The NAO’s findings include the following:

• The BBC successfully completed the complex challenge of relocating to Salford, by using the right skills and processes, developing clear delivery plans and maintaining good communications. The BBC recruited staff with expertise in managing relocations and set up a project team that developed and implemented plans for the move.
• The BBC exceeded its target to relocate 30 per cent of staff from the 1,500 roles transferring from London to Salford (38 per cent relocated).
• To encourage sufficient staff to move, some of the allowances the BBC offered to incentivise and compensate relocating staff and minimise redundancy costs were more generous than it normally offers. For example, the remote location allowance covered the cost of renting property in Salford and travelling to and from London for two years. This allowed staff who were unable or unwilling to commit to moving permanently to keep their homes in the southeast. The BBC benchmarked some allowances, but controls over exceptions to its relocation policy for Salford were inadequate.
• The BBC estimates that the final cost of fitting out the buildings at Salford and moving people in will be £224 million, £9 million less than the revised budget approved by the BBC Trust in February 2011. The lifetime budgeted cost of relocation and operating costs up to 2030 is £942 million (or £573 million after discounting future costs to their present values). This cost does not take into account reduced spend on the BBC’s estate in London and Manchester as a result of the move.
• Whether the move delivers value for money will depend on the BBC’s ability to achieve a sustained improvement in audience approval in the north, embed new ways of working to achieve efficiencies of £151 million and provide sustainable economic benefits for the region.

Among the NAO’s recommendations are that the BBC Trust should periodically review progress against the aims in the original business case for the move; that the BBC should establish robust systems and maintain clear records when paying allowances, so that it can demonstrate they are appropriate in all cases; and that it should continue to seek recovery of all allowance payments repayable by staff who leave the BBC.

The BBC Trust accepts these recommendations and will ensure that they are implemented.  In its published response to the NAO’s report the Trust has said that:

• It welcomes the NAO’s overall conclusion that the BBC managed the relocation to Salford on time and within budget, while successfully maintaining broadcast continuity for audiences.
• The BBC was able to maintain continuity for audiences and minimise redundancy costs by establishing a Salford relocation allowances policy that encouraged staff to move. The Trust accepts that such a policy was justified but, having established it, it considers that any exceptions should have been rare, clearly justified and supported by well-documented business cases. It is unacceptable, therefore, that the NAO found BBC management did not adequately document the reasons for all exceptions to the standard policy.
  • There are encouraging signs that the anticipated benefits of the move are beginning to be realised. The BBC’s relative share of overall television viewing and reach to BBC radio in the north-west has increased when compared to the UK average, more collaborative and flexible ways of working have been introduced, some efficiency savings have been delivered and there has been significant economic investment in the region. However, the Trust agrees that it is too early to conclude that the move has met its long-term objectives and it will continue to periodically review progress against the aims for the move, including efficiency savings, at the appropriate points.

The BBC properly prepares its accounts to the International Financial Accounting Standards, rather than government accounting standards, meaning it recorded its tangible non-current assets (mainly land and buildings, plant and machinery, and fixtures and fittings) at depreciated historic cost rather than under the fair value convention. The BBC has indicated to the Department that it will supply figures on a fair value basis for future years.

Despite the absence of reliable valuation information under the fair value convention, given the cost of the assets involved, it is likely that there is a significant misstatement of assets in the Department’s accounts.

The Department’s focus on the delivery of the London 2012 Olympic and Paralympic Games meant that it had originally planned to prepare the accounts in the autumn and lay them in December. Notwithstanding the difficulties involved in preparing the accounts for a complex department with a large number of separate bodies, this still allowed a period of more than four months to prepare the accounts. However, the Department underestimated the complexity of the task and lacked the necessary capacity in its finance function, meaning that an extension to the statutory deadline had to be granted, and additional help needed to be purchased.

The Department has committed to undertake a review of the 2011-12 process. This review has been welcomed by the NAO, which has called on the Department to learn the lessons from this year to ensure it can account to Parliament in a timely manner in the future.

Today’s report to Parliament draws out some of the widely acknowledged successes of the Games. These include the widely praised opening and closing ceremonies and the 11 million tickets sold for the Olympics and Paralympics combined. LOCOG met the huge logistical challenge of recruiting and deploying 70,000 volunteers and medal targets were exceeded, with the Olympic and Paralympic teams winning 65 and 120 medals respectively.

Since London was awarded the Games in 2005, the Government’s preparations and management of the £9.3 billion Public Sector Funding Package have been led throughout by the Department for Culture, Media and Sport. According to today’s report, there is likely to be a £377 million underspend against the £9.3 billion Public Sector Funding Package, though the final position depends on the accuracy of assumptions about remaining expenditure and will not be known precisely until 2014. The final position is subject to some remaining areas of uncertainty: for example, the final cost of converting the Athletes’ Village, and of settling outstanding contracts with suppliers.

Since the Funding Package was set in 2007, the operational costs within it have increased markedly; most notably, it has had to cover £500 million additional costs for venue security, for which there was originally no provision. However, the Funding Package as a whole has been able to cover these costs.  The final cost of the Olympic Delivery Authority’s programme to build the venues and associated infrastructure is expected to be around £6.7 billion, compared to the £8.1 billion that was originally available to it.

The Cabinet Office now has central responsibility for coordinating and assuring delivery of the legacy, and these new arrangements are a positive step towards maintaining focus and direction after the Games themselves. With numerous organisations responsible for particular aspects of the legacy, the Cabinet Office will need to provide strong leadership to make the most of the momentum created by the success of the Games. While the future use of the Olympic Stadium is still uncertain, most venues and facilities on the Olympic Park now have an agreed long-term use and legacy tenant.

The spending watchdog also recommends that the valuable skills in project management, contracting and risk management gained by officials who have worked on the Games be deployed on other public sector projects.

The NAO’s findings included the following:

• The BBC has successfully challenged its costs through a series of efficiency programmes. However, limitations in its financial systems mean that financial reporting is slow and resource intensive and that the BBC cannot easily monitor what it is spending against its strategic and editorial priorities, which will become more critical as resources become squeezed.
• Following recommendations in previous NAO reports, the BBC has begun to benchmark its costs, both internally and with other organizations, but it is not clear that the results of benchmarking have so far influenced the BBC’s cost reduction plans.
• The BBC is making more effective use of the skills and independence of its non-executive directors to help it scrutinize and challenge major financial decisions, following concerns raised previously by the Public Accounts Committee that the BBC did not subject spending decisions to sufficient challenge.
• When comparing annual results against forecasts, the BBC has underspent against its forecast by at least 3 per cent in each of the last four years. The NAO notes that some level of underspend may be prudent; however, there needs to be close scrutiny to ensure that the BBC is clear about how much resource could be available for reallocation.

The NAO also recommends that the BBC Trust and Ofcom work together to explore the scope for coordinating the information they require the BBC to report to them, as current separate reporting arrangements and timescales take up resources that could be better used elsewhere.

In its response to the NAO report, also published today, the BBC Executive has committed to further improving the integration of its financial and performance reporting. The Executive is already upgrading its financial systems over the next eighteen months, to produce simpler, more standardised reports.

The Trust is satisfied that the actions the Executive has set out are appropriate. In its response to the NAO’s report, it has said:

• The Trust welcomes the NAO’s overall conclusion that the BBC’s approach to financial management provides effective support in delivering value for money for the BBC. We also welcome the NAO’s finding that the BBC has established strong governance arrangements and there is effective challenge at senior levels, including from the Trust and non-executive directors.
• The Trust will closely monitor the implementation of improvements to the BBC’s financial reporting arrangements, and will challenge the Executive to go even further in some areas such as the quality of information available to senior managers.
• While the Trust requires specific financial and performance information from the Executive as part of its role to scrutinise the BBC’s performance on behalf of licence fee payers, it will work with Ofcom to identify whether there are opportunities to co-ordinate the financial information that each body requires from the BBC.
• The Trust will ask the Executive to report back on the progress against the actions agreed in response to today’s report.

Our examination of the data systems used to report performance for this department involved a detailed review of the processes and controls governing:

• the selection, collection, processing and analysis of data;
• the match between the department’s stated objectives and the indicators it has chosen; and
• the reporting of results.

Our conclusions are summarised in the form of a score between 0 and 4. The ratings are based on the extent to which departments have:

• put in place and operated internal controls over the data systems that are effective and proportionate to the risks involved; and
• explained clearly any limitations in the quality of its data systems to Parliament and the public.

Our assessment does not provide a conclusion on the accuracy of the outturn figures included in the Department’s public performance statements. This is because sound data systems reduce but do not eliminate the possibility of error in reported data.

2011-12 is the first year in a rolling programme which will present a complete picture over the next three years.

September 2012

According to today’s report, the BBC’s current approach to challenging the cost of support functions is broadly effective in improving value for money but it is focused on achieving specified levels of savings, rather than based on an analysis of what activities should cost.

The NAO’s findings included the following:

• Over the five financial years 2006-07 to 2010-11, the BBC has reduced or held static the cost of all but one of the eight functions examined by the NAO, after allowing for inflation. Inconsistency in how the BBC monitors its support functions, however, means that it cannot show that the performance of these functions has been unaffected.
• Although the BBC has reduced the cost of the majority of its support functions, there are areas where it could strengthen its approach to challenging costs. Comparing the costs of the BBC’s support functions with those of the wider public sector gives a mixed picture and suggests that there is scope for savings. The BBC does not have a coordinated and consistent approach to challenging the cost of its support functions, meaning that there is scope to better capture best practice across the organisation.
• The BBC plans to find savings of 25 per cent from it support services by 2016-17 to help deliver the overall savings required by the licence fee settlement. All the support functions examined by the NAO have challenged their costs by assessing the impact of cuts necessary to live within the cost constraints arising from the freeze in the level of the licence fee. By setting cost reduction targets in this way, rather than trying to establish what it should cost to deliver the level of service required, the BBC cannot be confident that its targets are pitched at the right level.
• The BBC has a target to reduce its overhead costs to less than 10 per cent of the licence fee, by 2013-14. While this target shows a clear commitment to licence fee payers, the way the BBC measures and reports overheads is not aligned with how it manages the costs of its support functions and the target is not supported by a clear rationale. The target is therefore of limited practical use to the BBC in managing its costs because it does not know whether 10 per cent is the right level.

The BBC Trust has welcomed the NAO’s report and responded to the key findings as follows:

• The Trust has agreed that the BBC Executive will develop the BBC’s existing range of performance indicators for support functions and integrate these with existing cost reporting as appropriate.
• To help share best practice across the organisation the Trust has agreed that the Executive will ensure there is a consistent approach to challenging costs with the right balance between central coordination and flexibility for local initiatives.
• The Trust agrees that the BBC, in common with many public sector organisations, has tended historically to use top-down limits on its budgets as a starting point for delivering cost savings. This top-down approach has undoubtedly proved to be an effective way to reduce costs in the past. However, in planning to respond to the NAO’s recommendations, the BBC has positioned itself in terms of its financial management to develop a more sophisticated approach to managing its support function costs based on a more detailed understanding of what each of its activities should cost to deliver.
• The Trust sees a value in the BBC having a clear, simple commitment to licence fee payers about the proportion of licence fee income that is spent on content and distribution, as opposed to pure administrative and overhead costs. However, the Trust will explore with the Executive whether it is possible to tie the measuring and reporting of overhead costs to the management of those costs in a more meaningful way. The Executive will also provide a clearer analysis of overheads in the BBC Annual Report and Accounts.

The C&AG qualified his audit opinion on both sets of accounts relating to the use of Grant-in-Aid money to meet Lottery commitments. Since the Lottery began, there has been a clear separation between Grant-in-Aid funded activities and Lottery activities. In accordance with statutory provisions, separate annual financial statements are prepared by the Council and audited by the C&AG.

In forming the audit opinions the C&AG is required to check that expenditure has been charged to the correct set of accounts.

During 2010-11, grants of £9.2 million were paid from Grant-in-Aid money in respect of amounts previously recorded as Lottery commitments. Once the Council has agreed to make a grant from the Lottery and this has been recorded within the Council’s internal systems the expectation is that this payment should be recognised in the Lottery accounts.

The C&AG considers that where grants have previously been accounted for as commitments of the Lottery and reported as such to Parliament, continuing grant payments should, except in exceptional circumstances, have been charged to the Lottery and not Grant-in-Aid. As a result, Grant-in-Aid expenditure has been materially overstated by £9.2 million in the 2010-11 Grant-in-Aid financial statements and understated by £9.2 million in the 2010-11 Lottery financial statements.

There is a lack of clarity in the guidance provided by the Department for Culture, Media and Sport (the Department) and HM Treasury in respect of the use of grant-in-aid funds to meet Lottery commitments. The Department and HM Treasury have agreed to clarify the guidance.

27 April 2012

The NAO has an ongoing programme of work examining preparations for the London 2012 Olympics which acknowledges evidence of good financial management. Today’s report concludes that the commitment to financial management shown on the Olympic programme needs to be replicated across the Department’s wider responsibilities.

External financial reporting at DCMS meets the standards set by HM Treasury and the Department has received unqualified audit opinions on its accounts since the transfer to Resource Accounting in 1999-2000. Internal administration has also improved, with budget holders facing direct challenge, and the creation of an Investment Committee. However, the finance team still needs to improve its performance in a number of areas: in particular in strengthening the role it plays in support of key policy decisions.

The Department’s Board, chaired by the Secretary of State and with four non-executive members, now receives financial information in a consistent format, including additional finance reports when requested. But there are some gaps in the information reported which prevent the Board from fully examining the Department’s financial position.

DCMS has a history of over-committing its budget allocations across its arm’s-length bodies. In April 2009, initial forecasts for 2009-10 showed capital budgets had been over-committed by £95 million, and in 2010-11 by £110 million.

Although some received graduated reductions, the DCMS opted to apply a standard flat-rate cut to the budgets of the majority of its arm’s-length bodies. While these cuts were moderated by potential access to other funding, the Department is not yet in a position to assess the ultimate impact of these cuts on frontline delivery. The Department did, however, prioritise quick decisions on budgets to allow arm’s-length bodies to plan their cost reductions early.

In addition, the Department’s decision to close and merge a number of its arm’s-length bodies was not informed by a financial analysis of the costs and benefits. It based its decisions on estimates which did not take account of the full costs of closure such as lease cancellation, redundancy and pension costs. The decision was not informed by an estimation of future savings or of what the pay-back period would be.

Methodology

Executive summary

Full report HC 821

The Olympic Delivery Authority remains on course to deliver its work on the Olympic Park on time, within budget and to the standard required. On current projections, however, almost the whole of the £9.298 billion Public Sector Funding Package for the 2012 Games is likely to be required, with little scope for further unforeseen costs to emerge in the eight months left.

According to today’s NAO report, the construction project was 91.9 per cent complete at the end of September 2011, against a target of 92.5 per cent. Fourteen of the 26 construction projects have been completed and handed over and the remaining projects are on course. The Olympic Delivery Authority has also either completed, or is on course to complete, its transport infrastructure projects, such as increasing capacity on the Docklands Light Railway.

Overall, for operational planning, good progress is being made across almost all of the principal areas of work. However, detailed work by the delivery bodies has identified significant challenges, particularly in the cost of venue security and some elements of transport planning.

The likely cost of venue security for the taxpayer has nearly doubled in the last year: the latest estimate is £553 million, an increase of £271 million. The London Organising Committee, LOCOG, had estimated that it would need 10,000 security guards. The current estimate is for as many as 23,700, requiring LOCOG to renegotiate its contractual requirements and producing a significant recruitment challenge.

In transport planning, there have been delays to the full integration of some elements of the transport programme. Until this is completed, it will not be possible to inform local authorities, businesses and individuals of the full impact of the Games on transport in London.

The prospect of legacy benefits was a key element of London’s bid. The Legacy Company is on track to select a developer for the first phase of housing on the Olympic Park but has experienced setbacks in securing users for the Media Centre and the Main Stadium. It will be years before the value for money of legacy projects can be fully assessed.

The BBC Trust set the BBC the target of finding three per cent cash releasing efficiency savings annually over a five year period. The NAO has concluded that the BBC is delivering value for money from its efficiency programme, called the Continuous Improvement Programme, in that it is on track to deliver these savings and is doing this whilst broadly maintaining its overall performance levels.

The NAO has also drawn out lessons for the BBC that will help strengthen its approach to identifying and delivering the future savings which will be necessary under the new licence fee settlement for the period 2013-2017.

Key points from the report include:

• As at March 2011, the BBC is on track to exceed its target of delivering three per cent sustainable, cash releasing savings each year – equivalent to finding £487 million annual qualifying savings, net of implementation costs by March 2013. To date it has delivered £396 million and is forecasting it will deliver a further £164 million over the final two years of the programme. Of the future savings, the BBC has classified £64 million as at risk, meaning that there is some uncertainty that the planned savings will be made, or performance maintained. However, the BBC is forecasting that it will achieve its target even if all of this risk materialises.
• The BBC has delivered the required savings whilst broadly maintaining its overall level of performance. However, the BBC cannot demonstrate with certainty that all the savings represent true efficiencies. This is because measuring the impact of the savings on performance is complicated by external factors which also impact on service performance and because there may be a time lag between savings being delivered and their impact on performance being seen.
• The BBC set devolved savings targets to different areas based on a high level assessment of the potential for savings within those areas, but the NAO did not see a detailed analysis of the costs and benefits of the outputs produced by each area. Cutting spending effectively requires an informed strategic overview. By having a clear understanding of what activities should cost and the value that they contribute, organisations can better target cost savings and avoid making cuts to low cost activities that contribute relatively greater value.
• The need to build a culture of continually challenging costs is underlined by the BBC’s 2010 television licence fee settlement. Under the settlement the BBC will need to deliver further savings of at least 16 per cent over the period 2012-13 to 2016-17 to fund the new responsibilities transferred to it such as the World Service and S4C. This will create a different financial context and the BBC considers that it will not be able to manage within its new licence fee settlement through delivering efficiencies alone.

 The BBC Trust responded to the report’s findings with a set of immediate actions agreed with the Executive. The BBC will:

• Take a more strategic approach to the process of allocating and measuring the impact of efficiency savings across the BBC’s divisions considering not only the impact on performance, but also the value provided to the BBC’s core objectives by the activities affected;
• Apply the best practice and lessons learned from the Continuous Improvement Programme to the forthcoming programme of efficiencies identified as part of the Delivering Quality First proposals, including the sharing of good practice from individual divisions across the BBC; and
• Continue to look at the approaches taken by other industry organisations in order to challenge current ways of working and identify other opportunities for savings.

Notes for Editors

1. It is the responsibility of the BBC Trust, under the Royal Charter, to ensure that value for money is achieved by the BBC through its spending of the licence fee. In order to fulfil this responsibility, the Trust commissions and publishes a series of independent value for money reviews each year in consultation with the Comptroller and Auditor General – the head of the NAO. The reviews are undertaken by the NAO or other external agencies.
2. On 15 September 2011 the Secretary of State for Culture, Olympics, Media and Sport and the BBC agreed revised arrangements for the NAO’s work at the BBC. The Comptroller and Auditor General will now have discretion over the subject matter of the reviews the NAO undertakes. These reviews will continue to be reported to the BBC Trust, which is responsible for the BBC’s accountability to licence fee payers.
3. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk or the BBC Trust’s website www.bbc.co.uk/bbctrust. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
4. The Comptroller and Auditor General, Amyas Morse, is the head of the National Audit Office which employs some 880 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

All enquiries to Phil Groves, NAO Press Office: Tel: 020 7798 5339 Mobile: 07770 678477

Hannah Bailey, BBC Trust Press Office: Tel: 020 3214 4944