Annual Report of the Local Examinations Syndicate

This is the one hundred and forty-sixth Annual Report of the Syndicate. It covers the events of the financial year 2002-03.

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

Introduction

The year ended 30 September 2003 has been another successful one for the UCLES Group, with entries for examinations continuing to grow across the business. Examination results were delivered accurately and on time in all business streams.

Overall, the Group recorded a surplus of £10.6m which was a significant improvement on the forecast budget and the previous year. This outcome was achieved by increased income and an underspend on direct costs and overheads; expenditure on information management projects was lower than anticipated and some activities have been carried over to next year. The value of the Group's invested reserves rose this year, after two years of decline, due to the recovery in stock markets.

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, the Midland Examining Group, 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 Cambridge ESOL (English for Speakers of Other Languages) - 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 ESOL 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 the following service divisions: Finance, Information Management, Research and Evaluation, Human Resources, Distribution, Premises and Facilities, and the ITAL unit. Printing has been outsourced to Cambridge University Press since 1 October 2000, and the Group's Print Manager manages the relationship with CUP and other suppliers.

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 ESOL) or internal (in the case of central service divisions). The Group Information Management strategy is vital in this respect. 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. 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, 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 developing the BMAT and TSA tests; it is also involved in supporting other activities.

The brand names 'UCLES' and 'OCR', in their various representations, are 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. 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 course-work 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 dispatched around 12 million question papers to over 170 countries.

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. 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 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.

ESOL 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. ESOL has achieved formal accreditation for its examinations in the UK, which allows further education institutions to gain funding for courses leading to the exams.

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 have 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 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 ESOL. 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 and development. 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 £10.6m for the financial year 2002-03, compared to a surplus of £1.6m in 2001-02. Each of the three business streams recorded an operating surplus.

Income from examination fees and other educational and assessment services increased from £133.5m to £143.6m due to increased revenue in all three Business Streams.

The overall expenditure in providing examination services was £1.2m higher than in 2001-02, due to increased costs of examinations arising from additional entries and higher staff costs, offset by lower overall expenditure on information systems.

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, and for those in Latin American countries which are suffering from economic difficulties 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. 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. 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. By 30 September 2002 the accounts had shown an accumulated unrealized loss over two years of £21.6m. As a result, the ratio of available reserves to operating costs fell to 52%, less than Syndics had concluded was necessary in 2000. The accounts for the year ending 30 September 2003 show an unrealized gain of £4.1m caused by the recovery in stock market values during the year. The ratio of available reserves to annual operating costs has therefore improved to 56%.

During the year £3.9m was transferred to the Chest, in line with the agreement reached between Syndics and the Council in 1995, to transfer £3m annually indexed by the change in the retail price index. 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 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.

Since 1981 the Group has transferred from its reserves and investment income £99m to general University funds; £18m to the Cambridge Commonwealth and Overseas Trusts; and £3m to establish the Research Centre for English and Applied Linguistics.

During the year the Group purchased South Cambridgeshire Hall and House, currently occupied by South Cambridgeshire District Council. The Group will re-furbish the property over the next year and will then have a building much closer to its main buildings, enabling it to move out of rented property in other parts of the city.

Corporate Governance

The Syndicate, comprising six members of the Regent House and six external members, along with a Chairman appointed by the Vice-Chancellor and the Treasurer, is responsible for the oversight of the work of the Group. It met ten times during the year. All the Syndics and the Group Chief Executive are directors of OCR and formal meetings of the OCR Board are held as part of each Syndicate meeting.

The Group Remuneration Committee met three times 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. The Nominations Committee had one meeting.

Toward the end of last year, the Syndicate agreed to create an Audit Committee. This met three times during the year to review internal audit reports, and to consider other related matters such as risk management. Internal audit is contracted to Robson Rhodes, who also report to the University Audit Committee.

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 Director General of Assessment, and the Group Directors of Finance, Information Management, and Human Resources.

Business risks

The Syndics/OCR Board confirms the major risks to which UCLES/OCR is exposed, as identified by the Syndics/trustees, have been reviewed and systems have been established to mitigate those risks.

Corporate Developments

During the year, strategic initiatives have been started such as the establishment of a working group to look at the issue of innovation, and the development of proposals relating to Electronic Script Management (ESM). The latter will help to address the challenge posed by QCA's drive for modernization of the examinations process.

As far as the ESM programme is concerned, it was recognized that there was an urgent need to progress a short-term tactical programme as one strand of this programme. A first OCR pilot is to be run, therefore, in January 2004 to demonstrate to the UK regulatory bodies the Group's - and in particular OCR's - significant development and competence in the scanning and online marking of scripts for UK GCE and GCSE examinations. Given the relatively short time scales for this programme a strategic partner has been engaged for the pilot, while discussions with other potential partners began regarding the longer-term objectives.

There has been considerable discussion of the issue of access to higher education during the year. UCLES has got increasingly involved in this area through the development of the Biomedical Admissions Test (BMAT) and the Thinking Skills Assessment (TSA) test. BMAT is the successor to the MVAT, which was developed by RED and piloted with the University in 2000, 2001, and 2002, and is designed to provide an assessment of candidates' potential for medicine, veterinary medicine, and other biomedical science courses. Following discussions during the year, it was agreed that the November 2003 test would be used as a larger pilot and would be extended to include Oxford University and University College London. Other universities have also expressed an interest in the possibility of using BMAT. The ITAL unit has been running and evaluating the pilot TSA project, a paper and computer-based assessment designed to provide additional information on which to base admissions decisions. The test is being used by some of the Cambridge Colleges in selected subjects.

The Group completed its purchase of South Cambridgeshire Hall and House. Detailed proposals have been developed for the complete refurbishment of the buildings to provide modern space-efficient accommodation for staff and additional meeting rooms, which will ease the pressure on existing facilities. Project managers have been appointed to take this forward in conjunction with a steering group. It is anticipated that UCLES will move into these buildings by the end of 2004 or the beginning of 2005. During the year, OCR also acquired 1 Mill Street in Birmingham, close to its premises at Mill Wharf, to provide additional accommodation and meeting space.

A new constitution was agreed for the Group SCC with the aim of producing more focused and constructive discussions; the size of the membership was reduced to assist this while ensuring that the right balance between staff representatives and management was maintained. A newly formed Health and Safety Committee met for the first time following the appointment of a permanent Health and Safety manager.

Information Management

The Quartet programme was completed during the first quarter and, in addition to the delivery of the Web-based systems, a major skills transfer programme was undertaken to enable IM staff to manage Web-based developments internally. A post-implementation review was undertaken to identify lessons to be learnt for future development projects.

Developments for business streams included the CAMEO system to support online entries for CIE and Web-based online administration and test verification for the new IELTS fixed examination dates. More data were provided to support OCR's awarding process and the TAG team, while the HEAT service desk software was installed in the information bureau to support an enhanced service to OCR's customers. The first phase of the CODA financial systems has been completed and the next phase is underway, which will support e-commerce and electronic communication.

A programme of replacing contract staff with permanent staff was completed and a significant re-organization of the IM division took place to improve communication between IM and the business streams and to make it more responsive to business needs.

Other activities during the year included programmes covering logistics (to develop a warehouse management system), tools, and platforms for underpinning IM projects over the next five years, and infrastructure renewal (this included the renewal of the CAMS system hardware in Coventry). In addition, a new corporate website was developed to provide a more informative and helpful site which includes, among other things, information on job vacancies within the Group.

ITAL

ITAL continued to support the work of technical standardization bodies such as BSI and the IMS Global Learning Consortium and leads the group tasked with developing version 2 of the IMS Question and Test Interoperability (QTI) specification. The specification will enable questions to be deployed on a wide range of e-learning systems helping course designers to integrate high-quality assessment content into their programmes.

ITAL has been coordinating work with researchers at Oxford University who are working on an UCLES-funded investigation into the automatic marking of short, free text answers of up to about five lines. The unit has also been working with teachers to develop and evaluate a Web- and e-mail-based service for managing a formative peer assessment programme. Initial development work is now complete, and the service will be piloted and evaluated during the coming year.

ITAL has continued to develop the UCLES intranet, which was introduced during the year, and maintained its work in promoting and supporting business streams in the creation of virtual 'Communities of Practice' of teachers, examiners, and other groups using e-mail list technology.

ITAL has continued to run internal and external workshops related to new technologies and their possible effects on UCLES' business and the ACNTA seminar series, which brings high profile practitioners in the e-learning and assessment field to UCLES to share their experiences and views.

RED

The Research and Evaluation Division has been active across a wide range of activities; maintaining the level of contract research and development undertaken and contributing to the Group's profile through publications and conference papers. The Examination and Assessment Research Section has provided research services and advice to CIE and OCR and was called upon this year to make a major contribution to the development of urgently needed new interactive information systems for use in GCE and GCSE awarding.

In the Primary Assessment Unit research studies in children's writing were completed and disseminated and externally funded projects have been completed for the QCA, including the production of the annual Standards Report for Key Stage 1 English. The National Curriculum Group again successfully delivered seven Key Stage 3 tests for England, Wales and Northern Ireland and played a vital part in the successful introduction of the new model for Key Stage 3 English assessment for England in 2003.

RED also developed the concept for a formative assessment project which (in association with Adaptive Learning Teaching and Assessment Ltd, an offshoot of Queens University, Belfast) will develop computer mediated assessment materials in English, Mathematics, and Science at Key Stages 2 and 3 for marketing to primary and secondary schools. The National Curriculum Group and Primary Assessment Unit will collaborate in planning, materials development, trials, and evaluation of pilot studies for this project.

Outlook

The long-term prospects of the Group appear to be favourable although there are significant challenges ahead including continuing localization of CIE's business and increasing competition for ESOL.

In the UK, there are likely to be many major initiatives on the horizon emerging as a result of the Tomlinson working group report on 14-19 education reform and QCA's proposals for the modernization of the examinations process. Indeed, the Government has already announced elements of the proposed modernization programme including the establishment by QCA of a National Assessment Agency to work with the Awarding Bodies on the delivery of public examinations. OCR will engage fully in discussions on how this process should be taken forward.

Dr K. B. PRETTY (Chairman)	Dr J. J. GUY	Dr G. T. PARKS
Mrs V. P. BRAGG	Ms D. HALL	Mr B. G. PICKING
Professor G. BROWN	Dr J. A. LEAKE	Mr T. M. TAYLOR
Professor J. M. GRAY	Mr R. M. MARTINEAU	Mrs J. M. WOMACK

29 January 2004

Auditors

KPMG LLP, 37 Hills Road, Cambridge, CB2 1XL

Bankers

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

Appendix A: The Local Examinations Syndicate

Appendix B: The OCR Board

Appendix C: UCLES Group Corporate Board

Appendix D: List of Acronyms

Appendix E: Consolidated Accounts for the Year ended 30 September 2003 [85KB PDF]