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Annual Report of the Local Examinations Syndicate

This is the one hundred and forty-fourth Annual Report of the Syndicate. It covers the events of the financial year 2000-01.

The LOCAL EXAMINATIONS SYNDICATE beg leave to present the following Annual Report to the Council.

Introduction

The year ended 30 September 2001 has been an excellent one for the UCLES Group. Entries for its examinations have grown in all areas of the business. Examinations' administration and the quality of service to customers have surpassed the high standards set in the previous year and all examination results were delivered accurately and on time. The year also marked the definition and the first stages of implementation of a new Group Information Management Strategy. These factors, combined with careful attention to costs, resulted in a surplus of £2.2 million, compared to a surplus in the previous year of £3.5 million. This slight decrease is due to a sharp increase in expenditure on the strategic Information Management projects last year (£5.5 million compared to £0.2 million in the previous year). Investment in the Information Management strategy, projected at £5 million a year for the next four years, will yield significant benefits in the way the Group interacts with its customers and undertakes its internal operations. There was an unrealized loss in the value of the Group's invested reserves at 30 September 2001, due to the decline in stock markets world-wide in response to deteriorating economic conditions and in the aftermath of the 11 September attack on the United States. This was the only significant negative factor in an otherwise exceptionally successful year.

Group Structure

The Syndicate was established in 1858 to administer examinations for persons who were not members of the University and to inspect schools, with the aim of raising standards in education. The Syndicate began examining overseas in 1863 and this aspect of its work grew quickly. In 1888, the Syndicate was empowered to hold examinations for commercial certificates. The Certificate of Proficiency in English, the Syndicate's first examination in the field of English as a foreign language, was introduced in 1913. Thus, the foundations for our work today were laid by 1914. From the mid-1980s, as successive UK Governments moved to exert greater control over the school curriculum and examinations at ages 16 and 18, the number of English examination boards was reduced by a process of consolidation. The Syndicate acquired the Oxford Delegacy of Local Examinations, the Oxford and Cambridge Schools Examination Board, and the RSA Examinations Board, amongst others.

The UCLES Group is now organized into three externally-trading business streams - Oxford, Cambridge, and RSA Examinations (OCR), Cambridge International Examinations (CIE), and English as a Foreign Language Division (EFL) - each of which has a distinct product range and group of customers. OCR is responsible for examinations and other assessment activity for both general and vocational qualifications in the UK; CIE is responsible for international school examinations and international vocational awards; and EFL is responsible for examinations in English as a foreign language and qualifications for language teachers throughout the world. The work of the three business streams is supported by six service divisions: these are Finance, Information Management, Research and Evaluation, Human Resources, Distribution, and Premises and Other Services. Printing has been outsourced to Cambridge University Press since 1 October 2000.

The Group is now reaping the benefits of the business stream arrangements in terms of greater focus on the specific needs of each area of the organization's activities. There is increasingly intensive collaboration between the three streams in terms of sharing of best practice, avoiding duplication of effort, collaborating in accessing markets, and offering an enhanced product range to existing clients.

All parts of the Group are engaged in a continuous process of review of their activities and processes, in order to improve the service to clients, whether these be external (in the case of OCR, CIE, and EFL) or internal (in the case of central service divisions). Central to these changes is the Group Information Management strategy. The Group is also supporting a number of longer-term projects exploring the application of new technologies in assessment. By carrying out its own programme of research and publication, the Group contributes directly to the development of curriculum and assessment practice world-wide.

The UCLES Group and the University

The Local Examinations Syndicate is a constituent part of the University and therefore falls within the University's status as an exempt charity. OCR is a company limited by guarantee with the University as its sole member. It is also an exempt charity, under Schedule 2(w) of the Charities Act 1993, on the grounds that it is administered on behalf of the University. The Syndicate and OCR are the two principal operating entities of the UCLES Group.

The Group is an important part of the University's mission, under the heading of its relationship with society (Reporter, 2001-02, p. 227). We have defined our mission statement as being 'To provide high quality assessment services world-wide'. To accomplish this we offer a comprehensive range of qualifications - both academic and vocational. By ensuring that these are designed to encourage positive educational experiences and the development of relevant knowledge, skills, and abilities, we enable the University, through our work, to deliver practical benefits to millions of people who would otherwise never come into contact with it. In this way we provide recognition of individual learners' achievements, thereby assisting them to achieve their own educational and career objectives, giving them access to further progress in education (including entry to universities) and in the workplace. The Group's activities contribute in a tangible way to the needs and development of countries across the world.

The Group values the involvement of the University in its work, through the participation of University staff as members of its committees or as examiners, by collaborations with the University Press, and through participation in the outreach activities of Departments, of which the Millennium Mathematics project is a leading example. The Group contributes to the University's work on admissions by administering the STEP examination and screening tests for applicants to read Medicine and Veterinary Medicine, and Computer Sciences; it is also involved in various e-learning initiatives.

The brand names 'UCLES' and 'OCR', in their various representations, are an immensely valuable property of the University. The Group takes active steps to protect this property, by the registration of trademarks and Internet domain names, and by exercising strict control over the ways in which its many partners and clients may describe their association with the Group; where infringements are detected, firm action is taken to ensure compliance with our rules. CIE and EFL are working closely together to review the branding of their activities, and the ways in which the exploitation of this branding by centres can most effectively be regulated. The 'Cambridge' brand is clearly one of the most important factors in the global success of the examinations, and it is important to ensure that it is used effectively, without compromising any of the University's other activities or interests.

Security of Qualifications

One factor that maintains the world-wide reputation of all the Group's qualifications is the close attention given to maintaining their security and integrity. This attention begins with absolute confidentiality over the setting of examination papers. It extends through the stages of printing, distribution to centres, and storage prior to the examination session. Security is maintained in the examination room and over the return of candidates' scripts to examiners. It continues through the collection of marks and the subsequent administrative processes to the issue of results. Each examination has its own schedule, which must be strictly adhered to, so that all the results can be published to centres on their due dates. Appropriate procedures are in place to maintain the security and integrity of assessments, such as coursework or project work, which are not conducted through timed, unseen examinations. Many stages of the process are conducted away from the Group's premises and effective measures are taken to ensure that the necessary involvement of third parties, whoever and wherever they may be, does not compromise the integrity of our qualifications in any way. This is an immense logistical undertaking. In the last year the Group dealt with over 3.5 million candidates and 6.4 million subject entries from some 15,000 centres in over 160 countries, dispatched over 12 million question papers with large quantities of supporting materials, and called on the services of some 19,000 examiners.

Regulation and Standards

OCR's general qualifications are closely regulated by the Qualifications and Curriculum Authority (QCA). This regulation covers the subjects and the number of syllabuses that can be offered, syllabus content, schemes of assessment, and many aspects of administration; there is also a strong interest in the level of fees charged to candidates, because the QCA has powers to regulate these. Notwithstanding this regulatory framework, the maintenance of awarding standards remains the responsibility of OCR, through its Chief Executive, who is designated in this role as the Accountable Officer; this responsibility is subject to regular public scrutiny and audit. Regulation of OCR's vocational qualifications, although not yet so complete, is also exercised by the QCA.

CIE is responsible for the definition and maintenance of standards for all of the Group's international qualifications, although where general qualifications are administered in partnership with a Ministry of Education, that Ministry is increasingly involved in standard setting and in the administrative aspects of regulation.

EFL is fully responsible for the regulation of its work and for the setting and maintenance of standards. In this it must look to competition from the USA, unlike OCR and CIE, whose competition is essentially based on the British approach to education. EFL is, however, working with the QCA to ensure that its examinations are compatible with the UK National Qualifications Framework; this will help EFL centres in the Further Education sector to obtain funding for courses.

The strenuous efforts the Group makes to maintain the standard and rigour of all its awards is a primary reason why its qualifications are highly regarded. This again is a major task, involving statistical analysis, comparative studies, and research projects into various aspects of the assessment process. It also depends heavily on the expertise and judgement of the senior examiners and the subject officers who are ultimately the guardians of the Group's standards. Most examiners for our general qualifications are drawn from the ranks of the teaching profession, in schools, colleges and universities; for our vocational qualifications, assessors and verifiers are drawn from those directly involved in training and the workplace. All examiners, assessors and verifiers are trained in their work and a variety of approaches is used to ensure conformity to laid down marking practices and, as appropriate, regulatory Codes of Practice.

In many parts of the world the media has great influence and it is often difficult to maintain a rational debate about standards based on fact rather than opinion. Political, economic, societal, and technological factors all have a strong impact on a nation's requirements for education and training; consequently what is expected in educational achievement at primary, secondary, and tertiary levels undergoes continuous change. In these circumstances, it is inappropriate to discuss a comparison of standards over long periods of time; comparison of questions set in the nineteenth century with those which today's examination candidates face suggests that what is expected of them has changed and largely increased. Indeed, it would be surprising if the general level of educational achievement in candidates for the Group's examinations had not been on a continuously rising curve, bearing in mind the amount of public and private money that has been fed into education over the years.

Lifelong Learning

Much of the Group's work has traditionally been directed to pupils in secondary education, leading up to university entrance or, for those not proceeding to tertiary education, entry into the workplace. However, in line with the increasing world-wide demand for lifelong learning, the Group provides qualifications for people of all ages, especially in the areas of English language tests, and vocational and skills-based qualifications. We work closely with users of such qualifications, especially employers, to align our qualifications with their needs. The Group also has a long tradition of offering qualifications for teachers of EFL. We have recognized that there is now a need, particularly in many of our international markets, to provide qualifications for teachers who wish to update their skills, especially in the area of IT. In addition to these specific programmes, we organize annually a large number of training sessions for teachers, to help them understand the requirements of the syllabuses and the schemes of assessment in their subjects. Provision of resource material in printed and electronic form, for teachers and pupils, is another essential feature of our work. The Group works closely with a number of leading publishers in ensuring that up to date learning and teaching materials are available.

People

The Group is heavily reliant on the knowledge and experience of its staff and external examiners and great attention is paid to their further training requirements. The Group also depends upon the services of a number of contractors and consultants. Syndics wish to record their appreciation of the work of all those who have contributed to the Group's activities over the past year.

Finance

As is shown in the attached accounts, which have been prepared in compliance with the Statement of Recommended Practice: Accounting for Charities, the UCLES Group achieved a surplus of £2.2 million for the financial year 2000-01, compared to a surplus of £3.5 million in 1999-2000. The result for 2000-01 includes significantly increased expenditure on stra-tegic Information Management projects and therefore represents a real improvement in performance for the Group as a whole. Each of the three business streams recorded an operating surplus for the second year running.

Income from examination fees and other educational and assessment services increased from £105.7 million to £118.8 million due to increased revenue in all three business streams.

The overall expenditure in providing examination services was £14 million higher than in 1999-2000, due to increased costs of examinations arising from additional entries and higher expenditure on Information Management projects.

During the year 2000-01, £9.75 million was transferred from the West Midlands Examinations Board to the new WMEB Fund (Statutes and Ordinances, p. 878).

Although continuing growth is forecast in the number of examination entries, fee rates are subject to external pressures particularly from customers who are billed in euros (whilst sterling remains strong against the euro) or where they find it difficult to raise foreign currency to pay in sterling.

Thus the Group must maintain a strong balance sheet in order to ensure financial stability in a risky business environment and to provide a cushion against adverse circumstances. Reserves are also required to fund investment in the development of the Group's infrastructure and business and to ensure that no financial liability will ever fall on general University funds. Syndics consider that it would be imprudent for the Group to rely on loans to fund any of these requirements and that the University is unlikely to wish to divert general resources to support the Group's work. The Group must therefore maintain sufficient reserves to meet all its funding requirements, in bad as well as good times. During the year, Syndics gave careful consideration to the appropriate level of reserves. They drew a distinction between restricted funds (which the Charity Commissioners do not classify as reserves), the reserves which represent the working fixed assets and net current assets used by the Group in its business operations, and the balance of reserves - the 'available reserves'. The available reserves provide the necessary buffer to meet the Group's investment needs and cover for contingencies. Over the last decade the ratio of available reserves to annual operating costs has more than halved and Syndics concluded that a ratio of 80% (based on the accounts to 30 September 2000) was an appropriate figure in present circumstances. It has been the Group's policy to invest the available reserves in the University's Amalgamated Fund. This policy has served the Group (and the University) well over the years, enabling substantial support to be given to a range of general University purposes and to Scholarship schemes for students from the Commonwealth and other countries, without drawing on the operating account. However, the policy introduces its own risk when, from time to time, stock markets fall in response to adverse events. At 30 September 2001 the accounts showed an unrealized loss of £10.7 million. As a result, the ratio of available reserves to operating costs fell to 66%, rather less than Syndics had concluded was necessary earlier in the year; however, on the assumption that stock markets will recover Syndics have decided that this slightly lower level of available reserves is acceptable for the moment.

During the year £3.7 million was transferred to the Chest, in line with the agreement reached between Syndics and the Council in 1995, to transfer £3 million annually indexed by the change in the retail price index; despite the fall at 30 September 2001 in the value of its available reserves, the Syndics will continue the policy next year, because most of the transfer should be covered by investment income. In addition, the Group has given financial assistance on a small scale to a number of University activities that relate closely to the Group's mission: support for the undergraduate admissions prospectus; the Millennium Mathematics Project, an outreach activity to schools run jointly by the Departments of Education and the Department of Applied Mathematics and Theoretical Physics; and grants to some of the less well endowed Colleges to support overseas students, in recognition of the importance of international work to the Group. These grants will be continued next year. The Group has also agreed to provide the screening tests used by Colleges for admission purposes in the Medical and Computer Sciences without charge, initially for a period of three years.

Since 1981 the Group has transferred from its reserves and investment income £92.6 million to general University funds; £17.8 million to the Cambridge Commonwealth and Overseas Trusts; and £3.2 million to establish the Research Centre for English and Applied Linguistics.

Corporate Governance

The Syndicate, comprising ten members of the Regent House and two co-opted external members, is responsible for the oversight of the work of the Group. It met five times during the year.

The Board of OCR, comprising nine members appointed by the University and seven nominated by the RSA, is responsible for the oversight of the work of OCR. It met four times during the year.

The Group Finance Committee, which includes members drawn from the Syndicate and OCR Board, met eight times.

The Group Remuneration Committee met twice during the year to review the remuneration of the Group's senior executives and to consider matters of general remuneration policy. The salary of the Group Chief Executive is determined by the full Syndicate.

During the year the Council brought forward proposals for a revised constitution whereby the Syndicate and the OCR Board would have a common membership. The proposals were approved by Grace 8 of 13 June 2001. The RSA also agreed to approve the changes concerning the membership of the OCR Board. The restructured Syndicate is to meet ten times a year; under the new arrangements there is no longer a need for a separate Finance Committee. However, a Group Remuneration Committee will continue to function as before. The new Syndicate has established a Nominations Committee to make nominations for membership of the Syndicate, for transmission to the Council, and to the Group's committees.

Dr K. F. Riley, Mr T. Thomas, Mr K. Rowland, Mr R. Greenhalgh, Mr R. Holdsworth, and Mr R. Lockwood retired as Syndics or members of the OCR Board during the year. Syndics wish to record their appreciation for their work.

The Syndicate has in place an agreed statement of the powers delegated to the Group Chief Executive. The day-to-day management of the Group is the responsibility of the Group Chief Executive and the Corporate Board, whose other members comprise the Chief Executives of the three business streams, the Deputy Chief Executive of OCR, and the Group Directors of Finance, Information Management, and Human Resources.

Internal audit is contracted to Robson Rhodes, who report to the University Audit Committee.

Corporate Developments

The UCLES Group relies heavily on the production and distribution of printed materials - some 450 million A4 sides in monochrome and full colour in 2000-01. From 1 October 2000, new printing arrangements have been in place whereby CUP SecurePrint - a newly established section within Cambridge University Press - is responsible for all of the Group's print procurement. An increasing proportion of the Group's printing is being carried out within CUP, which is making substantial investments in plant and systems to accommodate this work. All reprographic and printing facilities within the UCLES Group were transferred to CUP SecurePrint, with effect from 1 October 2000. This integration is expected to result in substantial cost savings.

The UCLES Group and CUP SecurePrint have jointly commissioned Pira International Ltd to investigate ways of improving efficiency and cost-effectiveness across the Group's printing and publishing activities. This project is intended to lead to the introduction of digital workflow and origination, which will greatly enhance our publishing activities.

During the year continued attention has been given to the modernization of the workflow and document management processes in examinations administration. The Group is working with a number of external suppliers to review provision in this area.

Consultants were engaged to undertake a review of the Group's property holdings in Cambridge, Birmingham, and Coventry in the light of the Group's property strategy drawn up in 1999. The consultants have confirmed that the Group needs to increase its office and warehouse accommodation to overcome overcrowding in all three locations and to allow for projected increases in workload. As a short-term measure a lease has been taken of part of Lockton House in Cambridge. Work is also underway to convert the former print shop in the Coventry premises into offices, and the Group's offices in Nottingham (which have been vacant since 1998 and were earmarked for disposal) are being brought back into use. The Syndicate successfully bid to acquire South Cambridgeshire Hall and House, which are adjacent to its Hills Road site. Negotiations for this purchase are nearing a conclusion, but possession is unlikely to be obtained before late 2003. Lockton House will then be disposed of. These developments address most of the needs for additional office accommodation and some of the needs for additional warehousing.

A single Finance department has been created for the whole Group, with staff continuing to be based in Cambridge, Coventry, and Birmingham. Work has continued during the year on the implementation of a single accounting system for the Group. A single payroll system has been introduced, the operation of which is outsourced. Reductions have been achieved in the time taken to produce management and financial accounting information, and this gives the business streams a much more effective basis for business planning.

Consultation has been held with staff across the Group to harmonize terms and conditions of employment, thereby removing differences that had arisen as a result of the acquisition of the RSA Examinations Board and the transfer of part of the Syndicate's work to OCR.

Information and communications technology is fundamental to every area of the Group's activities. Extensive development work in this area will lead to a major revision of the Examinations Processing System, to meet the rapidly growing and diversifying needs of the Group and to enable us to provide an enhanced administrative service. A comprehensive Group wide information management policy has been implemented, including a review of how well the Examinations Processing System meets the needs of the organization as a whole and of the individual business streams.

The Group has initiated a major project to reformulate our Internet-based services and management of the very large volumes of customer information that are held within the organization. The first iterations of this project, which will deliver enhanced extranet and online administration facilities and a customer information database for each of the business streams, will be complete early in 2002. Future iterations will provide new public websites, call-tracking facilities and integrated content management. This suite of projects is crucial to the organization's long-term success and will be a major focus of activity over the next few years.

The Research and Evaluation Division has had a successful year across a wide range of activities, winning contracts and increasing dissemination through publication and conferencing. The National Curriculum Group won renewals for all the Key Stage 3 test contracts in English and Science for England, Wales, and Northern Ireland, and added a new contract for Mathematics in Northern Ireland. The Information Technology for Assessment and Learning Unit devoted considerable attention to the strategic issues surrounding the use of ICT in assessment, including a significant role in the development of international technical standards. As part of the programme for dissemination of the results of research into question validity, the Assessment and Cognition Unit developed a prototype for a computer based training system for examiners. In addition to the normal support for the other business streams, important studies on 'standards over time' were carried out by the Evaluation and Assessment Research Service Unit.

Outlook

Despite the uncertain global situation at the end of our financial year, and further increases in the external pressures on our activities, the long-term future of the Group looks increasingly promising.

20 December 2001

Auditors

KPMG, 37 Hills Road, Cambridge, CB2 1XL

Bankers

Barclays Bank Plc, 15 Bene't Street, Cambridge, CB3 3PZ

HSBC Plc, 2 Station Avenue, Coventry, CV4 9GQ

Appendix A: The Local Examinations Syndicate

Appendix B: The OCR Board

From 1 October 2001, the membership of the Board of OCR comprises the Syndics together with the UCLES Group Chief Executive.

Appendix C: UCLES Group Corporate Board

* The increased number of entries for General Qualifications reflects the introduction of new, entirely modular AS and A levels in 2000-01, requiring many candidates to complete multiple units in place of the former linear examination.

Appendix E: List of Acronyms

Appendix F: Consolidated Accounts for the Year ended 30 September 2001

Statement of Responsibilities

The Chief Executive, through responsibility delegated by the Syndics (who are kept fully informed by the Chief Executive of the financial affairs of the Syndicate and Group) is required to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Syndicate and Group and of the surplus or deficit for that period. In preparing those financial statements the Chief Executive should:

The Chief Executive has assumed responsibility for maintaining proper accounting records. He has also assumed responsibility for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Report of the Auditors, KPMG, to the Examinations Syndicate

We have audited the financial statements on pages 24 to 35, which have been prepared on the basis of the accounting policies set out on page 27.

Respective responsibilities of the Chief Executive and the auditors

The Chief Executive is responsible for preparing, as described above, the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board and by our profession's ethical guidance.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with applicable laws and accounting standards. We also report to you if, in our opinion, the Syndicate has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law is not disclosed.

Basis of opinion

We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Chief Executive in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied, and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Syndicate and of the Group as at 30 September 2001 and of the Group's income and expenditure for the year then ended.
KPMG
Chartered Accountants
Registered Auditors
37 Hills Road
Cambridge
11 January 2002

Consolidated Statement of Financial Activities for the Year ended 30 September 2001

All income and expenditure relate to continuing activities.

The analysis for the year ended 30 September 2000 has been re-stated to bring the presentation into line with that for the other companies within the UCLES group.

The net decrease in funds for the period in UCLES was £1.75m (2000: increase of £9.21m).

There is no difference between the Net Incoming Resources stated above and its historical cost equivalent. The Group has no recognized gains or losses other than those included in the Consolidated Statement of Financial Activities. Therefore no separate statement of recognized gains and losses has been presented.

Balance Sheet as at 30 September 2001

Approved by Syndics on 20 December 2001 and signed on their behalf by:
Professor P. Goddard, Chairman of the Local Examinations Syndicate
Dr M. P. Halstead, Chief Executive of the Local Examinations Syndicate

Consolidated Cashflow Statement for the Year ended 30 September 2001

The analysis for the year ended 30 September 2000 has been re-stated to bring the presentation into line with that for the other companies within the UCLES Group - see note 12.

Notes to the Financial Statements for the Year ended 30 September 2001

1. ACCOUNTING POLICIES

Basis of Accounting

The financial statements have been prepared in accordance with the Statement of Recommended Practice: Accounting for Charities, applicable Accounting Standards in the United Kingdom, and under the historical cost basis.

Basis of Consolidation

The Group accounts incorporate the results of UCLES and its subsidiary and associated companies; associates have been accounted for in accordance with the equity method.

The accounting periods of associated undertakings are not coterminous with that of the parent undertaking but the effect is not material.

In the individual accounts of UCLES, the investments in the subsidiary companies are stated at cost less any permanent diminution in value.

Goodwill

Goodwill relating to investments made by the Group is amortized over ten years on a straight line basis, being its estimated useful economic life. Where there is a permanent diminution in the carrying value of goodwill, the loss is included in the results of the period.

Foreign Currencies

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the Statement of Financial Activities.

Results of overseas associates are translated into sterling at the average rate for the period. Gains or losses arising on the translation of the net assets of overseas associates less exchange differences arising on related foreign currency borrowings are taken to reserves.

Leases

Assets acquired under finance leases are included in tangible fixed assets and depreciated over the estimated useful life or the term of the lease, whichever is shorter. Future instalments under such leases, net of finance charges, are included in creditors.

All other leases are accounted for as 'operating leases' and the rental charges are charged to the Statement of Financial Activities on a straight line basis over the life of the lease.

Pensions

The three principal pension schemes for the Group's staff are funded defined benefit schemes. The Funds are valued every three years by professionally qualified independent actuaries, the rates of contribution payable being determined by the trustees on the advice of the actuaries. Pension costs are accounted for on the basis of charging the cost of providing pensions over the period during which the Group benefits from the employees' services.

Depreciation

Depreciation is charged to write off the cost of fixed assets over their estimated useful lives:

Research and Development Expenditure

Expenditure on research and development is written off in the year in which it is incurred.

Stocks

Stocks are stated at the lower of cost and net realizable value.

Deferral of Incoming Resources

Examination fees receivable in respect of examination sessions taking place in subsequent financial years are deferred to the year in question.

Cost Allocation

Costs (including staff costs) are treated as costs in furtherance of objects where they are used in the operation or support of examination and assessment services.

Taxation

UCLES is a constituent part of the University of Cambridge, which is an exempt charity. UCLES therefore claims exemption from Corporation Tax under the provisions of section 505 of the Income and Corporation Taxes Act 1988.

2. INCOMING RESOURCES

3. STAFF COSTS

The average number of persons employed by the Group during the year was 1,424 (2000: 1,490). These were engaged directly on the Group's management, support, and administration functions.

Staff costs for the above persons comprise:

Of the above staff 18 (2000: 21) are members of defined benefit pension schemes, 2 (2000: 3) were members of a defined contribution scheme. Total contributions in the year to the defined contribution scheme amount to £0.02m (2000: £0.06m).

Information concerning payments to Syndics is given in note 15.

4. NET INCOMING RESOURCES

5. INTANGIBLE FIXED ASSETS

6. TANGIBLE FIXED ASSETS

All tangible fixed assets are held for direct charitable purposes.

7. FIXED ASSET INVESTMENTS

Investments at market value comprise Cambridge University Amalgamated Fund Units. The market value at 30 September 2001 is based on the estimated valuation as at that date provided by the University Finance Division. The decrease in market value is due to the decline in stock markets world-wide in response to deteriorating economic conditions and in the aftermath of the September 11 attack on the United States.

The Syndics have reviewed the value of the Investment Properties as at 30 September, and consider that the book value reflected the current market value of the properties.

The interest in the associated undertaking relates to the 49% shareholding in the ordinary shares of RSA Examination Board (Middle East) LLC a company registered in Oman. The company has now been dissolved; no amounts have been received.

FIXED ASSET INVESTMENTS

The loan to OCR is unsecured and has no fixed repayment date. No interest has been charged in the year to 30 September 2001. The future interest rate on this loan has yet to be determined.

8. DEBTORS

9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

Provisions were made in respect of building work, property related claims and legal fees, payments regarding employment matters, contractual disputes, and rebates and discounts.

11. FUNDS

The designated funds are unrestricted as defined by the Statement of Recommended Practice, Accounting for Charities.

The restricted funds are invested in University of Cambridge Amalgamated Fund Units and in interest bearing deposit accounts.

The EMREB Fund is a trust fund created from assets transferred from the East Midlands Regional Examinations Board (EMREB).

The WMEB Fund is a trust fund created from assets transferred from The West Midlands Examination Board (TWMEB).

The restrictions for the funds are set out in the Statutes and Ordinances of the University of Cambridge.

The China Fund is a designated fund intended to cover commitments made by the Group regarding the construction of a building in China. The outstanding commitment was reviewed during the year and reduced to the sum now considered likely to be required.

12. NOTES TO CONSOLIDATED CASHFLOW STATEMENT

13. PENSION COSTS

The Group operates three defined benefit pension schemes. The assets of the schemes are held in separate trustee-administered funds. The pension costs are assessed using the projected unit method.

Each scheme is valued every three years by professionally qualified independent actuaries who are not employees or officers of the Group. The CPS and USS schemes are not closed, nor is the age profile of their active membership rising significantly. The RSAEB scheme is a closed scheme which has 35 active members. The rates of contribution payable are determined by the trustees on the advice of the actuaries. Surpluses or deficits which arise at future valuations may impact on the Group's future contribution commitments.

The Group's contribution to the CPS and USS schemes are affected by a surplus or deficit in these schemes but the Group is unable to identify its share of the underlying assets and liabilities in these schemes on a consistent and reasonable basis. The RSAEB scheme is not considered to be material and therefore no disclosure of surplus or deficit has been made. The Group therefore accounts for its contributions to pension schemes as if they were defined contribution schemes.

The assumptions and other data which have the most significant effect on the results of the valuation are as follows, together with the current contribution rates:

The total pension cost for the Group was £1.78m(2000 £1.99m).

14. OPERATING LEASES

At 30 September 2001 the Group had annual commitments under non-cancellable operating leases as follows:

15. RELATED PARTY TRANSACTIONS

The Group has taken advantage of the exemption in Financial Reporting Standard 8 not to disclose transactions or balances with entities which form part of the Group (or investees of the Group qualifying as related parties).

During the year the Group entered into transactions with Cambridge University Press (CUP), another Syndicate of the University of Cambridge, as follows: purchase of printing services £9.61m, purchase of other services £0.03m, receipt of royalties £0.17m, sale of services to CUP £0.55m. At 30 September 2001 a balance of £0.77m was due to CUP.

In addition to the £3.84m transfer to other University Funds shown on page 24, the group paid £0.08m to the University of Cambridge in respect of rentals, computer software, and other services. No balance was due to the University at 30 September 2001.

During the year two Syndics were paid fees totalling £503 in respect of examination services. Total travel expenses of £1,968 were paid during the year to four Syndics.

16. ASSOCIATED COMPANIES

All of the subsidiary undertakings have been included in the consolidation.

Note

1 Companies Limited by Guarantee and Exempt Charities.

2 Company Limited by Guarantee and a Registered Charity.

3 Companies having Share Capital.

17. ULTIMATE PARENT UNDERTAKING

UCLES is a Syndicate of the University of Cambridge. It is governed by the Statutes and Ordinances of the University.

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Cambridge University Reporter, Monday 8 April 2002
Copyright © 2002 The Chancellor, Masters and Scholars of the University of Cambridge.