Annual Report of the Local Examinations Syndicate

This is the one hundred and forty-seventh Annual Report of the Syndicate. It covers the events of the financial year 2003-04.

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

Introduction

The year ended 30 September 2004 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 £0.05m, which was lower than in recent years as a result of three exceptional items (see the Finance section for more details).

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 for speakers of other languages and qualifications for language teachers throughout the world. The work of the three business streams is supported by the following corporate services: Finance, Information Management, Human Resources, Distribution, and Premises and Services. The Group Publishing Operations Director manages the relationship with CUP and other suppliers. During the year it was agreed to establish a new Assessment Directorate to bring together corporate research and innovation activities.

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 increasing 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 customers, whether these be external (in the case of OCR, CIE, and ESOL) or internal (in the case of central services). 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. Our aim is to be a world-leading assessment organization. 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; BMAT is now used by other universities and other institutions have also shown an interest in TSA. The Group is also involved in supporting other activities at the University.

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 its 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 twelve million question papers to over 150 countries.

Regulation and standards

OCR's general qualifications are closely regulated by the Qualifications and Curriculum Authority in England, the Qualifications, Curriculum, and Assessment Authority for Wales, and the Northern Ireland Council for the Curriculum Examination and Assessment. 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 and Director of Quality and Standards, the latter of whom was appointed on 1 October 2004 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 show that what is expected of them has changed.

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 and Reserves

As is shown in the attached accounts, which have been prepared in compliance with the Statement of Recommended Practice: Accounting and Reporting by Charities, the UCLES Group achieved a surplus of £0.05m for the financial year 2003-04. Each of the three business streams recorded an operating surplus.

Income from examination fees and other educational and assessment services increased from £143.7m to £155.4m due to increased demand across all three Business Streams.

Overall expenditure in providing examination services was up partly because of extra volume, and partly because of higher staff, information system, and other costs. The additional staff costs include a lump sum of £2.7m paid to the CPS pension scheme in respect of the deficit in the scheme. Other extra costs also include an additional transfer of £4m to the University and the write-down of building values by £2.8m.

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 from those Latin-American countries which are suffering from economic difficulties or where they find it difficult to raise foreign currency to pay in sterling.

As a result, the Group is committed to maintaining 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, including research, 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. Syndics have reviewed the level of reserves with the University and believe that the levels held are reasonable given the issues faced by the Group. 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. The accounts for the year ending 30 September 2003 showed an unrealized gain of £4.1m caused by the recovery in stock market values during the year and there has been a further gain of £6m in the year to 30 September 2004. These gains have therefore not yet restored the losses of previous years.

During the year £8.1m was transferred to the University, which included an additional £4m agreed by Syndics above the amount of the usual transfer. 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 £128m from its reserves and investment income - £107m 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 refurbished its recently acquired premises at 9 Hills Road. Occupation of the refurbished building by OCR took place on 20 December 2004.

The Group has adopted FRS17 'Retirement Benefits' for the first time in these financial statements. As a result, the liability in respect of the RSAEB Retirement Benefits Scheme is included. The liability relating to the CPS Scheme is not recognized in the Group's accounts as the Group's share of assets and liabilities cannot be separately identified.

The value of freehold buildings owned by the Group was reviewed and an impairment in value was identified in two buildings in Birmingham. These buildings have been written down to their net realizable value based on professional valuations.

Corporate Governance

The Syndicate comprises six members of the Regent House and six external members, along with a Chairman appointed by the Vice-Chancellor and the Acting Treasurer. Members from the Regent House are appointed by the Council, while external members are appointed by the Council on the nomination of the Syndicate. The Syndicate is responsible for the oversight of the work of the Group and met nine 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 the Syndicate meeting as required.

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 Audit Committee met four 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 and the OCR Board confirm the major risks to which UCLES and OCR are exposed, as identified by the Syndics and trustees, have been reviewed and systems have been established to mitigate those risks.

Corporate Developments

As a key part of the Group's drive towards modernization of examinations processing, a corporate Electronic Script Management (ESM) programme was launched. This builds upon the knowledge gained from extensive research work over the past few years.

The programme will automate processes relating to the digitization of candidate responses, allocation of responses to examiners and markers, online marking, and the capture and availability of marks for subsequent processing. Through this programme we expect to improve assessment quality, examiner productivity, and operational effectiveness. This will also address a major area of concern for the UK regulatory authorities.

Pilots of scanning and online marking of scripts for OCR were successfully completed in January, March, and June along with a pilot of the electronic return of marks. A framework agreement has been signed with RM as technology partners to deliver a series of pilots leading up to the engagement of examiners in the new e-marking process for up to two million scripts for the June 2005 session.

The Group made a successful bid (through a joint submission by ESOL and OCR) for a major DfES contract to offer the assessment solution for the Government's national languages strategy. This exclusive contract will run in England for a minimum of five years, eventually providing tests in around 26 languages, including French, German, Spanish, Japanese, and Urdu, for primary, secondary, and adult language learners.

The refurbishment programme for 9 Hills Road (formerly South Cambridgeshire Hall and House) was completed on schedule and OCR's Cambridge staff and the Group Chief Executive's Office moved into the new premises in December 2004. These moves will subsequently enable the Group to carry out essential improvements in areas of the building at 1 Hills Road. Integral presentation facilities were installed as part of a refurbishment of some of the meeting rooms at 1 Hills Road earlier in the year and video-conferencing facilities have also been provided.

A new remuneration strategy was introduced with two principal aims: to clarify and simplify pay scales, while ensuring that they are competitive in the market and therefore enable the Group to attract the right calibre of staff; and to introduce a single pay system for the whole Group to remove any inconsistencies between the business streams.

IM

The development programme for the year has been centred around the Group's modernization agenda. Whilst this is a three- to five-year programme, significant progress has been made in each of the four strands of modernization: assessment production and delivery; electronic script management; online administration for centres and examiners; back office systems; and infrastructure. This progress has been accelerated by use of more agile development methodologies and re-use of components that has improved the value for money from the Group's IM spend.

A comprehensive programme of work is being undertaken to support item commissioning, item banking, question paper production, and computer-based testing. When complete the Group will have a fully integrated set of applications that are compliant with both the latest technology standards and question/test interoperability (QTI) standards. It is believed this will be the most comprehensive offering of any exam board in the world. In addition, OCR have launched their e-portfolio for electronic course-work.

Developments in online administration include the new Interchange development for OCR covering entries and results for both general and vocational qualifications. Similar developments for CIE have seen a new online entries and results site launched. ESOL have also continued work in this area and have launched a new IELTS Centrenet that is integrated to their new IELTS administration system. In addition, ESOL are developing a CBT administration system to manage the secure distribution of materials and return of outcomes for CBT tests.

A new warehouse management system has been selected and will be rolled out in a phased manner over the next two years. Work to define the requirements and approach to technical architecture for the next three to five years has been completed and a number of developments, including improved support for mobile computing and remote access implemented. In addition a major infrastructure renewal programme is underway. This includes upgrades to networks and operating systems, as well as the replacement of EPS hardware. These developments will place the Group in a better position to implement the modernization programme as well as improving disaster recovery arrangements.

IM have also worked with Business Streams to deliver a comprehensive programme of development and enhancement to support new products and improve administration and customer service. This includes work on customer management systems, finance systems, and examinations processing systems. One example of this is the development of the new BMAT online entry system and integration with the exams processing systems.

Steps have also been taken to make IM more responsive to the needs of the business. Central to this was the launch in July of a new IM Helpdesk supported by an online information and administration portal and a review of customer facing processes. A review of major contracts, the negotiation of preferred supplier agreements, and an operational process review has enabled IM to reduce the total cost of ownership of IM systems. The e-mail platform has been upgraded and backup and recovery enhanced. Resilience will be further improved by the planned upgrade of the Exchange e-mail application.

A review and reorganization of the Customer Services area was carried out following the appointment of a new Director. The organization and skills mix in other areas has also been refined to reflect the changing business requirements from both modernization and external factors such as the NAA and the successful LLAS tender as well as the greater diversity of technologies in particular the growth in Web-based development.

Alongside the Group's risk management initiatives, IM have undertaken a review of the IM disaster recovery and business continuity arrangements. These requirements are included in many projects and have also precipitated the move to build an external Data Centre for hosting systems. This project will greatly enhance our disaster recovery capability as well as providing modern and cost effective hosting of our critical systems. Completion is currently planned for October 2005.

Assessment Directorate

The UCLES Group has a vision to be the centre of excellence in assessment. In January 2004, UCLES announced the formation of the Assessment Directorate, designed to work in partnership with the business streams to make that vision a reality. During the rest of the year, built on extensive consultation and discussion, a new organizational structure was developed consisting of six units, each assigned to a key task:

• Authoritative research - we need to be able to tell the world what good assessment is. The Research Programmes Unit will conduct and publish high-quality, targeted research.
• Guarding our standards - we need to be able to prove the value of our and other assessments. The Evaluation and Validation Unit will provide corporate guardianship of quality assurance.
• Leading edge - we need to be technologically aware and up to date. The Innovation in Assessment and Learning Unit explores and evaluates new technologies, to provide more responsive and individualized assessment and learning tools.
• Dissemination and training - we need to bring people to the concept of excellence in assessment. The Cambridge Assessment Programme will provide programmes which will deliver high-quality training to people working in assessment internally and externally, both in the UK and internationally.
• Delivering new business - we need to incubate new assessment outside the regulated framework. The New Business Developments Unit will do that and also looks after University Entrance Tests and the Formative Assessment Project.
• Public recognition - politicians, Government, regulators, and stakeholders need to believe that we represent excellence in assessment. The Public Affairs Unit persuades them through the media, policy briefing, and relationship building.

In addition, the Directorate will be a focus for a number of forums to promote cross-business stream collaboration - the Enterprise Board, the Research Programme Board, and the Advisory Council for New Developments in Educational Assessment. This new structure became operational on 1 October 2004.

Meanwhile, work in the divisions included in the formation of the Assessment Directorate (ITAL, RED, Public Affairs) proceeded apace. Our interest in undergraduate admissions testing has gathered significant momentum. The BMAT operation has been extensively and successfully revised and is now part of the admissions process at the University of Bristol Veterinary School, University of Cambridge Medical and Veterinary Schools, Oxford University Medical School, University College London, and the Royal Veterinary College. Piloting of the Thinking Skills Test is continuing with the University of Cambridge; other universities are expressing interest. Professor Schwartz and the Minister for Higher Education (on separate visits) were both very interested in our development.

Following review of the Formative Assessment Project, this has now been refocused to run in collaboration with a publisher for development in schools as support for managed learning. Two other ventures into the area of formative assessment have been proceeding in the past year and give UCLES a base for development in an area of increasing public and school interest. Increasing demands continued to be made for evaluation support in UCLES (particularly OCR) examinations. Some of this work has led to a number of research publications, increasingly an essential part in achieving recognition for 'excellence in assessment', as part of the UCLES mission.

The Public Affairs Unit has, in its first year of operation, successfully raised UCLES' (and OCR's) profile further in the eyes of politicians and the media. Relationships have been built with ministers (including a meeting of the Group Chief Executive with the Secretary of State for Education and Skills) and the Select Committee for Education. Two examples show how public affairs can raise the UCLES image - raising the profile of OCR's supply of qualifications to the Prison Services by engaging with the Select Committee's investigation into education in prisons, and establishing a media education programme targeting key journalists, as well as influential MPs, special advisers, ministers, and others on what the UCLES Group does and stands for.

Outlook

There are challenges ahead particularly in relation to continuing the localization of CIE's business and increasing competition for ESOL. Nevertheless, the Group is ready to tackle these issues head on and believes that it has the capability to do this successfully. It will also continue to seek to identify new income streams and the development of the role of the Assessment Directorate should help in this respect.

In the UK, there is still some uncertainty about the future direction of 14-19 education as the Government considers its response to the Tomlinson report. OCR is ready to engage fully in discussions on reform of the system and to adapt to the changes that are likely to emerge from this process.

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

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 2004 [162Kb PDF]