Governance
Statement on internal control
The ³ÉÈË¿ìÊÖ has an obligation under its Charter to apply the highest standards of corporate governance. ³ÉÈË¿ìÊÖ World Service recognises the importance of, and is committed to, applying these standards and voluntarily complies with the 2006 Financial Reporting Council Combined Code (2006 FRC Code) to the extent that it is applicable.
³ÉÈË¿ìÊÖ World Service has complied throughout the year ended 31 March 2009 with the 2006 FRC Code except as noted below:
i) those requirements relating to non-executive directors, remuneration and audit committees The ³ÉÈË¿ìÊÖ Executive Board considers that ³ÉÈË¿ìÊÖ World Service should comply with the 2006 FRC Code in a manner which is common practice for an entity whose parent is complying with it. Hence the ³ÉÈË¿ìÊÖ Executive Board does not require ³ÉÈË¿ìÊÖ World Service to have separate non-executive directors or remuneration and audit committees from those established by the ³ÉÈË¿ìÊÖ, or to disclose the remuneration of the individual members of the ³ÉÈË¿ìÊÖ World Service Board, except to the extent that this is required by the Companies Act 1985. Although not a requirement under the 2006 FRC Code, ³ÉÈË¿ìÊÖ World Service does have its own audit committee which forms part of its risk management process.
ii) those requirements relating to shareholders ³ÉÈË¿ìÊÖ World Service is not accountable to external shareholders. Rather, through the stewardship of the ³ÉÈË¿ìÊÖ Trust, it is accountable to the Foreign and Commonwealth Office, to Parliament and to taxpayers.
This page covers:
Our structure:
clickInternal controls and audit
click
- click Control environment
- click Internal audit
- click ³ÉÈË¿ìÊÖ Executive audit committee
- click Independence of external auditors
- click Fair trading
Our structure
³ÉÈË¿ìÊÖ World Service Board
The structure of the ³ÉÈË¿ìÊÖ World Service Board is shown . As explained above, ³ÉÈË¿ìÊÖ World Service does not have non-executive directors. The ³ÉÈË¿ìÊÖ World Service Board meets every month. Other members of management attend as required. A formal schedule of matters is reserved for 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 the financial statements; and,
• approving annual budgets, subject to final approval by the ³ÉÈË¿ìÊÖ Executive Board.
³ÉÈË¿ìÊÖ World Service Board members have access to the advice and services of the ³ÉÈË¿ìÊÖ World Service's Head of Governance and Public Affairs, who is responsible for ensuring that Board procedures are followed.
³ÉÈË¿ìÊÖ Executive Board
The operations of the ³ÉÈË¿ìÊÖ are managed by the ³ÉÈË¿ìÊÖ Executive Board, made up of ³ÉÈË¿ìÊÖ executive directors and chaired by the Director-General. The Board also contains a significant minority of non-executive directors, nominated by the Board and approved by the ³ÉÈË¿ìÊÖ Trust. The interests of ³ÉÈË¿ìÊÖ World Service are represented on the ³ÉÈË¿ìÊÖ's Executive Board by the Deputy Director-General.
The functions of the ³ÉÈË¿ìÊÖ Executive Board and the ³ÉÈË¿ìÊÖ Trust are clearly defined. Operational responsibility rests with the ³ÉÈË¿ìÊÖ Executive Board, and the ³ÉÈË¿ìÊÖ Trust, as the body responsible for the strategic direction of the ³ÉÈË¿ìÊÖ, scrutinises the performance of the Board in delivering the ³ÉÈË¿ìÊÖ's services and activities. The ³ÉÈË¿ìÊÖ Trust's oversight of ³ÉÈË¿ìÊÖ 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 ³ÉÈË¿ìÊÖ Executive Board is run can be found in the ³ÉÈË¿ìÊÖ Annual Report and Accounts.
In practice, the ³ÉÈË¿ìÊÖ Executive Board delegates some of its responsibility to other managerial groups. Any delegation from the ³ÉÈË¿ìÊÖ Executive Board is stated in the relevant standing orders for each group and a framework for reporting and review is established.
In accordance with the requirements and provisions of the Charter, the following committees continued to operate in the year:
• Executive Fair Trading Committee;
• Executive Audit Committee;
• Remuneration Committee; and,
• Nomination Committee.
The main responsibilities of these committees are explained in the ³ÉÈË¿ìÊÖ Annual Report and Accounts as is the attendance record of ³ÉÈË¿ìÊÖ Executive Board members.
Internal controls and audit
The responsibilities in relation to internal control are clearly defined. The ³ÉÈË¿ìÊÖ Trust is ultimately responsible for the proper use of public money whilst the ³ÉÈË¿ìÊÖ Executive Board and ³ÉÈË¿ìÊÖ World Service Board are responsible for executing this requirement.
The ³ÉÈË¿ìÊÖ Executive Board is responsible for ensuring there is a process for managing significant risks to the ³ÉÈË¿ìÊÖ, and for maintaining an adequate system of internal control and reviewing its effectiveness. The processes for reviewing, managing and reporting on risks within ³ÉÈË¿ìÊÖ World Service are set out below:
Control environment
The key aspects of the control environment operating throughout the year are described below:
i) risk identification and management
An ongoing process for identifying, evaluating, managing, monitoring and reporting significant risks to the ³ÉÈË¿ìÊÖ, which accords with the Turnbull guidance, has been in place for the year ended 31 March 2009 and up to the date of approval of this Annual Review. The overall management of risk within ³ÉÈË¿ìÊÖ World Service is considered to be most effectively managed through the engagement of the ³ÉÈË¿ìÊÖ World Service Board and the ³ÉÈË¿ìÊÖ World Service Audit Committee. The ³ÉÈË¿ìÊÖ World Service Audit Committee forms a key part of the risk management process and is separate from the ³ÉÈË¿ìÊÖ Executive Audit Committee. The ³ÉÈË¿ìÊÖ World Service Audit Committee has reviewed the risks associated with the achievement of ³ÉÈË¿ìÊÖ 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 ³ÉÈË¿ìÊÖ World Service Board and ³ÉÈË¿ìÊÖ Executive Board level.
ii) business unit controls
The ³ÉÈË¿ìÊÖ World Service Board has defined the system of controls and procedures with which each business unit within ³ÉÈË¿ìÊÖ 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 ³ÉÈË¿ìÊÖ 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 formal authorisation processes, regular financial reporting, the annual performance review process, and exception reporting of financial and non-financial matters. Internal audit reviews by ³ÉÈË¿ìÊÖ Business Assurance monitor the operation of controls.
iii) financial reporting and business performance
³ÉÈË¿ìÊÖ World Service has a comprehensive budgeting system with an annual budget approved by the ³ÉÈË¿ìÊÖ Executive Board, prepared in line with the ³ÉÈË¿ìÊÖ World Service Three Year Plan. Monthly financial information is reported against budget figures, with corrective action being taken by the ³ÉÈË¿ìÊÖ World Service Board as appropriate. All capital expenditure over certain upper thresholds must be approved by a ³ÉÈË¿ìÊÖ investment approval committee and, in some cases, by the FCO.
iv) business and broadcast continuity
³ÉÈË¿ìÊÖ World Service business continuity plans have been strengthened in the past year. A new emergency production facility outside central London has been brought into service and the second phase of this project is nearing completion; this will considerably enhance our capability to maintain programme output in the event of an incident. Continuity plans have been tested and successfully invoked on a number of occasions to respond to incidents both in the UK and internationally. Work has also been completed with key suppliers to ensure the readiness of their contingency plans. ³ÉÈË¿ìÊÖ 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 ³ÉÈË¿ìÊÖ World Service's own systems for whatever reason.
v) controls over outsourced functions
The outsourcing of key services presents a significant change to the ³ÉÈË¿ìÊÖ's risk profile and, as a consequence, that of ³ÉÈË¿ìÊÖ World Service. Risk is not necessarily outsourced with these services. To address this, the ³ÉÈË¿ìÊÖ has processes in place to manage the risks associated with the outsourcing of key business services (e.g. finance transaction processing, HR services, technology systems and support) and to ensure continuity of ongoing business operations.
vi) whistle-blowing
The ³ÉÈË¿ìÊÖ has a ‘whistle-blowing' or ‘protected disclosure' policy. This policy facilitates the confidential communication via a number of routes of any incident in which there is a suspicion that there has been a breach of the ³ÉÈË¿ìÊÖ's codes. The ³ÉÈË¿ìÊÖ fosters an environment where all staff should feel free to report concerns and suspicions to line management. However, as there may be sensitivities regarding actual or suspected incidents, we also provide the alternative of a ‘whistle-blowing' hotline. This is administered by an independent external company to ensure anonymity. Each incident or suspicion reported via any route is investigated in a confidential manner, a response is communicated and action taken as appropriate. The ³ÉÈË¿ìÊÖ Executive Audit Committee ensures that there are suitable arrangements in place for the proportionate and independent investigation of matters reported, and for appropriate follow-up action.
vii) fraud awareness
Although incidents of fraud are rare, ³ÉÈË¿ìÊÖ World Service takes its responsibilities to minimise the risk of fraud, and the consequential loss to the taxpayer, very seriously. The ³ÉÈË¿ìÊÖ has implemented a clear fraud policy that 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 ³ÉÈË¿ìÊÖ Anti-Fraud Group, which reports to the ³ÉÈË¿ìÊÖ Executive Audit Committee. From time to time ³ÉÈË¿ìÊÖ World Service undertakes anti-fraud workshops to identify key fraud risks and to promote fraud awareness across the business.
Internal Audit
³ÉÈË¿ìÊÖ World Service is within the remit of the ³ÉÈË¿ìÊÖ's Business Assurance function, which is led by the Director of Risk and Assurance. Business Assurance comprises Internal Audit, Risk Management and Investigation Services.
The authority and independence of Internal Audit is assured by the Director of Risk and Assurance's independent and direct access to the ³ÉÈË¿ìÊÖ Executive Audit Committee and to the ³ÉÈË¿ìÊÖ Director-General.
Internal Audit undertakes regular testing of control systems and core business processes, evaluating their adequacy and effectiveness and ensuring their consistent application across the ³ÉÈË¿ìÊÖ.
The work plan is based on a continuing assessment of key risks and is agreed annually with the ³ÉÈË¿ìÊÖ Executive Audit Committee. It covers financial, operational and compliance controls, including the exercise of the ³ÉÈË¿ìÊÖ's right of audit over external parties, including independent production companies and suppliers of key outsourced business services. Any significant control failings or weaknesses identified are reported promptly to appropriate levels of management. The findings, and the status of corrective actions taken to address them, are reported to the ³ÉÈË¿ìÊÖ Executive Audit Committee.
³ÉÈË¿ìÊÖ Executive Audit Committee
The ³ÉÈË¿ìÊÖ Executive Audit Committee has its authority delegated to it by the ³ÉÈË¿ìÊÖ Executive Board. The members of the ³ÉÈË¿ìÊÖ Executive Audit Committee, all appointed in January 2007, are non-executive Directors David Robbie (Chairman), Dr Mike Lynch and Dr Samir Shah.
The ³ÉÈË¿ìÊÖ 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, gained from considerable experience in senior roles with other organisations, with advice as necessary from internal and external professionals, on relevant matters including developments in financial reporting and company law. During the year, the ³ÉÈË¿ìÊÖ Executive Audit Committee has reviewed its terms of reference and has approved their continued application, deeming them appropriate to ensure the Committee's continued effectiveness.
The ³ÉÈË¿ìÊÖ Executive Audit Committee met four times during the financial year. The meetings were attended by the Director- General, the Chief Financial Officer (for three meetings, with one meeting being attended by the Acting Chief Financial Officer) and from June 2008 onwards the new Director of Risk and Assurance. Representatives from Internal Audit, Risk Management and the external auditors were also present. The Committee meets at least annually with the external auditors without any member of management present. The Chairman of the ³ÉÈË¿ìÊÖ Executive Audit Committee meets with the Director of Risk and Assurance, alone or with the external auditors, but without management, and also meets privately with the external audit lead partner. Minutes of each Committee meeting, once approved, are available to the ³ÉÈË¿ìÊÖ Executive Board and to the ³ÉÈË¿ìÊÖ Trust. Recommendations of the Committee on any area within its remit where action or improvement is needed are reported back to the Board by whatever route is deemed most appropriate to the nature and circumstances of the issue. The Committee Chairman formally reports to the Board at least once a year on all matters within the Committee's duties and responsibilities.
The ³ÉÈË¿ìÊÖ Executive Audit Committee has fulfilled its responsibilities for the year. It has:
• reviewed the effectiveness of the system of internal controls. In doing so it has considered the findings of the internal and external auditors and sought assurance from management that any control issues highlighted are being addressed. It has also considered reports from management on processes for managing significant risks;
• reviewed the ³ÉÈË¿ìÊÖ's group financial statements and those of ³ÉÈË¿ìÊÖ World Service, including accounting policies, compliance with legal and regulatory requirements, and the findings of the external auditors;
• overseen the ³ÉÈË¿ìÊÖ's relationship with the external auditors, including their engagement, the scope of and approach to their work, their fees, their performance and their independence, including the approval and compliance with the policy on non-audit work;
• approved the work plan of Internal Audit; and,
• reviewed the fraud detection processes and whistle-blowing arrangements.
Independence of external auditors
³ÉÈË¿ìÊÖ World Service, as part of the ³ÉÈË¿ìÊÖ, complies with the 2006 FRC Code guidance on maintaining an appropriate relationship with external auditors. The external auditors appointed by the ³ÉÈË¿ìÊÖ are KPMG LLP, who have safeguards in place to avoid the possibility of their audit objectivity and independence being compromised.
The ³ÉÈË¿ìÊÖ Executive Audit Committee also reviews the audit objectivity and independence of its external auditors, and recruitment from KPMG LLP into any senior management position in the ³ÉÈË¿ìÊÖ requires its prior approval. The ³ÉÈË¿ìÊÖ Executive Audit Committee has set a clear policy that defines the threshold above which proposed non-audit work to be carried out by KPMG LLP must be approved in advance by the Committee, and also defines when it must be submitted to competitive tender. In all cases, KPMG LLP are not considered for work that might compromise their ability to independently opine on the ³ÉÈË¿ìÊÖ's financial statements.
Fair trading
The ³ÉÈË¿ìÊÖ must work to ensure that it meets its fair trading obligations as set out in the ³ÉÈË¿ìÊÖ's Charter, Agreement and the ³ÉÈË¿ìÊÖ Trust's Statement of Policy on Fair Trading. These are encapsulated in the ³ÉÈË¿ìÊÖ's Fair Trading Guidelines, which can be found at . These guidelines, which include the ³ÉÈË¿ìÊÖ World Service Trading Protocols, were updated on 1 April 2009, following a public consultation. Compliance with the Fair Trading Guidelines was overseen during the year through formal sub-committees of the ³ÉÈË¿ìÊÖ Trust (Finance & Compliance Committee, formerly the Public Value and Fair Trading Committee) and ³ÉÈË¿ìÊÖ Executive Board (Executive Fair Trading Committee).
The ³ÉÈË¿ìÊÖ Trust commissions independent auditors, Deloitte LLP, to undertake an annual fair trading audit to determine whether ³ÉÈË¿ìÊÖ management has established and applied a system of internal controls, which provide reasonable assurance that it has complied with the fair trading policy. Details of the audit and opinion can be found at .