Foreign and Commonwealth Office/BBC Financial
Memorandum
Relating to the application and administration
of the Grant-in-Aid and additional income of the BBC World Service
and agreement on related matters.
1. INTRODUCTION
1.1 The relationship and responsibilities
of the Government and the British Broadcasting Corporation (BBC)
are set out in the Royal Charter (CM 3248) and Agreement (CM 3152)
with particular reference, concerning the application and administration
of the Grant-in-Aid, to Charter Article 3 sub-paragraphs (u),
(w), (i) and (x), Charter Article 7 sub-paragraph (1)(b) and paragraphs
16(1), and 18(2) and 18 (4) and the Agreement sub-clauses 10.3,
10.7 and 10.8.
1.2 The BBC World Service (World Service)
is a constituent part of the BBC. It is funded by Grant-in-Aid
provided from the Request for Resources of its sponsoring Department,
the Foreign and Commonwealth Office (FCO), and from other income
streams. The relationship between the FCO and the World Service
is defined in the Joint FCO/BBC World Service Broadcasting Agreement
(Broadcasting Agreement).
1.3 This Memorandum sets out the details
of financial management and audit requirements essential to the
provision of Grant-in-Aid to the World Service. It also applies
to all other sources of World Service income and the use to which
such income is put. It replaces all previous Financial Memorandum
and their amendments.
1.4 The relationship between the FCO and
BBC Monitoring (BBCM) is covered by this Memorandum except where
alternative arrangements have been agreed ie the Service Level
Agreement and Concordat between BBCM and the FCO.
2. AIMS, OBJECTIVES
AND PERFORMANCE
ASSESSMENT OF
THE WORLD
SERVICE
2.1 The aims and objectives of the World
Service and provisions for performance assessment are set out
in the Broadcasting Agreement. This provides the framework for
the preparation of the World Service's strategic Three Year Plan.
3. ROLES AND
RESPONSIBILITIES
3.1 The Role of the BBC Board (The Board)
3.1.1 management of the World Service is
vested in the BBC Board of Governors appointed under the Royal
Charter. The Board is responsible, among other things, for ensuring
that the financial and management controls which apply within
the Corporation, including the World Service, are appropriate
and sufficient to safeguard public funds, and more generally that
these controls conform with the requirements both of propriety
and good financial management. One Governor on the Board has a
special responsibility for the World Service.
3.2 The Role of the Secretary of State for
Foreign and Commonwealth Affairs (The Secretary of State).
3.2.1 The Secretary of State for Foreign
and Commonwealth Affairs is responsible to Parliament for the
Government's relationship with the World Service. There will be
an annual Ministerial meeting with the Chairman of the BBC, the
BBC Governor with special responsibility for the World Service
and the Direct World Service and Global News to review performance
against agreed objectives and targets and to consider future audience
and strategic priorities. These discussions will inform the strategic
Three Year Plan.
3.3 The Role of the Departmental Accounting
Officer
3.3.1 The Permanent Under Secretary of State
for Foreign and Commonwealth Affairs (Permanent Under Secretary),
as Accounting Officer for the FCO, is responsible for ensuring
that:
— the financial relationship between
the FCO and the BBC is properly defined (in the Financial Memorandum)
and is regularly reviewed.
— the uses made of the Grant-in-Aid
fall within the scope of the FCO's Request for Resources (RFR).
— the financial and management controls,
including internal audit, are appropriate and adequate for the
requirements of propriety and good financial management.
3.3.2 The Permanent Under Secretary will
appoint the World Service Accounting Officer in accordance with
the requirements set out in Government Accounting.
3.4 The Role and Responsibilities of the
World Service Accounting Officer
3.4.1 The Accounting Officer for the World
Service will:
— ensure the World Service meets the
relevant requirements of Government Accounting 2000, ISBN 0 11
560090 6 (including subsequent amendments and new editions), particularly
the conditions set out in the Accounting Memorandum issued by
the FCO.
— ensure that the applicable requirements
of Resource Accounting and Budgeting are implemented.
— ensure the World Service implements
any relevant guidance issued by the Cabinet Office, HM Treasury,
the FCO, the Public Accounts Committee, or other Parliamentary
Select Committees or Authorities.
— ensure that full attention is paid
to regularity, propriety and value for money as Grant-in Aid and
aditional income is used, and for arrangments to safeguard it
from loss of misappropriation.
— ensure that grant-in-aid and additional
income is used for the purposes for which it is intended, maintaining
transparent financial separation from activities and assets funded
from the the Licence and commerical income.
— advise the BBC properly on matters
of financial propriety and regularity and of prudent and economical
administration, efficiency and effectiveness as they affect the
responsibilities of the World Service and the FCO and ensure that
BBC internal procedures and/or guidance are not allowed to prevent
these criteria being met.
— inform the Permanent Under Secretary
if the BBC is contemplating action which would infringe these
requirements.
3.5 Public Accounts Committee and Parliamentary
Select Committees
3.5.1 The Committee of Public Accounts and
Parliamentary Select Committees have wide powers to send for persons,
papers and records in the conduct of their enquiries. The Accounting
Officers of the FCO and the World Service and other officials
may be called before the Committee of Public Accounts to give
evidence on questions arising from the accounts or reports to
Parliament by the Controller and Auditor General.
4. FINANCIAL
PLANNING AND
MANAGEMENT OF
GRANT-IN-AID
AND OTHER
INCOME
4.1 Grant-in-Aid Medium Term Planning Assumptions.
4.1.1. Government Spending Reviews (SRs)
are held at two-yearly intervals to establish Departmental Expenditure
Limits (DELs) for the following three years, the third year of
one SR period being the first year of the next SR period. In each
Spending Review the FCO will bid for the World Service Grant-in-Aid.
The World Service will provide the FCO with such information as
it requires for the preparation of the bid. This information will
need to demonstrate the efficiency and effectiveness of the World
Service in supporting the achievement of FCO objectives.
4.1.2 When the Treasury announces Spending
Review Settlements, the BBCWS will be given a distinct Grant-in-Aid
allocation within the FCO Vote.
4.1.3 The FCO will write to the Director
World Service and Global News following the announcement of Spending
Review outcomes setting out the level of Grant-in-Aid for the
three years of the Spending Review period. Each year the FCO will
confirm:
— the levels of Grant-in-Aid approved
by Parliament;
— targets for expected additional income
and efficiency savings.
4.2 Strategic Planning.
4.2.1 The World Service's main policy and
strategic planning document is its strategic Three Year Plan which
is reviewed each year and agreed with the FCO. The World Service
will base this plan on the three-year allocation announced in
the outcome of the Spending Review.
4.2.2 In the preparation of the strategic
Three Year Plan the World Service will maintain regular dialogue
with the FCO to ensure that the FCO's priorities and objectives
for Grant-in-Aid-funded work are reflected in the policies and
priorities, including geographical priorities of the World Service.
4.2.3 The Strategic Three Year Plan will
include:
— the World Service's aim, objectives,
priorities and performance targets and measures for the three
years of the plan;
— plans for each year of the Spending
Review period;
— analysis of the operating context,
including planning assumptions;
— operational priorities and the options
for achieving them;
— the management strategy including
plans to achieve efficiency gains and other actions to control
costs;
— the financial plan, covering forecasts
of income and expenditure including plans for additional revenue
streams.
4.2.4 The World Service will ensure that
a system exists to measure the efficiency and effectiveness of
its Grant-in-Aid related activities, including output and performance
targets and measures in a form decided in consultation with the
FCO. This will include data required for the FCO's annual Resource
Budget and Resource Accounts and the Public Service Agreement
(PSA).
4.3 In-Year Management of the Grant-in-Aid
and Additional Income
4.3.1 Amounts specifically issued by the
FCO for the Grant-in-Aid shall not exceed those provided for in
the FCO's Public Expenditure programmes and approved by Parliament
in the Supply Estimates. In the event that capital charges in
DEL shall apply to the BBCWS from 1 April 2003 under the provisions
of 3.4.1 and 4.3.1 above, this Financial Memorandum will be revised
accordingly.
4.3.2 In order that the FCO may make appropriate
provision in the Main Estimates presented to HM Treasury, and
in due course to Parliament, the World Service will provide to
the FCO, by whatever date the FCO may reasonably decide, estimates
of income and expenditure within the agreed public expenditure
provisions for the forthcoming year and forecasts of future balance
sheet positions. The estimates may need to be revised if the public
expenditure provision is changed, for example as a result of Spending
Reviews.
4.3.3 At the same time as submitting the
estimates for Grant-in-Aid the World Service will provide estimates
of all other income for the year in question.
4.3.4 Forecasts of expenditure, whether
they be funded from Grant-in-Aid or additional income, should
be provided under the following headings:
4.4 Virement between Current and Capital
Provision.
4.4.1 In 2002-03 and 2003-04 the World Service
may, with the FCO's prior agreement, adjust in-year allocations
between current and capital provisions to meet changed priorities,
within the scope allowed by the Treasury's SR2000 rules on virement.
4.4.2 In 2004-05 and subsequent financial
years, the Treasury's SR2002 rules on virement will apply: there
will be no ability to spend capital provision on current expenditure,
with the sole exception of PFI payments as approved by the FCO
and HM Treasury. However, subject to the FCO's prior agreement,
spending of current provision on capital expenditure will be allowed
in 2004-05 and subsequent years.
4.5 Forecasts and Outturn.
4.5.1 Throughout the financial year, the
World Service will provide quarterly statements of actual income
and expenditure and forecasts of end-year outturn on Grant-in-Aid
and other income. The level of debtors, creditors and stock will
be taken into account in reconciling to the cash balance shown
on the Statement of Need. The statement will include a separate
schedule showing expenditure on capital projects over £1,000,000.
4.6 Drawn-down of the Grant-in-Aid and Working
Capital Provision.
4.6.1 No advance issue of the Grant-in-Aid
will be made in any financial year against commitments which properly
fall for payment in the following year.
4.6.2 If draw-down of the Grant-in-Aid is
less than the amount approved by Parliament, the FCO will require
the World Service to provide a satisfactory explanation.
4.6.3 The World Service will request issues
of Grant-in-Aid by submitting monthly to the FCO a written Statement
of Need in a form agreed with the FCO. Issues will normally be
made monthly. The timing and amount of each instalment must reflect
the need for funds for Grant-in-Aid activities and must not result
in any accumulation of Grant-in-Aid or other income in excess
of immediate requirements. Cash balances at the end of each month
of a financial year should be geared only to funding requirements
until the next tranche of the Grant-in-Aid is due.
4.6.4 At the end of each financial year
the World Service may retain a cash balance, of a maximum amount
agreed with the FCO, from the Grant-in-Aid received. Any balance
held at year-end will not be liable to surrender to the Consolidated
Fund. Any balance in excess of the agreed amount will be taken
into account in the payment of the following year's Grant-in-Aid.
4.6.5 The World Service may, with the FCO's
prior approval, retain additional income in excess of budgeted
amounts provided it is to be used for Grant-in-Aid activities.
4.7 End Year Flexibility.
4.7.1 End Year Flexibility (EYF) is the
ability to carry forward unspent funds from one year to future
years. The World Service is allowed 100 per cent EYF from each
financial year to the next within the three year SR period subject
to the following conditions:
— EYF is qualified by the requirement
that the World Service funds from its EYF any Reserve claims made
on its behalf.
— Any EYF is subject to an override
should the core FCO not be able to fund all of any Reserve claims:
— HM Treasury's "taut and realistic"
condition (Government Accounting 11.3.30 and 11.3.31) could also
limit full EYF in the event that the Treasury invoked it, or prompt
the FCO to take pre-emptive action if the Treasury threatened
to confiscate unconsumed provision.
5. OPERATING
PRINCIPLES
5.1 The World Service will:
— maintain management accounting systems
which clearly identify income and expenditure related to the agreed
Grant-in-Aid activities on a Resource basis
— seek to maximise its additional income
in line with performance targets (including financial targets)
agreed each year with the FCO, and stated in the strategic Three
Year Plan and spend such income in furtherance of its objectives.
— seek the prior approval of the FCO
before incurring expenditure on any significant activities of
a kind any of which
have not previously been undertaken
have not previously been funded by the Grant-in-Aid
are novel or contentious or
may have long term financial implications.
— seek the prior approval of the FCO
before incurring expenditure on any major departure from the agreed
strategic Three Year Plan.
5.2 The World Service, in consultation with
the FCO will ensure that adequate financial and management arrangements,
including internal financial and management information systems,
exist for the economic, efficient and effective planning, management
and control of all its resources
5.3 These must include:
— compliance with Generally Accepted
Accounting Practice in the United Kingdom
— compliance with any relevant HM Treasury
practices, including Resource Accounting and Budgeting, procedures
or recommendations (including recommendations made by the Public
Accounts Committee and accepted by HMG) applicable to expenditure
of government grants.
— observance of all relevant guidance
a set out in Government Accounting and other official guidance
as appropriate
— the proper planning and deployment
of all resources to ensure that best value for money is obtained
— systems and controls dealing with
income and expenditure and resource consumption relating to the
Grant-in-Aid and other income
— all reasonable measures to safeguard
against fraud and theft of the funds and assets held by the World
Service
— procurement guidelines.
6. BBC INTERNAL
TRADING
6.1 The BBC's external auditors will review
annually a summary of transactions between the World Service and
BBC supplier divisions.
6.2 The BBC's Annual Report and Accounts
will include reference to the fact that the BBC's external auditors
have reported to the Governors that, in their opinion, the information
contained in the summary of transactions for the year in question
has been properly extracted from the books and records of the
supplier divisions; has been properly prepared on the bases of
cost allocation and of apportionment methods set out in the agreements
between the World Service and the supplier divisions; and that,
on this basis, there has been no material cross-subsidy between
the Grant-in-Aid and the Licence Fee.
6.3 The BBC's Annual Report and Accounts
will also contain a statement from the BBC Governors confirming
that the Governors are satisfied that there has been no material
cross-subsidy between Grant-in-Aid or related additional income
and Licence Fee or commercial income.
7. ACCOUNTING,
AUDITING AND
BANKING ARRANGEMENTS
7.1 The World Service will publish its Annual
Review separately from the consolidated BBC Annual Report and
Accounts. The World Service Annual Review will include the full
set of accounts relating to World Service operations and a comprehensive
analysis of its financial and operational performance. The World
Service Accounts and Annual Review will cover the financial year
ending 31 March. The Accounts shall be properly prepared in accordance
with the provisions of the BBC Charter and of the Agreement and
with the provisions of the Companies Act as if these provisions
applied to these accounts. The consolidated BBC Annual Report
and Accounts will continue to carry a separate section describing
the performance of the World Service and will refer readers to
the additional information available in the World Service Annual
Review. Copies of the World Service Annual Review and the consolidated
BBC Annual Report and Accounts will be sent to the FCO by 31 July
each year.
7.2 The World Service Annual Review will
include a report on the previous year's performance against the
strategic Three Year Plan, including performance targets and measures.
7.3 The Director World Service and Global
News and the Finance Director of the World Service will be signatories
of the audited accounts published in the World Service Annual
Review. The World Service's accounts will be incorporated into
the consolidated BBC Annual Report and Accounts. It is not necessary
for the names of the Director World Service and Global News and
the Finance Director of the World Service to appear as signatories
to the BBC's consolidated accounts; for this purpose the signatories
are currently the Chairman, Director General and Director of Finance,
Property and Business Affairs of the BBC.
7.4 The FCO will need to be satisfied that
the World Service's banking arrangements protect public finds.
The Director is responsible for ensuring that the banking arrangements
are in accordance with the requirements of Government Accounting
and are carried out efficiently, economically and effectively.
The World Service should therefore ensure that these arrangements
are suitably structured and represent value for money; the interest
earned on credit balances should be as close as possible to bank
Base Rate. The arrangements should be reviewed at least every
two years, with a fundamental review of the market at least every
three to five years. The World Service is responsible for informing
the FCO when such reviews have taken place. The Director is responsible
for providing such information and banking arrangements as is
required to enable the FCO to provide the FCO Accounting Officer
with the necessary assurances about their adequacy. The World
Service should ensure that banking services overseas are employed
judiciously and therefore that wherever possible overseas accounts
are only with organisations with high credit ratings.
7.5 In order to provide assurance to the
FCO Accounting Officer that the financial and management controls
employed by the World Service are appropriate and conform with
the requirements of propriety and good financial management, the
following internal audit conditions will apply:
— Auditing the Grant-in-Aid and other
related World Service income and activity will be a discrete function
within both the internal and external BBC audit programmes; and
the programmes of the two sets of auditors shall be arranged accordingly.
— In order to obtain assurance on the
comprehensiveness of the World Service internal audit coverage,
the FCO Head of Internal Audit will be provided annually with
the World Service's Audit Needs Assessment and audit plans. By
the end of June each year, the World Service shall provide the
FCO Head of Internal Audit with a summary of assurances on internal
control and key points arising from the BBC Internal Audit reports,
covering World Service matters, which were issued in the preceding
financial year.
— FCO Internal Auditors shall have
rights of access to specific World Service internal audit reports
where they require more information than is included in the World's
Service's annual summary of key findings.
7.6 For the purpose of discharging his responsibilities
to Parliament, the Comptroller and Auditor General has the right,
at all reasonable times, to inspect such documents and to make
such enquiries as may relate to the provision of World Service
activities.
7.7 Any such inspection may include an examination
of the accounts and records relating to the Grant-in-Aid and other
income and receipts used for the provision of World Service activities.
It may also include, under Section 6 of the National Audit Act
1983, enquiries into the economy, efficiency and effectiveness
with which those resources have been used.
8. DELEGATED
AUTHORITIES
8.1 Management and Disposal of Assets.[5]
8.1.1 Sales, net of the costs of sale, by
the BBC of Grant-in-Aid funded assets are subject to claw-back.
Any money coming back to the World Service under the claw-back
arrangements in excess of £1 million will be transferred
to the FCO; below £1 million, it is for FCO and HM Treasury
to decide whether or not to allow the World Service to keep the
receipts, with or without an offsetting reduction in its Grant-in-Aid.
Accordingly, the World Service will inform the FCO at an early
stage if it proposes to dispose of any asset or group of related
assets which is expected to realise more than £100,000.
8.1.2 For sales by the World Service or
the Home Services of any Grant-in-Aid funded asset or group of
related assets which realise less than £100,000, the World
Service has authority to re-invest or use the proceeds of disposal
to purchase replacement assets or for any other capital purpose
appropriate for the expenditure of government Grant-in-Aid. The
World Service will report such disposals and reinvestments, if
involving values in excess of £10,000 to the FCO.
8.1.3 Surplus assets will be sold at the
best price obtainable after taking professional advice where the
sale includes land or buildings. The proceeds shall be shown as
receipts in the BBC's returns and accounts but, if the total in
any year exceeds the amount allowed for in the estimates in this
category, the excess may not be used to cover increased payments
or expenditure without the concurrence of the FCO.
8.1.4 The World Service will regularly review
its assets funded from government Grant-in-Aid and will dispose
of surplus assets in line with the advice in Government Accounting:
— The World Service will maintain registers
covering all items purchased out of the capital Grant-in-Aid detailing
a description of the asset, the original cost, depreciation charge
to date and the written down value. Items recorded must be checked
systematically so that the World Service can readily demonstrate
the accuracy of the figures in the register.
— In addition the World Service will
provide an annual statement if requested by the FCO showing:
— the value ie cost less depreciation,
of all assets at the beginning and at the end of the financial
year;
— additions to fixed assets during
the year;
— revaluations of fixed assets during
the year;
— impairments of fixed assets during
the year;
— the cost of assets transferred to
or from the Home Services Group;
— the cost of other assets taken out
of service or written off;
— receipts from the sales of World
Service assets; and
— receipts or credits from the sales
of World Service assets managed by the Home Services which were
previously funded from the Grant-in-Aid.
8.1.5 Within the UK the World Service will
seek the advice of the Property Advisers to the Civil Estate (PACE)
whenever significant property transactions are being considered.
The FCO and the World Service will hold regular liaison meetings
to discuss the planned capital programme.
8.1.6 Provided there is no resulting increase
in the current or capital totals as shown in the approved Grant-in-Aid,
the World Service may sanction all new expenditure subject only
to seeking the FCO's prior approval for any individual capital
project where the gross cost is expected to be in excess of £2
million in the case of real property assets or £1 million
in the case of Information Technology or other assets or when
the aggregate cost of all projects, both above and below those
values, would lead to the approved capital element of the Grant-in-Aid
being exceeded.
8.1.7 FCO approval for capital projects
must be sought on the basis of business case, constructed inline
with the requirements for Investment Appraisal outlined in the
"Green Book" and describing why the project is necessary,
the options which have been considered (including the "do
nothing" option) and assessments of them on the basis of
Discounted Cash Flow (DCF) financial appraisal and risk analysis.
8.1.8 Purchasing should be in line with
the general principles of value for money outlined in Government
Accounting. Goods and services should be acquired by competition.
Contracts which are above certain thresholds are normally required
to be advertised and awarded in accordance with EC and World Trade
Organisation (WTO) rules on public procurement. For transactions
over £1 million the World Service will consider the use of
Public Private Partnerships (PPP) in its option appraisals.
8.2 Losses and Special Payments.
8.2.1 The World Service may, in accordance
with Government Accounting, and without prior reference to the
FCO, write off certain losses, make gifts of surplus stores, make
special payments, and waive claims, subject to no single item
exceeding £50,000. Where the World Service is contemplating
the write-off of a sum exceeding £2 million or more it will
be necessary to seek prior Parliamentary approval. The World Service
will report to the FCO at the end of each financial year the amounts
written off etc in each of the categories detailed in Government
Accounting and will include a summary in the published accounts.
8.3 Gifts.
8.3.1 The World Service may, in accordance
with the guidelines contained in Government Accounting, make gifts
of equipment and services without prior reference to the FCO subject
to the value of any one gift not exceeding £10,000. Gifts
of cash, whatever value, cannot be made without the prior agreement
of the FCO. Where the World Service is contemplating a gift valued
at £1 million or more it will be necessary to seek prior
Parliamentary approval. The World Service will include in the
annual return and the summary for the published accounts, as required
in paragraph 8.2.1, a statement of the total value of gifts made.
8.4 Insurance.
8.4.1 The World Service may arrange insurance
in the following limited cases:
— where it is a statutory or contractual
requirement, eg motor insurance
— where it is necessary to protect
staff, eg personal accident insurance, employer's liability
— where third party liability policies
are considered necessary
— where there is an obligation to arrange
insurance for shared premises and/or facilities
— where there is agreement between
the FCO, the BBC and HM Treasury that there should be special
arrangements.
9. RISKS AND
LIABILITIES
9.1 Not less than once every three years
the World Service will carry out a full financial risk assessment
of its operations. On the basis of the findings of such assessments,
which are to be agreed between the World Service and the FCO,
it will apply reasonable and cost-effective countermeasures including
appropriate insurance arrangements to manage the risks so as to
minimise the contingent liabilities on the FCO.
9.2 In those cases where the World Service's
total contingent liability on the FCO would exceed £500,000,
the World Service is obliged to seek specific FCO approval prior
to the liability being incurred. Where the World Service is contemplating
action which would create an individual contingent liability on
the FCO over £2 million it will be necessary to obtain Parliamentary
authority before the liability is incurred.
9.3 The World Service will seek the approval
of the FCO before borrowing money on the commercial market, making
loans, offering any assets as security, giving guarantees, indemnities,
letters of comfort or incurring any other contingent liability.
9.4 For the purposes of compiling the FCO's
Resource Account, the World Service will provide year-end assessments
of actual and contingent liabilities, along with any firm contractual
commitments.
10. AGREEMENT
TO THE
MEMORANDUM
10.1 The arrangements in this Memorandum
take effect from the date of signature.
10.2 The FCO, in consultation with the World
Service, will review the terms of this Memorandum as necessary
but at least every three years. Any material revisions will be
agreed with HM Treasury.
The Secretary of State for Foreign and Commonwealth
Affairs and The British Broadcasting Corporation
June 2002
5 Certain capital assets may from time to time be
purchased by BBC Home Services and either leased to the World
Service under operating leases or used to assist in the supply
of a service to the World Service. In either case, subject to
Generally Accepted Accounting Practice, it is not expected that
the assets will appear on the World Service's balance sheet, nor
count against the overall spending limit; except in respect of
operating lease payments and periodic service charges. Assets
purchased by the World Service and managed by BBC Resources remain
in the ownership of the World Service. The World Service pays
a monthly charge for use of these assets, but a monthly credit
is received in recognition that the World Service made the initial
purchase of the assets from Grant-in-Aid funds. Back
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