Further memorandum from the Foreign and
Commonwealth Office
FCO ANNUAL REPORT
Thank you for your letter of 27 June requesting
answers to 14 questions in advance of the Committee's oral evidence
session with Michael Jay on 16 July.
I enclose the responses to these questions,
prepared by the relevant departments and agreed by Michael Jay
and Peter Collecott, the Chief Clerk.
We trust that this information will further
assist the Committee in its scrutiny of the FCO's Annual Report.
Michael Jay looks forward to discussing these and other issues
relating to the Report with the Committee on 16 July.
Parliamentary Relations & Devolution Department
July 2002
FAC QUESTIONS ON
FCO ANNUAL REPORT
PSA Targets and Financial Information
Question 1:
How do the Public Service Agreement targets
agreed in the 2000 Spending Review relate to the targets in the
1998 Comprehensive Spending Review? How and why does each target
differ in substance from its nearest equivalent in the previous
set of targets?
Answer 1:
Public Service Agreement targets agreed under
the 2000 Spending Review are for the period 2001-04, whereas targets
agreed under the 1998 Comprehensive Spending Review were for the
period 1999-2002.
Milestone targets agreed under the 1998 Comprehensive
Spending Review for the overlap year (2001-02) between the two
spending review periods have been incorporated where relevant,
in the Public Service Agreement targets agreed under the 2000
Spending Review.
Public Service Agreement targets agreed under
the 2000 Spending Review necessarily differ from targets agreed
under the 1998 Comprehensive Spending Review to reflect progress
made against the Comprehensive Spending Review targets, to take
account of other changes caused by the dynamics of international
relations, and to further drive performance upwards.
A table showing how targets agreed under the
1998 Comprehensive Spending Review relate to targets agreed under
the 2000 Spending Review is attached.[6]
Question 2:
In 2000-01, the Committee wrote "We would
prefer to be able to see at a glance past and projected expenditure
for each of the commands, and for each major post abroad".
(Paragraph 8.) Why has the FCO not been able to provide this information
in the 2002 Annual Report?
Answer 2:
The FCO has tried to respond to the Committee's
recommendation on the 2001 Annual Report that: "the FCO review
how it presents financial information in its Annual Report, with
a view to making that information more accessible, more detailed
and more relevant to the concerns of those who are likely to use
the report", within the boundaries of Treasury guidance.
For example, the financial information is presented in both real
and nominal terms, as the Committee requested.
The Department has not presented information
on how much it spends in individual countries or geographical
areas: resource accounting and budgeting encourages Departments
to allocate expenditure in order to achieve objectives, rather
than by country. The FCO is not organised and managed on a purely
geographical basis. Our management information is therefore not
generated in this form. The geographical and Post data can be
compiled accurately only after the end of the financial year,
too late for inclusion in the Departmental Report. Tables showing
total spending by Commands and our 20 largest Posts are attached.[7]
Please note that these data are on an appropriation, not resource
consumption, basis.
Question 3:
Are the figures in the tables at the beginning
of chapters 5 to 13 of the Annual Report given in cash terms?
On what figures are the pie-charts at the beginning of these chapters
based?
Answer 3:
The figures provided at the beginning of chapters
5-13 of the Annual Report are resource based (not cash). The data
are presented gross: income has not been netted off. They, and
the figures on which the similarly located pie charts have been
based, have been taken from the FCO's audited and published 2000-01
Resource Accounts—reference Schedule 5 (page 15). Figures
for subsequent years are projections based on the 2000-01 outturn
and applied to our future Resource Budgets; they project how spending
on an Objective might evolve if it were to claim a constant share
of our budgets.
Question 4:
What is the explanation for the large discrepancy
between the figure given at page 92 of the Annual Report for FCO
expenditure on Impact/Respect for 2000-01 outturn (£556.7
million, I am assuming, rather than £556.7 billion as stated)
and the figure given on page 167 at Table 34 of £380 million
for the same objective and the same period? Even if the first
figure is in cash terms and the second in resource terms, the
discrepancy is marked.
Answer 4:
The tables attached replace tables 34 and 35
on page 167 on the FCO's Departmental Report.[8]
They show the Resource Budget split out by the nine FCO objectives.
The tables are based on the Resource Budget position recorded
with HM Treasury. The original tables contained wrong information.
The Department apologises for the error.
As requested by the Treasury, the figures in
these tables show a different form of analysis from those at the
beginning of Chapters 5-13. The tables in Chapters 5-13 and the
associated pie charts attempt to capture total spending against
Objectives. They are therefore compiled on a gross spending basis
and include spending on capital. The format of Tables 34 and 35
are mandated by the Treasury. Table 34 shows resource consumption
on a net basis, ie after receipts have been deducted. The latter
presentation therefore shows the taxpayer's contributions to funding
this work, rather than its total cost. This in particular, but
also certain other differences in data coverage, produces marked
differences both in the overall totals and in the composition,
making it difficult to compare the data in the various tables.
Question 5:
Table 2, note 2, page 19 refers to rising impact
on AME of our capital expenditure plans, and the attendant depreciation,
capital and impairment costs. What are the consequences of this
for the Department under Resource Budgeting and how will it seek
to control and minimise these costs?
Answer 5:
The FCO's policy is not to retain assets that
fail to generate benefits at least as great as the capital and
depreciation charges levied on them. We are interested in deriving
maximum "value for money" from scarce resources, including
valuing the benefits from our "diplomatic balance sheet"
(as recommended by the FAC in its Report on US-UK relations).
Resource accounting information helps us decide which assets should
be sold on the basis of under-performance, releasing scarce resources
for more productive use elsewhere.
The increased depreciation charge in recent
years reflects a change in strategy. FCO modernisation plans required
an increased emphasis on investment in Information and Communications
Technology (ICT) assets, and somewhat less emphasis on property
assets. ICT assets are depreciated over a much shorter period
(five to eight years) than buildings (up to 60 years). We also
extract benefits from ICT investments at a faster rate than investments
in property. The modernisation programme therefore increased depreciation
charges, which are in Annually Managed Expenditure. The trend
is expected to continue (see Table 23, page 137 of the Departmental
Report) as the FCO pushes ahead with plans to improve effectiveness
by transferring itself into a single global on-line organisation.
We seek to minimise costs for any investment
through good project management to ensure cost effectiveness.
We are fully engaged with the Office of Government Commerce (OGC)
to help ensure good project management, including implementing
the OGC's Gateway review process.
The FCO will continue to use resource account
information in conjunction with estate Key Performance Indicators
to inform our asset recycling decisions. These delivered £90
million of gross proceeds over the triennium from 1999-2000 to
2001-02 in line with the FCO's internal target.
The impairments aspect of this question is addressed
in the answer to question 6 below.
Question 6:
Table 2 (page 19 of the Annual Report) suggests
a heavy level of write down (impairment) in the value of the Department's
estate. How does the department ensure that new buildings or enhancement
are not over specified leading to costly write downs when subsequently
re-valued by professional valuers?
Answer 6:
Over specification is only one of a number of
possible causes of impairment.
FCO assets are valued at Existing Use Value
(EUV). This can deviate from the sums the FCO invested in acquiring
or enhancing an asset for the reasons set out on pages 137-138
of the Departmental Report. Building properties to at least UK
health and safety standards (the FCO remit in all countries) is
likely to result in an impairment because these standards are
higher than those required in many countries. They therefore have
little or no market value, and are not reflected fully in the
EUV. Similarly, the FCO needs to invest in particular security
features going beyond local market norms. Such investments tend
to be written off in whole or in part.
Impairments were £198 million in 2000-01.
The FCO has no plans to deviate from UK health and safety standards,
nor to reduce security features at Posts. On the contrary, a post-11
September analysis demonstrated that we need to increase security
at certain posts. In December 2001, the Treasury approved at £16.2
million Reserve Claim aimed in part at achieving higher specifications
in this area. We plan further such investments in the 2003-06
period.
The Departmental Investment Strategy Group approves
all large investments. Its rigorous procedures ensure that estate
investment projects offer the best value for money when compared
to alternatives for meeting FCO's needs for fit-for-purpose accommodation.
One way to avoid "costly write downs"
in future would be to change, not what we purchase, but the way
we fund our purchases. We could, for instance, fund the security
and UK health and safety standards aspects of our estate projects
out of our Administration Cost budget instead of our Capital budget.
Such expenditure would never be recorded as purchasing fixed assets,
and hence would not be subject to write-downs. In light of the
£198 million of impairments in the FCO's 2000-01 Resource
Account, we are discussing with the Treasury the appropriate balance
between Capital and Administration Cost funding for new projects.
INFORMATION AND
COMMUNICATIONS TECHNOLOGY
Question 7:
The information provided in the Annual Report
on Information and Communications Technology is significantly
less than that provided in the December 2001 ICT report. Could
you provide an update on that report, including cost projections
and proposed timescale for the Knowledge IT programme, progress
on PRISM, and comment on the successful implementation of other
ICT projects?
Answer 7:
Knowledge Programme: The FCO's Knowledge Management
Programme is now forecast to cost £27.8 million (excluding
VAT) over the five year lifetime of the project. This includes
additional software development, hardware and support costs of
the Back-Up and Disaster Recovery element of the project added
in the wake of 11 September. The negotiations for this element
of the contract were concluded at the end of March 2002.
The project is currently on time. A detailed
design was delivered at the end of March 2002, the first tangible
deliverables are on target for the beginning of July 2002 and
the main system should be ready for piloting at the beginning
of January 2003.
Prism: Prism is making good progress so far
against some complicated design issues and a tight timetable,
and recently successfully completed its first major milestone.
The proposed functional solution in the areas of finance, procurement
and personnel should be completed and demonstrated to user satisfaction
by the early Autumn. The technical build is also well underway;
and other work on implementation, change management and service
provision is progressing well.
Other ICT Projects: In April we launched the
first new website to be delivered by the FCO Internet Project.
www.ukvisas.gov.uk is aimed at visa applicants and their sponsors.
The new FCO website (www.fco.gov.uk) went live in mid-June and
provides a wider range of public information and services on a
more robust technical platform.
The first phase of the Entry Clearance Modernisation
Programme is nearing completion. The new visa issuing and database
system software, Proviso 3, is working well. It is producing benefits
already in terms of efficiencies particularly in some of the larger
visa issuing offices. A prototype version which allows applications
to be made over the Internet (followed up by mail/courier or in
person with documents) has been running in New York since end
February. The evaluation of the system shows a saving of about
£1.50 per application in terms of greater efficiency and
throughput. The system is also proving popular with applicants
with numbers using the system rising steadily. Our aim is to improve
the software and roll it out to the other visa issuing posts in
the US by the end of this year to test and evaluate it in a multi-post
environment and thus assess its suitability for use in other countries.
The new systems for processing passport applications
and producing secure digital passports are now in place at 15
passport issuing Posts, representing 83 per cent of overseas passport
issues.
Question 8:
No figures are given for the PRISM contract
in Appendix B at p172 of the Annual Report. What is the total
estimated cost of the whole project, including not only the contract
but also internal staffing and training to be funded by the FCO
(as mentioned at p142)? What is the split between current and
capital costs of the project?
Answer 8:
The total cost of the Prism programme, including
procurement, design and delivery and operating costs (until the
contract expires in January 2009) is estimated to be £84.7
million. Of this £21.2 million is capital cost. The value
of the main contract, with CGEY, is £53.9 million. The programme
current cost estimate of £63.5 million consists of payments
to CGEY for non-capital activities (such as change management,
training and ongoing support), together with the cost of procurement
advice, FCO staff, and other internal costs.
Question 9:
In its December 2001 report on Information and
Communications Technology, the FCO provided a report on support
arrangements for its Firecrest information system. On how many
occasions since December 2001 has the Firecrest system suffered
from downtime of more than half a day? What is the total amount
of downtime suffered by the Firecrest system since December 2001?
Answer 9:
Firecrest is a distributed worldwide system.
Whilst there have been occasions when individual components have
failed, affecting some services to parts of the FCO community,
there have been no occasions when the entire system has been down.
Since December 2001, there have been three such component failures
in the UK of more than half a day and six of half a day. Of the
three outages of over half a day, two were failures of an e-mail
gateway of one and two days respectively. The third was a failure
of the Registry server.
Overseas there have been no complete failures
of Firecrest since December 2001. There have, however, been some
failures of elements of the infrastructure and Internet Service
Provider problems that caused inconvenience to some users.
Whilst these kind of component failures are
to be expected, the FCO has in hand further work to reduce the
effects of such failures on users and increase the resilience
of its ICT infrastructure.
Question 10:
How will FTN fit in with the existing Firecrest
communications project? Is there any duplication in the two systems?
Answer 10:
Firecrest is not a communications project. Firecrest
is our common desktop IT system which uses standard Microsoft
software and is used in all our Posts abroad and in the FCO in
the UK. FTN is the global telecommunications network which connects
Firecrest systems together around the world, as well as providing
voice telephone services. There is no duplication between FTN
and Firecrest. Together they form our ICT infrastructure, which
underpins all our ICT initiatives, including Prism and the knowledge
programme.
Other Issues
Question 11:
At page 159 of the Annual Report, reference
is made to "the Diplomatic Service Language Centre combining
with Translation and Interpreting Services to become a Next Steps
Agency in April 2002". Had this indeed already occurred?
Answer 11:
The merger of the DSLC and Translation and Interpreting
Service took place in October 2001. The two units combined to
form Language Group of FCO Services. The Language Group has made
considerable progress towards operating on Agency lines, but no
definitive decision has been taken on transition to formal Agency
status.
This has been included among three errata to
the Annual Report (attached) which we are arranging to be made
available in the normal way through TSO. We will also amend the
Annual Report text on the FCO website.
Question 12:
Have any bilateral agreements permitting spouses
to work outside British missions been concluded since July 2001?
(see paragraph 29 if the Committee's 2000-01 Report and the Government
response.)
Answer 12:
One more bilateral agreement permitting spouses
to work outside British Missions has been reached since July 2001.
This was with Bolivia and was concluded in October 2001. There
are now 96 countries in which satisfactory arrangements are in
place to permit spouses to work. The FCO continues its efforts
to conclude agreements with a number of other countries.
Question 13:
What was the result of the survey of locally
engaged staff defined benefit pension schemes (Annual Report,
page 162)? What is the FCO's liability and responsibilities for
administering the scheme?
Answer 13:
The survey of defined benefit pension schemes
had a target completion date of 30 June. However, we are still
pursuing information from a few Posts, so are unable to provide
immediately the result of the survey or statement of the FCO's
liability. We undertake to give the Committee that information
as soon as it is available. We do know that by far the two largest
schemes are in the USA and South Africa and both are in surplus.
Proposal no 60 in the Modernising Government
chapter of the Annual Report (p.162) was to make provision for
contingent liabilities of the FCO's local staff. The tick in the
"Complete" column shows our acceptance of the need so
to provide, as we must for RAB purposes, by conducting surveys
as indicated in the "Comments" column, including one
of defined benefit pension schemes. It could not of course mean
completion of that survey, since, as the "comments"
column notes, it was in progress.
Diplomatic Service Procedure on local staff
matters contains a detailed checklist of points that Posts which
are considering introduction of a pension scheme must address.
Posts must consult Local Staff Management Unit (LSMU) in London,
who in turn seek advice from the Government Actuary's Department
(GAD).
Day to day administration of a pension scheme
is by the private sector company which a Post has selected to
run it. LSMU is obtaining from each Post concerned an actuarial
assessment of its scheme, and will collate that information for
the survey referred to above.
LSMU are in discussion with GAD about reporting
needs for compliance with the new UK financial reporting standard
FRS17. GAD's initial view is that many Posts' local staff pension
schemes will not be material for that purpose, as too small either
in absolute terms or relative to the few large schemes (eg that
for the US Posts).
Question 14:
What is the liability for terminal benefits
for locally-engaged staff (Annual Report, page 162)?
Answer 14:
The FCO's liability for local staff terminal
benefits, as at 31 March 2002, totals £22,123,652. The attached
spreadsheet gives details.[9]
Because of pressure of work, have not received
any updated details from Islamabad. We have therefore carried
forward the previous year's figures instead.
Note of FCO 2002 Departmental Report Errors
Chapter 3
(i) Page 26. SR2000 Objective 4. The final
sentence in the table column "outturn as at end 2001"
should be changed from "Zero nominal growth of UK contributions
to the regular UN budget and zero real growth on the Commonwealth
Secretariat budget" to read "Zero nominal growth in
UN regular budget in 2000-1 biennium and zero real growth on the
Commonwealth Secretariat budget".
(ii) Page 28. SR 2000 Objective 7. The figure
"92 per cent in the table column" outturn as at end
2001" for passports issued within five working days should
be changed to read "94 per cent".
Chapter 16
(iii) Page 159. Replace "This has led
the Diplomatic Service Language Centre combining with Translation
and Interpreting Services to become a Next Steps Agency in April
2002" with "This has led to the merger of the Diplomatic
Service Language Centre with Translation and Interpreting Services,
in October 2001, to form the Language Group of FCO Services.
Appendix A
(iv) Replace Annex 1 (table 34 and Annex
(table 35) with the attached[10]
Appendix K
(v) Page 187. CSR Objective 6. The figure
"96 per cent" in the table column "outturn as at
end 2001" for Posts meeting prison visiting standards should
be changed to read "97 per cent".
6 Ev 54-58. Back
7
Ev 59. Back
8
Ev 60-61. Back
9
Ev 61-62. Back
10
Ev 60-61. Back
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