The BBC has an obligation under its Charter to apply the highest standards
of corporate governance. BBC World Service recognises the importance
of, and is committed to, applying these standards and voluntarily complies
with the 2003 FRC Code to the extent that it is applicable. BBC World
Service has complied throughout the year ended 31 March 2007 with the
2003 FRC Code except as noted below:
- those requirements relating to
non-executive directors, remuneration and audit committees
The BBC Executive
Board considers that BBC World Service should comply with the 2003
FRC Code in a manner which is common practice for an entity whose parent
is complying with it. Hence the Executive Board does not require BBC
World Service to have separate non-executive directors or remuneration
and audit committees from those established by the BBC, or to disclose
the remuneration of the individual members of the BBC World Service
Management Board, except to the extent that this is required by the
Companies Act 1985. Although not a requirement under the 2003 FRC Code,
BBC World Service has its own audit committee which forms part of its
risk management process.
- those requirements relating to shareholders
BBC World Service is not
accountable to external shareholders. Rather, through the stewardship
of the BBC Trust, it is accountable to the Foreign and Commonwealth
Office, to Parliament and to taxpayers.
BBC WORLD SERVICE MANAGEMENT BOARD
As explained above, BBC
World Service does not have any non-executive directors. The BBC World
Service Management Board meets every two weeks. Other members of management
attend as required. A formal schedule of matters is reserved for Management
Board decisions. This includes:
- considering management structure and senior management responsibilities
- agreeing membership and terms of reference of board committees and task forces and receiving minutes,
reviewing decisions taken and deciding action on recommendations
- agreeing contracts with major suppliers
- deciding significant staff and industrial relations issues
- agreeing business strategy
- approving financial statements
- approving annual budgets, subject to final approval by the BBC Executive Board.
The Management Board members have access to the advice and services
of the BBC World Service Secretary who is responsible for ensuring that
Board procedures are followed.
BBC EXECUTIVE BOARD STRUCTURE
Under the previous Charter for the period
to 31 December 2006, the operations of the BBC were managed by the BBC
Executive Board, made up of BBC executive directors and chaired by the
Director-General. The Governors were members of the Corporation and acted
as guardians for the public interest. Further details on the role and
responsibilities of the Board of Governors can be found in the BBC Annual
Report and Accounts.
Under the new Charter, effective from 1 January
2007, the Executive Board has been reconstituted and strengthened by
the appointment of a significant minority of non-executive directors,
nominated by the Nominations Committee of the BBC Executive Board and
approved by the BBC Trust. The interests of BBC World Service continue
to be represented on the BBC's Executive Board by the BBC Deputy
The functions of the BBC Executive Board and the BBC
Trust are clearly defined. Operational responsibility rests with the
Executive Board, and the Trust, as the body responsible for the strategic
direction of the BBC, scrutinises the performance of the BBC Executive
Board in delivering the BBC's services and activities. The Trust's
oversight of BBC World Service is represented by its general duty to
act in the public interest and to exercise rigorous stewardship of public
money. More information on how the Executive Board is run and the responsiblities
of the BBC Trust can be found in the BBC Annual Report and Accounts.
A register of interests for both Trustees and the Executive Board is
maintained. The Trustees' register of interests is available online
The Executive Board's may be inspected by written application to the
Director, BBC People, MC2 B4, Media Centre, 201 Wood Lane, London, W12
In line with the provisions set out in the Charter implemented in January
2007, four BBC Executive Board subcommittees have been formed:
- Fair Trading Committee
- Audit Committee
- Remuneration Committee
- Nominations Committee.
The main responsibilities of these subcommittees are explained
in the BBC Annual Report and Accounts as is the attendance record of
Executive Board members. Attendance of individual Governors at full Board
and subcommittee meetings up to December 2006 and Trustees from January
2007 is also available in the BBC Annual Report and Accounts.
RELATIONSHIP WITH FOREIGN AND COMMONWEALTH OFFICE
BBC World Service
Broadcasting is primarily funded by parliamentary Grant-in-Aid received
through the Foreign and Commonwealth Office (FCO). The relationship between
the FCO and BBC World Service is defined in the FCO/BBC World Service
Broadcasting Agreement which sets out the aims and objectives of BBC
World Service and provisions for performance assessment. The financial
arrangement with the FCO is set out in the FCO/BBC World Service Financial
ACCOUNTABILITY AND INTERNAL CONTROL
The responsibilities in relation
to internal control are clearly defined. The BBC Trust is ultimately
responsible for the proper use of public money whilst the BBC Executive
Board and BBC World Service Management Board are responsible for executing
The BBC Executive Board, newly formed on 1 January
2007 to include non-executive members, is now responsible for ensuring
there is a process for managing significant risks to the BBC, and for
maintaining an adequate system of internal control and reviewing its
effectiveness. Until 31 December 2006, the Executive Direction Group,
now known as the BBC Direction Group, carried this responsibility, although
underlying processes have been continuous.
The processes for reviewing,
managing and reporting on risks within BBC World Service remained unchanged
in the year and operated continuously over the period.
The key aspects of the control environment operating throughout the year
are described below:
+ risk identification and management
An ongoing process for identifying,
evaluating, managing, monitoring and reporting significant risks to the
BBC, which accords with the Turnbull guidance, has been in place for
the year ended 31 March 2007 and up to the date of approval of this Annual
The overall management of risk within BBC World Service is considered
to be most effectively managed through the engagement of the BBC World
Service Management Board and the BBC World Service Audit Committee. The
BBC World Service Audit Committee forms a key part of the risk management
process within BBC World Service. It is a separate body from the BBC
Executive Board Audit Committee.
The BBC World Service Audit Committee
has reviewed the risks associated with the achievement of BBC World Service's
objectives for the year. The risks identified, and the actions planned
in response, are maintained in a risk register. The risk register is
subject to regular review and assessment throughout the year and feeds
into the consideration of risk exposure at both BBC World Service Management
Board and BBC Executive Board level.
+ business unit controls
BBC World Service Management Board has defined
the system of controls and procedures with which each business unit within
BBC World Service is required to comply. This system is designed to manage
rather than eliminate the risk of failure to achieve business objectives:
although no system of internal control can provide absolute assurance
against material misstatement or loss, the BBC World Service's
controls are designed to provide reasonable assurance that assets are
safeguarded, transactions are appropriately authorised and material errors
or irregularities are either prevented or detected on a timely basis.
Key controls over major business risks include performance review and
exception reporting. Reviews by Internal Audit monitor the operation
+ the BBC's Internal Audit department
BBC World Service is within
the remit of the BBC's Internal Audit department, which is a core
part of the BBC's Business Assurance function. Internal Audit's
authority and independence is assured by its separate reporting relationship
to the BBC Audit Committee and the BBC Director-General. The scope of
Internal Audit includes the examination and evaluation of the adequacy
and effectiveness of the BBC's systems of internal control. The
work programme of Internal Audit extends throughout all activities of
the BBC and covers the exercise of the BBC's right of audit over
external parties, including independent production companies and suppliers
of key outsourced business services.
Internal Audit undertakes regular
testing of control systems and core business processes under a plan agreed
annually with the BBC Audit Committee. The audit plan is based on a continuing
assessment of key risks, with due consideration to value for money, and
covers all material financial, operational and compliance controls. Any
significant control failings or weaknesses revealed by testing are reported
promptly to appropriate levels of management. The results of testing
are reported to each meeting of the Executive Audit Committee which scrutinises
the operation of the BBC's internal controls over these risks
throughout the year.
+ business and broadcast continuity
During the past
year work has progressed on implementing a number of improvements as
part of the BBC World Service business continuity strategy. A location
has been selected for a new emergency production facility and the next
phase of the project is currently being planned. Equipment to provide
flexibility for international offices responding to incidents affecting
their operations has been built and work is now taking place to develop
new plans for all key offices. In addition to these developments BBC
World Service staff have received training on business continuity and
emergency arrangements. Continuity plans have been used successfully
on a number of occasions to respond to a range of threats or incidents.
+ computer systems
BBC World Service has established controls and procedures
over the security of data held on computer systems. Arrangements are
in place for computer processing to continue and data to be protected
and retained in the event of failure of BBC World Service's own
systems for whatever reason.
+ controls over outsourced functions
of BBC business services has increased over the past year. The outsourcing
of key services presents a significant change to the BBC's risk
profile and as a consequence, that of BBC World Service, and risk is
not necessarily outsourced with these services. It is therefore important
that the BBC has appropriate processes in place to manage these risks
and to ensure continuity of ongoing business operations. The BBC's
Internal Audit department has a programme of assurance work in relation
to BBC's most significant outsourced contracts.
The majority of
BBC World Service's financial transaction processing is outsourced
to a service company, Medas, which is independent of the BBC. Monitoring
procedures are in place to review the performance of Medas on a regular
basis and performance data and compliance statistics are reported to
BBC World Service by Medas each month. The current contract with Medas
ends on 30 June 2007 and, following a comprehensive tendering and evaluation
process which took place during the year, from 1 July 2007 the contract
for financial transaction processing to the BBC will be undertaken by
The BBC has a 'whistle-blowing' or 'protected
disclosure' policy. This policy facilitates the anonymous communication
to the BBC of any incident in which there is a suspicion that there has
been a breach of the BBC's codes. A 'whistle-blowing' hotline
is administered by an independent external company to ensure anonymity.
Each reported incident is notified to the BBC Head of Business Assurance
who ensures that every incident is investigated, a response communicated
and action taken as appropriate. Annually the Audit Committee reviews
both the process and the appropriateness of actions taken in regard to
significant incidents. No significant incidents were reported in 2006/07.
+ financial reporting and business performance
BBC World Service has
a comprehensive budgeting system with an annual budget approved by the
BBC Executive Board, prepared in line with the BBC World Service three
year plan. Monthly financial information is reported against budget figures,
with corrective action being taken by the Management Board as appropriate.
All capital expenditure over certain upper thresholds must be approved
by a BBC investment approval committee and, in some cases, by the FCO.
+ fraud awareness
Although incidents of fraud are rare, BBC World Service
takes its responsibilities to minimise the risk of fraud, and the consequential
loss to the taxpayer, very seriously. The BBC has implemented a clear
fraud policy which clarifies responsibilities for ensuring that the appropriate
controls are in place to minimise the risk of fraudulent activity and
to ensure that all suspected incidents of fraud are thoroughly investigated.
The policy is managed by the BBC Anti Fraud Group which reports to the
BBC Executive Board Audit Committee.
BBC World Service undertakes anti-fraud workshops to identify key fraud
risks and to promote fraud awareness. The workshops form an important
element in the BBC's anti-fraud strategy.
Financial reporting and going concern
A review of the financial position
of BBC World Service is included on page 30. This, together with the
Director's overview on pages 2 to 5, provide an assessment of
BBC World Service's performance and current position. The going
concern basis has been adopted in the preparation of the financial statements
as the BBC Executive Board and the BBC World Service Management Board
believe that BBC World Service will continue to receive adequate resources
to continue its operations for the foreseeable future.
BBC Executive Board Audit Committee
Details of the membership and arrangements
of the Governors' Audit Committee, which operated until 31 December
2006, are given in Part 1 of the BBC's Annual Report and Accounts.
The BBC Executive Board Audit Committee consists of the following non-executive
directors: David Robbie (Chairman), Mike Lynch and Samir Shah. All were
appointed by the BBC Executive Board Nominations Committee in January
The BBC Executive Board is satisfied that David Robbie has significant,
recent and relevant financial experience. The Committee augments the
broad range of skills of its three members with advice from financial
professionals within the BBC's Internal Audit and Finance teams
and from external advisers, including the external auditors, thus ensuring
that the Committee is kept abreast of recent and relevant financial developments.
Upon formation of the Committee, all members were provided with induction
packs and met with members of BBC management, to extend their knowledge
of the BBC business and the role of the BBC Audit Committee within it.
Since its formation, the BBC Audit Committee has set its terms of reference
and these have been approved by the BBC Executive Board. It will, along
with the BBC Executive Board, review its effectiveness annually.
The BBC Audit Committee has written terms of reference, which are available
at: www.bbc.co.uk/info/running/. Its principal role is to review:
- the effectiveness of the system of internal control, considering
reports from management and from internal and external auditors on
processes for managing significant risks to the organisation, including
- the BBC's financial statements including accounting
policies, compliance with legal and regulatory requirements, and the
findings of the external and internal auditors
- the BBC's relationship
with the external auditors, including their engagement, the scope of
and approach to their work, their fees, their effectiveness and their
independence, including the observance of the policy relating to the
engagement of the external auditors in non-audit work
- the activities
and plan of work and the effectiveness of Internal Audit.
The reviews undertaken by the Audit Committee include the financial
statements of BBC World Service and its systems of internal control.
The BBC Executive Board Audit Committee met twice from 1 January 2007
to the date of approval of this Annual Review. The meetings were attended
by the BBC Director-General, the BBC Group Finance Director, the Head
of Business Assurance (also Head of Internal Audit) and representatives
from the external auditors. The Committee meets regularly with the external
auditors without any member of management present. The Chairman of the
Audit Committee meets routinely with the Head of Business Assurance,
alone or with the external auditors, but without management.
In considering legal and regulatory requirements, the Audit Committee
has reviewed relevant developments, including receiving presentations
from management on the impact of proposed changes in accounting and reporting
Minutes of each Audit Committee meeting are, once approved, made available
to the BBC Executive Board and BBC Trust for noting. Recommendations
of the Audit Committee on any area within its remit where action or improvement
is needed are reported back to the Executive Board by whatever route
is deemed most appropriate to the nature and circumstances of the issue.
The Committee Chairman shall formally report to the Executive Board at
least once a year on all matters within the Committee's duties
Independence of external auditors
BBC World Service, as part of the
BBC, complies with the guidance governing the conduct of external audit
set out in the 2003 FRC Code. The external auditors appointed by the
BBC are KPMG LLP as auditors of the financial statements, and PricewaterhouseCoopers
LLP as the fair trading auditors. The Audit Committee, Executive Fair
Trading Committee, PricewaterhouseCoopers LLP and KPMG LLP themselves
all have safeguards in place to avoid the possibility of the auditors'
objectivity and independence being compromised.
The Audit Committee regularly
reviews the independence of its external auditors. The Audit Committee
holds discussions with the external auditors without management being
present. The Audit Committee reviews the level of non-audit fees paid
to KPMG LLP. Any significant consulting work is put out to competitive
tender. Recruitment from KPMG LLP into any senior management position
in the BBC requires the prior approval of the Audit Committee. The BBC's
policies in relation to services procured from the external auditors
- non-audit services, above a £50,000 threshold, proposed to
be commissioned from the external auditors must be notified to, and
approved by, the Audit Committee
- above an established de minimis
level the planned work must be submitted to competitive tender and,
in the event that the external auditors are to be awarded the contract,
the prior approval of the Audit Committee must be obtained
- the external
auditors are specifically excluded from being considered for certain
types of work where their involvement could be perceived to prejudice
their ability to express an independent and objective opinion.
Fair trading compliance procedures
The new BBC Charter and Agreement
that took effect on 1 January 2007 require the BBC Trust to have regard
to the competitive impact of the BBC's activities on the wider
market. As a result the Trust has developed a Competitive Impact Framework
(the Framework) which will come into effect from 1 July 2007.
will apply to all BBC trading activities, including the BBC's
public service and commercial activities. Further information is available
The BBC Executive
Board is responsible for implementing and ensuring compliance with the
requirements of the Framework.
BBC Executive Board Fair Trading Committee
The BBC Executive Board discharges
its obligations in relation to Fair Trading through a sub-committee,
the Executive Fair Trading Committee. This Committee was set up during
the year and met for the first time in February 2007. During the year
the Committee comprised three non-executive directors; Robert Webb (Chair),
Marcus Agius and Samir Shah and two Executive Board members; Caroline
Thomson and Zarin Patel.
The Committee has primary management responsibility
on behalf of the BBC Executive Board for compliance with the BBC's
fair trading obligations.