Version 15 March 2012

Background Note on UNRWA Budgeting

The main purpose of this note is to provide background information on UNRWA budgeting to members of the Advisory Commission (AdCom). The issues covered in this note are based on issues raised by the members of the Sub-Committee of UNRWA’s Advisory Commission.

Overview of UNRWA’s budget processes

“Internal” (UNRWA) and “External” (UNHQ New York) budget processes

Every biennium, UNRWA prepares its programme budget along two main tracks. One is “internal” and results in Field Implementation Plans (“FIPs”) and a Headquarters Implementation Plan (“HIP”). FIPs represent field-level strategies to achieve the Agency’s broad human development goals within each of the five areas of operation. The HIP presents the programmatic guidance and support strategies to achieve coherent and effective implementation of the FIPs, and, under the broad direction of UNRWA’s executive leadership, to promote accountable and results-based management.

All implementation plans – FIPs and HIP – are prepared in line with the vision and priorities set out in UNRWA’s Medium Term Strategy (MTS) for 2010-20151, and also present the financial requirements for implementation of the biennial plans. These requirements are referred to as UNRWA’s General Fund, which the Agency relies on Member States and other donors to fund voluntarily on an annual basis.

1 As was agreed at the November 2011 AdCom, an update on the revised MTS will be provided at the June 2012 AdCom, while the full costing of the revised MTS will be presented to the November 2012 AdCom.1

The “external” budget track is managed by UN Headquarters in New York. It covers UN entities, including UNRWA, that receive funds from the “Programme Budget of the United Nations” 2. UNRWA’s core international staff posts are funded through this budget; as of January 2012, they numbered 146.

In both the internal and external budget process, UNRWA presents a corporate programme vision and strategy, notwithstanding some differences in format imposed by UNHQ on all sections of the UN Programme Budget.

For ease of understanding, the internal and external budget preparation processes are enumerated separately below, with 2014-2015 biennium planning as an indicative model3.

“Internal” (UNRWA) budget process

In November 2012 the Executive Office will initiate preparation of the 2014-2015 programme budget with preliminary and broad guidance to UNRWA’s management team. Between early December 2012 and February 2013 further detailed guidance will be shared in the form of consolidated planning documents.

These documents are prepared in close and active consultation with all senior managers in the Agency and their programme and budget focal points. The planning documents represent UNRWA’s comprehensive guidance framework for the preparation of the 2014-2015 FIPs and HIPs, based on: the Agency’s five Human Development Goals, the hierarchy of outcomes, strategic objectives, and interventions required to achieve these goals by the Field Offices, Programme Departments and Headquarters Support Departments4.

In December 2012 close and active Agency-wide consultations will be effected by planning and coordination working groups. These consultations continue until the draft implementation plans are prepared in the second quarter of 2013. In the course of these consultations, UNRWA’s Resource Allocation Committee (RAC) after consultation with Field and Programme Directors will provide the CG with recommended biennium budgets (envelopes) for each Field and HQ department for approval. These recommended budgets provide a quantification (headcount expense and capital dollars) of the level of resources that will likely be available for the upcoming biennium (i.e. notwithstanding that the Agency has in recent years commenced the financial year with a budgeted deficit). The recommended budgets are based on:

previous year’s approved budget; income constraints; and salient changes in Field Office / Headquarters Departments which potentially impact resource

allocation5.

The budgets approved by the Commissioner-General are then conveyed to the Field Offices and HQ Departments for the development of the Blue Book (Programme Budget for 2014-2015).

2 Also referred to as the “assessed contributions” budget.3 Actual dates may change.4 The Programme Coordination and Support Unit (PCSU) leads this process.5 Examples of salient changes influencing the determination of budgets in 2012 would include: a) additional $20 million for SSN programme due to insufficient donor funds; b) additional $13 million for ERP project due to the critical requirement to replace UNRWA’s inadequate IT systems.

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In the past two biennia, UNRWA has sought to shift the basis of its estimate of financial requirements from status to needs, including more effective assessment and targeting of vulnerable groups (for example by field implementation of the proxy means test formula). It has also sought to refine the process by which resources are allocated between fields and programmes to balance the respective needs in each field and programme against each other. For example, it is recognized that the Gaza Field Office (GFO) has relative needs that are greater than in other UNRWA Field Offices (e.g. an unemployment rate that exceeds 50%, the impact of the ongoing blockade, inadequate clean water, inadequate access to medicine, etc). Nevertheless, a shift of already constrained resources from budgets of other Fields which are facing increasing refugee populations would adversely impact constrained service delivery in those Fields. Therefore the re-allocation of budgets can only be achieved incrementally. Allocations use the last biennium budget as a base, modified by changes in the operational context, such as staff salaries, staff numbers and cost of supplies.

UNRWA expects that the 2014-2015 FIPs will continue to be framed on assessments of needs by Field Offices and the estimated budget requirements based on an established set of cost drivers (principally the growth in the population of refugees utilizing education and primary medical services) and projected unit costs (staff costs, goods and services).

Ahead of the June 2013 Advisory Commission (AdCom) meeting, the draft FIPs and HIP will be shared with AdCom members (including in the Sub-Committee), with a view to integrating feedback received and obtaining the Advisory Commission's endorsement of the plans at the June meeting. The final FIPs and HIP including the budget requirements using an RBM framework will be shared with the AdCom ahead of its November 2013 meeting.

In the process of finalization of FIPs and HIP, targets for all outputs and outcomes are developed, agreed and uploaded into the Results Based Monitoring system.

In the last quarter of 2013, the budget review will take place. It will re-assess funding projections 6 for the General Fund, and take into account changed cost projections reflecting the most recent political, security and other developments that may affect the budget. As this re-assessment is done while keeping within the total Agency Envelope approved by the CG and published in the Blue Book, under some circumstances this may require a reduction in previously budgeted expenditures. Budget hearings involving the Deputy Commissioner-General (DCG), Field Directors and key staff working on financial and programmatic issues and Headquarters Departments7 will take place and comments and recommendations from the Advisory Commission and ACABQ will be taken into consideration.

The final budgets will be approved by the CG prior to the commencement of the 2014 budget year and will be subsequently quantified and uploaded into the Financial Management System (FMS). Budget modifications might be necessary during the year (e.g. fund re-allocations to cover salary increases and food distributions). These modifications or changes to the approved budget typically involve first, a formal recommendation from UNRWA’s Resource Allocation Committee (RAC) to the CG and once approved by the CG will result in an approved (higher or lower) “Manage To” allocation for the respective Field/Department. Thus the final approved budget, does not change throughout the year, approved changes are reflected in changes to the reported “Manage To” allocation.

6 For example, some donors finalize their budget at year end and only then update or finalize funding commitments; changes that have occurred in the exchange rate and cost variations (especially salary settlements) are taken into consideration.7 Directors of Finance, External Relations and Communications, Human Resources, Administration, Coordinator of Programme Support and Chief Budget.3

The indicators, targets and baselines included in the biennium plans (FIPs and HIP) will be regularly monitored and reported against. Many of these indicators are by now harmonized between fields enabling UNRWA to compare implementation success between fields. The FIPs will be internally reviewed in the Fields on a quarterly basis supplemented by an agency-wide review of progress against plans on an annual basis. Donors who have agreed to use the harmonized monitoring approach to limit the burden on UNRWA for reporting will receive a harmonized donor report which will use commonly agreed indicators and will be produced once a year.

“External” (UNHQ New York) budget process: 2014-2015

2014-2015 Strategic Framework is developed

In January 2012, UNRWA submitted its Strategic Framework (SF) for the 2014-2015 biennium to the Programme Planning and Budget Division (PPBD) of the UN Secretariat (within the Office of the UN Comptroller) for review and approval. The SF is a narrative based on UNRWA’s Human Development Goals, and presented in a logical framework mandated by the UN General Assembly. SFs remain for the most part unchanged in their articulation of strategic objectives from one biennium to the next; changes at this level are only made if a new programme objective is introduced in line with an inter-governmental mandate.

PPBD reviews the SF, meets with UNRWA to discuss the document and issues the proposed SF in draft form in the first quarter of 2012 for review by the General Assembly’s Committee on Programme Coordination (CPC). In June / July 2012, UNRWA appears before the CPC to describe the SF’s overarching programme objectives. There is no discussion of resource requirements at this stage of the process. The CPC may amend the parts of the SF, specifically indicators of achievement.

2014-2015 biennium budget is developed

In late 2012, SFs for all entities covered by the UN Headquarters budget process are published in an integrated General Assembly document. This brings to a close the programmatic phase of 2014-2015 planning, and the resource phase begins in this same quarter with the General Assembly’s adoption of a budget “outline” which establishes the financial ceilings for the more than $5 billion budget for 2014-2015. PPBD applies this ceiling to all the entities in the budget, while taking into account relativities (needs, mandates, etc).

In November 2012, UNRWA submits to PPBD its “indicative” budget for 2014-2015. This budget relates exclusively to the international posts funded under the Programme Budget of the United Nations. By February 2013 PPBD will convey its “proposal” regarding UNRWA’s indicative budget – i.e. endorsement, or a downward / upward revision. PPBD’s proposal takes the form of a report on UNRWA’s narrative SF, and adds resourcing data making this the main programme budget document for the UN Headquarters budget process. It is referred to as a “fascicle”.

ACABQ review

The ACABQ will review this fascicle in mid-2013 and hold a budget hearing with UNRWA at the level of CG or Deputy Commissioner-General (DCG).

Upon endorsement by the ACABQ, the draft fascicle is then incorporated into the proposed UN budget submitted to the Fifth Committee. The Fifth Committee reviews the entire UN Programme Budget, including UNRWA's fascicle, between September-December 2013, and once consensus is achieved the proposed 2014-2015 budget is sent to the General Assembly for adoption.

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Standalone UNRWA Programme Budget 2014-2015

On the margins of the UNHQ budget process described above, UNRWA submits to the ACABQ its full 2014-2015 Programme Budget, informally referred to as the “Blue Book”. The 2014-2015 Programme Budget as included in the Blue Book encompasses both the requirements as funded by UN New York through assessed contributions as well as requirements funded through voluntary contributions and confirm with the indicative Envelopes approved by the CG in the second quarter of 2003. In September 2013, the ACABQ holds a budget hearing with UNRWA at the level of CG or DCG regarding this programme budget and transmits its conclusions to the UNRWA Advisory Commission. From the perspective of UN Headquarters, this is an “extra-budgetary” document reflecting the programme of work covered by UNRWA’s voluntarily-funded budget. Unlike the “fascicle”, it does not have direct implications for the UN’s budget, nor is it adopted by the General Assembly. The ACABQ’s review remains important, however, as it validates the Agency’s overarching programme of work and voluntary-budget requirements, and conveys its views in writing to the UNRWA Advisory Commission.

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ANNEX 1: Frequently Asked Questions (FAQ)

1. Some of UNRWA’s core programmes (e.g. education and health) appear to be supported by non-core funding sources (funding from projects and emergency appeals). Are long-term core activities supported by short-term funding?

As stated in the Agency’s Medium Term Strategy (MTS), UNRWA aligns long-term funding with long-term programming commitments. To support this, the MTS defines those services that are to be covered under the General Fund. The Agency notes however that certain questions may arise as a result of the Emergency Appeal funding certain services that might appear to be “core”. For example, the blockade on Gaza, the associated effects of high levels of poverty and a stressful environment pose a significant challenge to students in meeting minimum scholastic standards in Gaza. Therefore, among other emergency appeal supported interventions, UNRWA hires remedial teachers who provide additional extra-curricular support to students, many of whom are living in abject poverty as a consequence of the blockade. As these teachers are funded through the Job Creation Programme on a temporary basis, they receive lower salaries without any of the benefits received by UNRWA’s regular staff, and do not have the same functions or duties as UNRWA’s General Fund teachers. If the emergency situation in Gaza subsides, so will the need for these teachers and their contracts will not be renewed. It should however be noted that a rise in the number of teachers in Gaza is expected in coming years – this is not attributable to Emergency Appeal funding, but rather to the growth of the student population in Gaza.

With regard to health, additional staff were hired through emergency contracts (in the West Bank) and the Job Creation Programme (in Gaza) to support additional patient caseloads created by the emergency situation. This additional reliance is due to the critical socio-economic situation, continued erosion of the health infrastructure, declining environmental health standards, the difficulties of replenishing medical supplies, and the inability of refugees to pay the nominal prescription fees in the Gaza Strip since the blockade. In the West Bank, UNRWA clinics averaged 150 consultations per doctor per day (70 more than the PA clinics). Access restrictions (particularly with regard to East Jerusalem, which houses 12.4 percent of all oPt hospital beds and is the centre for specialised care), the inability of refugees to pay nominal fees, and increasing rates of chronic diseases since 2000 have led to this rise in services.

The Agency hopes that once the emergency situation in both the Gaza Strip and the West Bank comes to an end, the need for the above-mentioned interventions should dissipate.

2. The idea of self–sustaining projects with no links to core funding does not seem realistic. Aren’t projects increasing the budget requirements of the General Fund?

The Agency is fully aware of the possible inherent long-term financial risks associated with certain projects. To this end, the Agency’s project prioritization process (which is explained in detail in Question 11) views sustainability and impact of General Fund recurring costs as a key factor when deciding upon which projects the Agency should embark on. This process, which is relatively new to the Agency, allows the Agency to improve controls on future costs. For example, the Agency will be reluctant to take on temporary project activity which will inexorably lead to structurally higher GF costs once the temporary project funds conclude. Future sustainability will be the most important criterion during project prioritization; if a project is not sustainable, the Agency will not seek

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funding. The second most important criteria for the prioritization of projects is their alignment with the strategic framework of the Agency (MTS, FIPs, HIP, sector strategies, reform strategies)

At the same time, it should be noted that certain projects are of such vital importance to the Agency that they must proceed, despite incurring additional recurrent costs to the General Fund. For example, in Gaza, the rising population of school-age children, compounded by already-crowded UNRWA schools, necessitate the building of new schools to take in more students. While a project covers the building of a school, the recurrent costs of teachers and maintenance costs associated with the school are recurrent costs that will be borne by the General Fund. This added cost however is the only alternative to depriving children of their right to education, and thus must be borne by the Agency in line with its mandate.

Construction projects are not the only ones that potentially impact on the General Fund, but which the Agency must continue with. For example, in 2012, the Agency made the decision to increase its General Fund to guarantee delivery of food assistance to refugees and to ensure development of its ERP system. While this invariably increased costs, they were deemed to be of such high priority that the Agency could not operationally afford to respond to insufficient project funding by reducing food assistance or postponing implementation of the ERP.

With a new project prioritization process in place, the Agency is now better equipped to ensure that they are the exception rather than the norm. Moreover, the Agency has streamlined project management procedures by reducing ad hoc project proposals as much as possible. The Agency also encourages donors to remain cognisant that ad hoc project proposal request can affect the Agency’s longer term project planning process.

3. What is the Financial Impact of the Sustaining Change Reforms on the General Fund?

The Sustaining Change reforms collectively are at various phases of development and costing. Therefore, an overall costing of all reforms is not possible at this time. However, the Agency fully subscribes to the notion that the costing of reforms is vital to ensure long-term sustainability of reforms. In this respect, costing of the implementation of aspects of the Education and Health reforms are under way.

However, for such costing exercises to take place, reform policies must be developed first, so that the Agency is clear as to what it would like to achieve through reforms. This policy development process has been in train for the past year with draft policies produced. As the reforms move from the developmental phases to policy adoption and implementation, costing is done with any eye to offsetting any increased cost with modifications to policies being adopted.

For instance, Field Offices are presently engaged in costing the start-up or transition costs that would be associated with the implementation of the Education Reform (in particular, the Teachers’ Policy) and certain aspects of the Health Reform (such as the costs of reconfiguring health centres to accommodate a Family Health Approach).

The above activities allow the Agency to obtain a clear view of the potential cost implications of implementation of such policies. This in turns allows the Agency to make decisions based on both the qualitative benefits such policies could bring to refugees and the costs to the Agency of implementation of such policies.

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4. Some General Fund expenditures have greatly increased since 2006. Could these increases be explained? Similar information on projects and emergency appeal would be helpful.

The majority of UNRWA’s General Fund expenditures relate to the payment of local staff salaries. In accordance with the Agency’s Pay Policy, staff salaries are set and adjusted in line with host authority civil service salaries. As UNRWA’s hosts increase their civil service pay, pressure is placed on UNRWA to reciprocate such actions. In addition to a rising beneficiary population, it should be noted that prices of commodities, especially food, have risen in the region. This is evidenced by increased overall inflation in all Fields that UNRWA operates. Most notably, in Gaza, the effects of the blockade have resulted in increased costs and thus increased poverty among the refugee population – while the Agency’s Emergency Appeal attempts to address the majority of acute effects of the blockade, needs are on the rise for some of the Agency’s core services. Lastly, it should be noted that in 2011 the Agency decided to guarantee its provision of food aid and the development of an Enterprise Resource Planning (ERP) system through the General Fund as both activities were deemed vital to the fulfilment of the Agency’s mandate. As earmarked donor funding did not cover such needs, the Agency was compelled to resort to the General Fund as a guarantor. The Agency is nonetheless exploring avenues for earmarked funding of both food aid and the ERP, and should such funding materialise, this will offset the burden placed on the General Fund.

5. What is the cost of development of the ERP system and the time frame for its implementation?

The Agency estimates that development of the ERP will require a one-time investment of USD 26 million. It should be noted that each phase of the ERP project will be represented by a specific fixed price contract with confirmed project deliverables, thereby allowing the Agency to, if necessary, adjust the cost of the project as implementation occurs. Recurring costs are estimated at approximately USD 4.9 million a year. It should however be noted that the Agency currently spends approximately USD 2 million operating its present management systems – as of 2014 these expenditures will cease. Finally, earmarked contributions to the ERP are being accounted for when calculating funding requirements for the ERP.

The Agency is presently working towards implementation of an ERP as of January 2014. This is also the date that technical support for current systems expires.

With regard to savings it is difficult to specify a dollar figure but we are confident that we will see similar benefits (cost savings or cost avoidances) as experienced by WFP through the implementation of the same ERP. These benefits will include direct cost savings, for example an increase in payments made on time, more complete funds utilisation, reduction in data errors and indirect cost savings derived from stronger operational support of programmatic activities and realigning staff away from repetitive manual tasks towards more strategic activities.

6. What initiatives can UNRWA introduce to generate savings?

With 80% of UNRWA’s General Fund budget linked to staff costs, and with the majority of those staff providing direct services to refugees, the scope for UNRWA to generate further savings to its General Fund, without reducing services, is minimal. The Agency notes that any reduction of services must have clear political support by donors and host authorities because the impact will be immediately felt in both refugee communities and the host countries and accompanied with

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increased social tensions which UNRWA alone cannot manage. To date, such support has been absent and while UNRWA continues to press its managers to reduce costs, this is becoming increasingly difficult with the funds available.

Nevertheless, in 2011, the Agency explored possible areas were savings could be generated without affecting the Agency’s ability to deliver core services. Workforce planning achieved some results in 2011 after all Field Offices and Headquarters Departments were instructed to take a more considered approach to vacancy management. Compared to the Agency’s trend of annual average staff increases of 3.2%, the staff numbers in four of the Agency’s five fields showed lower numbers of staff increases and improvements in workforce management (Jordan: 0.83%, Lebanon: 2.05%, Syria: 1.42%, West Bank: 1.66%). Unfortunately, an increase of staff in Gaza was recorded at 6.09%, though this figure can be attributed to the increased number of teachers and education staff recruited to address the growing population of students in Gaza.

Further examples of initiatives to achieve savings include the centralisation of the Accounts Payable function and improved fleet management in the Agency. These initiatives are currently underway and may result in savings of around US $500,000 per year.

The Agency acknowledges that the savings listed above are modest, but also notes that despite its size and a seemingly large budget, its operations are run on an already modest scale when compared with the environment of its operations. For example, the Agency’s local staff wages are, per capita, markedly lower than those of other UN organisations in the region and the overall staff benefit package often does not equate with host governments. While the reasons behind this are not purely financial, the Agency is able to achieve more with comparatively less.

The Agency notes that further work must be done to better explain its cost structure and to further explore areas for further possible savings. For this reason, the Agency has embarked on an Activity Based Costing exercise. The ABC exercise will be concluded by the end of March 2012. Following completion of the exercise, UNRWA will need to analyse the results and understand the quantitative analysis in terms of effective programme delivery. UNRWA intends to incorporate the outcomes from the ABC analysis into its resource allocation mechanisms in late 2012.

7. The OD evaluation calls for in-house cost benefit analysis. How can this be applied on a global holistic basis across the Agency as a systematic exercise? (Recommendation no. 8)

The OD Evaluation’s recommendation for an in-house cost benefit analysis related to business process improvements achieved during the OD period. The Agency is of the opinion that a retrospective cost-benefit analysis is not ideal, but that, instead, the Agency should adopt cost-benefit thinking and Return on Investments analysis for future efforts to improve business processes. In this regard, the Activity Based Costing (ABC) exercise, to be completed by the end of March 2012, will be the first step in this direction, as it will provide the Agency with an improved basis upon which to analyse costs. The assessment of the results of the exercise is expected to last through to May 2012. The Agency will present the findings at the June 2012 AdCom. It should be noted that the ABC exercise is not expected to immediately result in cost efficiencies; it will primarily highlight higher cost structures which Fields will need to address.

In addition, the Agency has embarked on a joint initiative with DfID to establish efficiency and effectiveness targets for its programme reforms. The first phase of this initiative will be finalized by the end of March 2012, while the next phase is expected to last until October 2012. These concerted efforts will provide the Agency with increased capacity in moving forward, though work

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remains to be done in defining and developing a way forward for a holistic cost-benefit analysis exercise.

8. What main factors are taken into account when preparing the Programme Budget?

The MTS provides the platform upon which programme development, and thus, the Programme Budget, is developed. Within the six-year timeframe of the MTS, three biennia budgets are produced. The Programme Budget is the Agency’s biennium budget.

In developing this biennium budget, the Agency first conducts a needs assessment in each respective Field Office. This allows the Agency to review and analyze the political and humanitarian situation in each Field Office and plan accordingly. Taking into account that the Agency must develop realistic plans based on projected income, indicative field envelopes are set by the Agency to provide guidance to fields in the development of their respective plans and budgets. Taking into account their respective needs assessments, indicative budgets, and following guidance from Headquarters Programme Departments, Field Offices build FIPs that detail proposed goals and targets for the upcoming biennia. At the same time, Headquarters Departments develop a consolidated HIP, which details the activities to be taken to ensure that field operations are provided with maximum guidance and support in responding to refugee needs. Following a process of consultation with the Advisory Commission, FIPs and HIPs are brought together to build the Agency’s Programme Budget. This Programme Budget is shared with UN Headquarters in New York for final approval by the General Assembly.

9. In the budget exercise, UNRWA does not take into account the population growth and the overall needs of refugees. Why doesn’t UNRWA present a budget which reflects the full needs of the Agency?

As part of the Agency’s Programme Cycle Management process, specifically the development of FIPs, each Field Office undertakes a needs assessment of the situation of refugees in their respective field. This allows the Agency to assess what interventions are required to meet refugee needs. While the Agency would like to proceed with addressing all assessed needs, and thus budget accordingly, taking into account the Agency’s financial situation and donor income projections, the Agency is compelled to produce a downsized budget that, while ambitious, reflects core priorities in accordance with the Agency’s MTS. To illustrate this point further, for the June 2011 Advisory Commission session, the Agency conducted an exercise to cost the second biennium (2012-13) of its MTS. This exercise noted that US $1.2 billion in annual recurrent costs plus US $ 800 million 8 as a one-time investment would be required for the Agency to fully achieve the goals of its MTS. Taking into account the Agency’s recent financial situation and forecasted donor income projections, the development of such an ambitious budget would be unrealistic and possibly counterproductive for the Agency.

10.How does UNRWA prioritize services?

8 The $800 million one-time investment refers to reconstruction and rehabilitation work the Agency would need to undertake across all of its fields of operation to upgrade schools, shelters, and installations.

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UNRWA classifies its services according to two levels of priority. Services deemed as “Highest Priority” are those core services that respond best to the needs of refugees and are fundamental to enabling refugees to enjoy their basic rights. As these services are classified as being of “Highest Priority” they are equally applicable in all of the Agency’s fields of operation and therefore the Agency is able to provide, in most instances, similar services to the total population of refugees it serves. These services of “Highest Priority” have first call on resources from the General Fund.

Beyond these core services, UNRWA notes that other services remain important to the Agency’s field operations. These are services that meet the needs of the highly vulnerable and provide a clear and measurable contribution to the human development of refugees. These services are classified as Priority Level Two as the focus and scale of investment required is contingent on field specific conditions.

The table below, extracted from the Agency’s MTS, provides a general overview of the services classified as being of “Highest Priority” and of “Priority Level Two”.

Priority Services

Highest priority: common to all fields

Core services which UNRWA mustensure: to enable refugees to enjoy theirbasic rights; and to respond to the humandevelopment needs and priorities ofrefugees.

Basic education Comprehensive primary health care Relief and direct support (cash, food and shelter) to the

abject poor (through safety-net and emergency programmes)

Environmental health; and improvement of critically substandard shelter, facilities and infrastructure.

Priority level two: weighting will vary fromfield to field

a) Services that meet the needs of thehighly vulnerable

Andb) Services that provide a clear and

measurable contribution to the humandevelopment of Palestine refugees

Shelter improvement for the most vulnerable Social services for the most vulnerable Support for hospital services for selected conditions for

the most vulnerable Advocacy on protection issues Technical and vocational education Credit and microfinance from MD Employment promotion Environmental protection activities

In addition, the Agency engages external stakeholders (e.g. hosts and donors through meetings of the Advisory Commission and the Sub-Committee) in a dialogue on the prioritisation of services in relation to resources that are available.

11.How are host countries engaged in a dialogue with regard to field-specific budgets?

UNRWA engages with host authorities both at the field-level and through the Advisory Commission. At the field-level, respective Field Offices hold regular consultations with host authorities in the development of respective FIPs. These FIPs are thereafter shared and discussed with the Advisory Commission’s Sub-Committee, which includes the participation of host authorities. The Agency’s proposed budget is also shared with the Advisory Commission.

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12.What is the process for the prioritization of projects, what is the rationale?

In June 2011, the Agency introduced a Project Process Manual that details the steps to be taken by Field Offices and Headquarters Departments throughout the life cycle of a project, from project development to closure. The section below is an excerpt from the Project Process Manual that details the steps taken by the Agency in initiating a project, including the project prioritization process:

o “The initiation phase covers the development of a project along the approval process within the Agency from the initial project idea till its inclusion in the list of priority projects. This phase is composed of the following steps:

o The External Relations and Communications Department (ERCD) provides information about major donor priorities by sector (updated every six months);

o The initial project idea can be generated from any organizational unit (i.e. department, division, unit) both at Headquarters and at the field level. In order to proceed with the planning phase, the idea should be developed as a project concept note, which is a first description of the project;

o The project concept note is presented to the head of the organizational unit in which the project idea arises and whose core activities are in line with the project outcome. In order to proceed with the planning process the head has to endorse the project concept note with a formal approval;

o As a consequence of the project concept note approval, the head of the organizational unit holds the role of project sponsor and requests the project officer in the Field or at Headquarters (depending on where the project sponsor is based) to formulate the project outline with the support of the relevant project focal points;

o The project outline should be presented to the director of the Field office / Headquarters department for his / her approval;

o The director of the Field Office / Headquarters department approves the project outlines;

o Once the project outline is approved by the Field Office / Headquarters department, it is linked to an Agency project code, which will be the project unique reference for its entire life. Even if a project is never fully developed it will have this code for reference;

o The director of the Field Office / Headquarters department submits a limited number of projects outlines (i.e. a maximum number of thirty project outlines per each field office and of five per each Headquarters department) to the secretariat of the resource allocation committee (RAC) subcommittee for their prioritization at the Agency’s level;

o The secretariat performs a pre-assessment of project outlines to prioritize and convenes sessions for the representatives the Field Offices / Headquarters departments to present their projects to the RAC subcommittee;

o The RAC subcommittee prioritizes the received projects every six months. It will use the following criteria: (i) alignment to the strategic framework of the Agency (i.e. MTS and strategic documents of the field offices / Headquarters departments), the quality of the project formulation (i.e. sustainability of the project and the validity of the project intervention logic)

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and to a smaller degree donor priorities and potential interest. This is reviewed and finalized by the RAC consulting field and Headquarters directors as appropriate.

o Once projects have been prioritized and the priority list is created it can be used for several purposes. The finance department will use the list to select projects for the inclusion in the UNRWA Programme Budget (Blue Book). ERCD will direct the fundraising efforts by selecting from the list of priority projects (i.e. thirty projects five projects per field office, ensuring that they represent a mix of sectors, and five projects representing all Headquarters departments). ERCD will update the list of projects for active fundraising every time one project from the list has been funded.”

In providing recommendations on new projects, the RAC will make assumptions regarding recurrent costs and will verify them during the project prioritization process with relevant stakeholders. Notwithstanding the above, the prioritization of projects must also take into account donor preferences which can range from sector specific to projects which can be General Fund relieving9. Furthermore, certain projects, such as Gaza Reconstruction or Nahr el Bared are of such a high priority that the Agency is compelled to move forward with them.

For Emergency Appeal funding, prioritization is done by the Emergency Task Force (ETF) which is the senior management body that oversees UNRWA’s emergency operations in the oPt. The ETF is chaired by the DCG and involves senior staff from various departments and field offices. The ETF will meet on a regular basis to consider existing donor commitments and potential pledges against the Emergency Appeal. Depending on the availability of resources and level of earmarking of committed funds, it will prioritize funding against existing needs in the field.

13.How does the Agency prioritize fund-raising among portals?

In line with aid effectiveness principles, donors are encouraged to channel un-earmarked contributions to the General Fund through multi-year agreements whenever possible in order to increase income predictability, and support longer-term planning and program implementation. The next priority is un-earmarked funding for other purposes (e.g. the Emergency Appeal).

It is important to note that few donors have funds that can be fungible among portals (e.g. spent on the General Fund, Projects or the Emergency Appeal), Field Offices and initiatives. In responding to a range of donor priorities UNRWA seeks to maximize the resources available by fully utilizing opportunities arising from a variety of donor instruments and bilateral budget lines. In certain cases, UNRWA will seek to target its fundraising by approaching donors who can make funds available for specific purposes.

9 It should be noted that GF relieving projects are not long-term projects that have the potential to add costs to future GF budgets. Rather, they are earmarked GF contributions that allow the Agency to reduce its GF deficit. 13

14.What is the Resource Allocation Committee (RAC) and how does it operate?

The RAC, established in 2008, is an advisory body which makes recommendations for decisions relating to the allocation or re-allocation of all of the Agency’s resources to the Commissioner-General. The Agency’s MTS provides the guiding framework and direction for all the Agency’s activities and services, and by definition, the associated approved budgets. The RAC is responsible for ensuring that any resource allocation (in the original budget or of additional resources) or re-allocation proposals are in accordance with the agreed strategic priorities of the Agency and adjudicates in cases of unresolved, competing resource allocation issues. The Committee operates at key stages of the planning and budget cycle to make recommendations for budget allocations in Agency budget documents, and also meets on an ad-hoc basis to discuss proposals for re-allocation of resources between Field Offices and Headquarters departments.

The RAC is presently chaired by the Deputy Commissioner-General, with the Directors of External Relations and Communications, Finance, Human Resources, and Administration acting as members, and the Coordinator of Programme Support acting as the Committee’s secretariat.

RAC recommendations are submitted to the CG for his final decision. RAC recommendations are technically not binding as they are solely recommendations. However, they inform decisions made by the CG, which are binding. It should be noted that RAC documents are internal UNRWA documents.

The Agency is presently undertaking a review and reform of the RAC to make it a more effective and transparent resource allocation mechanism.

15.What main factors are taken into consideration when preparing the Emergency Appeal budget?

The Emergency Appeal budget is a field-based bottom-up exercise. UNRWA Field Offices in the Gaza Strip and in the West Bank define their humanitarian needs and calculate the required funding to address critical and immediate requirements on an annual basis. A distribution key was developed by the Field Offices and agreed by the Agency’s Emergency Task Force10. The key is used to determine the distribution among Field Offices and takes into consideration:

o Total projected registered refugee population (PCBS 2007 census data);

o Registered persons (UNRWA RRIS data);

o Percentage of the population that is food insecure or vulnerable to food insecurity (WFP/FAO Survey - SEFSec data).

o The 2012 Emergency Appeal distribution key for un-earmarked contributions is 70.8% for the Gaza Strip and 29.2% for the West Bank.

16.When transition is possible (e.g. in West Bank) UNRWA should link-up pure humanitarian activities with development as much as possible. How do you decide what goes in the Consolidated Appeal Process (CAP)?

The humanitarian operation that UNRWA performs is the result of a political crisis that has not changed. In 2012, UNRWA will still need to implement a needs-based Emergency Programme in both the Gaza Strip and the West Bank. In light of reduced funding and a commitment to efficiency, UNRWA has taken steps - including an extensive assessment of the overall emergency programme

10 Chaired by Deputy Commissioner-General14

budget to ensure that the 2012 Emergency Programmes only address the refugees’ most basic and acute humanitarian needs. As such, total requirements are more than 20 per cent lower than in 2011.

The 2012 CAP has focused on two themes: food security and protection (including access to services such as health, education, temporary shelter, and water and sanitation). As a result, the CAP does not fully address all humanitarian needs facing Palestine refugees. To ensure that all refugees’ basic needs are met, the UNRWA Emergency Appeal includes a wider spectrum of programmes (for example, the Gaza Summer Games and Cash Assistance programmes are not included in the CAP) and broader budgetary needs, and therefore has higher financial requirements than what is reflected in the CAP.

17.The 2012-13 Blue Book mentions a fifth Human Development Goal (Effective and Efficient Governance and Support in UNRWA). Why was this goal introduced and when?

In 2011, the Agency introduced Human Development Goal 5 “Effective and Efficient Governance and Support” to enable the Agency to better promote and sustain the best possible standards of management, enhance stakeholder relations, and enable the delivery of quality programmes that help achieve the human development of Palestine refugees. This Human Development Goal was introduced so as to provide the Agency with greater direction, clarity, and accountability for its management and support functions. This goal came into effect as of the 2012 -2013 biennium.

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Annex 2 - Funding Portals1: General Fund, Projects and Emergency Appeal

Support to: Intervention type: Source of Funding Additional Information

Gen

eral

Fun

d Core activities that include recurrent staff and non-staff costs

Education, health, camp improvement, relief and social services, as well as support services that enable UNRWA to operate

93% voluntary contributions; 6% assessed contributions from the UN System covering costs of 146 international posts); 1% others

Unearmarked expect for the assessed contribution

GF needs are estimated to increase at least $20m/year (wages+$12m; severances +$4, others +$4)85 – 90% of costs are fixed (salaries of area staff)

UNRWA made a case for more funding from the UN System to cover additional international posts (13 extra posts plus 5 reclassifications) as of 2012.

The GF is fully accrued and a hard close of the General Ledger is conducted monthly. The switch to International Public Sector Accounting Standards (IPSAS) was implemented as of 1 Jan 2012

For visibility purposes, in some cases ear-marked contributions to the GF are made by donors

The performance increment is a percentage of UK's annual contribution based on progress made by UNRWA against a set of mutually agreed performance indicators.See template: GF Income by Donor and Other Income; GF Budget and Expenditure by goal, programme, field and category

Proj

ects

Specific and time-bound activities, with a view to improve services without increasing recurrent costs

Building facilities and reform related items that are supposed to be integrated in the medium term.

100% voluntary contributions

earmarked contributions

Large projects – such as Reconstruction of Nahr el Bared and Gaza - have their own funding and management mechanisms to track contributions.

Some groups of projects – such as Sustaining Change and Restoring Dignity - are “packaged” together for clarity and fund-raising purposes. Currently, 69 international posts are funded through projects

Projects needs are predictable, but major emergencies, such as the destruction of Nahr el Bared Camp in Lebanon in 2007, can cause exceptional increases in the requirements. See RMS strategy for further analysis.

Emer

genc

y A

ppea

l

Emergency conditions created by external factors - assistance is expected to be provided as long as external conditions prevail

Job creation, emergency education (e.g. remedial education), emergency health (e.g. mobile clinics), additional food and cash assistance

100% voluntary contributions

Earmarked and un-earmarked contributions

Essentially a group of projects with emergency as the common trigger

UNRWA is presently able to meet less than half of identified needs. Funding is subject to a high annual variability and cannot be predicted accurately

See Excel spreadsheet for EA Income and Expenditure

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