The BBC, including BBC World Service, has an obligation under its Charter to demonstrate high standards of corporate governance.
 
The Combined Code, issued by the London Stock Exchange in June 1998, sets out principles of good corporate governance. BBC World Service voluntarily complies with the Combined Code to the extent it is applicable.
 
Additionally, BBC World Service adheres to the seven principles of public life as set out in the reports of the Nolan Committee of Standards in Public Life.
 

The requirements of the Combined Code are applied to BBC World Service with the following exceptions:
 

BBC World Service is not accountable to external shareholders. Rather, through the stewardship of the governors, it is accountable to the Foreign and Commonwealth Office, to Parliament and to taxpayers.

The BBC governors consider that BBC World Service should comply with the Combined Code in a manner which is common practice for an entity whose parent is complying with the Code. Hence the governors do not consider it appropriate for 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 members of the BBC World Service Management Board, except to the extent that this is required by the Companies Act 1985.
 

Details of how BBC World Service has applied the remuneration principles are covered separately within the remuneration report.
 

The structure of the BBC World Service Management Board is shown on the Management Board page. As explained above, BBC World Service does not have any non-executive directors. However, the Management Board is represented on the BBC's Executive Committee and is accountable to the BBC governors who constitute the members of the Corporation and act as trustees for the public interest.
 
The governors are appointed by the Queen on advice of ministers. They are now appointed for a term of four years (previously five years) and are independent of BBC executive management. A register of interests of the governors is maintained and may be inspected by written application to the secretary of the BBC.
 
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 deciding action on recommendations, receiving minutes and reviewing decisions taken;

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 Board of Governors; and

agreeing a code of ethics and business practice, establishing an overall framework for proper controls.
 

Audit Committee;

Fair Trading Compliance Committee; and

World Service Consultative Group.
 

BBC World Service is primarily funded by parliamentary Grant-in-Aid received through the FCO. BBC Monitoring is funded by stakeholder subscriptions. 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 Financial Memorandum.
 

The respective responsibilities of the governors and BBC World Service Management Board and the external auditors are set out in the auditors’ report.
 
A detailed review of the financial position of BBC World Service is included in the financial review by the finance and business development director. This, together with the director's overview, provides 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 governors and BBC World Service Management Board believe that BBC World Service will continue to receive adequate resources to continue its operations for the foreseeable future.
 

The BBC World Service Management Board has responsibility for maintaining an adequate system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss.
 
The governors and BBC World Service Management Board consider that there is an ongoing process for identifying, evaluating and managing the significant risks faced by BBC World Service. The process has been in place for the year ended 31 March 2001 and up to the date of approval of this report and financial statements. As part of the BBC's overall risk management process it has been regularly reviewed by the governors and BBC Executive Committee and accords with the guidance set out in the ICAEW's guidance for directors Internal control: Guidance for directors on the Combined Code.
 
While an established system of risk management and control, including procedures to monitor and evaluate key risks, has been in existence throughout the year, further steps to reflect more fully the substance of the guidance have been taken during the course of the year.
 
The Management Board exercises control through an organisational structure with clearly defined levels of responsibility and authority and appropriate reporting procedures. The key control procedures operating during the year are described below:
 

The Management Board is responsible for identifying and managing risk on an ongoing basis. BBC World Service has a formally constituted Internal Control Committee (ICC), comprising the members of the Management Board, World Service financial controller and a representative of BBC Internal Audit. The ICC update their assessment of BBC World Service’s exposure to risk, and the extent to which these risks are controlled, every four months. These risks have been effectively managed throughout the year.

BBC Internal Audit undertake regular testing of control systems based on a regularly updated assessment of key risks and issues facing BBC World Service.

Management have defined the controls and procedures with which each business unit is required to comply. Key controls over major business risks include performance review and exception reporting. Reviews by BBC Internal Audit monitor the operation of controls.

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 retained in the event of failure of BBC World Service's own data processing facility.

The majority of BBC World Service's financial transaction processing is outsourced to a service company, Media Accounting Services Limited (MedAS), which is independent of the BBC. The finance and business development director has established monitoring procedures to review the performance of MedAS on a regular basis. These include regular visits to MedAS by BBC Internal Audit.

There is a comprehensive budgeting system with an annual budget approved by the Board of Governors, prepared in line with the BBC World Service three-year plan. Monthly financial information, including a balance sheet, cashflow statement and operating results, is reported against corresponding budget figures, with corrective action 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 and HM Treasury. In April 2001 BBC World Service implemented new financial processes and software, as part of the BBC-wide SAP implementation.
 

BBC World Service has complied throughout the year ended 31 March 2001 with the specific provisions in Section 1 of the Combined Code with the exception of those provisions relating to non-executive directors, remuneration and audit committees and shareholder requirements which, as discussed earlier, are not applicable to BBC World Service.