risk regarding the International necessary access to the Atlas log and the change config Computing Centre decision to database, which is reviewed meeting. That meeting is held on delete Atlas accounts with no regularly, (b) review access rights the last Thursday of the first roles assigned and memo on the to the Atlas database and remove month of each quarter (January, creation of a non - production active accounts without roles, April, July and October), with instance in Atlas for the purpose (c) conduct quarterly reviews of minutes available. The review of troubleshooting. access rights, make corrections process cross - references the log (c) implemented. We reviewed and submit the report to the of database update accesses and minutes of meetings of quarterly meetings of Information with the support of the customer Information Security Security Management and relationship management (CRM) Management for the first, second (d) introduce guidance requiring cases associated to the updates and third quarters of 2016 the use of a separate environment identifies any undocumented or as a replica of the production anomalous database updates. We 17-11215 database for programmers and consider (a) to be fully security administrators when they implemented. For 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events need to perform troubleshooting, paragraph 166 (c): the Office of instead of enabling them to Information Management and access the production database Technology has been conducting quarterly reviews of access rights via the quarterly risk log and change config change meeting, performing corrections to levels of access rights, and reporting to the quarterly meetings of Information Security Management. Minutes of the quarterly meeting have been shared with the Board. We consider (c) to be fully implemented. Recommendations (b) and (d) have been completed, and documents on actions taken by the International Computing Centre to delete Atlas accounts with no roles assigned and a memo on the creation of a non - production instance in Atlas for the purpose of troubleshooting have been shared with the Board 30. 2015 169 UNDP agreed with the Board On paragraph 169 (a), the Office Part (a) Implemented. The Board √ recommendation that it of Information Management and reviewed minutes of quarterly (a) strengthen controls over Technology now includes risk log and config change review information security risk continuous monitoring of high meetings of July and October management by conducting risks. One vector of this 2016, where members reviewed continuous monitoring of high continuous monitoring is the the Office of Information risks in addition to the annual risk quarterly risk log and config Management and Technology risk assessment and quarterly reviews, change review meeting, attended log, and identified risks that have and (b) consider reviewing the by senior Office managers and a changed or are closed (archived) current workload, and roles and representative from the Office of as well as risks that need to be responsibilities of staff assigned Financial resources Management. added. Part (b) implemented. The to information security so as to This meeting is held quarterly, review of roles and facilitate the continuous scheduled through a recurrent responsibilities indicate that the A/72/5/Add.1 monitoring of information meeting held yearly on the fourth department is adequately staffed security risk management Tuesday of January, April, July to perform continuous monitoring 73/187 and October. The first item in the of information security. This is A/72/5/Add.1 74/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events agenda for each meeting is a further evidenced by the ISO review of the Office of certification Information Management and Technology risk log, identifying risks that have changed or are closed (archived) as well as risks that need to be added. On (b), UNDP and the Office of Information Management and Technology monitor and measure the workload and productivity of staff through well - defined human resources procedures, including the performance management system. In addition, the Office management assesses the ongoing workload of all staff in the Office, including the ICT security team staff. While the staffing is tight in the Office in general and in the ICT security team specifically, there are numerous indicators that staffing is currently sufficient to complete necessary tasks. For example, the ICT security team maintains ISO 9000 and ISO 27000 certifications, which would not be possible if staffing were insufficient. Also, awards conferred on the ICT security team by national trade publications indicate that the team is staffed sufficiently to deliver world - class results. The ability and sufficiency of staffing for the monitoring of high risks by the ICT security team are assessed in the quarterly risk log and config change review 17-11215 meeting, a quarterly management check whose goal is to ensure that 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events continual risk log review and updating are being performed 31. 2015 173 UNDP agreed with the Board’s On paragraph 173 (a): (a) UNDP In progress. (a) In progress; √ recommendation that it has achieved fully redundant UNDP has submitted technical (a) implement a backup plan for communication for the UNDP requirements to the Central Internet access for its three offices in the Daily News Procurement Unit with respect to offices using the services of the Building, through a cooperative issuing invitations to bid for data centre, (b) clear unused agreement with the United Internet access in the FF and DC1 items in the data centre, and label Nations Entity for Gender Buildings with the expectation of and keep cables in order, (c) use a Equality and the Empowerment issuing invitations to bid in June. dry pipe fire suppression system of Women (UN - Women) on Procurement process will be in the data centre and (d) review providing redundant network completed and new contracts put physical access rights to the data connectivity in that location. in place end of year 2017 or first centre in each quarter and report Plans for the other buildings quarter of 2018. Management has to the Information Security (DC1 and FF) are in progress. to update the Board when the Management meetings thereon The Office of Information backup Internet connection for Management and Technology has the DC1 and FF Buildings are submitted technical requirements implemented. (b) The Board to the Central Procurement Unit noted the project closure for issuing an invitation to bid for document; however, this Internet access in the FF and DC1 recommendation is in progress buildings, with the expectation of since it requires a physical visit at issuing an invitation to bid in the data centre to verify clearance June. The best estimate as to of unused items, labelling of when the procurement process network cables and if cables are will be completed and new in order. Please note that the contracts put in place is year end Board and UNDFP had audit exit 2017 or the first quarter of 2018. meeting on 16 May 2017 and On paragraph 173 (b): the data UNDP updated this centre footprint reduction project recommendation on 23 May had been successfully completed 2017. (c) In progress; as by 30 November 2016 within full explained by management, in lieu scope (see uploaded project of an extremely expensive closure document). On revamp of the fire suppression paragraph 173 (c): in lieu of an system, the Office of Information extremely expensive revamp of Management and Technology is the fire suppression system, the aggressively reducing Office of Information headquarters dependency on the A/72/5/Add.1 Management and technology is FF data centre by migrating more aggressively reducing critical applications from the data 75/187 headquarters dependency on the centre to external hosting A/72/5/Add.1 76/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events FF data centre by migrating more facilities, reducing reliance on the critical applications from the data FF 5 data centre, with the goal of centre to external hosting eventually vacating that space. facilities, reducing reliance on the The empty FF data centre project FF 5 data centre with the goal of is scheduled to be completed by eventually vacating that space. the end of 2017. The emptying of the FF data (d) Implemented; the Board noted centre project is under way with the quarterly access review report target completion date by the end for March (first quarter) on of the current year. On access rights to the data centre paragraph 173 (d): the Office of which was shared with Information Systems and Information Security Technology, in conjunction with Management meeting the Premises, Facilities and Assets Unit/Office of Sourcing and Operations, produces quarterly physical access lists shared in quarterly information security management meetings. In addition, the Office of Information Management and Technology purchased and installed 4 Nestcam video surveillance cameras in November 2016. We are performing quarterly access audits, with the last review having been performed on 6 March 2017 and the next due in June 32. 2015 177 UNDP agreed with the Board’s UNDP is pleased to inform that In progress. Part (a) In progress. √ recommendation that it the Board recommendation in The recommendation required (a) analyse all assets disposed in paragraph 177 has been UNDP to “analyse all assets error and consider the impact in implemented. All operating units disposed in error and consider the prior year’s financial have been informed of the need to impact in the prior year’s statements, (b) ensure that regularly review their asset financial statements”. On 17 May operating units regularly perform information and submit Global 2017, UNDP established that reviews to identify errors and Shared Services Unit requests for assets with net book value worth send requests to the Global corrections in a timely manner. $516,325.46, $875,044.38 and Shared Services Unit in a timely The units were also reminded that $1,634,313.57 were disposed in 17-11215 manner for reversing the approving managers should verify error for the financial years 2012, 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events capitalization made in Atlas, the use of appropriate catalogue 2013 and 2014 respectively. (c) ensure that approving for procurement of UNDP assets. These efforts are appreciated. managers verify that all items are A new disposal transaction code However, Board noted that the appropriately selected in the “COMAUC” has been introduced impact of those disposed in errors procurement catalogue, to distinguish recategorization of were not considered by UNDP in (d) consider improving assets assets under constructions the prior year’s financial data in Atlas so that actual assets through disposal from the statements. Thus, the Board retired in error can be easily genuine retirements in error assesses this recommendation as differentiated from assets under in progress pending UNDP construction converted into consideration on the impact in the leasehold improvements prior year’s financial statements for assets net book value $516,325.46, $875,044.38 and $1,634,313.57 that were disposed in errors in years 2012, 2013 and 2014 respectively. Part (b) Implemented; in 2016 the Board noted the requests for errors from operating units sent to the Global Shared Services Unit in a timely manner for reversing the capitalization made in Atlas. Part (c) Implemented. The instructions/guidance from headquarters to country offices was verified as part of 2016 midyear physical verification and certification of property, plant and equipment. In final audit of 2016, the Board verified assets retired in 2016 and reviewed the respective approvals: no weakness noted. Part (d) Implemented. The Board noted a new disposal transaction code entitled “COMAUC” being introduced in September 2016 to distinguish recategorization of A/72/5/Add.1 assets under construction through disposal from the genuine retirements in error. Code 77/187 “COMAUC” will represent A/72/5/Add.1 78/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events “completion of assets under construction” which will be used by Global Shared services Unit to retire assets under construction 33. 2015 181 UNDP agreed with the Board’s The PHELPS report was Implemented. Part (a) √ recommendation that it: approved by the ICT Governance implemented. The Board verified (a) reclassify intangible assets in Group as part of project life cycle the reclassification of intangible use (resource planning and human management in the meeting assets in the books. Part (b) performance) and correct the minutes of 5 April 2016 (shared implemented. From review of financial statements by with the Board). It was presented minutes, the Board noted that the calculating the amortization of on page 11 of the PowerPoint management had approved and intangible assets in use in 2015; presentation (also shared with the formalized computation basis for and (b) approve and formalize the Board) as part of minutes Update development phases of intangible percentage computation basis of No. 1: Under (a), the correction assets under construction in the development phases of intangible and reclassification of the ICT Governance Group as part of assets under construction intangibles were processed in the project life cycle management 2016 books of account in the meeting of 5 April 2016 (screenshot uploaded) and intangible asset #18092 under H48 created; and under (b), computation of percentage of completion is now based on the PHELPS report, which lists deliverables per project. Computation for each project is number of deliverables delivered to date over total number of deliverables of the project. This yields percentage completion. The PHELPs reports now provide UNDP with a monthly tracking mechanism of percentage of completion to enable decisions to be made on when to record the internally developed software 34. 2014 30 UNDP agreed with Board Update No. 2: on (a), UNDP (a) Implemented. The Board √ recommendations that (a) the Papua New Guinea in reviewed the new Papua New Papua New Guinea country office collaboration with the United Guinea United Nations in collaboration with the United Nations country team finalized Development Assistance 17-11215 Nations country team should the new United Nations Framework for the for the next complete missing information on Development Assistance cycle (2018 -2022) 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events national indicators, source of Framework for the next cycle (b) Implemented. The Board data, baselines and assumptions; (2018 - 2022); (b), annual review noted the Brazil annual United and (b) an annual review of the of the Framework in Brazil has Nations Development Assistance United Nations Development been carried out; and the country Framework report of 2015. Assistance Framework in Brazil programme action plan for the Implemented. The Board be carried out in 2015 and the Brazil country office has been reviewed the signed Brazil country office pursue timely signed and shared with the Board. country programme action plan signing of the country programme The country office will continue action plan by the Government to make all possible efforts to ensure that future country programme action plans are approved and signed by the Government in a timely manner 35. 2014 47 UNDP agreed with the Board Work of regional bureaux with Implemented. The Board noted √ recommendation that country the country offices, with support positive compliance rate for offices prepare a resource from the Bureau for External reviewed country offices in mobilization implementation plan Relations and Advocacy; and the compliance with the guidelines of in compliance with the guidelines Resource Mobilization the resource mobilization toolkit established in the resource Implementation Plans (RMIP), and preparation of resource mobilization toolkit are uploaded in SharePoint. All mobilization implementation country offices that are required plans to have RMIP plans have uploaded them at the SharePoint site 36. 2014 78 UNDP agreed with the Board The service contract user guide Implemented. (a) The Board has √ recommendation that it (a) adhere was updated and put into the reviewed the refined Programme to the service contract user guide Programme and operations and Operations Policies and on the proper use of the service policies and Procedures with a Procedures content of October contracts by ensuring that service memo sent out to all human 2015 and the service contract user contracts staff are recruited only resources practitioners globally guide (updated in August 2016). for those functions and duties that with sample template terms of Also in October 2015, are stipulated in the service reference annexed to the user management issued a guidance contract user guide; and guide to provide guidance to the note on granting fixed - term (b) amend the terms of service offices on how to prepare service Appointments to personnel contracts with a view to clearly contract terms of reference Three performing internal control defining the support functions sample terms of reference were functions. (b) The Board has and duties of under the service provided to the Board for reviewed samples of generic A/72/5/Add.1 contracts reference as well as the memo terms of reference for service sent by the Director of Human contracts issued in August 2016 Resources, and the updated user 79/187 guide A/72/5/Add.1 80/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 37. 2014 105 The Board recommends that (a) This issue was not extended to Part (a) implemented based on √ UNDP (a) investigate the errors any other office beyond Brazil. It results from Brazil country office; in the process of reinstatement of was therefore the only office (b) implemented, the quality purchase order balances; where the Board identified the assurance mechanisms for Atlas (b) institute quality assurance issue as having been addressed by external access when reinstating mechanisms for Atlas external UNDP. UNDP has re - sent the the purchase orders are in place; access when reinstating the final results of investigations (c) withdrawn. Based on results purchase orders; (c) ensure that a carried out in the Brazil country from the Office of Information mandatory reference field is office for the list identified by the Management and Technology completed for reinstated purchase Board that indicated that this was study, it is technically not feasible orders carried over from prior a unique issue faced by external to make a mandatory reference periods; and (d) ensure partners in the country office. On field completed for reinstated compliance with Programme and (b), quality assurance purchase orders that are carried Operations Policies and mechanisms have been instituted over from prior periods; and Procedures requirements on by the Brazil country office to (d) implemented. Email on raising separate purchase orders mitigate the risk of errors during Programme and Operations for goods and services expected the process of reinstating Policies and Procedures updates to be received in the respective purchase orders with balances including on how to manage financial periods with respect to external access multiyear purchase orders. The partners. The Brazil country message was send on 5 December office has adopted a “PO log” for 2016 to all country offices by the the rollover of purchase orders. Assistant Administrator and the This log captures details of Director of the Bureau for purchase order fields to ensure Management Services that no errors are reinstated. The log was shared with the Board. On (c), the Office of Information Management and Technology has carried out the feasibility study and concluded that it was not feasible to complete a mandatory reference field for reinstated purchase orders carried over from prior periods. On (d), a message has been sent out on the use of multiyear purchase orders and updated Atlas closing instructions 17-11215 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 38. 2014 108 UNDP agreed with the Board’s With regard to the United Nations (a) Implemented. The Board √ recommendation that it (a) liaise current account aged medical noted the terms of reference for with United Nations entities and items, UNDP has recharged all the Office of the Ombudsman conclude terms of reference to the UNDP - administered United services from the Executive Office of the Ombudsman Nations clinics and payments Office of the Secretary - General services and reach final started to be released to the Part (b) has also been agreement; and (b) work with United nations in January 2017. implemented. We have noted the United Nations entities and arrive A quarterly “current account” agreed milestones between UNDP at the agreed milestones for meeting with the United Nations and United Nations entities for clearing long - outstanding has been agreed to; any disputed clearing long - outstanding unresolved balances charges are discussed in these unresolved balances, UNDP and meetings and together the United United Nations entities will meet Nations and UNDP will agree on quarterly, i.e., a quarterly “current the timeline required to resolve account” meeting with the United the charges, depending on their Nations has been agreed to. Any complexity. UNDP expresses its disputed charge will be discussed thanks to the Board for bringing in these meetings and together the our attention to this matter, which United Nations and UNDP will has assisted us in establishing agree on the timeline for fixed meetings with the United resolving the charges depending Nations. As regards the terms of on their complexity reference for the ombudsman, we shared the link with the Board for contents verification, as the new ombudsman was recruited in 2015. Further, on (b), prior years’ payments for UNDP - administered United Nations clinics listed by the Board have all been paid, and payment notifications to the United Nations for 2015 and 2016 were shared with the Board 39. 2014 129 UNDP agreed with the Board’s (a) The Board had recommended All parts of the recommendation √ recommendations that it timely resolution of issues raised have been implemented. (a) monitor and address staff during the structural change; and Part (a) Implemented. The Board complaints, claims or concerns management is of the view that it has seen good progress in over structural change from all has made the required effort to handling requests for A/72/5/Add.1 channels, including those from achieve this. All requests for management evaluation from the staff council, and facilitate management evaluation were restructuring as a result of their timely clearance to avert responded to by UNDP within the management actions. Part (b) 81/187 reputational damage to UNDP; stipulated timelines. No requests Implemented. The Board has A/72/5/Add.1 82/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events (b) strengthen opportunities for for management evaluation taken note of both formal and open, constructive dialogues and related to the structural change informal meetings that were communications with staff and have been received since October convened to resolve matters the staff council on the ongoing 2015, after the conclusion of the through dialogue. Part (c) structural changes; and second round of changes in the considered implemented. The (c) establish plans for team then Bureau of Management. Board has noted that the Global building and staff motivation for (b) Regular informal meetings Staff Survey was conducted to confidence rebuilding; and embed between the Staff Council and secure feedback from staff on a culture that motivates and Office of Human Resources have various areas in a way to improve sustains the structural change been held since January 2016. In UNDP operations and the addition, there has been one management action plan formal meeting of the developed by the bureaux to Consultative Group on Staff address the issues as proposed by Matters in March 2016. At the the survey including management September session of the action plans for team building Executive Board, the Staff Council Chair reported the good and cordial relationship shared with the OHR Director. (c) The structural change was essentially completed (except for elements of Bureau of Management (BOM) phase 2) by end 2014 with new structure in place on 1 October 2014. The Global Staff Survey was carried out during the last quarter of 2014 and each bureau developed a management action plan to address the issues raised. These included, among other actions, team building. In 2015, there were only BOM phase 2 activities, as phase 1 had been carried out in 2014. The structural change is fully completed with finalization of the BOM phase 2 in October 2015. 17-11215 17-11215 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events 40. 2013 91 UNDP agreed with the (a) Under the national Part (a) Implemented pursuant to √ recommendation of the Board that implementation modality, the the measures taken by country it (a) assess risks surrounding Government of the host country is office with the support of Office execution of the national fully responsible for executing all of Audit and Investigations and implementation modality to project activities, including the Regional Bureau for Latin determine why assurance procurement processes, human America and the Caribbean procedures other than an audit resource management and (b) Implemented. Considering the could not detect the suspected finance. In order to identify risks Argentine federal court ruling on irregular procurement procedures surrounding specific projects that 3 October 2016, whereby assets and improve controls; and had the identified issues, an for 25 individuals have been (b) continue engaging with the internal audit mission was seized and their travel out of the partner Government to gather deployed by the UNDP Office of country prohibited more facts on the matter in order Audit and Investigations in 2014, to establish the nature of the to assess the adequacy and actual loss suffered by the effectiveness of risk management, projects and possibilities of controls and governance recovery from the individuals processes, and to identify involved opportunities for improvement. The Office assessed the Office as partially satisfactory in the resulting audit report, and recommendations were in the process of implementation as of May 2015 (with the exception of two that have already been implemented). (b) UNDP has been following up on the official investigation undertaken by the judicial authorities of a programme country, and was notified on 3 October of this year that the relevant court had issued indictments, through a ruling by the judge in charge of the criminal and correctional federal court. The judicial indictments concluded with the judge’s A/72/5/Add.1 ordering proceedings against 25 individuals, whose assets have 83/187 been seized and for whom travel A/72/5/Add.1 84/187 Board’s assessment Audit report Paragraph Recommendations of the Board Under Not Overtaken No. year reference of Auditors UNDP response Assessment by the Board Implemented implementation implemented by events out of the country has been prohibited. The indictments covered fraud on the order of approximately $3.3 million. UNDP received a letter informing the country office of the indictments Total 29 10 – 1 Percentage 73 25 – 2 17-11215 Annex II 17-11215 Disclosure by management of cases of fraud and presumptive fraud (a) Cases received and resolved in 2016 Date reported or Remedial action against the Loss to UNDP a Amount Management action to deter No. Region detected Nature Description of the issue person(s) involved (dollars) recovered recurrence 1 Latin America 16 February 2016 Entitlements fraud A service contractor Investigation report sent to 0 N/A Not applicable as plan is and the allegedly received an the country office; subject’s administered by third Caribbean overpayment for medical contract was not renewed party claims he submitted, and did not report it although he was aware of the mistake 2 Africa 21 January 2016 Procurement fraud Vendor allegedly Investigation report sent to Amount 0 A management letter has colluded with UNDP vendor review committee unknown been issued by the Office personnel in order to be of Audit and awarded procurement Investigations to the contracts country office, which includes recommendations to help mitigate the potential risks for procurement fraud 3 Asia and the 10 February 2016 Theft and A service contractor Investigation report sent to $32,829 $23,688 Implementation to be Pacific embezzlement allegedly coordinated the country office determined fabrication of false documents to obtain funds to which he was not entitled 4 Asia and the 16 February 2016 Theft and Unknown person stole a Closed; there was $54,337 0 The country office Pacific embezzlement UNDP armoured vehicle insufficient evidence to implemented measures to determine the circumstances ensure proper vehicle of the theft and vehicle key management (i.e., vehicle weekly inspections, assignment of designated drivers to vehicles and proper A/72/5/Add.1 maintenance of the key logbook though weekly checks 85/187 A/72/5/Add.1 86/187 Date reported or Remedial action against the Loss to UNDP a Amount Management action to deter No. Region detected Nature Description of the issue person(s) involved (dollars) recovered recurrence 5 Africa 23 March 2016 Theft and A staff member allegedly Investigation report sent to 0 N/A The country office embezzlement forged his supervisor’s the Legal Office implemented a series of signature and cashed measure designed to cheques representing the avert reoccurrence, payment of indemnities which included to security guards separation of responsibilities for payments to security personnel and the presence of a witness while the actual payments are done 6 Asia and the 4 April 2016 Theft and A service contractor Investigation report sent to 0 0 Implementation to be Pacific embezzlement allegedly cashed fuel country office; subject’s determined coupons instead of contract was not renewed refuelling UNDP vehicles 7 Africa 21 April 2016 Entitlements fraud A service contractor Closed; subject’s contract $705 $705 Implementation to be admitted to submitting was terminated determined two separate payment vouchers to obtain a double payment. 8 Arab States 9 May 2016 Procurement fraud A vendor allegedly paid Closed; investigation could Amount 0 Implementation to be kickbacks to UNDP not be completed unknown determined personnel 9 Africa 19 May 2016 Theft and Allegations that health Closed; corrective measures Amount 0 The country office embezzlement products relating to anti - had already been taken to unknown implemented a series of malaria medicine stop the diversion of internal control procured by UNDP medicines and the diversion mechanism to avoid under a Global Fund was minimal diversion in the future, grant, which were not for which included a new sale, were circulating in inventory system, new private pharmacies standard operating procedures and supply chain capacity building training as well as a new tracking system 17-11215 17-11215 Date reported or Remedial action against the Loss to UNDP a Amount Management action to deter No. Region detected Nature Description of the issue person(s) involved (dollars) recovered recurrence 10 Asia and the 27 May 2016 Theft and An unknown party Closed; no investigation was $169,707 0 Implementation to be Pacific embezzlement allegedly stole a UNDP possible determined armoured vehicle and other materials after the compound had been evacuated 11 Africa 6 June 2016 Theft and A staff member allegedly Investigation report sent to $9,114 $9,114 Implementation to be embezzlement stole tablets and the country office; staff determined smartphones that member’s appointment was belonged to UNDP while terminated being employed as a service contractor 12 Arab States 23 June 2016 Misuse of UNDP Two UNDP staff Closed; cases were referred 0 N/A Implementation to be resources members allegedly to Office of Internal determined submitted false financial Oversight Services for claims for investigation as the staff reimbursement members worked for another United Nations office 13 Latin America 19 July 2016 Entitlements fraud A service contractor Investigation report 0 N/A Not applicable as plan is and the allegedly submitted submitted to country office; administered by third Caribbean fraudulent claims for subject’s contract was party reimbursement of terminated medical expenses 14 Asia and the 26 August 2016 Theft and A staff member allegedly Closed; likelihood of a $11,472 0 Implementation to be Pacific Embezzlement stole project funds and successful investigation was determined money from the office limited petty cash and stopped reporting to work 15 Africa 21 September Misrepresentation, A service contractor Closed; subject’s contract $3,180 0 Implementation to be 2016 forgery and false allegedly submitted was terminated determined certification payment vouchers for the same items on two separate occasions, for which he obtained payment 16 Africa 5 October 2016 Theft and A service contractor Closed; subject’s contract 0 N/A Implementation to be embezzlement allegedly stole a bag was terminated determined. A/72/5/Add.1 belonging to a security guard on the office premises. The bag was 87/187 later restituted. A/72/5/Add.1 88/187 Date reported or Remedial action against the Loss to UNDP a Amount Management action to deter No. Region detected Nature Description of the issue person(s) involved (dollars) recovered recurrence 17 Arab States 5 October 2016 Misrepresentation, Implementing partner Closed; implementing $206,545 $206,545 Implementation to be forgery and false allegedly submitted false partner accepted to reimburse determined certification documentation in the funds support of expenses under a Global Fund grant. 18 Africa 17 October 2016 Procurement fraud A vendor allegedly Investigation report Amount 0 Implementation to be colluded with other submitted to the Vendor unknown determined vendors and UNDP Review Committee personnel to win procurement processes 19 Asia and the 31 October 2016 Procurement fraud Allegations that the head Closed; insufficient Amount 0 Implementation to be Pacific of a sub - recipient of a information to make a unknown determined Global Fund grant determination on the validity awarded contracts to a of the allegations non - governmental organization associated with him, without a competitive process 20 Latin America 22 November Entitlements fraud A service contractor Closed; subject separated 0 N/A Not applicable, as plan is and the 2016 allegedly submitted from service administered by third Caribbean fraudulent claims for party reimbursement of medical expenses 21 Europe and the 13 December Entitlements fraud A service contractor Closed; subject’s contract 0 N/A Not applicable, as plan is Commonwealth 2016 allegedly submitted was not renewed administered by third of Independent fraudulent claims for party States reimbursement of medical expenses a Only losses to UNDP have been added to this list. Losses to other United Nations agencies in cases of staff members and non - staff personnel from other agencies administered by UNDP as well as losses to other entities such as CIGNA are not considered financial losses to UNDP. 17-11215 17-11215 (b) Cases received in 2016 and still pending Date reported or Amount involved No. Region detected Nature (United States dollars) Description of the issue 1 Latin America and 10 March 2016 Theft and $121,700 An implementing partner allegedly diverted funds, which it used for the Caribbean embezzlement (recovered) organizational costs that were not part of the project implementation. The implementing partner fully refunded UNDP 2 Africa 24 August 2016 Procurement Fraud Amount unknown Allegations of corruption in three Global Environment Facility projects 3 Asia and the Pacific 17 October 2016 Procurement Fraud Amount unknown A staff member allegedly engaged in procurement fraud in a Global Environment Facility project 4 Africa 8 January 2016 Procurement fraud Amount unknown A staff member allegedly engaged in misrepresentation to justify a non - competitive procurement 5 Africa 16 January and 22 Procurement fraud Amount unknown Vendors allegedly colluded with UNDP employees to manipulate procurement March 2016 processes and obtain contracts 6 Arab states 22 January 2016 Misrepresentation, 0 A non - governmental organization allegedly submitted false documentation to forgery and false obtain reimbursement of expenses from UNDP certification 7 Africa 16 March 2016 Procurement fraud Amount unknown A staff member allegedly concealed a conflict of interest during a procurement process, which was awarded to a company owned by another UNDP employee 8 Asia and the Pacific 16 March2016 Other failure to Amount unknown A service contractor allegedly requested an implementing partner to pay bribes to comply with access grant money obligations 9 Europe and the 18 March 2016 Procurement fraud Amount unknown Two service contractors and a vendor allegedly engaged in procurement fraud Commonwealth of Independent States 10 Arab States 28 March 2016 Misrepresentation, Amount unknown A service contractor allegedly colluded with other employees to receive his forgery and false full salary while on unpaid leave certification 11 Arab States 29 March 2016 Other failure to Amount unknown A staff member allegedly held dual appointments, which he did not report, comply with performing his other duties during UNDP hours of operations obligations 12 Africa 1 April 2016 Procurement fraud Amount unknown A service contractor was allegedly involved in a procurement process while also being the main shareholder of one of the bidding companies 13 Africa 1 April 2016 Procurement fraud Amount unknown. A vendor allegedly engaged in procurement fraud by submitting bids in the name of two companies during two procurement processes A/72/5/Add.1 14 Headquarters 2 April 2016 Misrepresentation, Amount unknown A staff member allegedly misrepresented her marital status, which allowed her forgery and false to obtain benefits certification 89/187 A/72/5/Add.1 90/187 Date reported or Amount involved No. Region detected Nature (United States dollars) Description of the issue 15 Africa 15 April 2016 Theft and Amount unknown A service contractor and a staff member allegedly colluded with implementing embezzlement partners to embezzle project funds 16 Asia and the Pacific 16 May 2016 Procurement fraud; Amount unknown A staff member allegedly engaged in various acts of corruption misrepresentation, forgery and false certification; misuse of UNDP resources 17 Arab States 19 May 2016 Procurement Fraud 0 Vendors allegedly engaged in procurement fraud. 18 Africa 25 May 2016 Procurement fraud Amount unknown A staff member allegedly colluded with vendors by engaging in anticompetitive schemes during procurement processes and failed to disclose an interest/relationship with a third party. 19 Africa 26 May 2016 Theft and $4,516 (recovered) A staff member allegedly misappropriated the balance of funds remaining from Embezzlement DSA payments to workshop participants. 20 Africa 6 June 2016 Entitlements Fraud 0 A staff member allegedly submitted fraudulent claims for reimbursement of medical expenses. The fraud was detected before any amount was disbursed. 21 Africa 15 June 2016 Theft and 0 A staff member allegedly engaged in fuel theft. embezzlement 22 Arab States 16 June 2016 Entitlements fraud 0 A staff member allegedly abused DSA entitlement 23 Europe and the 22 June2016 Other failure to Office of Audit Vendor allegedly engaged in procurement fraud Commonwealth of comply with and Investigations Independent States obligations has made no determination as to whether there is a financial of loss 24 Africa 5 July 2016 Entitlements fraud $2,478 Two staff members and a service contract holder allegedly submitted fraudulent claims for reimbursement of medical expenses 25 Asia and the Pacific 8 July and 2 August Procurement fraud Amount unknown Two staff members and a vendor allegedly committed procurement fraud 2016 26 Africa 4 August 2016 Procurement fraud Amount unknown A service contractor allegedly asked a bidder to change his professional fee 27 Africa 5 August 2016 Procurement fraud Amount unknown Two staff members allegedly engaged in procurement fraud 28 Arab States 10 August 2016 Theft and Amount unknown Allegations of theft and embezzlement in a UNDP project embezzlement 29 Arab States 8 September 2016 Misrepresentation, No apparent loss A vendor allegedly submitted false documentation in support of its bid forgery and false certification 30 Latin America and 13 September 2016 Entitlements fraud 0 A service contractor allegedly submitted fraudulent claims for reimbursement 17-11215 the Caribbean of medical expenses 17-11215 Date reported or Amount involved No. Region detected Nature (United States dollars) Description of the issue 31 Latin America and 21 October 2016 Misrepresentation, Amount unknown Allegations of misrepresentation, forgery, and false certification in a UNDP the Caribbean forgery and false project certification 32 Africa 26 October 2016 Procurement fraud Amount unknown Three staff members allegedly colluded to award a contract to a company owned by a family member of one of them 33 Arab States 8 November 2016 Theft and Up to $20,000 UNDP personnel and a vendor allegedly colluded to misappropriate UNDP embezzlement funds 34 Asia and the Pacific 21 November 2016 Theft and Amount unknown Allegations of theft and embezzlement against a UNDP vendor embezzlement 35 25 November 2016 Procurement fraud Amount unknown. Allegations of procurement fraud against a UNDP vendor 36 Africa 25 November 2016 Misrepresentation, Amount unknown A staff member allegedly inappropriately obtained a rental reduction from forgery and false UNDP and submitted personal expenses for reimbursement by the country certification office 37 Africa 30 November 2016 Theft and $3,481 Allegations of theft of UNDP equipment embezzlement 38 Asia and the Pacific 1 December 2016 Entitlements fraud 0 Service contractor allegedly submitted fraudulent claims for reimbursement of medical expenses 39 Africa 7 December 2016 Procurement fraud Amount unknown Allegations of procurement fraud in a UNDP programme 40 Africa 8 December 2016 Theft and Amount unknown Allegations of theft of Global Fund - financed HIV test kits purchased by embezzlement UNDP 41 Europe and the 14 December 2016 Entitlements fraud 0 Service contractor allegedly submitted fraudulent claims for reimbursement of Commonwealth of medical expenses Independent States 42 Africa 14 December 2016 Procurement fraud Amount unknown Allegation of collusion between a vendor and former staff member for the award of a contract without a competitive process A/72/5/Add.1 91/187 A/72/5/Add.1 Chapter III Financial report for the year ended 31 December 2016 A. Introduction 1. In accordance with United Nations Development Programme (UNDP) financial regulation 26.01, the Administrator hereby submits the financial statements of UNDP for the year ended 31 December 2016. 2. The report of the Board of Auditors, their opinion on the financial statements and the comments of UNDP on the substantive observations are su bmitted in accordance with UNDP financial regulation 4.04. 3. UNDP was established by the General Assembly in 1965 through its resolution 2029 (XX). UNDP is politically neutral and partners with entities and people at all levels of society to help countries achieve the simultaneous eradication of poverty and significant reduction of inequalities and exclusion. UNDP works, primarily through its offices, in nearly 170 countries and territories and provides a global perspective and local insight to help empower lives and build resilient nations. In accordance with the Programme’s strategic plan 2014 -2017, UNDP work will be organized around a focused set of seven outcomes: (a) growth and development are inclusive and sustainable, incorporating productive capacities that create employment and livelihoods for the poor and excluded; (b) citizen expectations for voice, development, the rule of law and accountability are met by stronger systems of democratic governance; (c) countries have strengthened institutions to progressively deliver universal access to basic services; (d) faster progress is achieved in reducing gender inequality and promoting women ’s empowerment; (e) countries are able to reduce the likelihood of conflict and lower the risk of natural disasters, including from climate change; (f) early recovery and rapid return to sustainable development pathways are achieved in post -conflict and post -disaster settings; and (g) development debates and actions at all levels prioritize poverty, inequality and exclusion, consistent with our engagement principles. 4. As the principal United Nations entity on the ground in nearly 170 countries and territories, UNDP provides services, on a cost recovery basis, to 118 United Nations agencies, including peacekeeping missions. In 2016, the value of transactions processed on behalf of United Nations agencies was $1.9 billion (2015: $3.3 billion). 5. UNDP administers the United Nations Volunteers programme, the United Nations organization that promotes volunteerism to support peace and development worldwide. The operations of United Nations Volunteers are reflected in the financial statements of UNDP. The key results of 2016 were: (a) mobilization of volunteers for the delivery of peace and development results, (b) increased acknowledgement of volunteers and volunteerism as powerful resources and vital components of sustainable development, and (c) the enhancement or forging of traditional and new partnerships within and outside of the United Nations. During 2016, 6,590 United Nations Volunteers from 156 countries supported partner United Nations entities in their peace and development activities in the field through 6,912 assignments. With 83 per cent of United Nations Volunteers coming from countries of the global South, and 61 per cent working in countries other than their own, South -South cooperation is a natural focus area of the organization. The United 92/187 17-11215 A/72/5/Add.1 Nations Volunteers online volunteering service continued to expand during the year, reaching a total of 558,861 users across the globe and mobilizing over 12,592 online volunteers, who handled 22,691 volunteer assignments over the Internet. 6. UNDP administers the Junior Professional Officers programme on behalf of 11 United Nations entities. During 2016, a total of 252 profes sionals were administered by UNDP, including 226 Junior Professional Officers and 26 special assistants to Resident Coordinators. For the professionals placed in the programme in 2016, UNDP received $15.171 million in contributions and incurred $16.664 million in expenses. 7. The UNDP Administrator is responsible for the administration of the United Nations Capital Development Fund, which provides seed capital and technical assistance to promote sustainable inclusive growth in the least developed countries. While the Administrator continues to administer the Fund, beginning in 2012, in compliance with the International Public Sector Accounting Standards (IPSAS), the Fund prepared its financial statements separately from UNDP. B. Financial performance 8. The total revenue of UNDP for 2016, that is, contributions and other revenue, was $5.103 billion (2015: $4.820 billion), compared with total expenses of $4.660 billion (2015: $5.057 billion), resulting in total revenue over total expenses of $443.047 million in the year, adding to accumulated surpluses which represent advance funding from UNDP partners of $4.381 billion (2015: $3.929 billion) from prior years. Revenue analysis Revenue by nature 9. The total revenue of UNDP in 2016 was $5.103 billion, of which $4.785 billion, or 94 per cent, was from voluntary contributions, and $317.452 million, or 6 per cent, was from exchange, investment and other revenue. Figure III.I Composition of total revenue in 2016 by nature 6% Voluntary contributions (94%) Exchange, andother Investmentand Exchange, investment other revenue (6%) revenue (6%) 94% 17-11215 93/187 A/72/5/Add.1 Revenue by segment 8 10. Analysis of revenue by segment shows that cost-sharing is the largest revenue source, providing 59 per cent of the revenue of UNDP in 2016, followed by trust funds (18 per cent), regular resources (13 per cent) and reimbursable support services and miscellaneous activities (10 per cent). Figure III.II Composition of total revenue in 2016 by segment 10% 18% Cost - Cost (59%) sharing(59%) sharing resources Regular resources Regular (13%) (13%) funds(18%) Trust funds Trust (18%) 13% Reimbursable support services and 59% RSS and misc (10%) miscellaneous activities (10%) 11. Within cost- sharing revenue totalling $3.101 billion, third -party cost-sharing provided 73 per cent of the revenue and government cost -sharing provided 27 per cent of the revenue. Figure III.III Composition of cost -sharing revenue in 2016 by type 27% partycost Third -party cost -sharing sharing (73%) (73%) Government - sharing costsharing Government cost (27%) (27%) 73% Expense analysis Expenses by nature 12. The total expenses of UNDP in 2016 were $4.660 billion. Considering that the mandate of UNDP is to provide knowledge, policy advice, advocacy and technical support to governments and other implementing partners, the largest expense category __________________ 8 Excludes the elimination of internal UNDP cost recovery. 94/187 17-11215 A/72/5/Add.1 by nature in 2016 was contractual services with individuals and companies of $1.879 billion, or 40 per cent. The remaining expenses by nature are: $891.979 million, or 19 per cent, for staff costs; $835.933 million, or 18 per cent, for general operating expenses; $767.670 million, or 17 per cent, for supplies and consumables used; $203.432 million, or 4 per cent, for grants and other transfers; and $81.619 million, or 2 per cent, for depreciation and other expenses. Figure III.IV Composition of total expenses in 2016 by nature Expenses by segment 2% 4% 18% 40% Contractual services (40%) Staff costs (19%) Supplies and consumables (17%) General operating (18%) 17% Grants and transfers (4%) Depreciation and other (2%) 19% 13. Of the total expenses for 2016,1 54 per cent was spent on cost -sharing, 15 per cent on regular resources, 17 per cent on trust funds and 14 per cent on reimbursable support services and miscellaneous activities. Figure III.V Composition of total expenses in 2016 by segment 14% Cost - Cost sharing sharing (54%) (54%) 17% resources Regularresources Regular (15%) (15%) funds(17%) Trust funds Trust (17%) 15% 54% Reimbursable RSS support services and and misc (14%) miscellaneous activities (14%) 14. Within cost - sharing expenses, totalling $2.634 billion, 70 per cent was spent on third-party cost-sharing and 30 per cent on government cost -sharing. 17-11215 95/187 A/72/5/Add.1 Figure III.VI Composition of cost -sharing expenses in 2016 by type 30% -party Thirdparty Third cost cost -sharing sharing (70%) (70%) Government Government cost cost - sharing sharing (30%)(30%) 70% Expenses by cost classification 15. The UNDP Executive Board approved four broad cost classification categories: (a) development activities, which encompass subcategories for programme activities and development effectiveness activities; (b) United Nations development coordination activities; (c) management activities; and (d) special purpose activities. Of total UNDP expenses by cost -classification category 1 prescribed by the Executive Board, 80 per cent was spent on programme activities, 3 per cent was spent on development effectiveness, 3 per cent was spent on United Nations development coordination, 7 per cent was spent on management and 7 per cent was spe nt on special-purpose and other activities to support operations administered by UNDP. Figure III.VII Composition of total expenses in 2016 by cost classification 7% Programme Program expenses expenses (80%) (80%) 7% 3% 3% effectiveness Developmenteffectiveness Development (3%) (3%) United UN Nations development development coordination (3%) coordination (3%) (7%) Management(7%) Management 80% -purpose Specialpurpose Special activities activities to support to support operations operations administeredby administered UNDP by UNDP (7%) (7%) 96/187 17-11215 A/72/5/Add.1 Expenses relating to programme 16. In terms of the expense categories attributed to UNDP programme activities, in total, $3.878 billion (2015: $4.238 billion) of the total expenses of UNDP were programme expenses reflecting the development nature of the operations of UNDP. By expense category, 96 per cent of the total contractual services with individuals and companies were programme expenses. Similarly, 32 per cent of staff costs, 95 per cent of supplies and consumables used, 77 per cent of general operating expenses, 1 98 per cent of grants and other transfers and 47 per cent of depreciation and other expenses were programme expenses. Figure III.VIII Composition of programme expenses in 2016 by nature 120% 100% 80% Non -programme Non-program 60% Programme Program 40% 20% 0% Programme expenses by geographical region 17. Of total programme expenses of $3.878 billion, by geographical region, 25 per cent was spent in Asia and the Pacific, 25 per cent was spent in Africa, 17 per cent was spent in Latin America and the Caribbean, 14 per cent was spent in Arab States, 9 per cent was spent in Europe and the Commonwealth of Independent States and 10 per cent was spent in the global and other regional category. 17-11215 97/187 A/72/5/Add.1 Figure III.IX Composition of programme expenses in 2016 by geographical region 10% 25% 9% Asia and Pacific (25%) Africa (25%) Latin America and Caribbean (17%) 14% Arab states (14%) Europe and Europe and Commonwealth CIS (9%) of Independent States (9%) 25% Global and other (10%) 17% Financial performance by segment 18. In 2016, UNDP annual revenues were higher than annual expenses by $443.047 million in total for all segments, including regular resources, cost -sharing, trust funds and reimbursable support services and miscellaneous activities. Note 6 to the financial statements, on segment reporting, provides details of financial performance by segment, which is summarized in table III.1. Table III.1 Summary of financial performance by segment in 2016 (Millions of United States dollars) Reimbursable support services and Regular miscellaneous resources Cost -sharing Trust funds activities Elimination Total Total revenue 709.5 3 101.1 969.5 525.4 (202.9) 5 102.6 Total expenses 711.7 2 634.0 854.5 662.2 (202.9) 4 659.5 Surplus/(deficit) (2.2) 467.1 115.0 (136.8) – 443.1 Total accumulated surpluses 88.7 2 768.4 1 143.6 380.0 – 4 380.7 Note : The elimination adjustment is required to remove the effect of internal UNDP cost recovery. 19. The current- year deficits in regular resources and reimbursable support services were funded through accumulated surpluses from prior years. Despite challenges, UNDP met its three -month minimum liquidity requirement for regular resources in 2016, maintaining a liquidity reserve of 4.6 months of average expenses, within the minimum threshold of liquidity required by the Executive Board. 20. Through the development of the Programme’s strategic plan 2014 -2017 and the agenda for organizational change, which is currently being implemented, UNDP has established a path that will address the continuing downturn in regular resources revenue through transformational change, enhanced business development and resource mobilization. 98/187 17-11215 A/72/5/Add.1 21. The corporate restructuring of UNDP began in 2014, with the aim of improving institutional effectiveness through better functional and geographic integration at headquarters and the regional level, in order to meet strategic plan objectives. Expenses incurred in 2016 relating to the structural change were $0.479 million (2015: $12.586 million). Note 34 provides an illustration of the impact of these structural change expenses on the statement of financial performance. C. Budgetary performance 22. The budget of UNDP continues to be prepared on a modified cash basis and is presented in the financial statements as statement V, comparison of budget and actual amounts (regular resources), and note 7, comparison to budget. In order to facilitate a comparison between the budget and the financial statements prepared under IPSAS, a reconciliation of the budget to the cash flow statement is also included in note 7. 23. Approved budgets are those that permit budget expenditures to be incurred and are approved by the Executive Board of UNDP. For IPSAS reporting purposes, the approved budgets of UNDP are the institutional budget financed from regular resources and the portion of the resource plan relating to development activities to be financed from regular resources. The UNDP Executive Board has approved a four -year integrated budget covering 2014 -2017, with estimates provided for the 2014 -2015 and 2016-2017 periods. While the Programme’s approved budgets are for a four -year period, UNDP allocates those budgets into annual amounts in order to provide the budget-to-actual comparison of the annual financial statements. As other resources of UNDP are a forward estimate and projection based on assumptions about future events and are not formally approved by the Executive Board, other resources are not presented in statement V. During 2016, UNDP revised the annual spending limits, noting the reduced level of voluntary contributions, in order to ensure improved burden-sharing and greater efficiency. This resulted in overall lower expenditu re compared with the annualized 2014 -2017 budget approved by the Executive Board. The comparison of utilization against annualized budget levels in 2016 is shown in table III.2. Table III.2 Budget utilization rates for 2016 Annualized approved final budget Actual utilization Budget components (millions of United States dollars) rate (percentage) Development activities 492.1 90 United Nations development coordination activities 92.7 100 Management activities 140.3 55 Special purpose activities to support operations administered by UNDP 19.1 48 Total 744.2 83 24. The integrated resource plan of UNDP encompasses the integrated budget. The integrated resource plan estimates will be used in the integrated results and resources framework (covering development impact, development outcomes, UNDP outputs and organizational efficiency and effectiveness) of the strategic plan. 17-11215 99/187 A/72/5/Add.1 D. Financial position Assets 25. UNDP assets of $6.935 billion (2015: $6.416 billion) were comprised largely of investments of $5.466 billion (2015: $5.292 billion), cash and cash equivalents of $917.451 million (2015: $533.980 million) and receivables of $171.128 million (2015: $239.542 million) (total: $6.555 billion, or 95 per cent). The large majority of investments and cash and cash equivalents are earmarked for cost -sharing and trust funds. The remaining assets balance comprised advances issued as operating funds to implementing partners of $201.890 million (2015: $168.429 million); property, plant and equipment of $155.465 million (2015: $145.492 million), of which 75 per cent represented management assets and 25 per cent represented project assets; inventory of $7.564 million (2015: $19.572 million), consisting primarily of medical supplies and equipment for programmes being implemented on behalf of the Global Fund to Fight AIDS, Tuberculosis and Malaria; loans to governments of $6.603 million (2015: $7.465 million); intangible assets of $7.629 million (2015: $7.798 million), consisting primarily of internally developed software; and other assets of $1.176 million (2015: $1.221 million), consisting primarily of dispensary, medical and other receivables. Cash, cash equivalents and investments 26. As at 31 December 2016, UNDP held cash, cash equivalents and investments of $6.384 billion (2015: $5.826 billion), of which $417.150 million (2015: $439.361 million) were funds provided by donors “held in trust” for multi -donor trust funds. In 2016, UNDP outsourced a portion of the investment management of its after - service health insurance funds. This was done in order to ensure an adequate level of investment return given the longer -term nature of the liabilities. The investment revenue of UNDP was $52.925 million in 2016 (2015: $41.144 million). 27. During 2016, UNDP maintained its vigilance of credit risks in the light of continued uncertainty in global financial conditions, in particular with respect to euro areas. In addition to its own funds, UNDP manages investments in separate portfolios on behalf of a number of United Nations agencies. As at 31 December 2016, UNDP managed a total of $7.276 billion in investments for its own programme and for other United Nations entities (such as the United Nations Entity for Gender Equality and the Empowerment of Women (UN -Women), the United Nations Population Fund (UNFPA) and the United Nations Capital Development Fund (UNCDF)) under service agreements. UNDP has an Investment Committee comprising senior management, which meets quarterly to review the investment portfolio performance of UNDP and to ensure that investment decisions are in compliance with its established Investment Guidelines. Receivables 28. As at 31 December 2016, UNDP had receivables of $171.128 million (2015: $239.542 million), which included contributions receivable pending from donors of $124.085 million (2015: $63.376 million). The remaining amount of $47.043 million was primarily investment receivables of $23.524 million (201 5: $29.159 million) and third party-receivables $22.899 million (2015: $29.988 million). 100/187 17-11215 A/72/5/Add.1 Advances issued 29. As at 31 December 2016, UNDP had outstanding advances of $201.890 million (2015: $168.429 million). Of that amount, $90.280 million was composed of advances for nationally executed projects (2015: $91.567 million), $47.915 million (2015: $26.391 million) had been advanced to United Nations agencies for project implementation and the remaining amount of $63.695 million (2015: $50.471 million) consisted primarily of advances to the United Nations Children’s Fund for medical supplies. 30. In fulfilling its mandate, UNDP transfers cash to executing entities or implementing partners as a cash advance. Advances issued are recorded as assets and converted to expenses once the certified expense reports are received and accepted by UNDP. 31. UNDP monitors programme expenses to ensure they are incurred in compliance with project documents and work plans. Monitoring activities include field visits, comparisons of expense reports to work plans and narrative reports, monitoring of progress towards outputs and outcomes and prescribed audits. The Office of Audit and Investigations reviews the audit reports covering the audit of projects that are implemented by national institutions or by non -governmental organizations. UNDP also monitors the outstanding balance of funds advanced to governments and non-governmental organizations to ensure that financial reports are received on a timely basis and that appropriate action is taken on audit report recommendations. Property, plant and equipment and intangible assets 32. As at 31 December 2016, UNDP held property, equipment and intangible assets of $163.094 million (2015: $153.290 million), of which property and equipment were $155.465 million (2015: $145.492 million). Of that amount, $37.885 million (2015: $35.795 million) represented land and buildings; the remaining property and equipment consisted mainly of information technology assets, leasehold improvements and vehicles. All management and project assets meeting capitalization thresholds used and controlled by UNDP were capitalized. Project assets that were not controlled by UNDP are expensed as incurred. Of the total number of items under property, plant and equipment held as at 31 December 2016, 25 per cent represented project assets and 75 per cent represented management assets. 33. Intangible assets held as at 31 December 2016 amounted to $7.629 million (2015: $7.798 million), of which $6.945 million (2015: $3.842 million), or 91 per cent, related to internally developed software and $0.563 million (2015: $3.744 million), or 7 per cent, related to assets under development. Liabilities 34. The liabilities of UNDP in the amount of $2.229 billion (2015: $2.145 billion) largely comprised employee benefits of $1.320 billion (2015: $1.255 billion), including after -service health insurance, repatriation and death benefits (all of which are valued by independent actuaries), annual leave and others. The principa l employee benefit liability of after -service health insurance is valued at $1.035 billion (included in the total employee benefits amount) (2015: $954.121 million), of which $563.117 million (54 per cent) has been invested. A funding strategy of 15 years has been formulated to fund the gap between the historical liability and the amount 17-11215 101/187 A/72/5/Add.1 invested. The funding strategy will be adjusted, if needed, following the next actuarial valuation. 35. Other than employee benefits, the total liabilities of UNDP also inc lude payables — funds held in trust of $558.394 million (2015: $533.377 million), which relate primarily to multi -donor trust funds for which UNDP serves as the administrative agent; accounts payable and accrued liabilities of $192.838 million (2015: $119.879 million); funds received in advance and deferred revenue of $107.875 million (2015: $181.851 million); funds held on behalf of donors of $20.463 million (2015: $31.212 million); other liabilities of $8.593 million (2015: $12.200 million), consisting primarily of unapplied deposits and other payables; and advances payable of $21.273 million (2015: $12.238 million). Net assets/equity 36. Net assets/equity of $4.706 billion reflects amounts received as advance funding from UNDP partners from prior years for activities funded under the integrated resources plan. Net assets/equity includes accumulated surpluses of $4.381 billion and reserves of $325.127 million, of which the operational reserve accounted for $321.968 million (99 per cent of total reserves). During 2016, net assets/equity was affected primarily by: (a) a surplus of $443.047 million; and (b) actuarial losses of $27.329 million from an increase in the value of the liability for after -service health insurance owing to external economic conditions and changes in actuarial assumptions. Financial position by segment 37. The financial position of UNDP by segment and UNDP in aggregate, as included in note 6 to the financial statements, on segment reporting, is summarized in table III.3. Table III.3 Summary financial position by segment as at 31 December 2016 (Millions of United States dollars) Reimbursable support services and Regular miscellaneous Total resources Cost -sharing Trust funds activities UNDP Total assets 1 887.5 2 918.4 1 170.7 958.7 6 935.3 Percentage of total UNDP assets 27 42 17 14 100 Total liabilities 1 617.7 150.0 24.0 437.7 2 229.4 Percentage of total UNDP liabilities 72 7 1 20 100 Net assets/equity 269.8 2 768.4 1 146.7 521.0 4 705.9 Percentage of total UNDP net assets/equity 6 59 24 11 100 102/187 17-11215 A/72/5/Add.1 Summary financial position by segment as at 31 December 2015 (Millions of United States dollars) Reimbursable support services and Regular miscellaneous Total resources Cost -sharing Trust funds activities UNDP Total assets 1 852.7 2 453.7 1 057.3 1 051.8 6 415.5 Percentage of total UNDP assets 29 38 17 16 100 Total liabilities 1 571.0 152.4 25.6 396.3 2 145.3 Percentage of total UNDP liabilities 73 7 1 19 100 Net assets/equity 281.7 2 301.3 1 031.7 655.5 4 270.2 Percentage of total UNDP net assets/equity 7 54 24 15 100 E. Accountability, governance and risk management 38. Accountability and governance of UNDP has four facets: (a) UNDP governing bodies and governance committees: the General Assembly, the Economic and Social Council, the Executive Board and the Fifth Committee; (b) UNDP accountability to its programmatic partners and beneficiaries: donors, programme governments, United Nations partners, implementing partners and project beneficiaries; (c) institutional oversight mechanisms of UNDP: (i) independent external oversight: the Advisory Committee on Administrative and Budgetary Questions, the Board of Auditors, the Joint Inspection Unit and the Audit and Evaluation Advisory Committee; (ii) independent internal oversight: the Office of Audit and Investigations, the Ethics Office and the Independent Evaluation Office; and (d) UNDP internal accountability: the Administrator and Associate Administrator, the Executive Office, the Executive Group, the Operations Group, regional and headquarters bureaux, regional centres and country offices. 39. Assurance that all the resources, including financial resources, entrusted to UNDP have been managed efficiently and effectively to achieve the expected development results is embedded in the way in which UNDP exercises stewardship over those resources. 40. UNDP has implemented a sound system of internal controls to ensure that effective risk management is integrated into normal business processes and is aligned to the strategic objectives of the organization. Regarding risk management of cash and investments, the risk management policies of UNDP with relation to treasury operations aim to minimize potential adverse effects on the resources available to UNDP to fund its development activities. The principal objectives of the UNDP risk management approach are: (a) safety, that is, the preservation of capital, provided through investing in high -quality fixed -revenue securities, emphasizing the creditworthiness of the issuers; (b) liquidity, that is, the flexibility to meet cash requirements through investments in highly marketable fixed -revenue securities and through structuring maturities to align with liquidity requirements; and (c) revenue, that is, the maximization of investment revenue within safety and liquidity parameters. UNDP utilizes funds to implement development activities in accordance with its 17-11215 103/187 A/72/5/Add.1 Financial Regulations and Rules and its policies and procedures, which encompass strong risk mitigation and monitoring and assurance mechanisms. F. Looking forward to 2017 and beyond 41. The overall financial position of UNDP at the end of 2016 was positive. Implementation of the UNDP strategic plan 2014 -2017 will continue the transformational programme aimed at enabling UNDP to deliver effectively, responsively and with greater cost economy, and to better position UNDP to help countries deliver on the 2030 Agenda for Sustainable Development and the Sustainable Development Goals. 104/187 17-11215 A/72/5/Add.1 Chapter IV Financial statements for the year ended 31 December 2016 United Nations Development Programme I. Statement of financial position as at 31 December 2016 (Thousands of United States dollars) Reference 31 December 2016 31 December 2015 Assets Current assets Cash and cash equivalents Note 8 794 407 424 198 Cash and cash equivalents — funds held in trust Note 8 123 044 109 782 Investments Note 9 3 222 252 2 532 409 Investments — funds held in trust Note 9 241 914 264 929 Receivables — non - exchange transactions Note 10 124 085 63 376 Receivables — exchange transactions Note 11 47 043 176 166 Advances issued Note 12 201 890 168 429 Loans to governments Note 15 590 851 Inventories Note 13 7 564 19 572 Other current assets Note 14 1 168 1 213 Total current assets 4 763 957 3 760 925 Non - current assets Investments Note 9 1 950 018 2 430 017 Investments — funds held in trust Note 9 52 192 64 650 Loans to governments Note 15 6 013 6 614 Property, plant and equipment Note 16 155 465 145 492 Intangible assets Note 17 7 629 7 798 Other non - current assets Note 14 8 8 Total non - current assets 2 171 325 2 654 579 Total assets 6 935 282 6 415 504 Liabilities Current liabilities Accounts payable and accrued liabilities Note 18 192 838 119 879 Advances payable Note 19 21 273 12 238 Funds received in advance and deferred revenue Note 20 100 623 173 992 Funds held on behalf of donors Note 20 20 463 31 212 Payables — funds held in trust Note 21 506 202 468 727 Employee benefits Note 22 214 507 230 267 Other current liabilities Note 23 7 674 9 664 Provision for restructuring Note 34 147 2 472 Total current liabilities 1 063 727 1 048 451 17-11215 105/187 A/72/5/Add.1 United Nations Development Programme I. Statement of financial position as at 31 December 2016 (continued) Reference 31 December 2016 31 December 2015 Non - current liabilities Payables — funds held in trust Note 21 52 192 64 650 Funds received in advance and deferred revenue Note 20 7 252 7 859 Employee benefits Note 22 1 105 488 1 024 344 Other non - current liabilities Note 23 772 64 Total non - current liabilities 1 165 704 1 096 917 Total liabilities 2 229 431 2 145 368 Net assets/equity Reserves Note 24 325 127 341 127 Accumulated surpluses Note 25 4 380 724 3 929 009 Total net assets/equity 4 705 851 4 270 136 Total liabilities and net assets/equity 6 935 282 6 415 504 The accompanying notes form an integral part of these financial statements. 106/187 17-11215 A/72/5/Add.1 United Nations Development Programme II. Statement of financial performance for the year ended 31 December 2016 (Thousands of United States dollars) Reference 2016 2015 Revenue Voluntary contributions Note 26 4 785 121 4 471 894 Revenue: exchange transactions Note 27 196 507 190 967 Investment revenue Note 28 52 925 41 144 Other revenue Note 29 68 020 116 155 Total revenue 5 102 573 4 820 160 a Expenses Contractual services Note 30 1 878 893 1 999 686 Staff costs Note 30 891 979 941 836 Supplies and consumables used Note 30 767 670 811 556 General operating expenses Note 30 835 933 893 305 Grants and other transfers Note 30 203 432 317 892 Other expenses Note 30 57 543 71 255 Depreciation and amortization Note 30 18 104 16 369 Finance costs Note 30 5 972 5 515 Total expenses 4 659 526 5 057 414 Surplus/(deficit) for the year b 443 047 (237 254) a Includes expenses of $0.479 million relating to the structural change. See note 34 for details. b Deficit for the year 2015 draws down on the unspent accumulated surplus resource balances. The accompanying notes form an integral part of these financial statements. 17-11215 107/187 A/72/5/Add.1 United Nations Development Programme III. Statement of changes in net assets/equity for the year ended 31 December 2016 (Thousands of United States dollars) Accumulated Total net Reserves surpluses assets/equity Balance at 31 December 2015 341 127 3 929 009 4 270 136 Changes in net assets/equity Operational reserve transfer to accumulated surplus (16 000) 16 000 - Funds with specific purposes (note 25) – 18 706 18 706 Changes in fair value of available-for-sale investments – 1 291 1 291 Actuarial gains/(losses) – (27 329) (27 329) Surplus/(deficit) for the year – 443 047 443 047 Total revenue and expense recognized directly in net assets/equity (16 000) 451 715 435 715 Balance at 31 December 2016 325 127 4 380 724 4 705 851 The accompanying notes form an integral part of these financial statements. 108/187 17-11215 A/72/5/Add.1 United Nations Development Programme IV. Cash flow statement for the year ended 31 December 2016 (Thousands of United States dollars) Reference 2016 2015 Cash flows from operating activities Surplus/(deficit) for the year 443 047 (237 254) Adjustments to reconcile deficit for the year to net cash flows: Depreciation and amortization 18 104 16 369 Impairment 96 632 In-kind contributions (donated goods) (1 143) (263) Amortization of premium/(discount) on investments 28 717 40 882 (Gains)/losses on foreign exchange translation 18 382 12 417 Losses on disposal of property, plant and equipment 2 927 2 456 Changes in assets (Increase)/decrease in receivables: non-exchange transactions (61 114) 104 881 (Increase)/decrease in receivables: exchange transactions a 44 466 (204 991) (Increase)/decrease in advances issued (43 068) 65 717 (Increase)/decrease in inventories 12 008 (1 390) (Increase)/decrease in other current assets 45 (224) Changes in liabilities, net assets/equity (Decrease)/increase in accounts payable and accrued liabilities 73 003 (19 012) (Decrease)/increase in advances payable 9 034 2 183 (Decrease)/increase in funds received in advance and deferred revenue (73 976) 104 917 (Decrease)/increase in funds held on behalf of donors (10 749) (15 413) (Decrease)/increase in payables: funds held in trust 25 017 (80 536) (Decrease)/increase in employee benefits 38 683 109 557 (Decrease)/increase in other current liabilities (1 014) (292) (Decrease)/increase in provision for restructuring (2 325) (3 120) (Decrease)/increase in funds with specific purposes 18 706 17 050 Cash flows from/(used in) operating activities 538 846 (85 434) Cash flows from investing activities Purchases of investments (3 758 228) (3 190 506) Purchases of investments: funds held in trust (349 181) (309 805) Maturities of investments 3 709 201 3 137 804 Maturities of investments: funds held in trust 382 196 376 052 (Increase)/decrease in investments managed by external investment manager (185 785) - Interest and dividends received 84 042 82 050 (Increase)/decrease in loans to governments 862 642 Purchases of property, plant and equipment (31 916) (29 288) Disposals of property, plant and equipment 4 432 5 374 Purchases of intangible assets (2 208) (1 838) Disposal of intangible assets - 88 Cash flows from/(used in) investing activities (146 585) 70 573 17-11215 109/187 A/72/5/Add.1 United Nations Development Programme IV. Cash flow statement for the year ended 31 December 2016 (continued) Reference 2016 2015 Cash flows from financing activities Finance lease repayment (38) (13) Cash flows from/(used in) financing activities (38) (13) Increase/(decrease) in cash and cash equivalents, including funds held in trust 392 223 (14 874) Effect of exchange rate changes on cash and cash equivalents (8 752) (5 513) Cash and cash equivalents including funds held in trust: beginning of year 533 980 554 367 Cash and cash equivalents including funds held in trust: end of year Note 8 917 451 533 980 a This amount includes an adjustment for interest and dividends received of $84.042 million in cash as well as an adjustment for foreign exchange translation of $(0.602) million. The accompanying notes form an integral part of these financial statements. 110/187 17-11215 A/72/5/Add.1 United Nations Development Programme V. Statement of comparison of budget and actual amounts (regular resources) for the year ended 31 December 2016 (Thousands of United States dollars) Approved budget Actual Difference: final expenditure on approved budget comparable and actual Original Final basis (note 7) expenditure Development activities Programme 392 000 392 000 381 556 10 444 Development effectiveness 100 091 100 091 60 492 39 599 Subtotal 492 091 492 091 442 048 50 043 United Nations development coordination activities 92 719 92 719 92 551 168 Management activities Recurring 137 813 137 813 77 568 60 245 Non - recurring 2 489 2 489 – 2 489 Subtotal 140 302 140 302 77 568 62 734 Special purpose activities Capital investments 4 288 4 288 518 3 770 Non - UNDP operations administered by UNDP 14 847 14 847 8 597 6 250 Subtotal 19 135 19 135 9 115 10 020 Grand total 744 247 744 247 621 282 122 965 The accompanying notes form an integral part of these financial statements 17-11215 111/187 A/72/5/Add.1 United Nations Development Programme Notes to the financial statements 2016 Note 1 Reporting entity 1.1. The United Nations Development Programme (UNDP) was established by the General Assembly in 1965 through its resolution 2029 (XX). UNDP partners with entities/people at all levels of society to help build nations that can withstand crisis and drive and sustain growth that improves the quality of life for everyone. 1.2. UNDP has its headquarters in New York, but works primarily through its offices in nearly 170 countries and territories. UNDP provides a global perspective and local insight to help empower lives and build resilient nations. 1.3. UNDP helps to achieve the eradication of poverty, and the reduction of inequalities and exclusion, and assists countries in developing policies, leadership skills, partnering abilities and institutional capabilities and in building resilience in order to sustain development results. UNDP is continuing its work to support the 2030 Agenda for Sustainable Development and the 17 Sustainable Developmen t Goals, as they help shape global sustainable development efforts for the next 15 years. UNDP helps developing countries attract and use aid and domestic resources effectively and encourages, in all its activities, the protection of human rights, capacity development and the empowerment of women. 1.4. UNDP is politically neutral and its cooperation is impartial. It seeks to conduct its work in a transparent manner and is accountable to all its stakeholders. UNDP has an Executive Board, established by the General Assembly in its resolution 48/162, which is responsible for providing intergovernmental support to and supervision of UNDP. The amended Financial Regulations and Rules of UNDP (Executive Board decision 2011/33), govern the financial management of UN DP. 1.5. The financial statements include only the operations of UNDP, which has no subsidiaries or interests in associates or jointly controlled entities. Note 2 Statement of compliance with the International Public Sector Accounting Standards The annual financial statements of UNDP have been prepared in accordance with the International Public Sector Accounting Standards (IPSAS). Note 3 Basis of preparation and authorization to submit financial statements for audit Basis of measurement 3.1. These financial statements are prepared on an accrual basis of accounting in accordance with IPSAS and the Financial Regulations and Rules of UNDP. 3.2. UNDP applies the historical cost principle except where stated in note 4. Accounting policies have been applied consistently throughout the year. The financial year is from January to December. 112/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Foreign currency 3.3. The functional and presentation currency of UNDP is the United States dollar. These financial statements are expressed in thousands of United States dollars unless otherwise stated. 3.4. Foreign currency transactions are translated into United States dollars at the United Nations operational rates of exchange at the date of the transaction. The operational rates of exchange approximate market/spot rates. 3.5. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the reporting date and are recognized in the statement of financial performance. 3.6. Non -monetary items in foreign currencies measured at historical cost are translated at the exchange rate in effect at the date of the transaction. 3.7. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions are recognized in the statement of financial performance. Critical accounting estimates 3.8. Preparing financial statements in accordance with IPSAS requires UNDP to make estimates, judgments and assumptions in the selection and application of accounting policies and in the reported amounts of assets, liabilities, revenues and expenses. For this reason, actual results may differ from those estimates. Accounting estimates and underlying assumptions are reviewed on an ongoing basis and revisions to estimates are recognized in the year in which the estimates are revised and in any future year affected. Significant estimates and assumptions that may result in material adjustments in future years include: actuarial measurement of employee benefits; selection of useful lives and the depreciation/amortization method for property, plant and equipment/intangible assets; impairment on assets; classification of financial instruments; restructuring provision; and contingent assets and liabilities. Authorization to submit financial statements for audit 3.9. These financial statements are approved and certified by the Administrator, the Assistant Administrator and Director of the Bureau for Management Services and the Chief Finance Officer/Comptroller of the Bureau for Management Services of UNDP. In accordance with the UNDP Financial Regulations and Rules, these financial statements are authorized to be submitted for audit on 30 April 2017. Note 4 Significant accounting policies Financial assets classification 4.1. UNDP classifies financial assets into the following categories: held to maturity; available for sale; loans and receivables; and fair value through surplus or deficit in the statement of financial performance. The classification depends on the purpose for which the financial assets are acquired, and is determined at initial recognition and re- evaluated at each reporting date. All financial assets are initially measured at fair value. UNDP initially recognizes loans and receivables on the date 17-11215 113/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) that they originated. All other financial assets are recognized initially on the trade date, which is the date UNDP becomes party to the contractual provisions of the instrument. 4.2. Financial assets with maturities in excess of 12 months at the reporting date are categorized as non -current assets in the financial statements. Assets denominated in foreign currency are translated into United States dollars at the United Nations operational rates of exchange prevailing at the reporting date, with gains and losses recognized in surplus or deficit in the statement of financial performance. IPSAS classification Type of UNDP financial asset Held to maturity Investments, excluding after-service health insurance investments Available for sale After-service health insurance investments Loans and receivables Cash and cash equivalents, receivables non-exchange and exchange, advances (e.g. to staff) and loans to Governments Fair value through surplus or deficit Derivative assets Held to maturity financial assets 4.3. Held to maturity financial assets are financial assets with fixed or determinable payments and fixed maturities that UNDP has the positive intention and ability to hold to maturity. They are initially recorded at fair value plus transaction costs and subsequently recognized at amortized cost calculated using the effective interest rate method. UNDP classifies a substantial portion of its investment portfolio as held to maturity assets. Available -for-sale financial assets 4.4. Available -for - sale financial assets are those non -derivative financial assets that have been either designated in this category or are not classified as (a) loans and receivables, (b) held - to -maturity investments or (c) financial assets at fair value through surplus or deficit. They are initially recorded at fair value plus transaction costs that are directly attributable to the acquisition or issue of those assets and subsequently reported at fair value with any resultant fair value gains or losses recognized directly in net assets/equity through the statement of changes in net assets/equity, until the financial asset is derecognized, at which time the cumulative gain or loss previously recognized in net assets/equity shall be recognized in surplus or deficit. Fair values used for subsequent measurement are based on quoted market prices from knowledgeable third parties. Interest on available -for - sale financial assets is calculated using the effective interest method and is recognized in surplus or deficit. Loans and receivables 4.5. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recorded at fair value plus transaction costs and subsequently reported at amortized cost calculated using the effective interest method. Interest revenue is recognized on a time proportion basis using the effective interest rate method on the respective financial asset. 114/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 4.6. Cash and cash equivalents include cash and short -term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, net of impairment for restricted use currencies. Financial instruments classified as cash equivalents include investments with a maturity of three months or less from the date of acquisition. 4.7. Receivables — non - exchange transactions comprises contributions receivable which represent uncollected revenue committed to UNDP by donors based on enforceable commitments which are recognized as revenue. These non -exchange receivables are stated at carrying value less impairment for estimated irrecoverable amounts. Impairments of contributions receivable are considered on a case -by -case basis. 4.8. Receivables — exchange transactions represent amounts owed to UNDP for services provided by it to other entities. In exchange, UNDP directly receives approximately equal value in the form of cash. 4.9. Advances issued represents cash transferred to executing entities/ implementing partners (refer to note 36.2 for the definition of executing entities/ implementing partners) as an advance. Advances issued are initially recognized as assets and subsequently converted to expense when goods are delivered or services are rendered by the executing entities/implementing partners and confirmed by receipt by UNDP of certified expense reports as applicable, i.e., financial reports, funding authorization and certificate of expenditure forms or project delivery reports. Once those certified expense reports are received, UNDP recognizes expenses in its statement of financial performance. Data may be obtained from the entities’ audited statements or, when such statements are not available at the end of the reporting year, either from the statements submitted by the entities for audit or from the unaudited statements of the entities. 4.10. Prepayments are issued where agreements with UNDP and the executing entity/implementing partner/supplier require up - front payment. Prepayments are recorded as a current asset until goods/services associated with the prepayments are delivered, at which point the expense is recognized and the prepayment is reduced by a corresponding amount. 4.11. UNDP provides advances to staff for up to 12 months for specified purposes in accordance with the Staff Rules and Staff Regulations of the United Nations. These advances have an initial maturity of less than 12 months, and the carrying amount approximates fair value. The carrying amount is stated less any impairment. 4.12. Loans to governments are loans given to national governments to construct office or housing premises for use by UNDP and United Nations entities. Loa ns are carried at the original cost, less any recovery to date. Rent proceeds are applied as repayment of the loan. Subsequent measurement of loans to governments is at amortized cost less any impairment. Fair value through surplus or deficit 4.13. Financial assets at fair value through surplus and deficits are so designated on initial recognition or are held for trading. They are initially recorded at fair value and any transaction costs are expensed. The assets are measured at fair value at each reporting date, and any resultant fair value gains or losses recognized through surplus and deficit. Derivatives are used to manage foreign exchange risk and are 17-11215 115/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) contracted with creditworthy counterparties in accordance with UNDP Investment Guidelines. UNDP classifies derivatives as financial assets at fair value through surplus and deficit in the statement of financial performance. The fair value of derivatives is obtained from counterparties and is compared to internal valuations, which are based on valuation methods and techniques generally recognized as standard in the industry. Assets in this category are classified as current assets if they are expected to be realized within 12 months of the reporting date. UNDP does not apply hedge accounting treatment for derivatives. 4.14. All categories of financial assets are assessed at each reporting date to determine whether there is objective evidence that an investment or group of investments is impaired. Evidence of impairment includes default or delinquency of the counterparty or permanent reduction in the value of the asset. Impairment losses are recognized in surplus or deficit in the statement of financial performance (directly or through the use of an allowance account) in the year they arise. Inventories 4.15. Inventories held for distribution at no charge or for a nominal charge are stated at the lower of cost and current replacement cost. Inventories held for sale are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Cost is determined using the first - in, first -out inventory valuation method. The cost of inventories includes costs incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition. For inventories acquired through a non - exchange transaction (e.g., donated goods), costs are measured at fair value at the date of acquisition. Property, plant and equipment 4.16. All items of property, plant and equipment are stated at historical cost, less accumulated depreciation and accumulated impairment losses. It is noted that, on adoption of IPSAS and its transitional provisions, for opening balances, initial capitalization of property, plant and equipment was at fair value. Historical cost includes costs that are directly attributable to the acquisition of the asset and the initial estimate of dismantling and site restoration costs. Where an asset is acquired for nil or nominal consideration, the fair value at the date of acquisition is deemed to be its cost. The threshold for recognition of property, plant and equipment as an asset is $1,500 or more per unit. 4.17. UNDP elected to apply the cost model to measurement after recognition instead of the revaluation model. Subsequent costs are included in the asset ’s carrying amount or are recognized as a separate asset only when it is probable that future economic benefits associated with the item will flow to UNDP and the cost of the item can be measured reliably. Repairs and maintenance are charged to surplus or deficit in the statement of financial performance in the year in which they are incurred. 4.18. Project assets that are not controlled by UNDP are expensed as incurred. UNDP is deemed to control an asset if it can use or otherwise benefit from the asset in pursuit of its objectives and if it can exclude or regulate the access of third parties to that asset. UNDP has control over assets when it is implementing the project directly. 116/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 4.19. Property, plant and equipment includes right - to -use arrangements for property that meets the criteria for recognition (refer to the section on “leases” below). 4.20. Depreciation of property, plant and equipment is calculated using the straight - line basis over the estimated useful lives, except for land, which is not subject to depreciation. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items, that is, major components of property, plant and equipment. Assets under construction are not depreciated, as they are not yet available for use. The estimated useful lives are as follows: Class Estimated useful life (in years) Buildings 10-40 Vehicles 12 Communications and information technology equipment 8-20 Furniture and fixtures 15 Heavy machinery and other equipment 20 Leasehold improvements Shorter of lease term or life of applicable asset 4.21. Given the expected pattern of usage of property, plant and equipment, there are no residual values following full depreciation. A gain or loss resulting from the disposal of property, plant and equipment arises where proceeds from disposal differ from its carrying amount. Those gains or losses are recognized in surplus or deficit in the statement of financial performance. 4.22. Where UNDP sublets premises acquired under a lease, it elects to record subsequent measurement at cost. Intangible assets 4.23. Intangible assets are carried at historical cost, less accumulated amortization and accumulated impairment loss. 4.24. Acquired computer software licences are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. Development costs that are directly associated with the development of softwar e for use by UNDP are capitalized as an intangible asset. Directly associated costs include the software development staff costs and the portion attributable to relevant overhead. Other development expenses that do not meet the capitalization criteria are recognized as an expense as incurred. Development costs previously recognized as an expense, for example, research costs, are not recognized as an asset in a subsequent year. The threshold for recognition of internally developed software is $50,000 and for externally acquired software it is $5,000. Research costs are expensed as incurred. 4.25. Amortization is recognized in surplus or deficit in the statement of financial performance provided on a straight -line basis on all intangible assets of finite life and at rates that will write off the cost or value of the assets to their estimated residual values. 17-11215 117/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) The estimated useful lives are as follows: Class Estimated useful life (in years) Software acquired 3-6 Internally developed software 3-6 Trademarks 2-6 Copyrights 3-10 Patents 2-6 Licences and other 2-6 4.26. If there is a binding arrangement that specifies that the contractual period of an asset is shorter than its estimated useful life, then the asset is amortized over the contractual period. Impairment of non-cash generating assets 4.27. Property, plant and equipment, intangible and other non -cash generating assets are reviewed for impairment at each reporting date. For property, plant and equipment, UNDP reviews for impairment during the semi - annual physical verification process. An impairment loss is recognized in surplus or deficit in the statement of financial performance when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the high er of an asset’s fair value, less costs to sell, and its value in use. 4.28. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the impairment of value has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment deficit had been recognized. Financial liabilities classification IPSAS classification Types of financial liabilities Other financial liabilities Accounts payable and accrued liabilities, funds held on behalf of donors, advances payable, other liabilities and payables — funds held in trust Fair value through surplus or deficit Derivative liabilities Other financial liabilities 4.29. Other financial liabilities are initially recognized at fair value, plus directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest method. Financial liabilities entered into with a duration of less than 12 months are recognized at their carrying value. 4.30. Payables and accruals arising from the purchase of goods and services are recognized initially at fair value and subsequently measured at amortized cost when goods/services are delivered/rendered and accepted by UNDP. Liabilities are stated 118/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 at invoice amounts, less payment discounts at the reporting date. Liabilities are estimated where invoices are not available at the reporting date. 4.31. Advances payable arise when amounts are owed to executing entities/ implementing partners. The liability is measured at the amount owed based on incurred expenses reflected in the approved financial reports, Funding Authorization and Certificate of Expenditure forms or project delivery reports for the year. 4.32. Payables — funds held in trust represent the receipt of funds by UNDP when providing fund administration services, to be disbursed to participating organizations. When UNDP is appointed as an administrative agent, it provides fund administration services to United Nations system and national government multi donor trust funds and joint programmes through the Multi - Partner Trust Fund Office. In this role, UNDP is responsible for the receipt of contributions from donors, the disbursement of such funds to participating organizations, the receipt of unspent balances from participating organizations, and the provision of consolidated reporting to donors and stakeholders. Under this arrangement, funds received by UNDP from donors are reflected as cash and cash -equivalent funds held in trust or investment funds held in trust along with a corresponding liability, that is as payables, funds held in trust until they are disbursed to participating organizations. 4.33. Other liabilities include unapplied deposits and other payables such as finance lease payable. Unapplied deposits represent contributions received from donors that have not been applied against contributions receivable for earmarked activities. Fair value through surplus or deficit 4.34. Fair value through surplus and deficit financial liabilities are so designated on initial recognition or are held for trading. They are initially recorded at fair value and any transaction costs are expensed. The liabilities are measured at fair value at each reporting date and any resultant fair value gains or losses are recognized through surplus and deficit. UNDP classifies derivatives as financial liabilities at fair value through surplus and deficit in the statement of financial performance. Derivatives are used to manage foreign exchange risk and are contracted with creditworthy counterparties in accordance with UNDP Investment Guidelines. These include derivatives embedded in time deposits that permit the instrument to be repaid by counterparties in an alternative currency in exchange for a higher yield. The fair value of derivatives is obtained from counterparties and is compared to internal valuations, which are based on valuation methods and techniques generally recognized as standard in the industry. Liabilities in this category are classified as current liabilities if they are expected to be settled within 12 months of the reporting date. UNDP does not apply hedge accounting treatment for derivatives. Funds received in advance and deferred revenue 4.35. Funds received in advance represent contributions received for future periods specified in donor contribution agreements. The funds are recognized as revenue and applied to the earmarked activities at the beginning of the specified future period. Deferred revenue represents funds received from donors that will be recognized as revenue in future years when conditions are met or the revenue is earned. 17-11215 119/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Employee benefits Short-term employee benefits 4.36. Short -term employee benefits are those that are expected to be settled within 12 months after the end of the year in which employees render the related service. Those benefits include assignment benefits, regular monthly benefits (e.g., wages and salaries), compensated absences (e.g., paid leave, such a s annual leave), other short -term and non - monetary benefits and the current portion of long -term benefits provided to current employees. An expense is recognized when a staff member provides services in exchange for employee benefits. A liability is report ed for any entitlement that has not been settled at the reporting date and represents the amount paid or expected to be paid to settle the liability. Owing to the short -term nature of those entitlements, the liabilities are not discounted for the time valu e of money and are presented as current liabilities. Post-employment benefits 4.37. Post - employment benefits are those payable after completion of employment, but exclude termination payments. 4.38. Post - employment benefits include pension plans, post -employment medical care, repatriation grants and other lump sums payable after the completion of employment. Post -employment benefit plans are classified as either defined contribution or defined benefit plans. 4.39. For defined contribution post -employment plans, the obligation for each year is determined by the amounts to be contributed for that year, and no actuarial assumptions are required to measure the obligation or the expense. Post - employment benefits under defined benefit plans are measured at the present value of the defined benefit obligation adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, reduced by the fair value of plan assets, if any, at the reporting date. UNDP does not hold any assets corresponding t o the definition of a plan asset. 4.40. UNDP is a member organization participating in the United Nations Joint Staff Pension Fund, which was established by the General Assembly to provide retirement, death, disability and related benefits to employees. Th e Pension Fund is a funded, multi -employer defined benefit plan. As specified by article 3 (b) of the Regulations of the Fund, membership in the Fund is open to the specialized agencies and to any other international intergovernmental organization which pa rticipates in the common system of salaries, allowances and other conditions of service of the United Nations and the specialized agencies. 4.41. The plan exposes participating organizations to actuarial risks associated with the current and former employees of other organizations participating in the Pension Fund, with the result that there is no consistent and reliable basis for allocating the obligation, plan assets and costs to individual participating organizations. UNDP and the Pension Fund, in line with the other participating organizations, are not in a position to identify the Programme’s proportionate share of the defined benefit obligation, the plan assets and the costs associated with the plan with sufficient reliability for accounting purposes. Hence, UNDP has treated this plan as if it were a defined contribution plan, in line with the requirements set out in IPSAS 25, 120/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Employee benefits. UNDP contributions to the Fund during the financial period are recognized as expenses in the statement of financial performance. 4.42. The Regulations of the Pension Fund state that its Board shall have an actuarial valuation made of the Fund at least once every three years by the consulting actuary. The practice of the Board has been to carry out an actuarial valuation every two years using the open group aggregate method. The primary purpose of the actuarial valuation is to determine whether the current and estimated future assets of the Fund will be sufficient to meet its liabilities. 4.43. The Board of Auditors carries out an annual audit of the Pension Fund and reports to the Fund’s Board on the audit every year. The Pension Fund publishes quarterly reports on its investments, which can be viewed by visiting the Fund ’s website (www.unjspf.org). Defined benefit plans 4.44. The defined benefit plans of UNDP include after -service health insurance and certain end -of-service entitlements. The obligation of UNDP in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That obligation is discounted to determine its present value and stated at the end of the reporting year less the fair value of plan assets, together w ith adjustments for unrecognized past service costs. The calculation is performed annually by a qualified independent actuary using the projected unit credit method. 4.45. The discount rate is the yield at the reporting date on high -quality credit rated corporate bonds that have maturity dates approximating the terms of the payment obligations. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized directly in net assets/equity in the year in which they arise. All other changes in the liability for those obligations are recognized as surplus or deficit in the statement of financial performance in the year in which they arise. Other long -term employee benefits 4.46. Other long - term employee benefit obligations are benefits, or portions of benefits, that are not due to be settled within 12 months after the end of the year in which employees provide the related service. Those benefits include the non - current portions of home leave and compensation for death and injury attributable to performance of duties. These are recognized as non -current liabilities and are measured at the present value of the estimated future cash flows if the payments and the impact of discounting are considered to be material. Actuarial gains and losses are reported in the statement of changes in net assets/equity. Termination benefits 4.47. Termination benefits are recognized as an expense only when UNDP is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate the employment of a staff member before the normal retirement date or to provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid. Where termination benefits fall due more than 12 months after the reporting date, they are discounted. 17-11215 121/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Leases Operating lease 4.48. Leases are classified as operating leases where UNDP is the lessee, and the lessor retains a significant portion of the risks and rewards inherent to ownership. Payments under operating leases, net of incentives received from the lessor, are recognized on a straight line basis in the statement of financial performance over the lease term. Finance lease 4.49. Leases of tangible assets, where UNDP has substantially all the risks and rewards of ownership, are classified as finance leases. Initial recognition of a finance lease results in an asset and liability being recognized at the lower of the fair value of the leased property and the present value of the minimum lease payments. Subsequent to initial recognition, leased assets are depreciated over the shorter of the lease term and their useful lives in accordance with the accounting policies for property, plant and equipment. Each finance lease payment is allocated between the lease liability and finance charges. The interest portion of the finance lease obligations is recognized as an expense in the statement of financial performance over the term of the lease to produce a constant periodic rate of interest on the remaining balance of the liability for each year. Right-to-use arrangements 4.50. Where UNDP has signed an agreement for the right -to -use assets with legal title/ownership of the assets, for example through donated use granted to UNDP at no cost, the transaction is a non -exchange transaction. In this case, an asset and revenue is recognized at the point the agreement is entered into. Recognition of an asset is contingent upon satisfying criteria for recognition of an asset. Valuation of the asset will be the fair value of the resource for which the right to use was acquired at the date of acquisition. The asset is depreciated over the shorter of the asset’s useful life and the right -to - use term. Without legal title/ownership, an expense is recognized. Revenue is also recognized at the same amount as the asset/expense, except to the extent that a liability is also recognized. Revenue recognition Contributions 4.51. Voluntary contributions are non -exchange transactions which are recognized as revenue when contribution agreements become enforceable, or in some instances when cash is received in accordance with the Financial Regulations and Rules of UNDP. Depending on the agreements, enforceability occurs upon signature alone, signature and receipt of deposit, when conditions, if any, in contribution agreements are met, or when funds are to be transferred to UNDP and intended to be utilized. Revenue is shown net of returns of unused funds to donors and impairment of receivables. 4.52. Governments make pledges for voluntary contributions towards regular resources, although in some cases the pledged funds are not paid to UNDP. As the inflow of funds is probable but not certain, UNDP may disclose these amounts as contingent assets. 122/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 4.53. In -kind contributions of goods provided are recognized as assets and revenue once it is probable that future economic benefits or service potential will flow to UNDP and the fair value of those assets can be measured reliably. In -kind contributions recognize revenue from right -to -use arrangements at the fair value of the asset reported. UNDP does not recognize or disclose contributions of services in kind as an asset and revenue as permitted b y IPSAS. Revenue from exchange transactions 4.54. Exchange transactions are those in which UNDP sells goods or provides services. Revenue comprises the fair value of consideration received or receivable for the sale of goods and services. Revenue is shown net of returns and discounts. Revenue is recognized when it can be reliably measured, when the inflow of future economic benefits is probable and when specific criteria have been met. For example: • Cost -recovery revenue from work performed, such as procurement and payment services by UNDP on behalf of United Nations entities, is recognized when services are performed; • Revenue from sales of human development reports is recognized when the sale takes place; • Revenue from commissions and fees for procurement, training, administrative, custodial and other services rendered to governments, United Nations entities and other partners is recognized when the service is performed and/or training takes place. Expense recognition 4.55. Expenses are recognized when goods and/or services are delivered and/or rendered and accepted by UNDP or as specified below. 4.56. For direct implementation by UNDP and full country office support to national government implementation, expenses are recognized when good s, i.e., non -capital or services, have been received by UNDP. 4.57. For national implementation or NGO implementation, expenses are recognized when funds are disbursed by executing entities or implementing partners and reported to UNDP. 4.58. Advances transferred to executing entities and/or implementing partners are recognized as expenses when goods are delivered or services rendered by the executing entities and/or implementing partners and confirmed by receipt by UNDP of certified expense reports as applicable, that is, financial reports, Funding Authorization and Certificate of Expenditure forms or project delivery reports. Once these expense reports are received, UNDP recognizes expenses in its statement of financial performance. Data may be obtained from the audited statements of executing entities and/or implementing partners or, when such statements are not available at the reporting year end, from the entities’ statements as submitted for audit and/or from unaudited statements. 17-11215 123/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Commitments, provisions and contingencies Commitments 4.59. Commitments are future expenses and liabilities to be incurred on contracts entered into at the reporting date for which UNDP has minimal discretion, if any, to avoid in the ordinary course of operations. Commitments relating to employment contracts are excluded. Commitments include: • Capital commitments: aggregate amount of capital expenses contracted for but not recognized as paid or provided for at year end • Contracts for the supply of goods or services which UNDP expects to be delivered in the ordinary course of operations • Non -cancellable minimum lease payments • Other non - cancellable commitments. Provisions 4.60. A provision is recognized if, as a result of a past event, UNDP has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the expenses expected to be required to settl e the obligation. The increase in a provision due to the passage of time is recognized as a finance cost. Contingencies Contingent assets 4.61. A contingent asset is disclosed when an inflow of economic benefits or service potential is probable. If it has become virtually certain that an asset is no longer contingent and that its value can be measured reliably, the asset and the related revenue are recognized in the year in which the change occurs. Contingent liabilities 4.62. A contingent liability is disclosed unless the possibility that it will be realized is remote. If it becomes probable that a contingent liability will be realized, a provision is recognized in the year in which the change of probability occurs. Note 5 Prior-period adjustments and reclassification of comparatives In 2016 there were no prior -period adjustments or reclassifications of 2015 comparatives. Note 6 Segment reporting 6.1. For purposes of evaluating its past performance in achieving its objectives and for making decisions about the future allocation of resources, UNDP classifies all its activities into four segments: regular resources; cost -sharing; trust funds; and reimbursable support services and miscellaneous activities. 124/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Regular resources 6.2. Regular resources are all resources of UNDP that are commingled and untied/unearmarked. These include voluntary contributions, contributions from other governmental, intergovernmental or non -governmental sources and related interest earnings and miscellaneous revenue. Cost-sharing 6.3. Cost -sharing is a co -financing funding modality under which contributions can be received for specific UNDP programme activities, in line with UNDP policies, aims and activities. This modality is used for the direct fundin g of a specific project, group of projects or part of a country programme. Use of donor contributions is normally limited to the duration of a particular project. Cost -sharing has a decentralized signatory authority, and agreements are signed at the countr y office level. Trust funds 6.4. Trust funds are a co -financing funding modality established as a separate accounting entity under which UNDP receives contributions to finance UNDP programme activities specified by the contributor. Separate accounting records are kept for, and financial reporting is at the level of, each individual trust fund. Trust funds are required to be reported separately to the Executive Board. Trust funds have a centralized signatory authority and agreements must be authorized by the Associate Administrator at the headquarters level. There are terms of reference governing each trust fund and each is assigned a trust fund manager. Reimbursable support services and miscellaneous activities 6.5. Reimbursable support services and miscellaneous activities are the resources of UNDP, other than regular resources, cost -sharing and trust funds. Such funds are received for the provision of management and other support services to third parties. Reimbursable support services and miscellaneous activities comprise the following activities: management service agreements; the Junior Professional Officers programme; reimbursable support services; the United Nations Volunteers programme; the reserve for field accommodation; programme support to resident coordinators; the disaster mitigation programme; and extrabudgetary support for special purposes. 6.6. In order to attribute assets to the appropriate segment, UNDP has allocated cash and investments based on the inter -fund balances among the four segments. 17-11215 125/187 A/72/5/Add.1 126/187 Segment reporting: statement of financial position as at 31 December 2016 (Thousands of United States dollars) Reimbursable support services and Regular resources Cost-sharing Trust funds miscellaneous activities Total UNDP 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 2016 2015 2016 2015 2016 2015 31 December 2016 2015 31 December 2016 2015 Assets Current assets Cash and cash equivalents 195 648 83 421 341 321 179 937 148 035 82 270 109 403 78 570 794 407 424 198 Cash and cash equivalents: funds held in trust 123 044 109 782 – – – – – – 123 044 109 782 Investments 738 906 553 818 1 416 362 1 055 478 615 055 475 175 451 929 447 938 3 222 252 2 532 409 Investments: funds held in trust 241 914 264 929 – – – – – – 241 914 264 929 Receivables: non - exchange transactions – – 121 083 58 615 215 2 972 2 787 1 789 124 085 63 376 Receivables: exchange transactions 41 790 166 561 1 276 1 490 407 417 3 570 7 698 47 043 176 166 Advances issued 22 974 25 051 144 296 110 396 19 325 31 798 15 295 1 184 201 890 168 429 Loans to governments – – – – – – 590 851 590 851 Inventories 474 1 027 6 016 16 749 189 256 885 1 540 7 564 19 572 Other current assets 612 634 301 326 45 43 210 210 1 168 1 213 Total current assets 1 365 362 1 205 223 2 030 655 1 422 991 783 271 592 931 584 669 539 780 4 763 957 3 760 925 Non - current assets Investments Notes to the financial statements 2016 (continued) 425 696 531 907 865 555 1 010 564 382 589 458 669 276 178 428 877 1 950 018 2 430 017 Investments: funds held in trust 52 192 64 650– – – – – – 52 192 64 650 Loans to governments – – – – – – 6 013 6 614 6 013 6 614 United Nations Development Programme Property, plant and equipment 44 237 47 328 22 175 20 186 4 811 5 547 84 242 72 431 155 465 145 492 Intangible assets 56 3 576 – – 9 122 7 564 4 100 7 629 7 798 Other non - current assets 1 1 7 7 – – – – 8 8 Total non -current assets 522 182 647 462 887 737 1 030 757 387 409 464 338 373 997 512 022 2 171 325 2 654 579 Total assets 1 887 544 1 852 685 2 918 392 2 453 748 1 170 680 1 057 269 958 666 1 051 802 6 935 282 6 415 504 17-11215 Notes to the financial statements 2016 (continued) 17-11215 Segment reporting: statement of financial position as at 31 December 2016 (continued) United Nations Development Programme (Thousands of United States dollars) Reimbursable support services and Regular resources Cost-sharing Trust funds miscellaneous activities Total UNDP 31 December 31 December 31 December 31 December 31 December 31 December 2016 2015 2016 2015 2016 2015 31 December 2016 31 December 2015 31 December 2016 31 December 2015 Liabilities Current liabilities Accounts payable and accrued liabilities 98 427 46 963 49 174 38 014 15 763 9 183 29 474 25 719 192 838 119 879 Advances payable 1 363 683 12 260 5 571 7 152 5 505 498 479 21 273 12 238 Funds received in advance and deferred revenue 101 55 445 87 707 106 095 1 000 428 11 815 12 024 100 623 173 992 Funds held on behalf of donors 19 577 19 368 616 1 284 79 10 451 191 109 20 463 31 212 Payables: funds held in trust 506 202 468 727 – – – – – – 506 202 468 727 Employee benefits 198 628 213 805 49 44 10 10 15 820 16 408 214 507 230 267 Other current liabilities 4 340 6 390 169 1 378 39 40 3 126 1 856 7 674 9 664 Provision for restructuring – – – – – – 147 2 472 147 2 472 Total current liabilities 828 638 811 381 149 975 152 386 24 043 25 617 61 071 59 067 1 063 727 1 048 451 Non-current liabilities Payables: funds held in trust 52 192 64 650 – – – – – – 52 192 64 650 Funds received in advance and deferred revenue – – – – – – 7 252 7 859 7 252 7 859 Employee benefits 736 155 694 991 – – – – 369 333 329 353 1 105 488 1 024 344 Other non-current liabilities 761 – – – – – 11 64 772 64 Total non-current liabilities 789 108 759 641 – – – – 376 596 337 276 1 165 704 1 096 917 Total liabilities 1 617 746 1 571 022 149 975 152 386 24 043 25 617 437 667 396 343 2 229 431 2 145 368 Net assets/equity Reserves 181 158 197 158 – – 3 000 3 000 140 969 140 969 325 127 341 127 Accumulated surpluses/(deficits) 88 640 84 505 2 768 417 2 301 362 1 143 637 1 028 652 380 030 514 490 4 380 724 3 929 009 Total net assets/equity 269 798 281 663 2 768 417 2 301 362 1 146 637 1 031 652 520 999 655 459 4 705 851 4 270 136 A/72/5/Add.1 Total liabilities and net assets/equity 1 887 544 1 852 685 2 918 392 2 453 748 1 170 680 1 057 269 958 666 1 051 802 6 935 282 6 415 504 127/187 A/72/5/Add.1 128/187 Segment reporting: statement of financial performance for the year ended 31 December 2016 (Thousands of United States dollars) Reimbursable support services and Regular resources Cost-sharing Trust funds miscellaneous activities Elimination a Total UNDP 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Revenue Voluntary contributions 663 565 745 714 3 075 146 2 571 582 957 468 1 051 979 88 942 102 619 – – 4 785 121 4 471 894 Revenue from exchange transactions 103 29 856 828 53 – 195 495 190 110 – – 196 507 190 967 Investment revenue 15 813 11 613 21 730 17 305 9 458 6 877 5 924 5 349 – – 52 925 41 144 Other revenue 30 043 33 332 3 339 9 304 2 471 1 064 235 053 297 963 (202 886) (225 508) 68 020 116 155 Total revenue 709 524 790 688 3 101 071 2 599 019 969 450 1 059 920 525 414 596 041 (202 886) (225 508) 5 102 573 4 820 160 Expenses Contractual services 141 983 173 181 1 100 856 1 265 153 554 623 480 522 81 431 80 830 – – 1 878 893 1 999 686 Staff costs 316 309 363 120 139 041 134 949 61 000 69 574 375 629 374 193 – – 891 979 941 836 Supplies and consumables used 37 944 41 630 628 564 680 195 59 629 50 837 41 533 38 894 – – 767 670 811 556 General operating expenses 169 057 192 108 591 037 633 181 133 553 147 182 145 172 146 342 (202 886) (225 508) 835 933 893 305 Grants and other transfers 10 661 16 314 149 044 230 755 39 720 68 134 4 007 2 689 – – 203 432 317 892 Other expenses 28 088 27 254 20 043 33 302 5 003 6 168 4 409 4 531 – – 57 543 71 255 Depreciation and amortization 4 904 5 865 3 281 3 208 759 677 9 160 6 619 – – 18 104 16 369 Finance costs 2 799 3 684 2 150 1 496 178 123 845 212 – – 5 972 5 515 Notes to the financial statements 2016 (continued) Total expenses 711 745 823 156 2 634 016 2 982 239 854 465 823 217 662 186 654 310 (202 886) (225 508) 4 659 526 5 057 414 United Nations Development Programme Surplus/(deficit) for the year (2 221) (32 468) 467 055 (383 220) 114 985 236 703 (136 772) (58 269) – – 443 047 (237 254) a This adjustment is required to remove the effect of internal UNDP cost recovery. 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 7 Comparison to budget 7.1. The budget and the accounting basis are different. Statement V, statement of comparison of budget and actual amounts (regular resources), is prepared on the budget basis, that is, a modified cash basis, and statement II, statement of financial performance, is prepared on an accounting basis, that is, an accrual basis. 7.2. The presentation of activities and associated budget expenditures in statement V reflects the cost classification categories approved by the Executive Board of UNDP, that is: (a) development activities: (i) programme; and (ii) development effectiveness; (b) United Nations development coordination activities; (c) management activities: (i) recurring; and (ii) non - recurring; and (d) special purpose activities: (i) capital investments; and (ii) non -UNDP operations administered by UNDP. It is noted that statement II reflects expenses by na ture. Also included is a line from a budget for additional resources for security measures, in line with Executive Board decision 2013/28. 7.3. For these reasons, the total actual regular resources budget expenditure differs from total financial accounting expenses. 7.4. Approved budgets are those that permit budget expenditures to be incurred and are approved by the Executive Board of UNDP. For IPSAS reporting purposes, the approved budgets of UNDP are the institutional budget financed from regular resources and the portion of the resource plan relating to development activities to be financed from regular resources. As other resources of UNDP are a forward estimate and projection based on assumptions about future events and are not formally approved by the Executive Board, the other resources are not presented in statement V. The Executive Board has approved a four -year integrated budget covering 2014 -2017, with estimates provided for the 2014 - 2015 and 2016 - 2017 periods. While the Programme’s approved budgets are for a four -year period, UNDP allocates those budgets into annual amounts, the total of which comprises the four - year approved budget, in order to provide the budget - to -actual comparison of the annual financial statements. 7.5. Statement V shows the comparison between the final approved budget and actual amounts calculated on the same basis as the corresponding budget. Explanations of material differences between the final approved budget and the actual amounts are presented below. 7.6. Material differences between the original approved budget and the final approved budget are nil, as the original approved budget equates to the final approved budget. Budget utilization levels in 2016 were driven by a combination of the following factors: (a) approved budget levels; (b) overall cash flow and liquidity requirements; and (c) requirements and implementation of the Programme ’s strategic plan 2014 - 2017. Accordingly, actual amounts/utilization in 2016 against budget levels is as follows: • Development activities, actual utilization of $442.0 million, representing 89.8 per cent of the annualized approved budget of $492.1 million • United Nations development coordination activities, actual utilization of $92.6 million, representing 99.8 per cent of the annualiz ed approved budget of $92.7 million 17-11215 129/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) • Management activities, actual utilization of $77.6 million, representing 55.3 per cent of the annualized approved budget of $140.3 million • Special purpose activities, actual utilization of $9.1 million, representin g 47.6 per cent of the annualized approved budget of $19.1 million. 7.7. Similar to 2015, during 2016 UNDP revised the annual spending limits, noting the reduced level of voluntary contributions towards regular resources and the negative impact on non -United States dollar contributions owing to the stronger United States dollar. This resulted in lower overall budget expenditure compared to the annualized budget for 2016. Regular resources for programmatic and institutional components, not protected by Executive Board decisions 2013/4 and 2013/28, were reduced. 7.8. Actual net cash flows from operating activities, investing activities and financing activities in statement V as presented on a comparable basis reconcile to the amounts presented in statement IV, cash flow statement, as follows: (Thousands of United States dollars) Operating Investing Financing Total Total actual budget expenditure on comparable basis as presented in statement V (618 483) (2 799) – (621 282) Basis differences 8 918 388 – 9 286 Entity differences 1 148 411 (144 174) (38) 1 004 199 Increase/(decrease) in cash and cash equivalents from statement IV 538 846 (146 585) (38) 392 223 7.9. Basis differences include differences between the budget basis (modified cash) and accounting basis (accrual), which result primarily from purchase orders that have been issued but not delivered. Those are included in the budget basis but not in the accounting basis as delivery of goods and the rendering of services has not yet occurred for those undelivered purchase orders. 7.10. Entity differences between statement V and statement IV include other resources, that is, amounts for cost - sharing, trust funds and reimbursable support services and miscellaneous activities, which are incorporated in statement IV but not in statement V. 7.11. Timing differences do not exist, as the budget period annualized is the same as the financial statement reporting year. 130/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 8 Cash and cash equivalents (Thousands of United States dollars) 31 December 2016 31 December 2015 United Nations Development Programme Cash held in bank accounts 326 306 309 592 Cash held by external investment manager 5 340 – Petty cash and project cash 507 315 Money market funds 363 027 80 537 Money market instruments 98 995 59 614 Bonds 25 995 – Impairment (25 763) (25 860) Total cash and cash equivalents 794 407 424 198 Held in trust for multi - donor trust funds Cash held in bank accounts 12 379 14 420 Money market funds 80 715 51 852 Money market instruments 25 000 43 510 Bonds 4 950 – Total funds held in trust 123 044 109 782 Total cash and cash equivalents and funds held in trust 917 451 533 980 8.1. Cash held in bank accounts includes cash held by UNDP at headquarters and country offices in various currencies. National currencies that have restricted utility for UNDP programme costs are regularly reviewed for impairment. 8.2. The decrease in impairment of $0.097 million recognized in the statement of financial performance (refer to note 29, “Other revenue”) relates to the valuation of certain non -convertible currency held by UNDP. 8.3. The exposure of UNDP to credit, market and currency risks and its risk management activities related to its financial assets is disclosed in note 31. 17-11215 131/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Note 9 Investments 9.1 Total investments (Thousands of United States dollars) 31 December 2016 31 December 2015 Investments Current investments Investments — managed by UNDP 3 222 252 2 532 409 Investments — managed by external investment manager – – Total current investments 3 222 252 2 532 409 Non - current investments Investments — managed by UNDP 1 763 840 2 430 017 Investments — managed by external investment manager 186 178 – Total non - current investments 1 950 018 2 430 017 Total investments 5 172 270 4 962 426 9.1 (a) Investments — funds held in trust (Thousands of United States dollars) 31 December 2016 31 December 2015 Investments Current investments Investments — funds held in trust 241 914 264 929 Total current investments — funds held in trust 241 914 264 929 Non - current investments Investments — funds held in trust 52 192 64 650 Total non - current investments — funds held in trust 52 192 64 650 Total investments — funds held in trust 294 106 329 579 UNDP investments include held to maturity and available - for - sale financial assets that are managed by UNDP and available - for - sale financial assets that are managed by an external investment manager. Investments — funds held in trust represent funds provided to UNDP by donors to be held on their behalf for future disbursement to organizations of the United Nations system and to national governments. 132/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 9.2 Total investments managed by UNDP - held to maturity and available-for-sale financial assets (Thousands of United States dollars) Reclassificati Fair value on non- 1 January Unrealized increase/ current to 31 December 2016 Purchases Maturities Amortization gains/(losses) (decrease) current 2016 Investments Current investments Money market instruments 424 962 1 787 563 (1 356 195) 441 (230) – – 856 541 Bonds 2 107 354 611 029 (2 277 930) (11 556) – – 1 936 847 2 365 744 Bonds: fair value adjustments 93 – – – – (93) (33) (33) Total current investments 2 532 409 2 398 592 (3 634 125) (11 115) (230) (93) 1 936 814 3 222 252 Non-current investments Bonds 2 431 132 1 359 636 (74 846) (15 144) – – (1 936 847) 1 763 931 Bonds: fair value adjustments (1 115) – – – – 991 33 (91) Total non–current investments 2 430 017 1 359 636 (74 846) (15 144) – 991 (1 936 814) 1 763 840 Total investments held to maturity and available for sale 4 962 426 3 758 228 (3 708 971) (26 259) (230) 898 – 4 986 092 As at 31 December 2016, UNDP did not have any impairment on investments. The exposure to UNDP from credit, market and currency risks and risk management activities related to investments is disclosed in note 31. 9.2 (a) Total investments managed by UNDP - held to maturity financial assets (Thousands of United States dollars) Reclassification Unrealized non - current 31 December 1 January 2016 Purchases Maturities Amortization gains/(losses) to current 2016 Investments held to maturity Current investments Money market instruments 424 962 1 776 213 (1 356 195) 441 (230) – 845 191 Bonds 2 013 177 611 029 (2 183 965) (11 343) – 1 743 158 2 172 056 Total current investments 2 438 139 2 387 242 (3 540 160) (10 902) (230) 1 743 158 3 017 247 Non - current investments Bonds 2 024 540 1 331 615 – (14 381) – (1 743 158) 1 598 616 Total non-current investments 2 024 540 1 331 615 – (14 381) – (1 743 158) 1 598 616 Total investments held to maturity 4 462 679 3 718 857 (3 540 160) (25 283) (230) – 4 615 863 As at 31 December 2016, UNDP did not have any impairment on investments. The exposure to UNDP from credit, market and currency risks and risk management activities related to investments is disclosed in note 31. 17-11215 133/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 9.2 (b) Total investments managed by UNDP - available-for-sale financial assets (Thousands of United States dollars) Fair value Reclassification increase/ non-current to 31 December 1 January 2016 Purchases Maturities Amortization (decrease ) current 2016 Investments available for sale Current investments Money market instruments – 11 350 – – – – 11 350 Bonds 94 177 – (93 965) (213) – 193 689 193 688 Bonds: fair value adjustments 93 – – – (93) (33) (33) Total current investments 94 270 11 350 (93 965) (213) (93) 193 656 205 005 Non-current investments Bonds 406 592 28 021 (74 846) (763) – (193 689) 165 315 Bonds: fair value adjustments (1 115) – – – 991 33 (91) Total non -current investments 405 477 28 021 (74 846) (763) 991 (193 656) 165 224 Total investments managed by UNDP available for sale 499 747 39 371 (168 811) (976) 898 – 370 229 The available - for - sale portfolio represents investments managed by UNDP for after - service health insurance. In addition to the above investments, $1.4 million (2015: $4.0 million) in after - service health insurance investments have been classified under cash and cash equivalents. As at 31 December 2016, UNDP did not have any impairment on investments. The exposure to UNDP from credit, market and currency risks and risk management activities related to investments is disclosed in note 31. 134/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 9.3 Investments managed by external investment manager -available-for-sale financial assets (Thousands of United States dollars) 31 December 2016 31 December 2015 Investments available for sale Non - current investments Equities 112 197 – Equities: fair value adjustments 1 969 – Bonds 74 321 – Bonds: fair value adjustments (2 309) – Total non - current investments 186 178 – Total investments managed by external investment manager available for sale 186 178 – The available- for - sale portfolio represents investments managed by an external investment manager for after- service health insurance. In addition to the above investments, $5.3 million in after- service health insurance investments have been classified under cash and cash equivalents. Total after- service health insurance investments, including cash and cash equivalents, amounted to $563.1 million (2015: $503.8 million). As at 31 December 2016, UNDP did not have any impairment on investments. The exposure to UNDP from credit, market and currency risks and risk management activities related to investments is disclosed in note 31. 9.4 Investments of funds held in trust (Thousands of United States dollars) Reclassification 1 January 2016 Purchases Maturities Amortization non-current to current 31 December 2016 Investments of funds held in trust Current investments Money market instruments 65 000 115 002 (140 000) (1) – 40 001 Bonds 199 929 127 514 (237 196) (1 557) 113 223 201 913 Total current investments 264 929 242 516 (377 196) (1 558) 113 223 241 914 Non-current investments Bonds 64 650 106 665 (5 000) (900) (113 223) 52 192 Total non-current investments 64 650 106 665 (5 000) (900) (113 223) 52 192 Total investments of funds held in trust 329 579 349 181 (382 196) (2 458) – 294 106 As at 31 December 2016, UNDP did not have any impairment on investments of funds held in trust. 17-11215 135/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Note 10 Receivables: non-exchange transactions (Thousands of United States dollars) 31 December 2016 31 December 2015 Contributions receivable 124 085 63 376 Total receivables: non - exchange transactions 124 085 63 376 Ageing of receivables: non-exchange transactions (Thousands of United States dollars) 31 December 2016 31 December 2015 Less than 6 months 119 234 57 135 Over 6 months 4 851 6 241 Total receivables: non - exchange transactions 124 085 63 376 The exposure to UNDP from credit and currency risks related to receivables is disclosed in note 31. As at 31 December 2016, UNDP did not have any impairment on receivables: non - exchange transactions. Note 11 Receivables: exchange transactions (Thousands of United States dollars) 31 December 2016 31 December 2015 Receivables from United Nations entities 51 116 608 Investment receivables 23 524 29 159 Receivables from third parties 22 899 29 988 Receivables from staff 662 889 Derivative assets 295 – Total receivables: exchange transactions, gross 47 431 176 644 a Impairment (388) (478) Total receivables: exchange transactions, net 47 043 176 166 Ageing of receivables: exchange transactions (Thousands of United States dollars) 31 December 2016 31 December 2015 Less than 6 months 42 344 168 660 Over 6 months 5 087 7 984 Total receivables: exchange transactions, gross 47 431 176 644 136/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Receivables: exchange transactions from United Nations entities (Thousands of United States dollars) 31 December 2016 31 December 2015 United Nations Office for Project Services – 113 359 United Nations Entity for Gender Equality and the Empowerment of Women (UN - Women) – 3 184 Receivables from other entities for reserve for field accommodation 51 65 Total receivables — exchange transactions from United Nations entities 51 116 608 The exposure to UNDP from credit and currency risks related to receivables is disclosed in note 31. a The net decrease in impairment of $0.090 million represents an increase of $0.013 million recognized in the statement of financial performance (refer to note 30, “Expenses”) that relates to receivables from staff and a decrease of $0.103 million that relates to a direct reduction of receivables from staff which was recognized in surplus and deficit in prior years. Note 12 Advances issued (Thousands of United States dollars) 31 December 2016 31 December 2015 Operating funds issued to governments and non - governmental organizations not yet implemented 90 280 91 567 Operating funds issued to United Nations entities not yet implemented 47 915 26 391 Advances issued: non - exchange transactions 138 195 117 958 Prepayments 46 754 32 229 Advances to staff 18 990 20 268 Advances issued: exchange transactions 65 744 52 497 Total advances issued, gross 203 939 170 455 Impairment a (2 049) (2 026) Total advances issued, net 201 890 168 429 17-11215 137/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Ageing of advances: non-exchange and exchange transactions (Thousands of United States dollars) 31 December 2016 31 December 2015 Less than 6 months 165 608 153 196 Over 6 months 38 331 17 259 Advances issued: non - exchange and exchange transactions, gross 203 939 170 455 a The increase in impairment of $0.023 million recognized in the statement of financial performance (refer to note 30, “Expenses”) relates to advances to staff. In addition, UNDP recognized $0.060 million in the statement of financial performance (refer to note 30) as impairment directly against advances issued. Note 13 Inventories (Thousands of United States dollars) 31 December 2016 31 December 2015 Medical supplies and equipment 5 359 11 745 Information technology supplies and consumables 211 355 Office supplies – 1 359 Fuel 34 138 Publications 70 180 Human development reports 72 64 Electoral supplies and equipment 153 153 Crisis supplies and equipment 16 16 Other project - related inventories 1 649 5 562 Total inventories 7 564 19 572 138/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 14 Other assets (Thousands of United States dollars) 31 December 2016 31 December 2015 Current Dispensary, medical and other receivables 1 209 1 624 Impairment a (41) (411) Total current other assets 1 168 1 213 Non - current Security deposit and other receivables 8 8 Total non - current other assets 8 8 Total other assets 1 176 1 221 a The decrease in impairment of $0.370 million relates to a direct reduction to other receivables which was recognized in surplus and deficit in prior years . Note 15 Loans to governments (Thousands of United States dollars) 31 December 2016 31 December 2015 Current Loans to governments 590 851 Total current loans to governments 590 851 Non - current Loans to governments 6 013 6 614 Total non - current loans to governments 6 013 6 614 Total loans to governments 6 603 7 465 15.1. Loans to governments are loans given to national governments to construct office or housing premises for use by UNDP and United Nations entities. 15.2. As at 31 December 2016, loans to governments consisted of loans issued to the Governments of Guinea - Bissau, Sao Tome and Principe, the Comoros and Cabo Verde. Note 16 Property, plant and equipment UNDP has two broad categories of property, plant and equipment: project assets and management assets. Project assets, which comprise 25 per cent of property, plant and equipment assets, are utilized in the delivery of UNDP programmes and projects. Management assets, which comprise 75 per cent of property, plant and equipment assets, are used for non -project - specific operations at 17-11215 139/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) UNDP country offices and headquarters. As at 31 December 2016, UNDP had a gross carrying amount of $9.89 million of fully depreciated property, plant and equipment that is still in use. Property, plant and equipment (Thousands of United States dollars) Communications and Heavy Furniture information machinery and Leasehold Land Buildings and fixtures technology equipment Vehicles other equipment improvements Total Balance at 1 January 2016 Cost 6 625 32 314 8 027 57 649 92 885 14 147 20 563 232 210 Accumulated depreciation – (3 144) (4 155) (29 317) (43 530) (4 316) (2 256) (86 718) Carrying amount at 1 January 2016 6 625 29 170 3 872 28 332 49 355 9 831 18 307 145 492 Year ended 31 December 2016 Additions 550 1 854 244 6 959 11 260 1 747 5 330 27 944 Disposals – (57) (739) (7 152) (6 699) (2 056) (14) (16 717) Depreciation – (1 053) (396) (4 363) (7 461) (668) (1 786) (15 727) Adjustments to cost – – (8) 301 313 26 4 483 5 115 Adjustments to accumulated depreciation/depreciation – (3) 515 4 839 3 458 532 17 9 358 Recategorization – 799 – – – – (799) – Carrying amount at 31 December 2016 7 175 30 710 3 488 28 916 50 226 9 412 25 538 155 465 Balance at 31 December 2016 Cost 7 175 34 910 7 524 57 757 97 759 13 864 29 563 248 552 Accumulated depreciation – (4 200) (4 036) (28 841) (47 533) (4 452) (4 025) (93 087) Carrying amount at 31 December 2016 7 175 30 710 3 488 28 916 50 226 9 412 25 538 155 465 As at 31 December 2016, assets under construction of $8.9 million were included under leasehold improvements. 140/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 17 Intangible assets (Thousands of United States dollars) Software Trademarks, internally Software copyrights, Assets under developed acquired and licences development Total Balance as at 1 January 2016 Cost 8 107 102 377 3 744 12 330 Accumulated amortization (4 265) (85) (182) – (4 532) Carrying amount as at 1 January 2016 3 842 17 195 3 744 7 798 Additions 131 – 18 799 948 Disposals – (18) (81) – (99) Amortization (2 274) (13) (90) – (2 377) Adjustments to cost – (6) – 1 266 1 260 Adjustments to accumulated amortization/depreciation – 23 76 – 99 Recategorization 5 246 – – (5 246) – Carrying amount as at 31 December 2016 6 945 3 118 563 7 629 Balance as at 31 December 2016 13 Cost 484 78 314 563 14 439 Accumulated amortization (6 539) (75) (196) – (6 810) Carrying amount as at 31 December 2016 6 945 3 118 563 7 629 As at 31 December 2016, UNDP did not have any impairment on intangible assets. Note 18 Accounts payable and accrued liabilities (Thousands of United States dollars) 31 December 2016 31 December 2015 Accruals 40 077 34 256 Payables to United Nations entities 54 058 35 249 Payables to third parties 94 250 47 782 Derivative liabilities 1 409 – Payables to staff 3 044 2 592 Total accounts payable and accrued liabilities 192 838 119 879 17-11215 141/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Payables to United Nations entities (Thousands of United States dollars) 31 December 2016 31 December 2015 Payables to United Nations current account 15 015 6 657 World Health Organization 5 868 5 744 United Nations Relief and Works Agency for Palestine Refugees in the Near East 3 761 3 174 Joint United Nations Programme on HIV/AIDS 3 057 2 457 United Nations Capital Development Fund 10 817 1 858 United Nations Entity for Gender Equality and the Empowerment of Women 6 974 – United Nations Population Fund 1 405 12 900 Payables to other United Nations entities 7 161 2 459 Total payables to United Nations entities 54 058 35 249 Note 19 Advances payable (Thousands of United States dollars) 31 December 2016 31 December 2015 Operating funds payable to governments and non - governmental organizations 206 181 Operating funds payable to executing entities/ implementing partners 21 067 12 057 Total advances payable 21 273 12 238 Note 20 (a) Funds received in advance and deferred revenue (Thousands of United States dollars) 31 December 2016 31 December 2015 Current Funds received in advance 92 969 165 980 Deferred revenue: Department of Safety and Security 1 266 1 532 Deferred revenue: Multi - Partner Trust Fund Office administrative agent fees 6 370 6 467 Deferred revenue: other 18 13 Total current funds received in advance and deferred revenue 100 623 173 992 142/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 31 December 2016 31 December 2015 Non - current Deferred revenue: Multi - Partner Trust Fund Office administrative agent fees 7 252 7 859 Total non - current funds received in advance and deferred revenue 7 252 7 859 Total funds received in advance and deferred revenue 107 875 181 851 (b) Funds held on behalf of donors (Thousands of United States dollars) 31 December 2016 31 December 2015 Refunds to donors 20 463 31 212 Total funds held on behalf of donors 20 463 31 212 Refunds pending to donors comprise unspent funds for completed or terminated projects and, where applicable, interest that has been set aside to be refunded to donors in accordance with contribution agreements and the UNDP Financial Regulations and Rules. The funds will be refunded or reprogrammed upon receipt of instructions from donors. Note 21 Payables: funds held in trust (Thousands of United States dollars) 31 December 2016 31 December 2015 Current Multi - donor trust funds 363 215 373 518 Clearing accounts with United Nations entities 96 559 70 477 Payable for common services 46 428 24 732 Total current payables: funds held in trust 506 202 468 727 Non - current Multi - donor trust funds 52 192 64 650 Total non-current payables: funds held in trust 52 192 64 650 Total payables: funds held in trust 558 394 533 377 21.1. Payables: funds held in trust represent funds provided by donors to UNDP to be held on their behalf for future disbursement to organizations of the United Nations system and to national governments. UNDP manages investments in separate portfolios on behalf of several organizations. 17-11215 143/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 21.2. With regard to multi -donor trust funds, in 2016, UNDP in its role as administrative agent received net cash inflows from donors of $687.403 million and released $715.152 million. The reduction of payables: funds held in tr ust for multi - donor trust funds of $22.761 million also includes $3.529 million of interest and investment income and a net movement of other assets and liabilities of $1.459 million. Note 22 Employee benefits (Thousands of United States dollars) 31 December 2016 31 December 2015 Current Annual leave 79 462 77 349 Medical insurance plan 90 807 83 094 After - service health insurance 25 574 23 201 Repatriation entitlements 8 129 9 448 Home leave 8 923 8 436 Termination benefits 23 1 325 Contribution payable to the United Nations Joint Staff Pension Fund 11 25 686 Death benefits 247 245 Other employee benefits 1 331 1 483 Total current employee benefit liabilities 214 507 230 267 Non - current After - service health insurance 1 009 287 930 920 Repatriation entitlements 90 784 88 239 Home leave 3 252 2 974 Death benefits 2 165 2 211 Total non-current employee benefit liabilities 1 105 488 1 024 344 Total employee benefit liabilities 1 319 995 1 254 611 22.1. The liabilities arising from post -employment benefits are determined by independent actuaries and those employee benefits are established in accordance with the Staff Rules and Staff Regulations of the United Nations. 22.2. As at 31 December 2016, liabilities for after -service health insurance, repatriation entitlements and death benefits were determined by applying roll - forward principles to valuation conducted on 31 December 2015. The roll -forward principles allow for use of the same census data and actuarial assumptions as the previous year, with updated financial assumptions such as discount rates and inflation in health -care costs. The increase in liability for 2016 is largely due to the overall decrease in discount rates. 144/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Defined benefit plans 22.3. UNDP provides its staff and former staff with the following defined benefit plans, which are actuarially valued: after -service health insurance; end -of-service entitlements, such as repatriation entitlement; and other benefits, such as death benefits. 22.4. The movements in the present value of the defined benefit obligation for those plans are: (Thousands of United States dollars) After-service health insurance Repatriation Death benefits Total Defined benefit obligation as at 31 December 2015 954 121 97 687 2 456 1 054 264 Increase of the obligation Current service cost 28 497 6 327 105 34 929 Interest cost 40 261 3 445 82 43 788 Actuarial losses on disbursements – 216 – 216 Actuarial losses from change in assumptions 36 174 1 227 22 37 423 Decrease of the obligation Actual benefits paid (13 973) (9 989) (162) (24 124) Actuarial (gains) from change in assumptions and experience adjustments – – – – Actuarial (gains) on disbursements (10 219) – (91) (10 310) Recognized liability as at 31 December 2016 1 034 861 98 913 2 412 1 136 186 22.5. The value of the defined benefit obligation equals the defined benefit liability that is recognized in the statement of financial position. 22.6. The current service cost and interest cost recognized in the statement of financial performance and the statement of financial position are as follows: (Thousands of United States dollars) After-service health insurance Repatriation Death benefits Total Current service cost 28 497 6 327 105 34 929 Interest cost 40 261 3 445 82 43 788 Total employee benefits expenses recognized 68 758 9 772 187 78 717 17-11215 145/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 22.7. The actuarial gains/(losses) recognized in net assets/equity directly are as follows: (Thousands of United States dollars) After-service health insurance Repatriation Death benefits Total Actuarial gains/(losses) from change in assumptions (36 174) (1 227) (22) (37 423) Actuarial gains/(losses) on disbursement 10 219 (216) 91 10 094 Total actuarial gains/(losses) recognized (25 955) (1 443) 69 (27 329) 22.8. In 2016, of the net actuarial losses of $27.33 million, the actuarial loss relating to after - service health insurance from a change in actuarial assumptions was $36.17 million. 22.9. The following table provides the amounts for the current and previous four periods of the defined benefit obligation and the experience adjustment arising on the plan liabilities: ( Thousands of United States dollars) 2016 2015 2014 2013 2012 After-service health insurance Defined benefits obligation 1 034 861 954 121 1 141 510 858 155 979 122 Experience adjustment on plan liabilities – (35 400) 32 804 (5 826) (3 518) Repatriation Defined benefits obligation 98 913 97 687 98 939 94 019 88 958 Experience adjustment on plan liabilities – 1 345 (4 624) 2 445 1 594 Death benefits Defined benefits obligation 2 412 2 456 2 855 2 448 2 558 Experience adjustment on plan liabilities – (261) 120 (21) – 22.10. UNDP has invested $563.1 million of the after -service health insurance liability and a 15 - year funding strategy has been formulated to fund the gap between the historical liability and the amount funded. 22.11. The next actuarial valuation will be conducted as at 31 December 2017 . Actuarial assumptions 22.12. The last actuarial valuation for after -service health insurance, repatriation and death benefits was completed as at 31 December 2015. The two important assumptions used by the actuary to determine defined - benefit liabilities are the discount rate and, for after -service health insurance, the health -care cost -trend rate. The principal actuarial assumptions used to determine the defined benefit obligation are as follows: 146/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 2016 2015 Discount rate: (a) After-service health insurance 4.09 per cent 4.27 per cent (b) Repatriation benefits 3.59 per cent 3.71 per cent (c) Death benefits 3.41 per cent 3.52 per cent Expected rate of medical cost increase for after- service health insurance (varies by medical plan) 4-6.0 per cent 4-6.4 per cent Salary scale (varying by age and staff category) 4.5-9.8 per cent 4.5-9.8 per cent Rate of inflation 2.25 per cent 2.25 per cent Per capita medical claim cost (varies by age) $1,052-$15,419 $989-$14,492 Actuarial method Projected unit credit Projected unit method credit method 22.13. Other actuarial assumptions used for the valuation for after - service health insurance are: enrolment in plan and Medicare Part B participation, dependents, age difference between spouses, retiree contributions, age -related increase in claims; Medicare Part D Retiree Drug Subsidy and Medicare Part B premium. 22.14. Assumptions regarding future mortality are based on published statistics and mortality tables. The current rates of death underlying the values of the liabilities in the after - service health insurance and repatriation calculations are as follows: Rate of death — Active employees At age 20 At age 69 Male 0.00065 0.00906 Female 0.00034 0.00645 Rate of death — Retired employees At age 20 At age 70 Male 0.00072 0.01176 Female 0.00037 0.00860 22.15. The rates of retirement for Professionals with 30 or more years of service hired on or after 1 January 1990 and before 1 January 2014 are as follows: Rate of retirement: Professionals with 30 or more years of service At age 55 At age 62 Male 0.16 0.70 Female 0.20 0.80 Sensitivity analysis 22.16. Should the assumptions about the discount rate and health -care cost trends described above change, this would have an impact on the measurement of the after - service health insurance obligation as follows: 17-11215 147/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) (Thousands of United States dollars) +1 per cent -1 per cent Effect of discount rate change on end-of-year liability (166 796) 216 272 Effect of change in health-care cost trend rates on year-end accumulated post-employment benefit obligation 220 512 (173 240) United Nations Joint Staff Pension Fund 22.17. The Pension Fund’s Regulations state that the Pension Board shall have an actuarial valuation made of the Fund at least once every three years by the consulting actuary. The practice of the Pension Board has been to carry out an actuarial valuation every two years using the open group aggregate method. The primary purpose of the actuarial valuation is to determine whether the current and estimated future assets of the Pension Fund will be sufficient to meet its liabilities. 22.18. The financial obligation of UNDP to the Pension Fund consists of its mandated contribution, at the rate established by the General Assembly (currently at 7.9per cent for participants and 15.8 per cent for member organizations), together with any share of any actuarial deficiency payments under article 26 of the Regulations of the Fund. Such deficiency payments are only payable if and when the General Assembly has invoked the provision of article 26, following a determination that there is a requirement for deficiency payments based on an assessment of the actuarial sufficiency of the Fund as of the valuation date. Each member organization shall contribute to this deficiency an amount proportionate to the total contributions which each paid during the three years preceding the valuation date. 22.19. The actuarial valuation performed as at 31 December 2013 revealed an actuarial deficit of 0.72 per cent (1.87 per cent in the 2011 valuation) of pensionable remuneration, implying that the theoretical contribution rate required to achieve balance as at 31 December 2013 was 24.42 per cent of pensionable remuneration, compared with the actual contribution rate of 23.7 per cent. The next actuarial valuation will be conducted as of 31 December 2017. 22.20. At 31 December 2013, the funded ratio of actuarial assets to actuarial liabilities, assuming no future pension adjustments, was 127.5 per cent (130.0 per cent in the 2011 valuation). The funded ratio was 91.2 per cent (86.2 per cent in the 2011 valuation) when the current system of pension adjustments was taken into account. 22.21. After assessing the actuarial sufficiency of the Fund, the Consulting Actuary concluded that there was no requirement, as at 31 December 2013, for deficiency payments under article 26 of the Regulations of the Fund, as the actuarial value of assets exceeded the actuarial value of all accrued liabilities under the Fund. In addition, the market value of assets as at 31 December 2016, also exceeded the actuarial value of all accrued liabilities as at 31 December 2013. At the time of preparation of the present report, the General Asse mbly has not invoked the provision of article 26. 22.22. During 2016, the contributions of UNDP to the United Nations Joint Staff Pension Fund amounted to $158 million (2015: $160 million). The amounts include the organizational share as well as the contributions made by the 148/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 participants. Contributions due in 2017, dependent on staffing levels and changes in the pensionable remuneration, are expected to be around $160 million. General Assembly resolution 70/244 22.23. By its resolution 70/244 of 23 December 2015, the General Assembly approved a series of changes to the conditions of service and future entitlements for all staff serving in the United Nations common system. The significant changes included the following: (a) the mandatory age of separatio n for staff recruited before 1 January 2014 would be raised by the organizations of the common system to 65 years, at the latest by 1 January 2018, taking into account the acquired rights of staff; (b) a revised base/floor scale of gross and net salaries for staff in the Professional and higher categories would take effect on 1 January 2017; and (c) proposals on the United Nations common system compensation package would take effect on 1 July 2016. Note 23 Other liabilities (Thousands of United States dollars) 31 December 2016 31 December 2015 Current Unapplied deposits 3 039 5 665 Other payables 4 593 3 972 Finance lease 42 27 Total other current liabilities 7 674 9 664 Non - current Finance lease 11 64 Reimbursable deposits 761 - Total other non - current liabilities 772 64 Total other liabilities 8 446 9 728 The finance lease is for office equipment in two UNDP country offices. Note 24 Reserves (Thousands of United States dollars) 31 December 2015 Movements 31 December 2016 Endowment Fund 3 000 – 3 000 Operational reserve 337 968 (16 000) 321 968 Reserve for special initiatives 159 – 159 Total reserves 341 127 (16 000) 325 127 17-11215 149/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 24.1. The Endowment Fund reserve is a contribution of $3.0 million in 1998 from the Government of Japan to strengthen the planning and managerial capacities of Palestinian institutions in order to promote sustainable socioeconomic development. Under the Fund’s mechanism and implementation arrangements, the principal amount will not be available for programming until such time as the Government of Japan and/or UNDP agree to terminate the Fund. However, interest earned on the fund is available for programming. 24.2. The operational reserve was established in 1979 by the Governing Council (now the Executive Board) of UNDP to ensure adequate liquidity of UNDP by funding such reserve through a defined formula that is calculated yearly. The operational reserve is made up of the operational reserve for regular resources and the operational reserve for other resources. 24.3. At its annual session in 1999, the Executive Board approved a change of basis for the calculation of the operational reserve for regular resources, w hich is the sum of the following components: (a) Income: the equivalent of 10 per cent of the average of the annual voluntary contributions received over the three most recent years, rounded to the nearest $1 million; (b) Expenditure: the equivalent of 2 per cent of the average total annual expenditure incurred over the three most recent years, rounded to the nearest $1 million; (c) Liability and structural: the equivalent of 10 per cent of the sum of the income and expenditure components, rounded to the nearest $1 million; (d) Cash -flow: the equivalent of the cash needs for one month, calculated as one twelfth of the total expenditure of the most recent year, rounded to the nearest $1 million. 24.4. In addition, the Executive Board approved the establishment of an operational reserve for other resource activities. The basis for the calculation of the operational reserve for other resources is the sum of the following components: (a) Expenditure: the equivalent of 2 per cent of the average total annual expenditure incurred over the most recent three years under cost -sharing, trust fund and reimbursable support services and miscellaneous activities, rounded to the nearest $1 million; (b) Liability and structural: the equivalent of one year of administrati ve costs, currently estimated at $30 million. While the reserve calculation for other resources is based on cost -sharing, trust fund and reimbursable support services and miscellaneous activities, the operational reserve for other resources is only presented as part of net assets/equity for reimbursable support services and miscellaneous activities in note 6, “Segment reporting: statement of financial position as at 31 December 2016 ”. 24.5. The reserve for special initiatives was first approved by the Execu tive Board in 2000 to establish a capital reserve as a charge from UNDP general resources. The remaining balance is being held to cover relocation costs such as renovations, furniture, fittings and moving costs. 150/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 25 Accumulated surpluses (Thousands of United States dollars) 1 January 2016 Movements 31 December 2016 Accumulated surpluses 3 750 774 459 047 4 209 821 a Funds with specific purposes 85 614 18 706 104 320 Actuarial gains/(losses) 93 643 (27 329) 66 314 Changes in fair value of available-for-sale investments (1 022) 1 291 269 Total accumulated surpluses 3 929 009 451 715 4 380 724 a The funds with specific purposes include: security; working capital; information and communications technology; United Nations Volunteers; learning; and personnel and other. Note 26 Voluntary contributions (Thousands of United States dollars) 2016 2015 Contributions 4 866 492 4 483 072 Government contributions to local office costs 43 240 43 380 Contributions in kind 18 967 17 267 Less: returns to donors of unused contributions (143 578) (71 825) Total voluntary contributions 4 785 121 4 471 894 26.1. Contributions in kind primarily comprise donated use of land and buildings of $17.824 million (2015: $17.003 million), as well as donated goods, such as computer equipment and supplies received from donors, of $1.143 million (2015: $0.263 million). 26.2. At 31 December 2016, UNDP had $1.265 billion of contribution agreements signed with donors for which revenue has not been recognized in the financial statements. That amount represents contributions due from donors (excluding contributions from programme country Governments for development activities in their country offices) where revenue will be recorded in future accounting periods in accordance with UNDP revenue recognition accounting policy. 17-11215 151/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Note 27 Revenue: exchange transactions (Thousands of United States dollars) 2016 2015 Department of Safety and Security 90 265 89 112 Reimbursement for management and support services 59 952 48 686 United Nations Volunteers programme 12 099 14 632 Implementation support services fees 9 100 15 367 Payroll management services fees 8 313 6 277 Procurement handling fees 3 591 4 085 Training fees 2 534 3 460 Rental revenue 2 779 2 139 Multi - Partner Trust Fund Office administrative agent fees 7 676 7 069 Sales and royalties from sale of publications - 61 Other exchange revenue 198 79 Total revenue from exchange transactions 196 507 190 967 Note 28 Investment revenue (Thousands of United States dollars) 2016 2015 Investment revenue 52 925 41 144 Total investment revenue 52 925 41 144 Investment revenue represents interest plus amortized discount, net of amortized premium, and dividends earned on the Programme ’s investment portfolio and interest earned on bank account balances. Note 29 Other revenue (Thousands of United States dollars) 2016 2015 Foreign exchange gains 31 066 37 215 Common system and miscellaneous revenuea 34 478 76 946 General management services fees 2 476 1 994 Total other revenue 68 020 116 155 a Of the total amount of $34.478 million, $0.097 million represents a decrease in impairment relating to the valuation of certain non -convertible currency held by UNDP (refer to note 8, “Cash and cash equivalents”). 152/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 30 Expenses (Thousands of United States dollars) Programme expenses a Total expenses Programme expenses Total expenses 2016 2016 2015 2015 30.1 Contractual services Contractual services with individuals 1 096 235 1 156 424 1 233 098 1 294 993 Contractual services with companies 670 878 685 961 653 730 665 868 United Nations Volunteers expenses for contractual services 30 519 36 508 32 663 38 825 Total contractual services 1 797 632 1 878 893 1 919 491 1 999 686 30.2 Staff costs Salary and wages 184 321 599 779 197 552 621 984 Pension benefits 31 393 105 154 31 711 106 519 Post - employment and termination 16 381 96 904 17 421 110 971 Appointment and assignment 8 818 23 730 11 182 32 950 Leave benefits 6 052 16 686 7 500 18 291 Other staff benefits 39 068 49 726 27 992 51 121 Total staff costs 286 033 891 979 293 358 941 836 30.3 Supplies and consumables used Maintenance costs for property, plant and equipment and project - related supplies 311 801 331 003 338 440 351 757 Medical, pharmaceutical and agricultural supplies 300 039 303 618 315 805 320 738 Information technology supplies and software maintenance 22 271 26 901 28 138 35 529 Information and communications technology equipment 69 119 75 606 69 890 73 750 Security and office supplies 25 387 30 465 21 059 25 325 Other consumables used 220 77 2 562 4 457 Total supplies and consumables used 728 837 767 670 775 894 811 556 30.4 General operating expenses Travel 173 513 206 580 187 630 222 313 Learning and recruitment 177 994 194 583 194 532 211 866 Rent, leases, utilities 74 260 158 868 77 790 168 041 Communications 100 271 123 645 112 596 136 561 Freight 33 241 34 268 31 038 32 093 Professional services 31 292 34 114 23 628 28 194 Security 17 374 33 076 16 872 34 680 Reimbursement 1 891 6 120 4 837 8 245 Contribution to jointly financed United Nations activities 5 873 14 857 3 979 15 309 17-11215 153/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Programme expenses a Total expenses Programme expenses Total expenses 2016 2016 2015 2015 Contribution to information and communications technology 2 064 4 567 2 745 12 681 Insurance/warranties 6 100 7 046 6 306 7 339 Management service agreement fees 234 234 719 719 b c Miscellaneous operating expenses 203 341 17 975 218 673 15 264 Total general operating expenses 827 448 835 933 881 345 893 305 30.5 Grants and other transfers Grants 195 178 196 148 311 307 312 541 Transfers 4 243 7 284 2 394 5 351 Total grants and other transfers 199 421 203 432 313 701 317 892 30.6 Other expenses Sundries 16 742 20 212 33 864 39 383 Foreign exchange losses 11 046 34 305 10 201 28 615 Losses on sale of fixed assets and intangible assets 2 089 2 927 2 091 2 456 e Ex gratia payments – 3 – 169 Impairment – 96 f 26 632 Total other expenses 29 877 57 543 46 182 71 255 30.7 Depreciation and amortization Depreciation 5 914 15 727 5 968 14 771 Amortization 37 2 377 18 1 598 Total depreciation and amortization 5 951 18 104 5 986 16 369 30.8 Finance costs Bank charges 2 785 5 972 1 893 5 515 Total finance costs 2 785 5 972 1 893 5 515 Total expenses 3 877 984 4 659 526 4 237 850 5 057 414 a Of the total expenses, $3.878 billion represents programme expenses and the remaining $782 million represents development effectiveness, United Nations development coordination, management, special purpose and other. Refer to note 36.1, “Total expenses by cost classification” for details. b Of the $203.341 million, $184.843 million is eliminated to remove the effect of internal UNDP cost recovery. c Of the total miscellaneous operating expenses, $4.032 million represents administrative service fees for Unit ed Nations agencies. d Foreign exchange losses of $34.305 million include the effect of exchange rate changes on cash and cash equivalents of $8.752 million. e Ex gratia payments were approved and paid by UNDP in accordance with UNDP financial regulation 23.01 and UNDP financial rule 123.01. f In 2016, UNDP recognized $0.023 million as impairment relating to advances to staff (refer to note 12, “Advances issued”), $0.013 million as impairment relating to receivables from staff (refer to note 11, “Receivables: exchange transactions”) and $0.060 million as impairment directly against advances issued (refer to note 12). 154/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 31 Financial instruments and risk management 31.1. The risk management policies of UNDP, along with its Investment Policy and Guidelines and Financial Regulations and Rules, aim to minimize potential adverse effects on the resources available to UNDP to fund its activities. In its operations, UNDP is exposed to a variety of financial risks, including: • Credit risk: the risk of financial loss to UNDP may arise from the failure of an entity or counterparty to meet its financial/contractual obligations to UNDP; • Liquidity risk: the risk that UNDP might not have adequate funds to meet its obligations as they fall due; • Market risk: the risk that UNDP might incur financial losses on its financial assets due to unfavourable movements in foreign currency exchange rates, interest rates and/or prices of investment securities. 31.2. UNDP has an Investment Committee, comprising senior management, which meets quarterly to review its investment portfolio performance and to ensure that investment decisions are in compliance with the established Investment Policy and Guidelines. The principal investment objectives as stated in the UNDP Investment Policy and Guidelines are: • Safety: preservation of capital, provided through investing in high -quality, fixed -income securities emphasizing the creditworthiness of the issuers; • Liquidity: flexibility to meet cash requirements through investments in highly marketable, fixed -income securities and through structuring maturities to align with liquidity requirements; • Revenue: maximization of investment revenue within the foregoing safety and liquidity parameters. 31.3. The UNDP Financial Regulations and Rules govern the financial management of UNDP. The regulations and rules are applicable to all funds and programmes administered by UNDP and establish the standard of internal control and accountability within the organization. 31.4. In 2016, UNDP outsourced a portion of the investment management of its after - service health insurance funds. This was done in order to ensure an adequate level of investment return given the longer - term nature of the liabilities. As at 31 December 2016, this portfolio was mainly classified as available -for - sale. Holdings include cash and cash equivalents, equities and fixed - income securities. 31.5. The external investment managers are governed by the after -service health insurance investment guidelines. The guidelines ensure that all of the investment activities reflect the best conditions of security, accountability and social responsibility while operating in full compliance with the highest s tandards of quality, efficiency, competence and integrity. These guidelines are reviewed and approved on a periodic basis by the after -service health insurance investment committee. 31.6. The following tables show the value of UNDP financial assets and fin ancial liabilities outstanding at year end based on the IPSAS classifications adopted by UNDP. 17-11215 155/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) (a) Financial assets classification (Thousands of United States dollars) Held to Available Loans and Fair value through 31 December 2016 31 December 2015 maturity for sale receivable surplus and deficit Book value Book value Cash and cash equivalents – – 794 407 – 794 407 424 198 Investments 4 615 863 556 407 – – 5 172 270 4 962 426 Receivables: non - exchange transactions – – 124 085 – 124 085 63 376 Receivables: exchange transactions – – 46 748 295 47 043 176 166 Advances issued – – 201 890 – 201 890 168 429 Loans to Governments – – 6 603 – 6 603 7 465 Total financial assets 4 615 863 556 407 1 173 733 295 6 346 298 5 802 060 (b) Financial liabilities classification (Thousands of United States dollars) Other financial Fair value through 31 December 2016 31 December 2015 liabilities surplus and deficit Book value Book value Accounts payable and accrued liabilities 191 429 1 409 192 838 119 879 Advances payable 21 273 – 21 273 12 238 Payables — funds held in trust 558 394 – 558 394 533 377 Funds held on behalf of donors 20 463 – 20 463 31 212 Other liabilities 8 446 – 8 446 9 728 Total financial liabilities 800 005 1 409 801 414 706 434 31.7. Held - to -maturity financial assets are carried at amortized cost. As at 31 December 2016, the book value of those assets exceeded market value by $8.0 million (2015: $5.5 million). Available -for - sale assets are carried at fair market value based on quoted prices obtained from knowledgeable third parties. The carrying values for loans and receivables are a reasonable approximation of their fair value. As at 31 December 2016, UNDP had $0.295 million in financial assets recorded at fair value through surplus and deficit arising from various foreign exchange contracts managed by an external investment manager. 31.8. As at 31 December 2016, UNDP had $1.409 million in financial liabilities recorded at fair value through surplus and deficit arising from derivatives, with a notional amount of 95 million euros. 31.9. For the year ended 31 December 2016, net gains of $2.171 million related to financial assets and liabilities recorded at fair value through surplus and deficit were recognized in the statement of financial performance. Valuation 31.10. The table below presents the fair value hierarchy of the Programme ’s available -for -sale financial instruments carried at fair value at 31 December 2016. 156/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 (Thousands of United States dollars) Level 1 Level 2 Level 3 Total Available-for-sale financial assets: Money market instruments 11 350 – – 11 350 Equities 114 166 – – 114 166 Bonds 430 891 – – 430 891 Total 556 407 – – 556 407 31.11. The three fair value hierarchies are defined by IPSAS based on the significance of the inputs used in the valuation as: (a) Level 1: unadjusted quoted prices in active markets for identical assets or liabilities; (b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as price) or indirectly (derived from prices); (c) Level 3: inputs for assets or liabilities that are not based on observable market data (unobservable inputs). Analysis of UNDP credit risk 31.12. UNDP is exposed to credit risk on its outstanding financial asset balances, primarily cash and cash equivalents, investments and receivables (non -exchange). 31.13. UNDP operates bank accounts in 150 countries, which exposes it to the risk of the collapse of local financial institutions. UNDP has established risk assessment criteria to assess the credit worthiness of financial institutions before new bank accounts are opened. In addition, UNDP, using zero - balance accounts, permits local offices to draw funds in United States dollars and euros from a headquarters - managed master account to periodically replenish local currency accounts. Zero - balance accounts are designed to automatically transfer excess balances to the master account for investment in short -term money market instruments. The arrangement minimizes excess balances in local bank accounts. 31.14. With regard to its financial instruments, the UNDP Investment Policy and Guidelines limit the amount of credit exposure to any one counterparty and include minimum credit quality requirements. The credit risk mitigation strategies stated in the Investment Policy and Guidelines include conservative minimum credit criteria for all issuers, with maturity and counterparty limits by credit rating. The Investment Policy and Guidelines also require ongoing monitoring of issuer and counterparty credit ratings. Permissible investments for UNDP -managed funds are limited to fixed -income instruments of sovereign, supranational, governmental or federal agencies, and banks. 31.15. UNDP utilizes credit ratings from the three leading credit rating agencies, Moody’s, Standard & Poor ’s and Fitch, to categorize and monitor credit risk on its financial instruments. As at 31 December 2016, investments managed by UNDP were in high -quality, fixed -income instruments as shown in the table below (presented using Standard & Poor ’s rating convention). 17-11215 157/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Concentration by credit rating — UNDP - managed investments (Thousands of United States dollars) 31 December 2016 AAA AA+ AA to AA - A+ A Not rated Total Money market instruments 64 878 49 738 521 163 105 000 115 000 762 856 541 Bonds 2 592 507 410 510 948 876 169 762 7 896 – 4 129 551 Total 2 657 385 460 248 1 470 039 274 762 122 896 762 4 986 092 31 December 2015 AAA AA+ AA to AA - A+ A Total Money market instruments – – 235 006 50 000 139 956 424 962 Bonds 2 874 060 996 079 363 190 289 706 14 429 4 537 464 Total 2 874 060 996 079 598 196 339 706 154 385 4 962 426 Note : Excludes investments classified as cash equivalents and funds held in trust. Concentration by credit rating — externally managed investments (Thousands of United States dollars) 31 December 2016 AA+ AA- A+ A BBB+ BBB BB+ Unite States Not rated Total Treasury Bonds 919 1 326 2 014 1 876 5 193 1 460 328 9 382 49 514 72 012 Total 919 1 326 2 014 1 876 5 193 1 460 328 9 382 49 514 72 012 Note : The externally managed investments are governed by the after - service health insurance investment guidelines. Not - rated bonds include corporate bond funds and exchange traded funds of fixed - income investments in the amount of $43.257 million, with the remaining balance of $6.257 million comprising government bonds. 31.16. The investment management function is centralized at UNDP headquarters, and country offices are not permitted in normal circumstances to engage in investing. A country office may receive exceptional approval when conditions warrant investing locally under specified parameters. 31.17. The credit risk exposure of UNDP on outstanding non - exchange receivables is mitigated by the Financial Regulations and Rules of UNDP, which require that, for non -regular resources, expenses be incurred after receipt of funds from donors. Exceptions to incurring expenses prior to the receipt of funds are only permitted if specified risk assessment criteria with regard to the obligor are met. In addition, a large portion of the contributions receivable is due from sovereign governments and supranational agencies, including other United Nations entities (as shown in the table below) that do not have significant credit risk. 158/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Receivables: non- exchange transactions by entity type (Thousands of United States dollars) 31 December 2016 31 December 2015 Government entities 43 581 17 186 Non-governmental entities 80 504 46 190 Total receivables: non - exchange transactions 124 085 63 376 Note : Non - governmental entities mainly comprise supranational and international entities. 31.18. The top three donors accounted for 77 per cent of the outstanding non -exchange receivable balances and comprise of one multilateral agency and two donor Governments as shown in the table below. Based on historical payment patterns, UNDP believes that all non -exchange receivable balances are collectable. Non-exchange receivables: top three outstanding balances (Thousands of United States dollars) No. Balance Percentage of total Entity type 1 68 800 55 Multilateral agency 2 20 510 17 Donor Government 3 6 125 5 Donor Government Subtotal 95 435 77 Grand total 124 085 100 Analysis of UNDP liquidity risk 31.19. Liquidity risk is the risk that UNDP might be unable to meet its obligations, including accounts payable, accrued liabilities, refunds to donors and other liabilities, as they fall due. 31.20. Investments are made with due consideration of the Programme’s cash requirements for operating purposes based on cash flow forecasting of future funding needs. As shown in the table below, UNDP maintai ns a portion of its cash and investments in cash and cash equivalents and current investments, which is sufficient to cover its commitments as and when they fall due. Liquidity analysis (Thousands of United States dollars) 31 December 2016 Percentage 31 December 2015 Percentage Cash balances 306 390 5 284 047 5 Cash equivalents 488 017 8 140 151 3 Total cash and cash equivalents 794 407 13 424 198 8 17-11215 159/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 31 December 2016 Percentage 31 December 2015 Percentage Current investments 3 222 252 54 2 532 409 47 Non-current investments 1 950 018 33 2 430 017 45 Total current and non - current investments 5 172 270 87 4 962 426 92 Total investments, cash and cash equivalents 5 966 677 100 5 386 624 100 Note : Excludes funds held in trust; investments classified as cash equivalents have a maturity of three months or less from the date of purchase. Composition of cash equivalents (Thousands of United States dollars) 31 December 2016 31 December 2015 Money market funds 363 027 80 537 Money market instruments 98 995 59 614 Bonds 25 995 – Cash equivalents 488 017 140 151 Note : Excludes funds held in trust. 31.21. UNDP further mitigates its liquidity risk through its Financial Regulations and Rules, which prohibit offices from entering into commitments, including purchase commitments, unless a budget already exists. Spending is possible after funds are received and budgets are updated. Spending ability is constantly revised as commitments are made and expenditures incurred. Spending in the absence of receipted funds has to comply with UNDP risk management guidelines. Analysis of market risk to UNDP 31.22. Market risk is the risk that UNDP is exposed to potential financial losses due to unfavourable movements in market prices of financial instruments including movements in interest rates, exchange rates and equity price risk. 31.23. Interest rate risk arises from the effects of market interest rates fluctuations on: (a) Fair value of financial assets and liabilities; (b) Future cash flows. 31.24. A portion (10.8 per cent) of the UNDP investment portfolio is classified as available -for -sale investments that are carried at fair value through net assets/equity, which expose UNDP to interest rate risk. However, a significant portion (89.2 per cent) of the portfolio is classified as held to maturity, which is not marked to market and therefore net assets and surplus/deficit reported in the Programme’s financial statements are not significantly affected by changes in interest rates. 160/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Classification of investments (Thousands of United States dollars) Book value basis 31 December 2016 31 December 2015 Held to maturity investments Amortized cost 4 615 863 4 462 679 Available-for-sale investments Fair value 556 407 499 747 Total investments 5 172 270 4 962 426 31.25. UNDP invests in United States dollar - denominated floating rate debt. These debt securities have a variable coupon which periodically reset s to the prevailing market rate. As at 31 December 2016, UNDP had $281.6 million (2015: $123.5 million) in outstanding floating rate fixed -income securities, with maturities ranging from three months to five years. 31.26. The table below presents the interest sensitivity of UNDP investments based on the duration of its securities. The sensitivity is limited to the fixed - income investments classified as available for sale, which are marked to market through net assets/equity and changes in interest rates would therefore have no impact on the UNDP surplus and deficit. Available -for- sale fixed -income investments interest rate sensitivity analysis (Thousands of United States dollars) Impact on the financial statements Market value 31 December 2016 Sensitivity variation Net assets Surplus and deficit 430 891 100 basis point increase (4 816) – 430 891 50 basis point decrease 2 408 – Note : Excludes investments classified as cash and cash equivalents. Foreign exchange risk 31.27. The Programme’s transactions are primarily denominated in United States dollars but UNDP is exposed to currency risk arising from financial assets that are denominated in foreign currency and financial liabilities that have to be settled in foreign currency. 31.28. UNDP receives donor contributions primarily in United States dollars and also in a number of major currencies, including the euro, the pound sterling, the Norwegian kroner, the Canadian dollar, the Japanese yen, the Swiss franc and the Australian dollar. In addition, programme country governments make contributions mainly in their national currencies to programmes in their countries. On an ongoing basis, UNDP evaluates its need to hold cash and other financial assets in foreign currencies against its foreign currency obligations. 31.29. UNDP actively manages net foreign exchange exposure in eight major currencies against the United States dollar using foreign exchange forward and option contracts. 17-11215 161/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) (a) Cash and cash equivalents, investments and receivables: non-exchange United States 31 December 2016 31 December 2015 dollar Euro CFA franc Other total total Cash and cash equivalents 592 808 50 405 28 795 122 399 794 407 424 198 Investments 5 114 956 26 752 – 30 562 5 172 270 4 962 426 Receivables: non - exchange 99 093 13 567 – 11 425 124 085 63 376 Total cash and cash equivalents, investments and receivables: non - exchange 5 806 857 90 724 28 795 164 386 6 090 762 5 450 000 (b) Foreign exchange sensitivity analysis (Thousands of United States dollars) Currency depreciation Currency appreciation Surplus/(deficit) Net assets Surplus/(deficit) Net assets Euro (10 per cent change) (8 488) – 9 786 – CFA franc (10 per cent change) (2 621) – 3 195 – Note : The above figures represent the sensitivity of cash and cash equivalents, investments and receivables: non - exchange to changes in foreign exchange rates. 31.30. At 31 December 2016, UNDP held investments and cash and cash equivalents balances in several non -United States dollar currencies. Cash and cash equivalents were held in non -United States dollar currencies primarily to support local operating activities in programme countries, where a large portion of payments are made in local currency. UNDP maintains a minimum level of assets in local currencies and, whenever possible, converts excess local currency balances in bank accounts into United States dollars. 31.31. The Programme’s financial assets and financial liabilities are primarily denominated in United States dollars, thereby reducing its overall foreign currency exposure. Financial liabilities, including funds received in advance and funds held on behalf of donors are carried in the UNDP ledger in United States dollars, although some portion may be refunded in local currency at the donor ’s request. Equity price risk 31.32. In 2016, UNDP held equity investments in its externally managed portfolio of after -service health insurance funds. The table below presents the price sensitivity of equity investments to a 5 per cent change in equity prices. The sensitivity pertains to equity investments classified as available - for -sale, which are marked to market through net assets/equity, and changes in prices would therefore have no impact on UNDP surplus and deficit. Impact on the financial statements Market value Sensitivity variation Net assets Surplus and deficit 31 December 2016 114 166 5 per cent increase 5 708 – 114 166 5 per cent decrease (5 708) – 162/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 32 Related parties Key management personnel 32.1. The leadership structure of UNDP consists of an Executive Group of 13 members. The Executive Group is responsible for the strategic direction and operational management of UNDP and is entrusted with significant authority to execute the UNDP mandate. Collectively the Executive Group comprises four tiers: an Under - Secretary - General and Administrator (Administrator); an Under - Secretary -General (Associate Administrator); nine Assistant Secretaries -General (Assistant Administrators); a Special Adviser to the Administrator and the Chief of Staff and Director, Office of the Administrator (ex officio). Remuneration (Thousands of United States dollars) After-service health insurance, Salary and repatriation, death Number of post Other Total benefit and annual Tier positions adjustment entitlements remuneration leave liability Key management personnel 13 2 853 559 3 412 6 831 Close family members of key management personnel 1 169 – 169 154 Total 14 3 022 559 3 581 6 985 32.2. The remuneration paid to key management personnel includes salary, post adjustment and other entitlements as applicable in accordance with the Staff Regulations of the United Nations and the Staff Rules. Loans 32.3. Staff advances are available to UNDP staff, including key management personnel, for specific purposes as provided for in the Staff Regulations of the United Nations. As at 31 December 2016, there were no advances issued to key management personnel and their close family members that would not have been made available to all UNDP staff. United Nations system 32.4. UNDP is engaged in United Nations system initiatives such as joint funding arrangements (multi -donor trust funds and joint programmes) and common services arrangements. Within joint funding mechanisms, United Nations entities work together to implement activities and achieve results. Each of the participating United Nations entities assumes its share of responsibilities related to planning, implementing, monitoring and evaluating those activities. 32.5. UNDP is a co -sponsoring organization of the Joint United Nations Programme on HIV/AIDS (UNAIDS), an innovative joint effort of the United Nation s family to respond in a coordinated manner on the issue of HIV/AIDS. UNDP participates in setting the financial and operating policies of the Programme Coordinating Board of UNAIDS, which is headquartered in Geneva. 17-11215 163/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Note 33 Commitments and contingencies Open commitments (Thousands of United States dollars) 31 December 2016 31 December 2015 Property, plant and equipment 8 808 7 425 Goods 208 069 164 159 Services 165 759 125 037 Total open commitments 382 636 296 621 33.1. As at 31 December 2016, commitments of UNDP for the acquisition of various goods and services contracted but not received amounted to $38 2.6 million. Lease commitments by term (Thousands of United States dollars) 31 December 2016 31 December 2015 Obligations for property leases Less than 1 year 65 233 59 080 1-5 years 74 109 73 560 Beyond 5 years 19 992 15 302 Total property leases obligations 159 334 147 942 (Thousands of United States dollars) 31 December 2016 31 December 2015 Obligations for equipment leases Less than 1 year 64 39 1-5 years 33 32 Beyond 5 years 90 90 Total equipment leases obligations 187 161 33.2. The above tables represent future lease payment obligations during the contractual term of the leases. Typically, at the inception, the duration of contractual leases for premises entered into by UNDP is between 1 and 5 years. Contingent assets 33.3. At 31 December 2016, UNDP had a contingent asset for a compound in South Sudan over which there is an ownership dispute. Owing to that dispute, UNDP has not recognized the land and buildings in the compound as property, plant and 164/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 equipment. The fair value of the land and buildings was last assessed by independent valuators in 2011 at $8.9 million. 33.4. At 31 December 2016, UNDP had $1.265 billion in non -regular resources contribution agreements signed with donors for which revenue has not been recognized in the financial statements. This amount represents contributions due from donors (excluding contributions from programme country Governments for development activities in their country offices), revenue from which will be recorded in future accounting periods in accordance with the Programme ’s revenue - recognition accounting policy. In addition, UNDP had regular resources contributions of $183.158 million pledged and subject to approval by donor governments for future periods through 2019. These contributions will be recognized in future periods when cash is received in accordance with the revenue - recognition accounting policy. Contingent liabilities 33.5. In the normal course of operations, UNDP is subject to claims which have been categorized as: (a) corporate and commercial claims; (b) administrative law claims; and (c) other claims. 33.6. As at 31 December 2016, corporate and commercial and administrative law claims totalled $4.890 million. No impairment or allowance for loss has been recorded as the occurrence, amount and timing of outflow is not certain. UNDP does not expect the ultimate resolution of any of the proceedings to which it is party to have a significant adverse effect on its financial position, performance or cash flows. 33.7. UNDP is a partner organization with the International Computing Centre, which is based in Geneva. The memorandum of understanding between the two organizations provides for financial responsibility of both partner organizations should any third -party claim or liability arise within certain conditions. As at 31 December 2016, there were no such claims. Note 34 Structural change 34.1. UNDP corporate restructuring began in 2014, to improve institutional effectiveness through better functional and geographic integration at headquarters and the regional level, in order to meet strategic plan objectives. As at 31 December 2016, a restructuring provision of $0.147 million has been recognized to account for the direct expenses arising from the restructuring that are not associated with the ongoing activities of UNDP. The related outflows are primarily for estimated separation costs, which are expected to be incurred throughout 2017 and may change should the affected staff members obtain continued employment with UNDP or other United Nations agencies. The movement in the provision for restructuring from 31 December 2015 to 31 December 2016 is provided below: (Thousands of United States dollars) 31 December 2015 Amounts used Increases 31 December 2016 Provision for restructuring 2 472 (2 325) – 147 17-11215 165/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 34.2. Expenses in 2016 relating to the structural change, including the above provision, are $0.479 million. Effective implementation of the structural changes includes staff relocation to the regional hubs and shared service centres, separation costs, technical expertise to support implementation and investments in training, capability and technology to support new functions and improved business processes. 34.3. Details of the structural change expenses on statement II, statement of financial performance, are provided below: (Thousands of United States dollars) Expenses from Total statement of financial Structural excluding structural Expenses performance 2016 change expenses change expenses Contractual services 1 878 893 (293) 1 878 600 Staff costs 891 979 310 892 289 Supplies and consumables used 767 670 (264) 767 406 General operating expenses 835 933 (205) 835 728 Grants and other transfers 203 432 – 203 432 Other expenses 57 543 (3) 57 540 Depreciation and amortization 18 104 (24) 18 080 Finance costs 5 972 – 5 972 Total 4 659 526 (479) 4 659 047 Note 35 Events after reporting date The reporting date for these financial statements is 31 December 2016. There have been no material events, favourable or unfavourable, that occurred between the date of the financial statements and the date when the financial statements were authorized for issue that would have had a material impact on these statements. 166/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Note 36 Additional disclosure 36.1 Total expenses by cost classification (Thousands of United States dollars) 2016 Development Programme 3 877 984 Development effectiveness 166 233 United Nations development coordination 128 913 Management 360 557 Special purpose 71 169 Other 257 556 Elimination a (202 886) Total expenses 4 659 526 a This adjustment is required to remove the effect of internal UNDP cost recovery. 36.2 Programme expenses by executing entity/implementing partner and responsible party The executing entity/implementing partner is the entity that has management responsibility and accountability for project implementation and results. The executing entity/implementing partner may contract with a responsible party to implement and practically deliver outputs. 17-11215 167/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 36.2 (a) Programme expenses by executing entity/implementing partner (Thousands of United States dollars) Reimbursable support Regular services and resources Cost -sharing Trust funds miscellaneous activities Total Governments 157 554 965 227 620 150 697 1 743 628 International non-governmental organizations 1 978 18 088 13 137 – 33 203 National non-governmental organizations 925 6 706 6 440 – 14 071 Food and Agriculture Organization of the United Nations 225 – – – 225 International Atomic Energy Agency – – 39 – 39 International Civil Aviation Organization – – 113 – 113 International Labour Organization 94 – – – 94 International Maritime Organization – – 864 – 864 International Telecommunication Union – 902 – – 902 United Nations Centre for Human Settlements 333 – – – 333 Department of Economic and Social Affairs – – 10 – 10 United Nations Industrial Development Organization 26 – – – 26 United Nations Institute for Training and Research – – 538 – 538 United Nations Office for Project Services 2 637 12 221 37 989 – 52 847 United Nations Educational, Scientific and Cultural Organization 23 (1) 755 – 777 United Nations Volunteers Programme – – – 29 169 29 169 World Health Organization 60 3 128 138 – 3 326 World Meteorological Organization – 9 – – 9 United Nations Development Programme 213 419 1 627 736 138 490 18 165 1 997 810 Total programme expenses 377 274 2 634 016 818 663 48 031 3 877 984 168/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.2 (b) Programme expenses by responsible party “Responsible party” refers to the party responsible for contractual implementation and practical delivery of outputs. (Thousands of United States dollars) Reimbursable support services and Regular miscellaneous resources Cost -sharing Trust funds activities Total Governments 144 144 974 675 606 938 701 1 726 458 International non-governmental organizations 664 97 277 13 161 – 111 102 National non-governmental organizations 1 750 44 710 4 111 25 50 596 International Atomic Energy Agency – – 39 – 39 Economic Commission for Europe – (1) 46 – 45 Economic Commission for Latin America and the Caribbean – 8 – – 8 Economic and Social Commission for Asia and the Pacific – 256 – – 256 Food and Agriculture Organization of the United Nations 277 2 413 2 259 – 4 949 International Civil Aviation Organization – – 113 – 113 International Labour Organization 94 539 636 – 1 269 International Maritime Organization – – 864 – 864 International Organization for Migration 2 2 789 9 – 2 800 International Trade Centre – – 105 – 105 International Telecommunication Union – 902 – – 902 Other United Nations entities (1) 51 618 – 668 Joint United Nations Programme on HIV/AIDS – 95 – – 95 United Nations Capital Development Fund 1 074 – 918 – 1 992 United Nations Human Settlements Programme (295) 742 32 – 479 Department of Economic and Social Affairs 243 473 – – 716 United Nations Volunteers Programme – – – 29 093 29 093 United Nations Convention to Combat Desertification – – 72 – 72 United Nations Environment Programme – 493 25 – 518 United Nations Educational, Scientific and Cultural Organization 81 1 405 699 – 2 185 United Nations Population Fund 100 5 057 – – 5 157 United Nations High Commissioner for Refugees (397) 468 – – 71 United Nations Children’s Fund – 6 712 – – 6 712 United Nations Industrial Development Organization 26 981 – – 1 007 United Nations Entity for Gender Equality and the Empowerment of Women 90 2 427 – – 2 517 United Nations Institute for Training and Research – 252 970 – 1 222 United Nations Office on Drugs and Crime – 112 114 – 226 United Nations Office for Project Services 1 376 15 550 41 450 6 982 65 358 United Nations Relief and Works Agency for Palestine Refugees – 12 – – 12 World Food Programme – 1 615 – – 1 615 World Health Organization – 3 638 374 – 4 012 17-11215 169/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Reimbursable support services and Regular miscellaneous resources Cost -sharing Trust funds activities Total World Meteorological Organization – 9 – – 9 World Tourism Organization 18 672 – – 690 United Nations Joint Human Rights Office – 561 – – 561 United Nations Development Programme 228 028 1 469 123 145 110 11 230 1 853 491 Total programme expenses 377 274 2 634 016 818 663 48 031 3 877 984 170/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.3 Programme expenses by geographical region (Thousands of United States dollars) Europe and Latin America Asia and the Commonwealth of and the Global and Africa Arab States Pacific Independent States Caribbean others Total Expenses Contractual services 316 323 207 380 646 009 159 585 309 078 159 257 1 797 632 Staff costs 81 039 46 366 53 789 9 730 23 714 71 395 286 033 Supplies and consumables used 275 542 115 625 65 221 104 869 153 502 14 078 728 837 General operating expenses 248 298 139 199 155 846 60 176 147 520 76 409 827 448 Grants and other transfers 28 373 48 661 25 693 26 889 25 660 44 145 199 421 Other expenses 7 323 7 993 3 153 1 937 6 375 3 096 29 877 Depreciation and amortization 2 059 834 1 752 639 423 244 5 951 Finance costs 795 707 163 366 737 17 2 785 Total 959 752 566 765 951 626 364 191 667 009 368 641 3 877 984 17-11215 171/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 36.4 Reimbursable support services and miscellaneous activities 36.4 (a) Statement of financial position (Thousands of United States dollars) United Junior Government Reimbursable Management Nations Professional cash support service Volunteers Special Officers Reserve for field counterparts services agreements programme activities programme accommodation contributions Total Assets Current assets Cash and cash equivalents 77 302 4 477 11 006 8 766 4 141 1 551 2 160 109 403 Investments 320 881 18 595 45 630 36 391 15 017 6 441 8 974 451 929 Receivables: non - exchange transactions – – – 591 2 196 – – 2 787 Receivables: exchange transactions 265 – 3 229 21 – 55 – 3 570 Advances issued 1 039 13 478 58 720 – – – 15 295 Loans to Governments – – – – – 590 – 590 Inventories 877 – – 8 – – – 885 Other current assets 207 – – 1 – 2 – 210 Total current assets 400 571 36 550 59 923 46 498 21 354 8 639 11 134 584 669 Non - current assets Investments 196 094 11 363 27 885 22 239 9 177 3 936 5 484 276 178 Loans to Governments – – – – – 6 013 – 6 013 Property, plant and equipment 64 050 – 1 188 9 204 – 9 800 – 84 242 Intangible assets 6 787 – 777 – – – – 7 564 Total non - current assets 266 931 11 363 29 850 31 443 9 177 19 749 5 484 373 997 Total assets 667 502 47 913 89 773 77 941 30 531 28 388 16 618 958 666 172/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.4 (a) Statement of financial position (continued) (Thousands of United States dollars) United Junior Government Reimbursable Management Nations Professional cash support service Volunteers Special Officers Reserve for field counterparts services agreements programme activities programme accommodation contributions Total Liabilities Current liabilities Accounts payable and accrued liabilities 7 984 210 7 138 959 13 182 1 – 29 474 Advances payable 140 – – 340 18 – – 498 Funds received in advance and deferred revenue 6 370 – – 5 427 – 18 – 11 815 Funds held on behalf of donors – – – 191 – – – 191 Employee benefits 15 787 – 16 17 – – – 15 820 Other current liabilities 2 447 – 40 48 549 42 – 3 126 Provision for restructuring 147 – – – – – – 147 Total current liabilities 32 875 210 7 194 6 982 13 749 61 – 61 071 Non - current liabilities Funds received in advance and deferred revenue 7 252 – – – – – – 7 252 Employee benefits 369 333 – – – – – – 369 333 Other non - current liabilities – – 11 – – – – 11 Total non - current liabilities 376 585 – 11 – – – – 376 596 Total liabilities 409 460 210 7 205 6 982 13 749 61 – 437 667 Net assets/equity Reserves 115 969 – – – – 25 000 – 140 969 Accumulated surpluses 142 073 47 703 82 568 70 959 16 782 3 327 16 618 380 030 Total net assets/equity 258 042 47 703 82 568 70 959 16 782 28 327 16 618 520 999 Total liabilities and net assets/equity 667 502 47 913 89 773 77 941 30 531 28 388 16 618 958 666 17-11215 173/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 36.4 (b) Statement of financial performance (Thousands of United States dollars) United Junior Management Nations Professional Reimbursable support service Volunteers Special Officers Reserve for field services agreements programme activities programme accommodation Total Revenue Voluntary contributions 11 331 8 694 13 235 40 511 15 171 – 88 942 Revenue: exchange transactions 90 690 – 12 445 91 323 – 1 037 195 495 Investment revenue 4 810 401 584 129 – – 5 924 Other revenue 216 899 1 721 12 006 4 426 – 1 235 053 Total revenue 323 730 10 816 38 270 136 389 15 171 1 038 525 414 Expenses Contractual services 44 867 1 526 15 801 19 175 – 62 81 431 Staff costs 253 836 – 9 318 99 155 13 180 140 375 629 Supplies and consumables used 29 590 5 242 1 069 5 603 – 29 41 533 General operating expenses 94 328 455 15 576 31 294 3 483 36 145 172 Grants and other transfers 3 188 – 12 807 – – 4 007 Other expenses 2 757 225 623 798 – 6 4 409 Depreciation and amortization 7 961 – 184 734 – 281 9 160 Finance costs 825 – 7 12 1 – 845 Total expenses 437 352 7 448 42 590 157 578 16 664 554 662 186 Surplus/(deficit) for the year (113 622) 3 368 (4 320) (21 189) (1 493) 484 (136 772) 174/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.5 Cost-sharing: government and third -party cost-sharing: statement of financial performance (Thousands of United States dollars) Third -party Government cost - sharing cost - sharing Total Revenue Voluntary contributions 2 247 466 827 680 3 075 146 Revenue: exchange transactions 97 759 856 Investment revenue 7 089 14 641 21 730 Other revenue 2 759 580 3 339 Total revenue 2 257 411 843 660 3 101 071 Expenses Contractual services 706 830 394 026 1 100 856 Staff costs 124 435 14 606 139 041 Supplies and consumables used 411 113 217 451 628 564 General operating expenses 444 030 147 007 591 037 Grants and other transfers 133 135 15 909 149 044 Other expenses 11 222 8 821 20 043 Depreciation and amortization 3 109 172 3 281 Finance costs 1 390 760 2 150 Total expenses 1 835 264 798 752 2 634 016 Surplus/(deficit) for the year 422 147 44 908 467 055 Net assets/equity Closing net assets/equity as at 31 December 2015 1 521 332 780 030 2 301 362 Closing net assets/equity as at 31 December 2016 1 943 479 824 938 2 768 417 17-11215 175/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 36.6 (a) Top f i v e trust funds: statement of financial position (Thousands of United States dollars) Law and UNDP Thematic Multilateral Fund for Global Order Trust Trust Fund for the Implementation Programme of Environmental Fund for Crisis Prevention of the Montreal Assistance to the Facility Afghanistan and Recovery Protocol Palestinian People Assets Current assets Cash and cash equivalents 59 819 48 018 2 654 13 012 2 609 Investments 248 430 199 268 10 851 54 042 10 836 Receivables: non-exchange transactions 100 – – – – Receivables: exchange transactions 155 – 100 – 11 Advances issued 11 468 – 1 601 32 608 Inventories 189 – – – – Other current assets 1 – – – – Total current assets 320 162 247 286 15 206 67 086 14 064 Non - current assets Investments 151 818 121 775 6 631 33 025 6 622 Property, plant and equipment 1 868 1 503 632 45 530 Intangibles – – – – 9 Total non - current assets 153 686 123 278 7 263 33 070 7 161 Total assets 473 848 370 564 22 469 100 156 21 225 Liabilities Current liabilities Accounts payable and accrued liabilities 8 107 419 192 56 5 680 Advances payable 2 314 25 1 338 – 54 Funds held on behalf of donors 79 – – – – Employee benefits 1 – 4 1 – Other current liabilities 5 – – – – Total current liabilities 10 506 444 1 534 57 5 734 Total liabilities 10 506 444 1 534 57 5 734 176/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.6 (a) Top 5 trust funds: statement of financial position (continued) (Thousands of United States dollars) Law and UNDP Thematic Trust Global Order Trust Fund for Crisis Multilateral Fund for Programme of Environmental Fund for Prevention and the Implementation of Assistance to the Facility Afghanistan Recovery the Montreal Protocol Palestinian People Net assets/equity Reserves – – – – 3 000 Accumulated surpluses 463 342 370 120 20 935 100 099 12 491 Total net assets/equity 463 342 370 120 20 935 100 099 15 491 Total liabilities and net assets/equity 473 848 370 564 22 469 100 156 21 225 17-11215 177/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 36.6 (b) Top five trust funds: statement of financial performance (Thousands of United States dollars) UNDP Thematic Global Law and Order Trust Fund for Multilateral Fund for Programme of Environmental Trust Fund for Crisis Prevention the Implementation of Assistance to the Facility Afghanistan and Recovery the Montreal Protocol Palestinian People Revenue Voluntary contributions 442 901 400 010 (1 379) 44 713 2 987 Revenue: exchange transactions 3 – – – – Investment revenue 3 943 2 760 302 773 118 Other revenue 1 572 4 13 641 – Total revenue 448 419 402 774 (1 064) 46 127 3 105 Expenses Contractual services 188 621 297 982 10 313 23 086 13 146 Staff costs 23 037 3 137 9 770 2 015 137 Supplies and consumables used 52 140 1 030 1 166 834 164 General operating expenses 77 362 17 535 11 151 4 786 2 298 Grants and other transfers 35 206 (577) 1 747 189 123 Other expenses 3 906 19 65 209 116 Depreciation and amortization 241 260 110 8 80 Finance costs 131 3 24 1 – Total expenses 380 644 319 389 34 346 31 128 16 064 Surplus/(deficit) for the year 67 775 83 385 (35 410) 14 999 (12 959) 178/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.7 (a) Funding windows: statement of financial position (Thousands of United States dollars) Emergency development Sustainable development Governance for peaceful Climate change and response to crisis and and poverty eradication and inclusive societies disaster risk reduction recovery Assets Current assets Cash and cash equivalents 148 1 743 2 456 385 Investments 617 7 242 10 202 1 602 Total current assets 765 8 985 12 658 1 987 Non - current assets Investments 377 4 426 6 235 979 Property, plant and equipment – – – 14 Total non - current assets 377 4 426 6 235 993 Total assets 1 142 13 411 18 893 2 980 Liabilities Current liabilities Accounts payable and accrued liabilities – – – 13 Total current liabilities – – – 13 Total liabilities – – – 13 Net assets/equity Accumulated surpluses 1 142 13 411 18 893 2 967 Total net assets/equity 1 142 13 411 18 893 2 967 Total liabilities and net assets/equity 1 142 13 411 18 893 2 980 17-11215 179/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) 36.7 (b) Funding windows: statement of financial performance (Thousands of United States dollars) Emergency development Sustainable development Governance for peaceful Climate change and response to crisis and and poverty eradication and inclusive societies disaster risk reduction recovery Revenue Voluntary contributions 1 134 13 371 18 918 3 428 Investment revenue 8 40 3 17 Total revenue 1 142 13 411 18 921 3 445 Expenses Contractual services – – 22 161 Supplies and consumables used – – – 105 General operating expenses – – 6 208 Other expenses – – – 4 Total expenses – – 28 478 Surplus/(deficit) for the year 1 142 13 411 18 893 2 967 180/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 36.8 All trust funds established by the United Nations Development Programme: schedule of financial performance (Thousands of United States dollars) Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 Fund manager: UNDP Africa African Peer Review Mechanism of the New Partnership for Africa’s Development 801 8 5 814 Belgium Trust Fund for Support to the Elections Project in the Democratic Republic of the Congo 2 806 (2 801) – 5 Belgium Trust Fund for Trade Capacity Development for Poverty Reduction and Human Development for Sub-Saharan Africa 30 – (18) 12 Canadian International Development Agency/UNDP Trust Fund to Support “Recensement général de la population et de l’habitat” in Sénégal 17 – – 17 Comoros transitional arrangement 106 (106) (1) (1) EEC Trust Fund for Appui institutionnel au CINDAH, au niveau national et provincial 258 (258) – – EEC Trust Fund for Election Observation Mission to Nigeria 5 – (6) (1) EEC Trust Fund for Support to the National Institute of Statistics of Rwanda (1) 8 – 7 EEC Trust Fund for Support to the project d’appui au cycle electoral en Guinee-Bissau, 2008-10 – – (3) (3) EEC: Project “CHOC Cameroon: Change Habits-Oppose Corruption” 10 (10) – – EEC: 2005 Census Support Initiatives in Nigeria 465 1 – 466 EEC: Appui à la mise en place des centres de brassage dans le cadre de la reforme du secteur sécuritaire en République démocratique du Congo 3 (3) – – EEC: Appui à la stratégie nationale de lutte antimines: appui au démarrage du Centre de lutte contre les mines en Casamance 16 (25) – (9) EEC: Appui au processus électoral en Mauritanie (3) 2 – (1) EEC: Appui aux élections législatives 2007 (phase 1) (30) 36 – 6 EEC: Capacity Development Component of the Parliamentary Reform Programme III 86 (85) – 1 EEC: Capacity support for sustainable management of energy resources with the Economic Community of West African States and the West African Economic and Monetary Union 77 – (14) 63 EEC: Eritrea Trust Fund for Support to the Mine Action Capacity- building Programme 134 (134) – – EEC: Programme d’appui à la bonne gouvernance au Tchad 81 132 – 213 EEC: Republic of Congo Trust Fund for the project “Collecte et destruction des armes pour le développement” (30) 29 – (1) EEC: Support for deepening democracy in the United Republic of Tanzania 31 – 4 35 EEC: Support for election observation in the United Republic of Tanzania 1 (1) – – EEC: Support for internally displaced persons/expellees/return/resettlement: health facility in Eritrea 1 (2) – (1) EEC: Support for legislative and presidential elections in Niger 1 (1) – – 17-11215 181/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 EEC: Support for Swaziland gender programme (1) – 1 – EEC: Support for the election observation mission to Nigeria in April 2007 214 – – 214 EEC: Support for the implementation of the integrated drylands development programme (41) – 44 3 EEC: Support for the International Colloquium on Women’s Empowerment, Leadership Development, International Peace and Security and the follow-up in Liberia – (1) 1 – EEC: Support to internally displaced persons/expellees/return/resettlement (food security) in Eritrea 2 (1) – 1 EEC: Support to shared funding for the joint governance assessment for Rwanda (1) – 1 – EEC: Supporting citizen access to justice in Mozambique (204) – – (204) EEC: Transfer of knowledge through expatriate nationals in Mali 199 – 54 253 EEC-Comoros: Appui à la mise en oeuvre de l’accord sur les dispositions transitoires (274) 274 – – European Commission: Joint Donor Basket Fund to support Nigeria ’s 2007 elections 2 562 – – 2 562 European Union election observation mission to Liberia – (4) 4 – Extension of the Eritrean landmine impact survey 74 (74) – – Finland Trust Fund for National Technical Cooperation Assessment and Programme Activities 72 1 (16) 57 Fonds fiduciaire du Programme des Nations Unies pour le développement concernant l’organisation pour l’harmonisation en Afrique du droit des affaires (62) – 2 (60) Humanitarian Information Coordination-Zimbabwe 3 (3) – – Fourth Summit of the African, Caribbean and Pacific Heads of State and Government-Mozambique – 1 – 1 Justice and security trust fund for Liberia 3 617 19 (2 464) 1 172 Support for capacity-building for the National Demining Institute in Mozambique 8 – – 8 Support for the organization of municipal elections in Niger 2 (2) – – Support to the Malawi tripartite elections — 2004 1 (1) – – Trust Fund with Norway for Support for Governance in Africa 286 26 1 313 UNDP Trust Fund for Angola 32 (4) (2) 26 UNDP Trust Fund for Assistance to Refugee-Related Development Projects in Africa (62) – 70 8 UNDP Trust Fund for Demobilization Reintegration Rehabilitation and Recovery in Sierra Leone 1 – (1) – UNDP Trust Fund for Namibia 29 (29) – – UNDP Trust Fund for Receipt of Payments by Users of the African Project Development Facility 1 – – 1 UNDP Trust Fund for Rwanda 1 2 – 3 UNDP Trust Fund for Support to the Reform Agenda in Nigeria 451 (452) – (1) UNDP Trust Fund for the Mozambique Mine Clearance Programme 291 3 (28) 266 UNDP Trust Fund for the United Nations Educational and Training Programme for Southern Africa 769 5 (290) 484 UNDP Trust Fund to Combat Poverty and Hunger in Africa 167 (21) (35) 111 182/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 UNDP/Belgium Trust Fund for Support to the Electoral Process in South Africa 45 – – 45 UNDP/EEC Trust Fund Agreement for the Africa 2000 Network Programme: Grants in Burkina Faso, Cameroon and Uganda 1 (1) – – UNDP/Norway Trust Fund for Assistance to the Electoral Process in Mozambique (370) – – (370) UNDP: “Appui au processus électoral en Guinée” 3 – – 3 Total UNDP Africa 12 681 (3 472) (2 691) 6 518 Fund manager: UNDP Arab States Arab Human Development Report 52 (33) – 19 EC-UNDP: Joint electoral assistance project in Yemen (105) – (8) (113) EEC Trust Fund for Djibouti for the project Réinsertion des déplacés à travers la (ré)construction des logements détruits et endommagés dans les zones affectées par le conflit – – 1 1 EEC Trust Fund for Interim Disarmament, Demobilization and Reintegration Programme in the Sudan – – 1 1 EEC Trust Fund for Providing Operational and Logistical Support to the Office of the Quartet Representative 31 (42) – (11) EEC/Sudan: Post-Conflict Community-based Recovery and Rehabilitation Programme 178 – (179) (1) EEC: Programme of Assistance to the Palestinian People Governance Strategy Group Coordinator 213 (169) (46) (2) EEC: Projet d’appui à la décentralisation et aux collectivités locales – (2) 1 (1) EEC: Somalia: Support for Rule of Law and Security in Somalia 2 (2) – – EEC: Sudan: Capacity Development for Good Aid Management 46 (49) 2 (1) EEC: Sudan: Promotion of Equality, Tolerance and Peace through the Dissemination of the Comprehensive Peace Agreement and of the Transitional Legal Framework in Southern Sudan 6 – – 6 Information and Communication Technology Trust Fund for Egypt 1 055 63 (310) 808 Support to Iraq reconstruction (85) 391 (305) 1 Trust Fund for Poverty Alleviation in the Arab Region 26 (35) (13) (22) UNDP: Trust Fund for the Programme of Assistance to the Palestinian People 28 452 3 105 (16 064) 15 493 Total UNDP Arab States 29 871 3 227 (16 920) 16 178 Fund manager: UNDP Asia and Pacific Australian Development Assistance Bureau/UNDP Programme Trust Fund 47 – – 47 Cambodia Climate Change Alliance Trust Fund (1) – – (1) EEC/EU: China Biodiversity Programme 21 (21) – – EEC: Capacity-strengthening Component of Rural Employment Opportunities for Public Assets 7 – (7) – EEC: Governance for Equitable Development Strengthening Rule of Law and Civil Society Participation in China (1) – 1 – EEC: Lao People’s Democratic Republic: Saravane Governance, Public Administration Reform and Decentralized Service Delivery Project 10 (10) – – 17-11215 183/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 EEC: Strengthening the Capacity of the National Assembly and Supporting Lao People’s Democratic Republic in the International Criminal Court 3 (3) – – EEC: Support for Improving Health, Nutrition and Population in the Chittagong Hill Tracts 172 (173) – (1) EEC: Support for the National Initiative for Civic Education 2 (1) – 1 EEC: Support for the Restoration of Tsunami-affected Livelihoods — Maldives 38 (35) (3) – EEC: Support provincial governance strengthening programme in Solomon Islands 37 – – 37 EEC: Support security sector review in Timor-Leste — capacity development facility 7 (7) – – EEC: Support strengthening response to internal displacement in Mindanao 1 – (1) – EEC: Support the justice system — activating village courts in Bangladesh 129 421 (534) 16 EEC: Trust Fund for Promotion of Development and Confidence- Building in Chittagong Hills Tracts 1 (2) – (1) Law and Order Trust Fund for Afghanistan 286 735 402 774 (319 389) 370 120 Trust Fund for Support to the Full Implementation of the Convention on Cluster Munitions in the Lao People’s Democratic Republic within the Framework of the Vientiane Declaration on Aid Effectiveness 3 429 1 445 (3 767) 1 107 UNDP Afghanistan Emergency Trust Fund (151) 151 – – UNDP/Republic of Korea Trust Fund 345 173 – 518 UNDP/Republic of Korea Trust Fund in Support of the Tumen River Area Development Programme 610 606 (437) 779 Total UNDP Asia/Pacific 291 441 405 318 (324 137) 372 622 Fund manager: UNDP Bureau for Policy and Programme Support Capacity 2015 Trust Fund 32 (17) – 15 Capacity 21 Trust Fund – (15) – (15) EC/UNDP: Collaboration to advance the post-crisis needs assessment and early recovery agendas II 34 (30) – 4 EEC: ACE Electoral Knowledge Network: Practitioner’s Network 1 – – 1 Forest Carbon Partnership Facility 13 338 4 489 (5 897) 11 930 Global Capacity Development Facility 168 29 (145) 52 Green Climate Fund – 1 350 – 1 350 Integrated Framework Trust Fund for Trade-related Technical Assistance to Least Developed Countries, window 1 10 – – 10 Integrated Framework Trust Fund for Trade-related Technical Assistance to Least Developed Countries, window 2 1 041 (1 026) – 15 Multilateral Fund for the Implementation of the Montreal Protocol 85 101 46 127 (31 129) 100 099 Netherlands: Trust Fund for Special Action Programme for Public Administration and Management 34 – (1) 33 Trust Fund for the Global Environmental Facility 395 564 448 421 (380 644) 463 341 Trust Fund to Combat Desertification and Drought 2 203 2 050 (1 890) 2 363 UNDP Energy account 716 (55) (22) 639 184/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 UNDP Trust Fund for Support to Capacity Development for Reform 2 – – 2 UNDP: Thematic Trust Fund for Crisis Prevention and Recovery 56 346 (1 063) (34 346) 20 937 UNDP: Thematic Trust Fund for Democratic Governance 10 139 2 426 (6 812) 5 753 UNDP: Thematic Trust Fund on Energy for Sustainable Development 602 3 (224) 381 UNDP: Thematic Trust Fund on Environment 66 459 554 (14 043) 52 970 UNDP: Thematic Trust Fund on Gender 1 542 7 (1 135) 414 UNDP: Thematic Trust Fund on Information and Communication Technology 771 2 (369) 404 UNDP: Thematic Trust Fund on Poverty Reduction for Sustainable Development 3 731 47 (2 566) 1 212 UNDP: Thematic Trust Funds on HIV/AIDS 556 3 (555) 4 UNDP: Trust Fund for Crisis Post-conflict and Recovery Situations 406 – – 406 UNDP: Trust Fund for Public-Private Partnerships for the Urban Environment 110 (9) – 101 UNDP: Trust Fund for Sustainable Social Development, Peace and Support to Countries in Special Situations 2 369 22 – 2 391 UNDP: Trust Fund for World Summit on Social Development 3 – – 3 Total UNDP Bureau for Policy and Programme Support 641 278 503 315 (479 778) 664 815 Fund manager: UNDP Bureau for Management Services Trust Fund for Implementation of UNDP Business Plan Initiatives 2000-2003 90 (89) (1) – UNDP 2001 Trust Fund 295 (296) 1 – Total UNDP Bureau for Management Services 385 (385) – – Fund manager: UNDP Bureau for Management Services/Division for Resource Planning and Coordination UNDP Trust Fund for the Developing Countries Afflicted by Famine and Malnutrition (1) – 1 – Total UNDP Bureau for Management Services/Division for Resource Planning and Coordination (1) – 1 – Fund manager: UNDP Bureau of External Relations and Advocacy Fonds d’affectation spécial français – – 5 5 Republic of Korea/UNDP: Sustainable Development Goals Trust Fund – 2 206 (130) 2 076 UNDP Trust Fund for International Partnership 491 (48) (343) 100 UNDP Trust Fund for Private Sector in Development 835 6 (654) 187 UNDP/Italy: Trust Fund for Anti-Poverty Partnership Initiatives 87 1 (47) 41 UNDP/Republic of Korea: Millennium Development Goals Trust Fund for Programming Fund-based Cooperation 6 715 27 (6 163) 579 Total UNDP Bureau of External Relations and Advocacy 8 128 2 192 (7 332) 2 988 17-11215 185/187 United Nations Development Programme A/72/5/Add.1 Notes to the financial statements 2016 (continued) Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 Fund manager: UNDP Europe/Commonwealth of Independent States EEC (European Community Humanitarian Office) Trust Fund for Humanitarian Aid Action to Enhance Staff Safety and Security of the UN and Humanitarian Agencies operating in the North Caucasus- Russian Federation – 1 (2) (1) EEC: Integrated support for decentralization in Albania 13 (13) – – EEC: Border management in Central Asia (phase 7) 3 (4) – (1) EEC: Programme supporting integrated border management systems in the South Caucasus 1 – (1) – EEC: Promoting Integrated Water Management and Fostering Transboundary Dialogue in Central Asia 4 (3) – 1 EEC: Small and Medium Enterprise Development in the Southeastern Anatolia Region — Turkey 46 – (35) 11 EEC: Upgrading the local and urban infrastructure in Northern Cyprus (phase II) 286 (285) – 1 Russian Federation — UNDP Trust Fund for Development 2 007 8 048 (574) 9 481 Trust Fund in Support of Estonia’s State Programme for Integration of Non-Estonians into Estonian Society 2 – (2) – UNDP Trust Fund for Urgent Human Needs in Uzbekistan 141 1 (32) 110 Total UNDP Europe/Commonwealth of Independent States 2 503 7 745 (646) 9 602 Fund manager: UNDP Geneva UNDP Trust Fund for Advocacy (1) – – (1) UNDP Trust Fund for Innovative Partnerships with National Governments, Local Authorities, Private Sector, Non-governmental organizations, Academic Institutions and Foundations 7 973 686 (1 532) 7 127 Total UNDP Geneva 7 972 686 (1 532) 7 126 Fund manager: UNDP Latin America and the Caribbean EEC: Barbados/Overseas Territories of the Caribbean Regional Risk Reduction Initiative (1) – – (1) EEC: Ecological and financial sustainable management of the Guiana Shield Eco-region, Guyana 109 – (2) 107 EEC: Hurricanes Fay, Gustav, Anna and Ike in Haiti — Support to a joint post-disaster needs assessment and recovery planning exercise 1 – (1) – EEC: Rural electrification programme in the Dominican Republic based on renewable energy sources 12 (13) – (1) International Commission Against Impunity in Guatemala 10 055 6 475 (14 097) 2 433 UNDP Trust Fund for Assistance to the Haitian National Police 1 – (1) – UNDP/Spain: Trust Fund for Integrated and Inclusive Development 3 663 24 (1 693) 1 994 Total UNDP Latin America and the Caribbean 13 840 6 486 (15 794) 4 532 Fund manager: UNDP Independent Evaluation Office Norway Trust Fund for Independent Evaluation Office of UNDP 1 – (1) – Total UNDP Independent Evaluation Office 1 – (1) – 186/187 17-11215 United Nations Development Programme Notes to the financial statements 2016 (continued) A/72/5/Add.1 Net assets Closing net assets Name of trust fund 31 December 2015 Revenue (Expenses) 31 December 2016 Fund manager: UNDP Technical Cooperation among Developing Countries India, Brazil and South Africa Facility 11 892 2 108 (2 710) 11 290 Perez-Guerrero Trust Fund for Economic and Technical Cooperation among Developing Countries 8 080 792 (601) 8 271 UNDP Trust Fund for the Promotion of South-South Cooperation 3 581 4 519 (1 818) 6 282 Total UNDP Technical Cooperation among Developing Countries 23 553 7 419 (5 129) 25 843 Fund manager: UNDP Bureau for Policy and Programme Support/UNDP Bureau for Management Services Sustainable development and poverty eradication – 18 921 (28) 18 893 Governance for peaceful and inclusive societies – 3 445 (478) 2 967 Climate change and disaster risk reduction – 13 411 – 13 411 Emergency development response to crisis and recovery – 1 142 – 1 142 Total UNDP Bureau for Policy and Programme Support/UNDP Bureau for Management Services – 36 919 (506) 36 413 Grand total trust funds 1 031 652 969 450 (854 465) 1 146 637 Abbreviations : CNIDAH, Comissão Inter - sectorial Nacional para Desminagem e Assistência Humanitária; EC, European Commission; EEC, European Economic Commission. 17 -11215* (E) 120917 *1711215* 17-11215 187/187