Central committee document - Report of the Finance Committee

World Council of Churches
CENTRAL COMMITTEE
Geneva, Switzerland
26 August - 2 September 2003

Document # GEN 22

For action

Report of the Finance Committee

1. Approval of the financial statements of 2002

The Finance Committee reviewed the audited financial statements of 2002. The Finance Committee noted that although there were improvements, the Council’s Reserves listed on the balance sheet were invested in land and buildings. The Council was therefore holding no real reserves at its ready disposition, and financial plans would be required to redress this situation.

The Finance Committee also noted that the credit line guaranteed by mortgage of the Ecumenical Centre had not been drawn upon during 2002, nor to date.

The Finance Committee recommends that the Central Committee approve the 2002 financial statements as audited and published.

2. KPMG Management Report

The audit partner and staff from KPMG and a representative of the Audit Committee met with the Finance Committee to present the report to management on observations arising from the audit mandate 2002. The Committee sought confirmation that when undertaking the annual review of Programme Fund balances to ensure appropriate disposition of any inactive balance, staff leadership group members would participate in decision-making, and funding partners would be consulted where it was judged appropriate. The Committee issued a note of caution concerning the decentralization process. In the Committee’s view, in order to work in a location, it might not be necessary to actually open an office. Careful cost analysis should be made before proceeding. The Finance Committee expressed the wish to participate in the decentralization evaluation process next year.

Concerning the overall financial situation of the Council, the audit partner explained that the auditors hold the responsibility to review the Council’s ability to meet its obligations for the following 12 months when issuing an opinion on a prior year’s financial results. The audit partner commented that there had been considerable improvement in financial controls over the past two years. KPMG remained concerned that the Council continue to pursue good financial discipline in planning within its means.

The Finance Committee received the report, with thanks to the auditors for their participation.

3. Results to 31 July 2003 and full-year projections

The Finance Committee reviewed the results for the seven months to 31 July 2003 and the full year projection.

The full-year forecast anticipated that Programme income and expenditure would be close to budget, with a drawdown of CHF 3.6 million in programme fund balances. The forecast assumed that contributions would be paid as pledged and exchange rates remain steady, and that Programme expenditure, in particular grants, would increase in the final months of the year as Programme work was completed.

The Committee commended the staff for its careful management of expenditure. In particular, following its recommendations concerning Central Committee organisation costs in 2002, the Committee endorsed what it perceived as a fitting change in culture, reflected in certain details in the Central Committee infrastructure.

The Committee endorses the guidance of the Finance Sub-committee which required that

· any investment gains for the year 2003 be returned to the investment reserve, and
· expenses as budgeted should not increase unless there would be a matching increase in income, in order that the net result for the year be maintained as planned.

4. Cash Flow Management 2003

The cash flow plan for 2003 was reviewed. Provided the assumptions concerning the full-year forecast and various anticipated movements in working capital were met, the plan showed that the WCC might expect to withdraw only CHF 1.5 million from its General Fund investment account for the year. In comparison, CHF 8.8 million were withdrawn from the General Fund investment account in 2002.

The Committee received this report and noted that cash flow management was under control.

5. Budget 2004

The Finance Committee reviewed a draft budget for 2004. The Finance Committee considered that where a drop in income was expected, activities expenditure should decrease accordingly.

After reflection, the Finance Committee proposed the following budget for 2004. In the draft budget, the Programme costs of CHF 39 million equal Contributions income for Programmes and other income. In addition, a credit to General Reserves of CHF 2.13 would be obtained from undesignated income. The revised budget was presented to the Programme Committee.

	CHF million

Unspent balances brought forward	10.42
Planned for use 2004	2.28

Membership and undesignated	7.40
Programme contributions	26.95
Other income	4.64
International Ecumenical Initiatives	2.65
Ecumenical Research Centre	0.50
Total income	42.14

Programme costs	39.00
International Ecumenical Initiatives	2.79
Ecumenical Research Centre	0.50
Total expenditure	42.29

Net income/ expenditure	(0.15)

Credit to General Reserves	2.13
Balance drawdown	(2.28)
Net income/ expenditure	(0.15)

Unspent balances carried forward	8.14

It should be noted that the above budget does not include the offices in Poland and Croatia. The Finance Committee recommends that these offices should be included in the next report and that expenses for 2004 should be kept within the available income. The budget also does not include the Assembly until the Assembly budget is approved.

The Finance Committee

recommends

that the

Central Committee

approve the 2004 budget as presented.

6. Framework budget 2005

In accordance with Central Committee’s recommendation of 2002 to establish a new and more timely budget cycle, a draft framework budget for 2005 was presented and discussed. Consistent with the principles reflected in the budget 2004, the framework for 2005 showed Programme income and expenses of equal amount, and while drawing down the remaining Programme Fund balances by CHF 2.29 million, also projected a contribution to General Reserves of CHF 1 million.

The framework budget for 2005 was as follows:

	CHF million	CHF million
	2004	2005
Unspent balances brought forward	10.42	8.14
Planned for use	2.28	2.29

Membership and undesignated	7.40	7.40
Programme contributions	26.95	26.31
Other income	4.64	4.84
International Ecumenical Initiatives	2.65	2.79
Ecumenical Research Centre	0.50	0.20
Assembly		3.05
Total income	42.14	44.59

Programme costs	39.00	39.84
International Ecumenical Initiatives	2.79	2.79
Ecumenical Research Centre	0.50	0.20
Assembly		2.20
Total expenditure	42.29	45.03

Net income/ expenditure	(0.15)	(0.44)

Credit to General Reserves	2.13	1.00
Credit to Assembly Reserve		0.85
Balance drawdown	(2.28)	(2.29)
Net income/ expenditure	(0.15)	(0.44)

Unspent balances carried forward	8.14	5.85

The Finance Committee

recommends

that the

Central

Committee

receive the 2005 framework budget as presented.

7. Cash flow plans for 2004 and 2005

The Finance Committee reviewed cash flow plans for 2004 and 2005 derived from the draft budget and budget framework, and including capital expenditure plans, loan repayment details, anticipated movements in working capital.

The cash flow plans concluded that on the above working assumptions, the WCC might expect to add to its investments rather than withdraw. At the same time, with Programme Fund balances reducing, the coverage of investments for the Programme Funds would be sufficient, with an indication that Specific Programme Reserves might be fully covered in 2004.

The Committee

received

the cash flow plans.

8. Assembly budget

An initial 9th Assembly budget is presented as Appendix 1. At this time with pledges and indications received from approximately 1/3 of the member churches, it appears that the total income, including Assembly balances carried over from Harare, could total CHF 6.3 million. The total income for the 8th Assembly, by comparison, was CHF 13.4 million. The Finance Committee believes that an Assembly can be held with expenditures of CHF 6.3 million. The 9th Assembly will have 700 delegates meeting for 10 days rather than 996 delegates meeting for 12 days, as in Harare. This Assembly will be held in a country and at a facility where expenses will be much lower than past Assemblies. The Finance Committee cautions, however, that it is unlikely any future Assembly, particularly one in a developed country, will be able to be held for this amount of money.

To achieve an Assembly costing CHF 6.3 million will mean that expenses need to be monitored very carefully. In particular, it is important to note that it is unlikely that the proportion of delegates receiving a full subsidy for Porto Alegre will be the same as those who received them for Harare.

The Finance Committee delegated to the Finance Sub-Committee of the Executive Committee to be addressed at its next meeting a review of the WCC’s general policy concerning subsidies, to be defined in time for the Assembly.

The Finance Committee of the Central Committee

recommends

that the Central Committee approve the Assembly budget of CHF 6.3 million as presented in Appendix 1 to this report.

9. Bossey

The Finance Committee reviewed the terms and conditions of the mortgage loan contract to financing the renovation of Bossey. The WCC has contracted a loan of CHF 6,000,000 for five years at a fixed rate of 3.15%, and a one year loan of CHF 400,000 at a rate to vary annually. The latter loan is to be repaid in instalments of CHF 50,000 per year.

The total cost of the Bossey renovation project was CHF 8.7 million. The external financing had been alleviated because the US Conference had permitted 95% of the Kunett Endowment Fund to be used towards meeting the cost of the renovation.

The Finance Committee endorsed the decision of the Bossey Board, requiring that Bossey contribute CHF 30,000 annually to reconstituting the Endowment Fund.

The Finance Committee

recommends

that the Central Committee ratify the mortgage loans of CHF 6.4 million.

10. Proposal for basis of calculation of membership contributions

The Finance Committee discussed a staff proposal on Membership Contributions from 2004 onwards. The essential elements of the proposal are set out in Appendix 2.

The Committee confirmed the basic principles of the proposal:

1. The new system for membership contributions should be fair, transparent and objectively determined for all members

2. The system should honour the goals of the Membership Campaign to reach a target of CHF 10 million by the time of the next Assembly with all member churches making a minimum contribution of CHF 1,000.

The new membership contribution calculation is based on:

a) the size of the church, using the membership data submitted by the churches for the allocation of seats for the 9th Assembly

b) Gross Domestic Product (GDP) of the country (or countries) where the church is located.

Churches which at present pay membership contributions which are higher than those derived from the new membership calculation system will be requested to continue their current level of giving

The Committee added that in specific circumstances, such as the case of a church where members’ income is significantly lower than the national average, the church should communicate its concerns to the WCC. The Finance Committee is authorised to adjust contributions in individual cases.

The member churches will be informed of their requested membership contribution before January 1, 2004, the date when the new system will be introduced. Additional information on the calculation method, together with some comparative data, will accompany the request.

As many churches decide on their 2004 budget well in advance, it seems unreasonable to expect churches to be able to decide on any change in their membership contribution at short notice. The year 2004 will be considered as a year of transition.

Based on the experiences in 2004 and the discussions with member churches, the working of the system will be evaluated mid-year. Based on this evaluation the proposed contribution structure may be adjusted. If so, revised proposals will be submitted to the Executive Committee for further action.

The Finance Committee appointed a small task force to accompany the introduction of the new system. The task force has been delegated by the Finance Committee to decide on the adjustments to be made in individual cases.

The Finance Committee

recommends

that the Central Committee

approve

the new membership calculation system as outlined above, to be introduced from January 1, 2004.

11. Income development strategy

A paper reviewing the current income structure and the income development strategy was reviewed. The Finance Committee noted that 90% of the WCC’s contributions income is provided by some 20 member churches and funding partners. There had been serious effort to raise funds from non-traditional donors, in particular from foundations. However, results had been disappointing to date.

The Finance Committee recognized that strengthening relationships with member churches and the principal funding partners remained of the highest priority. To achieve their increased confidence, it was essential to be able to present very clearly the achievements of a Programme and its expected future achievements. In addition, WCC needed to build its own understanding of partners’ organizations, ensuring that it presented its funding proposals to the appropriate levels and divisions within a structure.

The Finance Committee endorsed the recommendations of the report, which proposed firstly increased efforts with the WCC’s funding partners as a priority, and secondly, continued efforts towards non-traditional donors with professional presentations, resorting to external expertise and training in this respect as appropriate.

12. Ethical guidelines for contributions from non-traditional sources

The Finance Committee assessed a report proposing ethical guidelines for the acceptance of contributions from non-traditional donors. It was noted that the WCC holds general ethical guidelines for investments, and that these already constituted a standard for acceptance of funds. It was also observed that at present there had been but little success in fund-raising with non-traditional donors.

The Finance Committee recommended that a group of three Finance Committee members review any contributions from non-traditional sources in order to conclude on their acceptability.

13. Investments

The Finance Committee reviewed a report summarizing actions taken over the last 12 months concerning investments. The Finance Committee had requested that a study be conducted to review the financial implications of restructuring the General Fund investment portfolio towards fixed return investment instruments only. The Finance Committee noted that the Executive Committee in its meeting of February 2003 had delegated to the Finance Officers the task of reviewing that report and deciding upon the investment structure.

The Finance Officers had determined that in the interests of further reducing investment risk given the WCC’s financial situation, and aware of plans to further sell investments in 2003 to meet Programme Fund drawdowns, the General Fund investment portfolio is to be restructured to hold fixed return investment instruments only. The intention is that this objective be achieved before the year end 2003.

The Finance Committee noted that the investment of approximately CHF 700,000 in Oikocredit continued to be held. The Committee considered that the amount of the investment in Oikocredit was satisfactory, and requested that its value be reported in relation to the General Reserves of the Council, General Reserves being defined as in the Funds and Reserves Policy discussed below.

14. Statement of Investment Objectives and Policy

In accordance with its responsibility and duty to consider and make recommendations to the Central Committee on investment policy and procedures (Constitution & Rules of the WCC; Rule VIII, 2 (b) (3)), the Finance Committee reviewed and revised the existing Investment Policy documents.

The revised Statement of Investment Objectives and Policy includes general ethical guidelines based on the guidelines issued by the Central Committee in its meeting of September 12 – 20, 1996, and for which approval was made in full at the following Central Committee meeting of September 11 – 19, 1997. In addition, it defines the investment objectives for each of the portfolios, clarifies the authorities to revise investment guidelines, defines the investment reserve and the requirements for monitoring and reporting on performance.

The Statement of Investment Objectives and Policy is included at Appendix 3.

The Finance Committee

recommends

that the Central Committee

approve

the revised Statement of Investment Objectives and Policy.

15. Tender process for audit 2004

The Finance Committee heard a report from the Audit Committee concerning the reasons for delaying the process for tender of the audit mandate, which Central Committee had requested be undertaken for the audit of financial year 2003. The Finance Committee accepted the reasons, in particular recognizing the fact that towards the end of 2002, management attention had required to be directed as an absolute priority to ensuring improvement in the financial situation. The Audit Committee had recommended and the Finance Committee agreed that the tender process be begun in 2003 for the financial year 2004.

The Finance Committee

recommends

that the Central Committee

accept

that the tender process could not be conducted towards the end of 2002 for the financial year 2003 as requested, but

require

that it be conducted in 2003 for financial year 2004.

16. Appointment of auditors 2003

Further to the explanations concerning the delay of the tender process, the Finance Committee

recommends

that the Central Committee

appoint

KPMG as auditors for the year 2003.

17. Funds and Reserves Policy review

With the objectives of clarifying the financial situation of the WCC, ensuring increased transparency in accounting and promoting our partners’ confidence in WCC’s financial reporting, the Finance Committee defined a Funds and Reserves Policy, following a proposal submitted for consideration. The principal commitments and affirmations of the Funds and Reserves Policy are as follows:

Continued efforts, including a documented annual review process, are to be made towards classification of Funds and Reserves in the usual categories applied in charities accounting, including Restricted Funds, Unrestricted Funds and Designated Funds.

General Reserves of the WCC are to be defined as those funds available to the WCC after meetings its obligations and commitments, without resorting to sale of its fixed assets

The required General Reserves are estimated at three months’ salary costs.

Regular management reports are to report the evolution of the General Reserves

The authority to approve transactions on Reserves as defined in the Balance Sheet of 31 December 2002 is restricted to the Finance Committee.

The Funds and Reserves Policy is set out in Appendix 4 to this Report.

The Finance Committee of the Central Committee

recommends

that the Central Committee

approve

the Funds and Reserves Policy.

18. WCC visibility profile

Further to the Finance Committee’s recommendation, Central Committee in its last meeting had requested that there be an assessment of a proposal to increase the visibility of the WCC, by attracting media attention at an event to take place within the context of a Central Committee meeting. It had been considered that increased visibility would have a positive impact in fund-raising efforts with non-traditional donors.

It was reported that as yet there had not been focused effort in defining how this objective might best be achieved. The Finance Committee considered that the issue should be actively pursued in the context of the WCC’s communications strategy.

The Finance Committee

recommends

that the Central Committee

request

that the appropriate staff consider in what manner the WCC might appropriately increase its visibility, presenting their reflections to the Executive Committee in February 2004.

Appendix 1

9th Assembly Budget

Income		CHF
	Donor contributions	4,913,000
	Delegate registration fees	217,000
	Visitor registration fees	465,000
	Balances held by WCC	705,000

Total income		6,300,000

Expenses
Planning phase
	Geneva Office	760,000
	Planning Committees	175,000
	Communication	360,000
		1,295,000

Assembly
	Facility costs	395,000
	Delegate subsidies	1,400,000
	Other sponsored participants	245,000
	Youth training - stewards programme	465,000
	Staffing costs	890,000
	Communication	450,000
	Programme costs	300,000
		4,145,000

Post-Assembly
	Reports	205,000

10% Contingency		600,000

Total expenses		6,245,000

Appendix 2

1. Introduction

The Membership Income Campaign, launched by the 8th General Assembly in Harare, in response to diminishing income from funding partners, had the following goals to be achieved by the next Assembly:

Increase annual contributions from 1998 level of CHF6 million to CHF10 million

Have all churches making a contribution of at least CHF1,000

Considerable progress has been made towards achieving 100% churches paying; at the end of 2002 66% of churches paid their contribution compared to only 52% in 1998, i.e. 54 more churches. Income, on the other hand, has only remained stable and further effort in this area is required.

During its meeting in August 2002 the Finance Committee strongly endorsed the active continuation of the membership campaign. It also reconfirmed the need to devise a fairer system for the membership contributions for each member church. The system should take into account the size of the church (membership) and the country in which it is located.

2. Decisions taken during/since Central Committee 2002

a) August 2002 Central Committee:

The policy to grant subsidies for meetings of consultative and governing bodies only to churches who have paid membership has been systematically applied and has contributed substantially to the progression seen in the number of paying churches.

An Ad Hoc Working Group of Central Committee members for the Membership Income Campaign has been formed and will meet during the course of this Central Committee.

b) February 2003 Executive Committee:

As of 2004, membership contributions should be calculated on a basis that reflects fairness for all member churches, using an easily understandable, transparent, rational formula to compute amounts requested.

Non-payment leads to:

Withdrawal of subsidies for representative’s participation in meetings of governing and consultative bodies.

Inability to participate in meetings of governing bodies, including general assemblies, and the status of non-active membership (being discussed in Policy Reference I Committee).

c) May 2003 Officers Meeting:

Letter to be sent to churches that have joined the WCC in or before 1998 and have made no payment since alerting them to potential non-active status.

CHF 1,000 minimum rule to be re-affirmed to churches that have paid less than this amount.

Structure of membership contributions from 2004 onwards be adjusted and presented to the August 2003 Central Committee.

3. Analysis of membership contribution trends

Table 1: Membership income 1998-2002

Membership Income 1998 - 2002

19981999200020012002

Number of churches paying172189193163226

Percentage of total52%56%57%48%66%

Income in CHF'000s6,0676,2696,6896,3086,537

Increase from previous year3%7%-6%4%

Total contributions income52,78150,25547,96545,13641,954

Part of the membership income11%12%14%14%16%

As of end July 2003 income stood at CHF 4,145,108 from 135 churches (39%).

This compares favourably with income of CHF3,762,213 from 116 churches (34%) as of end July 2002.

Table 2: Contribution level in 2002

226 churches, out of a total membership of 342, contributed CHF 6.5 million.

Table 3: Evolution since 1998

	Total no. of churches (in 2002)	Churches which paid their contribution
		19981999200020012002
Africa	89	2527401637
Asia	73	3736373448
Caribbean	11	45458
Europe	81	6469706774
Latin America	27	665811
Middle East	12	266210
North America	32	2529212625
Pacific	17	91110513
	*342*	172189193163226

Table 4: Source of membership income

The following chart illustrates that the main sources of income, 95%, are from the churches based in the North.

Table 5: Comparison of church family distribution by membership and income

Income by church family	Membership (number of faithful) by church family

The Protestant Church in Germany is composed of Lutheran, Reformed and United churches. Others = African Instituted, Baptist, Brethren, Free, Hussite, Methodist, Non-denominational, Old Catholic, Pentecostal, United and Uniting

Table 6: Highest payers in 2002

In real terms in CHF		Proportionally by centimes/member
Protestant Church in Germany	1,986,199	Evangelical Presbyterian Church of Portugal	67
Presbyterian Church (USA)	689,186	Moravian Church in Great Britain and Ireland	65
United Methodist Church	559,879	Synod of the Evangelical Church of Iran	56
Church of Sweden	486,694	Spanish Reformed Episcopal Church	49
Church of Norway	298,500	Church of Niue	49

The above illustrates how the constituency of highest proportional paying churches varies from the highest paying in real terms.

4. The new proposal

The proposed new structure for membership contributions is based on the following factors:

a. size of the church
Churches are asked to report their membership as soon as possible for the purpose of allocating Assembly seats. The same membership figures will be used in the membership contributions structure. Categories of size have been developed which reflect the categories used for the Assembly. Minimum contributions per category have been assigned, as follows:

b. Gross Domestic Product (GDP) of the country (or countries) where the church is located
The highest GDP of all WCC member countries is the US (based on the Human Development Indicators: UNDP Human Development Report 2001). The churches in the US pay therefore the full contribution. Churches in other countries pay an adjusted contribution that is proportional to the GDP of their country in relation of that of the US.

For example:
A fictional Church of the People has 240,000 members. Its full contribution is thus CHF 15,000. The country in which the Church is located has a GDP of $8,908; compared to that of the USA - $31,872 - they are thus requested to pay 28% of the full contribution, i.e. CHF 4,192.

Appendix 3

STATEMENT OF INVESTMENT OBJECTIVES AND POLICY

The Finance Committee is responsible to the Central Committee for the prudent and productive management of the Council’s investments.

1. General ethical guidelines

(i) The WCC shall not invest in enterprises which derive more than 10 per cent of their annual turnover from the following activities:

Research, development, production, supply or promotion of armaments (or their key components) especially nuclear, biological or chemical weapons, land mines and small arms;

Research, development, production, supply or promotion of nuclear power plants (or their key components), and production of energy using nuclear power;

Production, supply or promotion of liquor, tobacco, gambling or pornography.

The WCC shall also not invest in corporations which:

· Apply discriminatory employment policies
· De facto support violations of human rights
· Contribute directly to environmental destruction.

(ii) The WCC has a preference for investing in corporations which, through their core activities, contribute to upholding justice and peace and the protection of the natural environment. In this respect, use can be made of the various alternative investment funds which exist.

(iii) If it is found that some specific policies of a company in which the WCC holds stock runs counter to the convictions of the WCC, it may be decided that the WCC engages in dialogue with that company in an effort to change the corporation’s policy. Such dialogue could take different forms and may include shareholder action. In case such action fails to produce the desired changes in corporate behaviour, the WCC may decide to divest its stock in that company.

(iv) The Council may require an independent, external review of its investment portfolios to ensure compliance with its ethical policies.

2. Investment Objectives

(i) General Investment Fund

The General Investment Fund holds assets covering the (donor) restricted Programme Funds and (internally) designated Specific Programme Reserves.

The capital held in trust by the WCC for Programme Funds and conferences is to be preserved. The investment objective is to earn a return equal to a Swiss one-to-three year maturity fixed income benchmark, while preserving the real value of the funds.

(ii) Endowment Fund

The Endowment Fund consists of gifts and legacies to be held by the WCC in the long term.

The investment objective is to earn a regular income stream, to be withdrawn in favour of the WCC’s Core Programmes, while attaining some capital growth in the long term.

(iii) Reserves

Reserves of the WCC are defined as those Reserves and Funds available to the WCC after meetings its liabilities and obligations, including Programme Funds (Restricted Funds), Designated Funds (Specific Reserves), Endowment Funds and Designated Funds invested in fixed assets.

The WCC’s reserves are to be preserved. The investment objective is to earn a return equal to a Swiss one-to-three year maturity fixed income benchmark, while preserving the real value of the funds.

3. Meeting the Investment Objectives

Investment manager

The WCC appoints one or more investment manager/(s) who comply with the Guidelines of the Swiss Bankers’ Association to manage the investments. Common, readily marketable bonds and shares may be used for investment. Derivatives may be used to limit investment or currency risk only, and not for speculative purposes. The appointment of the investment manager is made with the approval of the Finance Committee.

Written investment guidelines

Written investment guidelines are defined for each investment management account, setting down the ethical guidelines, asset allocations and currency guidelines including strategic investment level and ranges within which the manager may have discretion. In addition, the benchmark is agreed with the investment manager in order to facilitate monitoring of performance.

Treasury planning

Treasury planning is essential information in planning the investment strategy. In particular, the General Fund strategy assumes that investments will be held over a one to three year period. However, an underlying tranche is likely to be held for the long term, representing Programme Fund balances held by the WCC at any time. An assessment of this amount is shared annually with the investment managers by staff, and is reported to the Investment Advisory Group, and to the Finance Committee of Central Committee.

Reporting on investment guidelines

The investment guidelines are discussed with the Investment Advisory Group, reviewed and approved by the Finance Committee and are signed by the Finance staff for the WCC. Investment guidelines are reviewed annually by staff with the Investment Advisory Group. The current status of investment guidelines is reported at each meeting to the Finance Committee.

4. Investment Reserve

In consultation with the investment manager, and bearing in mind the investment objectives, there may be need to hold an investment reserve, with the objective of being able to compensate for any investment losses.

The investment reserve in this sense is to be covered by the reserves of the Council as defined at point 2 (iii) above.

The assessment of the appropriate level of investment reserve, and transfers to and from the investment reserve will be documented by staff and reviewed and approved by the Finance Committee before finalization of the annual financial report.

5. Monitoring Investment Management Performance

Report is made at each meeting of the Finance Committee of the investment management performance compared with benchmark. Staff with the Investment Advisory Group review investment management performance and compliance with guidelines at least quarterly.

Recommendations for a change in investment manager, together with the reasons, are raised by the Director of Management or his delegate to the Finance Committee for approval.

6. Questions of interpretation

If queries arise on the interpretation of this policy, they should be addressed to the Officers of the Finance Committee.

Appendix 4

FUNDS AND RESERVES POLICY

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

Unrestricted Funds

Designated Funds (being Unrestricted Funds assigned by internal authorities)

Designated Funds – Fixed Assets

Restricted Funds

Endowment Funds

General Reserves

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

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

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

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

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

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

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

The review is documented by responsible Finance Officers.

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

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

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

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