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FCO ServicesAnnual Report and Accounts

2007/2008

SECURE | WORLDWIDE | TRUSTED

An Executive Agency of the Foreign & Commonwealth Office

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FCO ServicesAnnual Report and Accounts 2007-2008

Presented to the House of Commons pursuant to section 7of the Government Resources and Accounts Act 2000

Ordered by the House of Commonsto be printed 30 June 2008

London: The Stationery Office

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FCO Services Annual Report and Accounts2007/2008Page 1

DELIVERINGSERVICES FOROUR CUSTOMERS

OVERVIEW

Foreword by Lord Malloch-BrownForeword by Chris MoxeyFCO Services OverviewHighlights 2007/2008

3579

IntroductionBiometrics and Border ControlSecure Network ServicesEstablishment SecurityGlobal Management ServicesSecure LogisticsVettingTranslation and Interpreting

1317192125273133

FCO Services Annual Report and Accounts 2007/2008

CONTENTS


FCO Services Annual Report and Accounts2007/2008

MANAGING OUR BUSINESS

FINANCIAL REPORTAND ACCOUNTS

IntroductionForeword by Richard StaggEnsuring Effective GovernanceDeveloping Our PeopleInvesting in Our BusinessMeeting Our Corporate SocialResponsibility CommitmentsOur Plans for 2008/09

353739434547

49

IntroductionReview of Our Financial PerformanceRemuneration ReportStatement on Internal ControlStatement of FCO Services Agency’s and Accounting Officer’s ResponsibiltiesThe Certificate of the Comptroller andAuditor General to The House of CommonsIncome and Expenditure AccountStatement of Total Recognised Gains and LossesBalance SheetCash Flow StatementNotes to the Accounts

5253566165

66

6869

707172


OverviewForeword by Lord Malloch-Brown, Minister of State, Foreign and Commonwealth Office



OverviewForeword by Lord Malloch-Brown, Minister of State, Foreign and Commonwealth Office


Foreword by Lord Malloch-Brown, Minister of State, Foreign and Commonwealth Office

SUPPORTING BRITISHINTERESTS OVERSEAS AT BESTVALUE FOR THE PUBLIC PURSE

As Minister responsible to the ForeignSecretary for supporting FCO Servicesin setting and achieving their strategicgoals, I am delighted to introduce theirsecond Annual Report and Accounts as an Executive Agency of the FCO.

2007/08 has been a year of challengesand achievements for FCO Services. The organisation has continued itsimpressive progress from an internalFCO department just two years ago, to an Executive Agency that is uniquelyplaced to deliver vital secure services to the FCO and to other customersacross government and more widely. The transition is now complete, with FCO Services’ move to Trading Fundstatus on 1 April this year.

As a self-funding organisation, FCO Services will be subject to greatercommercial disciplines but also benefitfrom greater commercial freedoms as a Trading Fund. Operating in a morecompetitive environment, FCO Serviceswill be freed from some of the constraintsof traditional government departments,to enable them to grow their businesswith existing and new customers and toinvest in their own long-term sustainability.The positive financial result achieved thisyear shows that FCO Services can besuccessful as an independent businesswithin government, whilst continuing todeliver the vital secure services neededby the FCO.

As a Government, we are committed tousing the public resources with which weare entrusted as efficiently and effectivelyas possible, so that we deliver the verybest value for money to the taxpayer.

As such, we must focus on using ourresources where we can make the biggestdifference. This is the priority of the FCOand FCO Services, working as our partnerto provide efficiently and at best value for money the secure services describedin this report, plays a vital role in helpingus to achieve this. FCO Services plays anintegral part in enabling us to representeffectively British interests overseas anddeliver first class diplomacy for Britain.

Undoubtedly, there will be challenges for FCO Services in the year ahead but I have every confidence that the ChiefExecutive, his management team andcolleagues throughout the organisationare well prepared to meet them. Theirexcellent financial results and goodlevels of customer satisfaction, achievedin a context of significant organisationalchange, are ample evidence that theycan succeed.

I congratulate FCO Services on theirachievements so far and wish themevery success for the future.

Lord Mark Malloch-BrownMinister of State, Foreign and Commonwealth Office


OverviewForeword by Chris Moxey, Chief Executive, FCO Services


2007/08 has been a momentous year for FCO Services. On 1 April2008, we formally made the transitionfrom Executive Agency to Trading Fundstatus. This was the culmination of a tremendous amount of work by ourcolleagues in FCO Services and theFCO, supported by strong engagementfrom our Ministers.

Trading Fund status will provide the rightframework for us to thrive as a successful,customer-focused organisation, deliveringvital support services to the FCO, otherUK government departments as well as a number of other overseas governmentbodies with whom we have close links.

From 1 April, our revenues will comeentirely from the business we generateand any future surpluses we create may be retained and invested in ourorganisation to support our developmentneeds. Throughout 2007/08, our priorityhas been to ensure that we are wellequipped to meet the challenges ofworking in a more competitive commercialenvironment, while continuing to meetour customers’ current needs throughoutthe year.

We have rationalised our historicallydiverse business to focus on deliveringthe range of security-related servicesthat our customers really value and thatrepresent our core strengths. Further, we have undertaken a comprehensiveprogramme of change to ensure that we have the right structure, the rightprocesses and controls and the rightskills and capabilities to thrive as abusiness within government.

This past year of change and preparationhas involved extensive activity across ourorganisation which has produced equallysignificant achievements – most notablyour ability to demonstrate, under theexternal scrutiny of the National AuditOffice, that we would be fit to trade as a Trading Fund.

Despite the scale of our internalpreparations for Trading Fund status, we have continued to focus on meetingthe needs of our customers and buildinga strong financial platform for the future.We achieved an overall turnover of£130.2m, versus £120.6m in 2006/07.Our net surplus was £8.3m, whichcompares to a re-stated figure of £1.6mlast year and equates to a net margin of 6.4%.

This performance has been fuelled bystrong demand from our largest customer,the FCO, whom we have supported in a number of key initiatives this year. For example, we have completed vitalconstruction projects in Afghanistan and Iraq to support British embassiesand other UK Government personneloperating in these countries. We havealso worked with Hewlett Packard todesign, plan and begin deploying theFCO’s new global IT infrastructure. Otherparts of our business have grown too,notably Vetting which has expanded its customer base to include customersfrom other government departments and the private sector.

In terms of non-financial targets, wehave achieved a customer satisfactionrating of 84% which, though fractionallylower than our 85% target, still representsan outstanding achievement, consolidatingthe major improvements delivered in this area last year. We exceeded our staffutilisation growth target by nearly 3%,which provides encouraging evidence thatour recent efforts to improve the efficiencyof our operations is starting to have an impact.

The achievements generated this pastyear simply would not have been possiblewithout the outstanding dedication andcommitment of our people. In particular,the internal programme of work to preparefor Trading Fund status has seen anexceptional contribution from hundredsof individuals working well beyond theirnormal responsibilities.

Looking forward, we have a demandingyear ahead as we continue to embed our organisational changes and invest in our capabilities, whilst strengtheningour customer relationships and growingour business. Our results for 2007/08give us every reason to be confident thatwe can meet these challenges and thatwe are well positioned for future success.

Chris MoxeyChief Executive, FCO Services

DELIVERING FOR OURCUSTOMERS TODAY, BUILDINGOUR BUSINESS FOR TOMORROWForeword by Chris Moxey, Chief Executive, FCO Services


OverviewForeword by Chris Moxey, Chief Executive, FCO Services



OverviewFCO Services Overview


WHO WE ARE

SECURE, WORLDWIDE, TRUSTED


OverviewFCO Services Overview


WE DELIVER A UNIQUE COMBINATION OF SECURE SERVICES,ENABLING OUR CUSTOMERS TO BUILD A SAFER FUTURE.

OUR CUSTOMERS TRUST US TO MEET THEIR SECURITY NEEDSACROSS THE GLOBE. THEY ARE CONFIDENT IN OUR UNIQUEEXPERTISE, GAINED OVER 60 YEARS, IN PROVIDING ESSENTIALSECURE SUPPORT SERVICES TO THE FCO, OTHER UK GOVERNMENTDEPARTMENTS AND FOREIGN GOVERNMENTS AND GOVERNMENTBODIES WITH WHOM THE UK HAS CLOSE LINKS.

WE KEEP OUR CUSTOMERS SECURE, DELIVERING CUTTINGEDGE SOLUTIONS IN BIOMETRICS AND BORDER CONTROL AND PROVIDING SECURE IT NETWORKS AND BUILDINGS.

WE OPERATE WORLDWIDE, WITH OUR GLOBAL NETWORKENABLING US TO PROVIDE ESSENTIAL SUPPORT SERVICESWHEREVER THEY MAY BE NEEDED. OUR TEAMS OPERATE IN SOME OF THE MOST CHALLENGING LOCATIONS IN THEWORLD TO KEEP OUR CUSTOMERS AND THEIRCOMMUNICATIONS SECURE.

WE ARE THE TRUSTED PARTNER OF GOVERNMENTS AND OTHER ORGANISATIONS FOR WHOM SECURITY IS ESSENTIAL.WE DEVELOP CLOSE RELATIONSHIPS WITH OUR CUSTOMERS TO BUILD A DEEP UNDERSTANDING OF THEIR NEEDS AND TO PROTECT THEIR PEOPLE, THEIR INFORMATION AND THEIRWORKING ENVIRONMENT.


OverviewHighlights 2007 / 2008


WHEREWE’VEBEEN

HIGHLIGHTS 2007/2008




WE HAVE COMPLETED VITAL CONSTRUCTION PROJECTS IN KABUL AND LASHKAR GAH IN AFGHANISTAN, HELPINGTHE FCO TO ESTABLISH A SECURE LIVING AND WORKINGENVIRONMENT FOR ITS PEOPLE THERE

IN IRAQ, WE HAVE HELPED TO DELIVER A NEW TRANSITFACILITY AT BAGHDAD INTERNATIONAL AIRPORT AND ARECONTINUING TO PROVIDE MAJOR IMPROVEMENTS TO THEEMBASSY, MAKING IT EASIER FOR FCO STAFF TO LIVE, WORKAND TRAVEL IN AND OUT OF THE CAPITAL

WE HAVE WORKED WITH UKVISAS TO COMPLETE THE GLOBAL ROLL-OUT OF BIOMETRIC DATA COLLECTION IN 135 COUNTRIES, WITH MORE THAN 1 MILLION BIOMETRICSAPPLICANTS NOW ENROLLED

WE HAVE DESIGNED AND IMPLEMENTED SECURE VIDEOCONFERENCING SYSTEMS IN 76 FCO OFFICES THROUGHOUTTHE WORLD, ENABLING TEAMS TO MEET VIRTUALLY ANDSECURELY AND HELPING THE FCO TO REDUCE ITS TRAVELCARBON FOOTPRINT

WE HAVE SHIPPED OVER 100,000 DIPLOMATIC BAGSSECURELY WORLDWIDE TO SUPPORT THE VITAL WORK OF FCO STAFF ACROSS THE GLOBE. DEMAND HAS INCREASED,BUT WE HAVE RISEN TO THE CHALLENGE AND OUR RECORDFOR ON-TIME DELIVERY HAS BEEN MAINTAINED.




WHATWE’VEDONE

HIGHLIGHTS 2007/2008




WE HAVE CONTINUED TO DEVELOP NEW TECHNOLOGY TO IMPROVE THE SECURITY OF FCO FACILITIES. FOR EXAMPLE, WE HAVE INTRODUCED MIDAS, A NEW SYSTEM TO IDENTIFY THEUNAUTHORISED USE OF MOBILE PHONES AND OTHER ELECTRONICPERSONAL DEVICES IN RESTRICTED AREAS. INNOVATIONS SUCH AS THESE HAVE ENABLED US TO MAINTAIN OUR LEADING POSITIONAS THE UK NATIONAL AUTHORITY FOR COUNTER-EAVESDROPPING(UKNACE).

WE HAVE WORKED WITH HEWLETT PACKARD AS PART OF A JOINT TEAM RESPONSIBLE FOR DELIVERING THE FCO’S NEXTGENERATION GLOBAL IT INFRASTRUCTURE. DEPLOYMENT OF THENEW VISTA AND OFFICE 2007 DESKTOPS IN THE UK CONTINUES TO MAKE SIGNIFICANT PROGRESS, WITH THE JOINT TEAM MEETINGITS FIRST ROLL-OUT MILESTONE, COMPLETING THE DELIVERY OF OVER 2000 DESKTOPS TO THE FCO’S MAIN LONDON BUILDINGBY MAY 2008.

OUR GLOBAL TEAM OF SECURITY-CLEARED TECHNICAL EXPERTSHAS CONTINUED TO PROVIDE SPECIALIST TECHNICAL SERVICESFOR THE FCO’S OFFICES AROUND THE WORLD. COVERING FACILITIES,SECURITY, IT AND COMMUNICATIONS SYSTEMS, THIS SUPPORTEXTENDS TO OTHER UK GOVERNMENT DEPARTMENTS CO-LOCATEDIN THE SAME OFFICES AND TO EMBASSIES OF OTHER GOVERNMENTSWITH WHOM THE UK HAS CLOSE LINKS.

WE HAVE TRANSFORMED OUR BUSINESS THROUGH ACOMPREHENSIVE CHANGE PROGRAMME, DESIGNED TO ENSURETHAT WE REALLY DELIVER FOR OUR CUSTOMERS AS WE MOVETOWARDS A MORE COMPETITIVE, COMMERCIAL ENVIRONMENT


DELIVERING SERVICESFOR OUR CUSTOMERS

“YOU KEEP OUR PEOPLE SAFE, YOU KEEP OUR CONFIDENTIALMATERIAL SAFE AND YOU KEEP US COMMUNICATING WITH EACH OTHER”Sir Peter Ricketts, Permanent Under Secretary, Foreign and Commonwealth Office

Delivering Services For Our Customers



We provide vital services to the FCO,other UK government departments and

foreign governmental bodies closelylinked to the UK.

Although the services we offer aretailored to the unique needs of each

customer, they fall broadly into sevenmarket segments:

Biometrics and Border Control

Secure Network Services

Establishment Security

Global Management Services

Secure Logistics

Vetting

Translation and Interpreting

In the pages that follow, we look inmore detail at these areas and the

customers we work for. We are alsoproud to share our biggest

achievements over the past financialyear and how we intend to build on our

success in 2008/09.

Page 14

Delivering Services For Our Customers




FOR OUR CUSTOMERS,IS ESSENTIAL. WE HAVSECURE SERVICES AND

TO THE HIGHEST SECURITY STANDARDS.SECURE



S, SECURITY IS NOT AN OPTION, IT AVE UNRIVALLED EXPERTISE IN DELIVERINGND, AS PART OF GOVERNMENT, WE OPERATE


Delivering ServicesBiometrics and Border Control


Globalisation has led to increasingthreats to the integrity of our bordersfrom illegal immigration, organisedcrime and terrorism.

Biometric technology is an increasinglyimportant tool in helping the UKGovernment and private sectororganisations to address these challengesby verifying the identity of individualsand tracking any future links they havewith the UK. Biometrics is now a centralpart of the Government’s strategy toimprove the security of passports andvisa applications and we have been atthe forefront of developing this technologyin the UK. Other countries face similarchallenges and we also deliver biometricsolutions to several Commonwealthgovernments.

FCO Services has extensive technicalexpertise in biometrics and has securityaccreditation by HM Government. Weoperate worldwide, including locationswith remote IT infrastructure. We providerobust services in:

security accreditation

technical design, systemdevelopment, testing andimplementation

project management / project support

equipment hosting

a 24/7 helpdesk providing first,second and third line support.

One of our major current contracts is withUKvisas, supporting the implementationof their ground-breaking biometricsprogramme in partnership with SoftwareAG. Our implementation service forUKvisas included collaboration on thedesign and quality assurance of thetechnical architecture, design of thesecurity model, design and delivery of the biometrics software applicationand database, integration of 3rd partytechnology components and a fullymanaged global installation. We nowprovide a managed operational servicefor the solution.

Our specialist expertise, network ofoverseas implementation teams andphysical infrastructure are viewed by UKvisas as crucial to the success of the programme so far, helping them to complete the global roll-out ofbiometric data collection technology to 135 countries. Through this, over10,000 visa applicants connected toearlier immigration cases and asylumrequests have been identified, in additionto 1,200 cases of identity swapping.

During the year, our particularachievements on this programme have included:

setting up an on-line watchlist, so thatembassies can check traveller detailsin real time and prevent those withoutthe right to come to the UK fromtravelling here;

updating the local servers for ‘Proviso’(the visa issuing system) with newhardware and operating systems (forcompletion in August 2008) so thattravellers applying for visas to visit theUK can do so at local visa applicationcentres. This is resulting in an

improved service, with customers no longer having to travel to the mainembassy to make their application.

Looking ahead

The recent merger of UKvisas and theHome Office UK Borders Agency, to formUKBA International Group, presents arange of new opportunities. The neworganisation has specific, sophisticatedrequirements with a key priority tocombine and improve its systems andprocesses. We are already workingclosely with UKBA International Group to support them in this.

Looking further ahead, other governmentinitiatives will result in similar technologyneeds. We will continue to expand andimprove our services in this field, to ensurewe are in a strong position to respond to these needs.

We have worked with UKvisas tocomplete the global roll-out ofbiometric data collection technologyin 135 countries, enabling UKvisas to enrol over 1 million biometricsapplicants to date.

“A momentous milestone has beenreached. This is a truly fantasticachievement. We now have thecapability to enrol and checkbiometrics in support of the visaprocess in 135 countries. Can Itherefore take this opportunity tothank all of you, both at home andoverseas, for your support andcommitment in helping to deliverwhat was thought by many to bemission impossible.”Geoff Lockwood, UKBAIG

Biometrics and Border Control



Examples of the fingerprint and facial recognitiontechnology used by UKvisas in their worldwide biometricsprogramme, supported by FCO Services.


Maintaining data security is anincreasingly complex challenge, given the continuous development ofnew technology and the proliferation of IT networks and devices.

Our customers require a high level of resilience and flexibility from theirsecure IT networks. They also needthese networks to operate globally, withenough system capacity to guaranteehigh-quality service at all times. Theyrely on their partners to provide supportaround the clock, with the ability todeploy both at high speed and at areasonable cost.

FCO Services can meet these needsthrough our highly-skilled team of

qualified and experienced networkingspecialists. We use the latest technologiesand real-time monitoring tools to deliverand maintain our secure solutionsworldwide. We also have state-of-the-artfacilities in the UK to enable us to hostsystems securely for our customers.

To highlight just two examples of thework we have delivered for the FCO in 2007/08:

We have worked with Hewlett Packardas part of a joint team responsible for delivering the FCO’s next generationglobal IT infrastructure. Deploymentof the new Vista and Office 2007desktops in the UK continues tomake significant progress, with the

joint team meeting its first roll-outmilestone, completing the delivery of over 2000 desktops to the FCO’s main London building by May 2008.Overseas deployment is due to start in October 2008, with the new systemscheduled to be deployed in allembassies by the end of 2009.

We have designed and implementedsecure video conferencing systems in 76 FCO offices in the UK andoverseas, using the latest technologyto provide virtual meeting facilities.This has enabled teams tocommunicate securely on confidentialissues without having to travel,helping to reduce the FCO’s travelcarbon footprint.


Secure Network Services

Maintained by a joint servicedelivery team from FCOServices, the FCO and HewlettPackard, the IT server room in the UK enables securecommunications across the FCO estate worldwide.



To supplement our technologyimplementation, hosting and maintenanceservices, we also provide ongoing usersupport. Indeed, we are currently rollingout a new customer service desk toenable us to provide even higher levelsof service to our customers.

Looking ahead

Our customers are looking for ever-moreflexible access to local area networks andthe Internet, using secure networks. Oneexample of how we are responding to thisneed is the implementation of serviceswhich check that laptops and otherdevices connected to the network havethe most up-to-date security protection.

We recognise that business continuity isalso a growing priority for our customers,from failover devices to full-scale DisasterRecovery sites. This is an area FCOServices is investing in as part of ourcommitment to improve continuously the depth and quality of our offer.

Working in close collaboration with the FCO, we successfully rolled out cutting-edge secure videoconferencing systems to 76 FCOoffices around the world this year,including many where travelconnections are most challenging,enabling virtual meetings andhelping the FCO to reduce theircarbon footprint from travel.

“This is really good news - great work done in deploying technologythat is delivering good value to the FCO.”Tony Mather, Chief Information Officer, Foreign and Commonwealth Office



A secure meeting room facility,installed by FCO Services in embassy buildings around the world to enable teams todiscuss sensitive and classifiedinformation securely.

FCO Services helps the FCO in the UK and overseas to keepits embassies and classifiedinformation secure by installingand supporting a wide range of physical security hardware.


Delivering ServicesEstablishment Security


Rising threats from internationalterrorism have increased our customers’needs for more secure facilities and sophisticated security systems.

FCO Services has a unique capability to offer a worldwide service in this area.We provide both project managementservices to build secure environmentsand the high-tech security solutions tosupport them.

We have specialised in sophisticatedsecurity solutions for over 60 years, from CCTV and access control systemsto intruder detection and incident alarmsystems. We are also the UK NationalAuthority for Counter-Eavesdropping(UKNACE) and are constantly innovatingand improving to ensure that we retainthis position. We provide security solutionsfor key government departments includingthe FCO, No. 10, the Cabinet Office, theMinistry of Defence, HM Revenue andCustoms, plus some foreign governmentswith whom the UK has close links.

Our work in establishment security is both varied and complex:

In Iraq, we helped to deliver a newtransit facility this year at BaghdadInternational Airport. We are also continuing to provide majorimprovements to the embassy,including new security provisions that are making it easier for FCO staff to live, work and travel in and out of the capital.

In Lashkar Gah in Afghanistan, weprovided vital support to the FCO in helping them to open new officeswithin extremely tight time-scales. We offered logistical support andcontributed to the construction of the infrastructure. As a result, theFCO was able to deliver the requiredoperating environment for its staff on time, enabling them to fulfil theirvital roles in this country.

At the other end of the spectrum, we have also delivered new high-specification modern offices in placessuch as Geneva, which combinepracticality with cutting-edge design,helping to promote a positive image of Britain overseas.

The pace of change in this field is suchthat we constantly need to review andimprove our products and services. Duringthe year we conducted a fundamentalredesign of one of our protective securitysystems to meet the requirements of theFCO more effectively. We developed andtested a new combined Incident Alarm /Public Announcement system, known asVOICE, then began its deployment in asmall number of posts, with a view toaccelerating this roll-out during 2008/09.VOICE is a far more user-friendly securitysolution that is quicker to install andgives optimum communications andcontrol at a reasonable cost.

We have also continued to develop newcommunications technology to improvethe security of FCO facilities. For example,we are developing MIDAS, a new systemto check whether mobile phones andother personal electronic devices arebeing used in controlled areas. Thissystem will be available within the nextfinancial year.

Looking ahead

The UK Government’s new NationalSecurity Strategy is set to have a significantimpact on this area of our business andwe are working with our customers toassess its implications. We are confidentthat, with our depth of expertise andexperience and our capacity to adaptquickly to new requirements, we will beable to respond effectively.

Our in-house team has developed a new combined Incident Alarm /Public Announcement system for FCO offices overseas, making a realdifference to staff safety in some of the most challenging locations.

“All of us here are extremely gratefulto the team for the enhancement thenew system has made to our safety. A job well done!” Iraq

We have worked on majorimprovements to embassy buildingsoverseas, making them secure for ourstaff and our visitors. One example is the British Consulate General inIstanbul, tragically destroyed in 2003.

“An excellent result. This smoothtransition, with no loss of businesscontinuity, was achieved throughremarkable teamwork. This movecompletes all the major Istanbul post-bomb works. Well done!” Barbara Hay, Consul General, Istanbul

Establishment Security



WORLDWIDEWE HWE OKEEP

WHEREVER THEY ARE IN THE WORLD, SUPPORTING


FCO Services Annual Report and Accounts2007/2008 Page 24

E HAVE A GLOBAL REACH THAT IS SECOND TO NONE.E OPERATE A GENUINE WORLDWIDE NETWORK,EPING OUR CUSTOMERS’ BUSINESS FUNCTIONINGG THEM 24/7.



The FCO relies on us to provide theirstaff around the world with safe andsecure working environments andcommunication channels to enablethem to carry out their vital rolesrepresenting the UK overseas.

We have a global network of technicalspecialists responsible for maintainingembassy buildings and ensuring theirsecurity. This includes:

technical services to protect staff,buildings, classified information and communications channels

professional advice on all aspects of maintaining an estate and itstechnical infrastructure

property management, frommechanical and electrical works toconstruction and civil engineeringand physical security defences

health and safety management services.

We provide specialist technical systemssupport for IT, telephones, CCTV, intruderdetection systems, incident alarms, accesscontrol and public address systems. Thissupport extends to other UK governmentdepartments co-located in FCO officesoverseas and to the embassies of someother governments with whom the UKhas close links. We help support theday-to-day operation of FCO facilities, for example by providing lift inspectionand fire safety services. We also help

plan, administer and complete locally-funded estate projects forembassies overseas.

Our network extends across the world. Our team of security-clearedtechnical specialists includes members of the Royal Institution of CharteredSurveyors, the Institute of ElectricalEngineers and the Institution ofOccupational Safety and Health.

Among this year’s major projects, our property management team hasdeveloped a new Property Health &Safety Assessment system for the FCO.For the first time, information on thehealth and safety aspects of all FCObuildings overseas, including rentedbuildings, is now monitored centrally

Global Management Services

Our Global Management Services’ Footprint

Embassies with resident technical staff

Outstations



so that the FCO can be confident theyare meeting their duty of care to theirstaff and visitors around the world.

Looking ahead

Safety and security will continue to be our key priorities. We are alsostrengthening our existing constructionand estate management services to meet a growing need to reduce theenvironmental impact of the FCO’sestate at home and overseas.

In terms of secure communications, one major initiative will be the worldwideroll-out of the FCO’s new IT system.Working closely with both the FCO andHewlett Packard to support this roll-out,our teams will operate through new

Regional Support Centres to provideessential hardware support for the newIT system. We will maximise the use ofthese centres so that we can provide themost efficient overseas support servicepossible for the FCO.

This year we provided specialisttraining for local electriciansservicing embassies around theworld, to ensure that their workconforms to stringent UK standards.This training has led directly to animproved electrical maintenanceservice for the FCO.

“I believe this course will benefit all who attended. Huge boost forLocally Engaged staff, thanks for your efforts.” Course Attendee


Delivering ServicesSecure Logistics


Managing the logistics of a governmentdepartment that has the majority of itsnetwork overseas presents a differentset of challenges from many otherlogistical operations.

We provide vital secure logistical servicesto the FCO, UK Government departmentsand other governments with whom the UKhas close links, enabling these customersto focus on their core business.

Working with our strategic partners wesupport our customers in the UK andaround the world by providing logisticalservices, including:

air and road freight

worldwide handling and delivery of classified and unclassified mail

worldwide courier services

UK-based goods in, stores and despatch functions

secure disposal of confidential material.

This year we have increased both theefficiency and flexibility of our operations,enabling us to improve our service qualityand respond more effectively to rapidincreases in demand. We have enhancedour logistics capabilities and systems,improving our ability to track packagesanywhere in the world in order to keep our customers informed of their progress.We have also streamlined our mail-sortingfacilities to improve speed of delivery and upgraded our vehicle fleet to reduceour carbon footprint.

The following examples highlight just two of our achievements this year:

Our team played a significant role in developing British representation in Afghanistan, including the embassyin Kabul. We delivered a wide rangeof components and materials that forsecurity reasons could not be sourcedlocally. One major shipment involvedthe successful delivery of over 78,000kilos of materials and equipment for theFCO, other government departmentsand FCO Services teams working inAfghanistan. This played a vital role in supporting the FCO’s operations in this country.

Despite growing demand from the FCO for our Diplomatic Bagservice, we have been able both toincrease our volumes and improveour service. In 2007/08 we helpedmaintain communications across the FCO’s worldwide network byconsigning over 116,000 movementsof Diplomatic Bags. Over 96% of allshipments were ‘flown as booked’,which is an improvement on theprevious year and above the industrystandard. This demonstrates ourcommitment to meet the highstandards that the FCO rightlydemands, to provide secure, on-time delivery for staff working in every part of its global network.

Looking ahead

Demand for our logistics services is both increasing and changing in nature.There are opportunities for our logisticsbusiness to continue to grow, particularlygiven the FCO’s roll-out of its new ITsystem worldwide and their increasingfocus on delivering security improvementsto embassies overseas.

We are responding to these challengesby reviewing our business to identifyefficiency and improvement opportunities.This includes introducing new, higher-quality inventory management systemsto improve service levels to our customers.We are also increasing our capacity byadding new stores facilities, simplifyingcustomer contracts, developing a specialistcustomer services team and extendingdriver skills to make more efficient use of our vehicle fleet.

We have developed an innovativesystem for identifying whether mailhas been compromised duringtransit. This year we worked withanother government to introduce thesystem in their country, providingtheir staff with supporting materialsand training. Our work has helpedthem improve the security of theirown logistics operations.

Secure Logistics



The FCO relies on FCO Servicesto safeguard the despatch ofDiplomatic Bags to its networkof embassies around the world.



TRUSTEDONE THAT WE ARE PROUD TO SHOULDER.

WE ARE ENTRUSTEOF PEOPLE, THEIR ENVIRONMENT. TH



TED WITH ENSURING THE SECURITY R INFORMATION AND THEIR WORKING

THAT IS A GREAT RESPONSIBILITY AND



Vetting involves carrying out in-depth document andbackground checks to establishthe personal credentials ofpeople who are applying forpositions of trust in both thegovernment and private sectors.


Delivering ServicesVetting


For our customers, being confident in the identity and background of theiremployees is of critical importance,particularly those being recruited to work in sensitive positions.

FCO Services is at the forefront of securityvetting. We conduct a full range of vettingservices for many UK Governmentdepartments, from the FCO to the HomeOffice, Cabinet Office and DFID. We alsowork for private companies who, in turn,deliver services to government.

We conduct vetting for all levels ofclearance but have particular expertisein Developed Vetting (DV), the more in-depth investigation needed for thehighest government clearance. Wecurrently have almost a 25% share ofthe Developed Vetting market (excludingDefence) and our business is growingfast, with demand doubling since2006/07.

As our customers’ requirements are always different, we design eachservice to suit their particular needs. Our people are flexible and can adapttheir approach to provide our customerswith the right information to support their vetting decisions.

The strength and quality of our vetting capability is demonstrated by our long-standing relationships with our customers and their feedback on our service. In a recent survey, theyparticularly valued our flexibility andresponsiveness, with 84% saying theywere either ‘satisfied’ or ‘very satisfied’with the service we provide.

In addition to the high level ofsatisfaction from our existing customers,we have also seen a growth in demandfrom new customers. For example, thisyear we won a major contract to deliverDV clearances for a new customer in theprivate sector. They were impressed withboth our depth of experience and therange of advanced investigative systemsand tools that we are able to apply.

Looking ahead

2008/9 will see important changes to thevetting market, with a Government-wideprogramme underway to deliver greaterefficiencies in this area. We believe ourunique strength in Developed Vetting,our track record of delivery acrossgovernment and our uniquely flexibleapproach, position us well to respondeffectively to these changes.

“As Departmental Security Officer, I rely heavily not only on my ownpersonnel vetting team but also onthe investigating officers who providethe front line service. The FCOServices team have consistentlydelivered a first class service.”Jerry Page, Cabinet OfficeDepartmental Security Officer

“I have got to know the team verywell indeed and this is particularlyvaluable in dealing with matterssuch as vetting where we are after all dealing with people and notcommodities. They are always willing to do whatever they can to accommodate our needs, some of which can be unreasonable onoccasion, particularly where timing is concerned.”Danielle Branch, Head of PersonnelSecurity, Cabinet Office

Vetting


Delivering ServicesTranslation and Interpreting


Increasing international travel and thegrowth of multi-cultural societies has ledto a rise in demand by both domestic andinternational organisations for reliabletranslation and interpreting services.

We have the capability to work from andinto any sovereign state language. Weprovide these services to the FCO and to a wide range of other public sectorcustomers, including other governmentdepartments and agencies, EU institutionsand international organisations.

Our services include:

interpreting at a range of eventsincluding summits, conferences,meetings, presentations and visits

providing full textual translation fromEnglish into foreign languages andvice versa

aligning different language versions of treaty and agreement texts

translating and typesetting materialfor printed or electronic publication.

We have a small in-house teamcomplemented by an extensive panel of specialist external translators. Bothour team and panel members holddegrees in modern languages and/orpostgraduate qualifications in translationand have considerable experience in theirown specialist field. This gives us a solidbase from which to provide a bespokeand highly professional service, which is reflected in the consistently high levelsof customer satisfaction we achieve.

2007/08 has been a challenging year,with the translation market becomingincreasingly competitive. Nevertheless,we have succeeded in maintaining thehigh standards our customers demandfrom us. The following list highlights a few examples of our most significantprojects this year:

We provided interpreters for the StateVisit of French President, NicholasSarkozy, to the UK in March, fieldinginterpreters specifically for the VIPsection of the visit and interpreting for UK dignitaries and officials at thedinners, the ceremonial parts of thevisit and for some of the speeches.

We were responsible for deliveringtranslation and interpreting servicesfor the Saudi State visit to the UK inOctober 2007. Our team was praisedfor the outstanding quality of theirwork and the positive contribution it made to the success of the visit.

Our linguistic interpretation of anumber of the provisions of theChicago Convention on Civil Aviationplayed an important supporting role in enabling the UK Government,represented by HM Treasury, todefend successfully a case broughtagainst it.

Looking ahead

Our UK customers face a growing need to provide material in differentlanguages for an increasingly diverseaudience and to comply with complexstatutory requirements.

We are in a strong position to respond tothese needs, with an excellent reputationamong our existing customers and we aimto build on this to secure new business.For example, the European Commissionhas recently selected FCO Services astheir preferred supplier for a number of major translation contracts.

When the provisions of a key treaty amendment were due to beimplemented in each of the fivenational State Parties, we ensuredthat there was legal clarity on allsides by translating each nationalversion so that they could becompared with the English original.

“This looks like an excellent exampleof inter-departmental co-operationwith the MoD. My personal thanks to you and your team for your workon this.” Nevil Hagon, Legal Adviser, FCO

Translation and Interpreting


“FCO SERVICES IS A NATURAL TO BE A SUCCESSFUL BUSINESS. WITHDETERMINATION AND FORESIGHT OF WHAT THE CUSTOMER REQUIRES,IT WILL BE A GREAT SUCCESS”Lord David Triesman, Chairman, the Football Association and former FCO Minister

MANAGINGOUR BUSINESS

Managing Our Business



Managing Our Business


Our unique heritage, delivering vitalsupport services to the FCO, providesan excellent platform upon which to

build our future business. This year wehave made significant progress towardsbecoming a more commercially-focused

and customer-centric organisation and we aim to build on this progress

in the future.

On the following pages you will findinformation on what we are doing to:

Ensure effective governance

Develop our people

Invest in our business

Meet our Corporate Social Responsibility commitments.

This section also describes how we plan to take our business forward

in 2008/09.


Managing Our BusinessForeword by Richard Stagg, Chair, FCO Services Board


As Chair of the FCO Services Board, I am delighted at FCO Services reachinga landmark on 1 April with the move to Trading Fund status. We are thussuccessfully meeting a deadline set forus by the FCO more than two years ago.

Trading Fund status marks the start of a new chapter for FCO Services. With more flexibility to operate alongbusiness lines, FCO Services has excitingopportunities to penetrate new marketsand to grow its revenues from non-FCOcustomers. At the same time, it will remainan integral part of the FCO as a close andtrusted strategic partner. It will continue toplay a vital role in supporting the FCO’sglobal network, helping to provide a secureplatform to deliver for the whole of the UKgovernment overseas.

This is a role which FCO Services hasplayed since its creation. Two of oursuccesses this year illustrate the point:

As I know from my experience in Delhi,FCO Services’ work with UKvisas tocomplete the global roll-out of biometrictechnology to more than 135 countriesis absolutely vital in helping the UKsecure its borders and establish identityin the fight against fraud and othercrime. The fact that over 1,200 cases of identity swap have already beenuncovered is testament to the successof the programme and the effectivenessof cross-government collaboration.

Our work with the FCO’s IT Directorateto deploy secure video conferencingsystems to 76 FCO offices around theworld, is another example of successful

cross-departmental co-operation and is an initiative which will play a key role inenabling the FCO to reduce its travelcarbon footprint.

These are just two examples of where we have deployed cutting-edge technologyto deliver the secure services which reallymake a difference and are really valued byour customers. Results such as these willstand us in good stead as we plan forsuccess in the future.

The FCO Services Board has evolvedduring the year. The Non-Executivemembership has been strengthened and the Board now includes four externalDirectors. Our two new Directors, DavidKogan and Mike Hayle, will both bring us a broad range of commercial experiencegained in the private and public sectors –their biographies are summarised in theGovernance section of this report.

All of the Non-Executive Directors have developed a good understanding of FCO Services and its new status as a Trading Fund. My previous role withinthe FCO included responsibility for FCOServices and its creation as an ExecutiveAgency; Neil Masom has served as a Non-Executive Director for 8 years,currently chairs the Audit Committee and has been closely involved with thedevelopment of our corporate strategy;David Kogan was a member of the formerMinisterial Advisory Board and Mike Haylewas a member of the FCO’s Trading FundProgramme Board, which oversaw FCOServices’ journey to Trading Fund status.

The strength of the Board lies in itscombination of Non-Executive andExecutive Directors. As a Board we bringtogether direct experience of the externalcommercial environment with in-depthworking knowledge of the organisation.This knowledge and experience will enableus to provide effective support andconstructive challenge to Chris Moxey andthe FCO Services executive team as theylead it into the future.

The Board has focused during the pastyear on strengthening its corporategovernance arrangements so that it is wellplaced to support the development of theTrading Fund and ensure that it operatesin line with best practice. The Board’sTerms of Reference have beenstrengthened and its performance will beregularly evaluated. More widely, a rangeof core policies has been introducedacross the organisation to meet the needsof a more commercially-focused business.

I am proud of my long association withFCO Services. I am confident that FCOServices will seize the new opportunities of Trading Fund status. The achievementsI have detailed above have enabled us to deliver an outstanding financialperformance this year and demonstrateFCO Services’ excellent track record of Agency trading. I believe that FCOServices can look forward to exciting times ahead.

Richard StaggChair, FCO Services Board

A STRONG AND SUSTAINABLEBUSINESS, A CLOSE ANDTRUSTED PARTNERForeword by Richard Stagg, Chair, FCO Services Board


Managing Our BusinessForeword by Richard Stagg, Chair, FCO Services Board



Managing Our BusinessEnsuring Effective Governance


Ensuring Effective Governance

Sir Richard StaggNon-Executive Director & Chair

Neil MasomNon-Executive Director and Chair of Audit Committee

Mike HayleNon-Executive Director

Chris MoxeyChief Executive andAccounting Officer

Steven RymellGroup Director, ICT and ChiefInformation Officer

Nigel MorrisGroup Director, Estatesand Security Group andServices and Logistics

David KoganNon-Executive Director

Clive HeaphyFinance Director

Sarah PhelanHR Director

Kerry SimmondsCorporate Services Director

Phil ColleyInterim BusinessDevelopment Director

Our Senior Management Team

Governance

As part of the FCO’s strategy to bring amore customer-focused approach andimproved value for money to servicedelivery, FCO Services became an Agencyof the FCO on 1 April 2006. As such, wedid not become a separate legal entitybut operated autonomously under powersdelegated by Ministers. On 1 April 2008,FCO Services was established as aTrading Fund under the GovernmentTrading Funds Act 1973.

Despite our change in status, we remainan important part of the FCO. Overallresponsibility for the strategic direction of our organisation rests with the Secretaryof State for Foreign and CommonwealthAffairs, who has delegated theseresponsibilities to the FCO Minister, Lord Malloch-Brown.

One of the key reasons for changing ourstatus in 2008/09 was to allow us greaterautonomy in shaping our future direction.As a responsible, self-reliant organisation,we are dedicated to meeting our objectives,remaining a sustainable business andmanaging risk.

We have revised our governancestructure this year to reflect moreaccurately our responsibilities as anAgency and Trading Fund. Our ChiefExecutive has ultimate responsibility for the day-to-day management of ourorganisation. As Accounting Officer, he is personally responsible and accountableto Parliament for the management andorganisation of FCO Services, ensuringproper use of public money and thestewardship of its assets.

Our Chief Executive is supported in thisby three main bodies:

The FCO Services Board. This includesthe Chief Executive, Executive Directorsand part-time independent Non-Executive Directors. Meeting at least 6 times per year, it is responsible forreviewing FCO Services’ strategicagenda, setting our corporate policyand monitoring our performance.

The Audit Committee. This committeesupports the Board and Chief Executivein the management of risk, internalcontrol and assurance and governance.Meeting at least 4 times per year, it is also attended by Non-ExecutiveDirectors (one serving as Chair), theFCO’s Finance Director and externaland internal auditors.



The Executive Committee. Thiscommittee, usually meeting weekly and consisting of the Chief Executiveand his Executive Directors, focuses on managing day-to-day operations,ensuring that resources are well usedand that our business performs in line with our objectives.

This year we welcomed 2 new Non-Executive Directors to the FCOServices Board, David Kogan and Mike Hayle, who bring a unique set of skills and experiences.

David Kogan offers a wealth of privatesector experience, having built a long anddistinguished career in the media before

co-founding a company specialising inrights negotiations, channel developmentand sport in the media. David also madea valuable contribution as a member ofthe Ministerial Advisory Board, whichoffered advice to the Secretary of Stateon areas such as the long-term vision forFCO Services, its strategic plans andperformance monitoring.

Mike Hayle brings a wide range ofprivate and public sector expertise,including direct experience of leading a Trading Fund organisation as ChiefExecutive of ABRO, the defenceengineering services business. Mike was a member of the FCO’s TradingFund Programme Board, a joint

FCO/FCO Services initiative to facilitateFCO Services’ transition to Trading Fund status.

Internal communication and engagement

The engagement of our people is crucialto the success of our organisation. Byentering into a dialogue and providingthe opportunity to discuss issues ofimportance to them we can make betterdecisions and build stronger teams.

Accordingly we have put in place a wide-ranging programme of internalengagement and communication. Thisincludes regular planned discussions



with the trade unions and with our staff.We hold 6-weekly discussions with oursenior management team and run anannual programme of staff forums, wherepeople from all parts of the organisationcan interact with our Chief Executive and Directors.

We have developed a comprehensiveprogramme of targeted training to enableour staff to develop the skills they willneed in the new, more commercialenvironment. We also monitor their views through:

an organisation-wide annual staff survey;

feedback from training andcommunications channels; and

the ‘Investors in People’ (IiP) process.

Whistleblowing

We are committed to dealing responsiblyand professionally with any concern that our staff may have about possiblemalpractice.

We encourage them to report any actsthat they encounter in the course of theirwork which they believe to be illegal,improper or unethical. All approachesare taken seriously and treated inconfidence. We will not tolerate the

victimisation of anyone who comesforward to raise a genuine concern. The Public Interest Disclosures Act 1998provides legal protection for employeeswho make disclosures about suspectedmalpractice in the workplace.

Guidance on whistleblowing is openly available to all our staff and, if anyone feels they are being asked to act in a way that is inconsistent with the Civil Service Code, they candiscuss their concerns in confidencewith specially nominated colleagues.

Meg Munn, FCO Parliamentary Under Secretary of State, PeterRicketts, FCO Permanent UnderSecretary and Chris Moxey, ChiefExecutive FCO Services sign theFramework Document that definesthe constitutional relationshipbetween FCO Services and the FCO.


Managing Our BusinessDeveloping Our People


Developing the talents of our staff and creating a high-performanceculture is vital to delivering continuousimprovement in the quality of ourservice. As of 1 April 2008 we havefull authority to set our own terms,conditions and pay so that we candevelop and reward an enabled andflexible workforce.

Our HR strategy recognises that pay andconditions are only part of the solution.Training and career development arealso important in ensuring our peoplereach their full potential and reallydeliver for our customers.

Organisation structure

As part of becoming a more customer-focused organisation, we are simplifyingour structure to enable us to respond to our customers’ needs more effectively.We completed the first stage of ourtransition this year, moving from 5operating units to 2. We also set up anew Business Development function toidentify new customer needs and developbusiness opportunities. The next stage in this transition will enable each part of our business to operate seamlesslytogether, providing a more consistentand efficient service.

Workforce planning and resourcing

We must respond to increasing business volumes by ensuring we always have sufficient numbers of people with the necessary skills to meetour customers’ needs. This year, wehave recruited approximately 50 people,with expertise in areas such as ITsupport, counter-measures, vetting and electrical engineering.

We have developed a workforce planwhich sets out the key competenciesand experience likely to be needed inthe future and outlines how we will meetthese new needs. One of our key prioritieswill be to build the capabilities of ourpermanent staff, in order to reducegradually the number of externalcontractors we use.

Learning and development

Our training programmes are targetedtowards developing the key skills weneed to excel. This year we have deliveredcommercial process training, to ensurewe engage with customers in a consistentway when developing new business,managing projects and delivering services.We have also provided extensive trainingand support to improve and standardiseour approach to managing our finances.

We are now focusing on our longer-term skills gaps and putting plans in place to meet them. Thisincludes an expansion of our highlysuccessful apprenticeship scheme, to grow our in-house specialist skills,build our pipeline of talent and helpreduce our use of external contractors.

Diversity

We value the many differences our peoplebring to the workplace in terms of theirskills, perspectives and backgrounds andwe work hard to ensure our policies reflecttheir differing needs. Our strategy coversall aspects of diversity including disability,gender, ethnicity and age and three of ourDirectors act as diversity champions. Wemonitor our diversity performance, trackingour progress in recruitment, performanceappraisals, bonus awards, promotion and

progression. As of 1 April 2008 our staffincluded 23.9% women, 6.1% ethnicminorities and 3.3% with a disability. In addition to providing diversity traininginternally, we have continued ourinvolvement with “Equal Choices forSchools”, a local community initiativegiving pupils from ethnic minoritybackgrounds the opportunity toexperience the world of work.

Investors in People (IiP)

We currently hold IiP Accreditation aspart of the FCO and are now working to become an IiP accredited organisationin our own right, with an externalassessment in December 2008. We aremoving towards this with a programmeof IiP ‘health checks’ across theorganisation which focus on how eachbusiness area is working to ensure thatthe ethos of IiP is embedded in the waywe work.

Health and safety

The health and safety of our people andvisitors to our sites is of the highest priority.We are committed to promoting goodhealth policies, procedures and standardsand raising awareness of health andsafety across FCO Services. This year we have appointed a health and safetyprofessional, with one of our Directorsalso acting as Board champion for healthand safety.

As part of our commitment tocompliance and continual improvement,we have developed a new health andsafety policy and action plan, whichincludes improving our processes forreporting accidents and incidents.

Developing Our People


We have completed risk assessments for office work and overseas travel andconducted regular, formal health andsafety inspections of the workplace. To raise awareness and understanding of health and safety best practice, wehave provided health and safety trainingfor our people at all levels and improvedour communication on these issuesthrough regular forums.

Page 44FCO Services Annual Report and Accounts2007/2008

We have invested in the latestSmartBoard technology to assistin the professional developmentof our people.

All of our installation teamsreceive specialist training forworking at heights.



A state-of-the-art control room which helps to protect the security of FCO embassiesbased around the world.

One of our highly skilledtechnicians undertakes a series of technical tests on IT equipment.


Managing Our BusinessInvesting In Our Business


We are recognised as a leading authorityin many of the security fields in whichwe operate. In technical and protectivesecurity, for example, we are the UKNational Authority on Counter-Eavesdropping.

However, with the rapidly changingneeds of our customers, combined with increasing competition from othersuppliers, we need to refresh constantlyour services and operations to respondeffectively. As a result, we are makingsignificant investments in research anddevelopment, our infrastructure and our business processes.

Research and development

This year we have set up a specialistR&D function to support the developmentof new products and services. Thisfunction will manage our pipeline of newideas, putting a standard framework in place to ensure that each opportunityis rigorously tested and has access tofunding at the right time.

One of this year’s most significant piecesof R&D was in the field of biometrics,where we developed a workstation todemonstrate how biometric enrolmentprocesses operate in practice. In a fieldwhere the technology and its potentialapplications are still emerging, our workis helping to inform our customers’ viewson their requirements which, in turn, will help us decide where to focus ourfuture effort.

We have also been working on a jointventure proposal with the FCO and theCommunications Electronics Security

Group (CESG), to develop a new piece ofTechnical Security Countermeasuresequipment. This equipment will providethe FCO with the highest level of assuranceavailable, strengthening our position asthe UK National Authority in this area.

Investment in our infrastructure

We have invested in our infrastructure toimprove the quality of our customer serviceand increased our physical capacity to enable us to respond effectively toincreasing levels of demand.

These are some of the main investmentswe have made this year:

We have designed and built a newICT Customer Service Desk, enablingus to resolve more of our customers’queries at the first point of contact. Italso allows us to provide higher qualityreporting which we will use to improveour services further. We plan to developand extend this system during thecoming year.

We are expanding our logistics capacityat Hanslope Park, with the FCO fundinga new stores building that will be 612square metres in size. The buildingwill be completed by September 2008and will offer both more efficientgoods-handling and better workingconditions for our people.

We are supporting the expansion ofour logistics capacity by introducingnew IT systems and inventorymanagement processes. The newsystems and processes will providehigher quality information, enabling

us to track goods and deliveries moreefficiently and manage our clients’assets more effectively.

Investment in our business processes

This year we have improved our corebusiness processes to ensure we remaincompetitive, continue to offer good valuefor money and can respond consistentlyto our customers’ needs. This will alsohelp us manage our business in a moreefficient and financially sustainable way,enabling us to prepare fully for thecommercial challenges of operating as a stand-alone business.

We have developed a standardised end-to-end commercial process.Mirroring the ‘customer lifecycle’ fromsales through to service delivery andthen after-sales support, we now haveone consistent approach to bidding for, winning and delivering business,underpinned by rigorous financialprocesses and management controls.This means that we can provide theseamless and efficient service that ourcustomers expect.

Key to this process is our new BusinessDevelopment function. It will help usanticipate the changing needs of ourcustomers, respond to them appropriatelyand monitor our performance throughoutthe course of our engagement with them.

Investing in Our Business


Managing Our BusinessMeeting Our Corporate Social Responsibility Commitments


All organisations have a responsibilityto reduce the impact of their operationson both the environment and the localcommunities in which they work andFCO Services is no exception.

The following represents just a few of the initiatives undertaken during2007/08.

Our impact on the environment

Overseas, we have supported the FCO inreducing both their carbon footprint andthe capital and ongoing running costs oftheir offices overseas by installing smallergenerators where possible, which use lessfuel and therefore emit less carbon dioxide.In Iraq and Afghanistan, for instance, we have installed diesel generators thatproduce the lowest carbon footprint andhave also installed low carbon emissionheating. The result is offices that areequipped to the highest standards, whileminimising as far as possible the effecton the environment.

We also aim to use new technology tolessen our impact on the environmentand have worked with a supplier to developa solar hot water system for residentialaccommodation that can be used invarying climatic conditions. Until now,the only systems available have provedto be unreliable but, as a result of thisnew system, renewable energy can nowbe introduced where this was notpreviously possible.

New construction is a key part of our work. To avoid unnecessary harm to the environment, all of our new UK construction projects are designed to achieve a rating of ‘Excellent’ under the Building Research EstablishmentEnvironmental Assessment Method(BREEAM). This means that they aredesigned, built and maintained to meetour customers’ needs and to align withenvironmental best practice.

As the provision of secure logistics is a core part of our business, we takevery seriously the potential impact of ourtravel carbon footprint. We record ourlogistics fleet’s mileage and most of themileage incurred in private vehicles andtaxis to monitor our performance againstthe FCO’s targets. To help the FCO reduceits own travel carbon footprint, last yearwe more than doubled the number ofconfidential video conferencing systemsavailable in the FCO estate worldwide andwe will be adding to this in the year ahead.

In the UK, we are responsible formanaging the FCO’s EnvironmentalManagement System (EMS), which wasextended to the Hanslope Park site in 2007. This system enables the FCO to assess its progress in meeting itsenvironmental obligations and ensuresthat it retains its accreditation to the ISO 14001: 2004 quality standard.

Working with the FCO, we have a strongrecord on waste reduction and recycling,as was noted by the SustainableDevelopment Committee in its recentreport, ‘Sustainable Development inGovernment 2007’. We already recycleprinter cartridges and mobile phones, as well as other materials such as paper,cardboard, plastics and wood and arelooking to expand this list where possible.

Our impact on local communities

Our main site in the UK is at HanslopePark, near Milton Keynes and we arefully committed to operating in harmonywith the local community. In particular,this year we worked with our partners inthe FCO and environmental consultantsto begin developing a ‘Green Travel Plan’for the site. This plan features a numberof important initiatives, including thepromotion of cycling through theextension of local cycleways.

Meeting Our Corporate Social Responsibility Commitments



By extending local cyclewaysaround the Hanslope Park site,we are encouraging our peopleto help us reduce our carbonfootprint and providing a benefitto the local community.


Managing Our BusinessOur Plans for 2008/9


WHAT’STOCOME

OUR PLANS FOR 2008/09


Managing Our BusinessOur Plans for 2008/9


OUR PRIORITY IN 2007/08 WAS TO LAY THE FOUNDATIONS FOR SUCCESS IN A COMPETITIVE ENVIRONMENTBY DEVELOPING OURSELVES AS A SELF-RELIANT AND COMMERCIALLY CAPABLE BUSINESS. IN 2008/09 OURFOCUS WILL BE ON EMBEDDING THESE CHANGES AND BUILDING OUR CAPABILITY FURTHER SO THAT WECONSISTENTLY EXCEED OUR CUSTOMERS’ EXPECTATIONS. WE HAVE 4 KEY PRIORITIES:

1) DELIVERING BUSINESS-CRITICAL SERVICES TO THE FCOWE ENJOY A UNIQUE RELATIONSHIP WITH THE FCO, PLAYING A VITAL ROLE IN ENABLING THEM TO DELIVERTHEIR STRATEGIC PRIORITIES WORLDWIDE THROUGH THE GUARANTEED PROVISION OF BUSINESS CRITICALSECURE SERVICES. IN 2008/09 WE WILL WORK CLOSELY WITH THE FCO TO AGREE A NEW SET OF SERVICELEVEL AGREEMENTS AND WILL BUILD ON OUR TRACK RECORD FOR DELIVERY TO EXCEED THEIR EXPECTATIONS.TO REFLECT OUR COMMITMENT TO SUPPORTING THE FCO IN DELIVERING THEIR 2007 COMPREHENSIVESPENDING REVIEW OBLIGATIONS, WE HAVE A NEW FORMAL TARGET THIS YEAR OF DELIVERING £2M IN VALUETHROUGH PRICE STABILISATION AND EFFICIENCY.

2) GROWING THE VOLUME OF WORK WE DELIVER TO CUSTOMERS IN WIDER MARKETSWE HAVE THE PROVEN CAPABILITY TO DELIVER INNOVATIVE AND RESILIENT SERVICE SOLUTIONS, BUILDING A STRONG REPUTATION IN THE UK PUBLIC SECTOR AS A LEADER IN THE PROVISION OF SECURE SERVICES.WE NOW HAVE THE OPPORTUNITY TO EXTEND THIS RECOGNITION BEYOND ‘TRADITIONAL’ CUSTOMERS ANDDRIVE OUR BUSINESS FORWARD. WE WILL SEEK TO ACHIEVE THIS THROUGH A MORE CUSTOMER-ORIENTEDSET OF PRODUCTS AND SERVICES AND AN INTIMATE UNDERSTANDING OF CUSTOMER NEEDS ANDBEHAVIOURS. IN PARTICULAR, WE WILL LOOK TO BUILD ON OUR EXISTING PRESENCE IN THE BIOMETRICS /BORDER CONTROL, SECURE IT NETWORKS, ESTABLISHMENT SECURITY AND VETTING MARKETS. OUR 2008/09 TARGET IS TO ACHIEVE A 10% INCREASE IN INCOME FROM WIDER MARKETS.

3) EMBEDDING CHANGES TO OUR ORGANISATIONAL STRUCTURE AND PROCESSESIN 2008/09 WE WILL COMPLETE OUR TRANSITION TO A NEW STRUCTURE, CREATING A TRULY CUSTOMER-FOCUSSED AND COHESIVE ORGANISATION. WE ARE INVESTING IN OUR PEOPLE, THEIR SKILLS AND THEIRWORKING ENVIRONMENT TO ENSURE THAT WE DELIVER THE BEST POSSIBLE SERVICE TO OUR CUSTOMERS.WE WILL CONTINUE TO EMBED NEW BUSINESS PROCESSES SUPPORTED BY TAILORED MANAGEMENTINFORMATION AND ROBUST BUSINESS CONTINUITY ARRANGEMENTS, TO DRIVE IMPROVEMENTS IN DELIVERYFOR THE CUSTOMER. OUR TARGET IS TO ACHIEVE AN 85% CUSTOMER SATISFACTION RATING IN 2008/09.

4) DRIVING THROUGH EFFICIENCIESWE AIM TO MAXIMISE THE VALUE THAT WE DELIVER TO THE CUSTOMER AND THE TAX PAYER AND ENSURETHAT WE THRIVE AS A SUCCESSFUL AND SUSTAINABLE BUSINESS. IN 2008/09 OUR PRIORITIES ARE TODEVELOP A FLEXIBLE WORKFORCE, REDRESSING THE BALANCE BETWEEN CONTRACTORS AND IN-HOUSESTAFF, DRIVE EFFICIENCIES THROUGH STRATEGIC PROCUREMENT, FOCUS ON BILLABLE WORK AND ELIMINATELOW-VALUE ACTIVITIES AND IMPROVE CASH FLOW THROUGH MORE EFFECTIVE ENGAGEMENT WITH CUSTOMERS.

IN ADDITION TO OUR FORMAL TARGETS OF A 3.5% WEIGHTED AVERAGE RETURN ON CAPITAL EMPLOYED ANDA STAFF UTILISATION RATE OF 65%, WE HAVE ADDED A NEW TARGET FOR 2008/09 OF ACHIEVING A SURPLUSOF AT LEAST £1.3M.


FINANCIAL REPORTAND ACCOUNTS

Financial Report and Accounts



The following section covers our financial performance and

policies, including:

Review of Our Financial Performance

Remuneration Report

Statement on Internal Control

Statement on FCO Services’ Agency’s and Accounting Officer’s

Responsibilities

The Certificate of the Comptroller and Auditor General to the House

of Commons

Income and Expenditure Account

Statement of Total Recognised Gains and Losses

Balance Sheet

Cash Flow Statement

Notes to the Accounts

Page 52

Financial Report and Accounts



Financial Report and AccountsReview of Our Financial Performance


Review of Our Financial Performance

Since its inception as an ExecutiveAgency on 1 April 2006, FCO Serviceshas developed and implemented asuccessful operating model which, in 2007/08, resulted in continuedgrowth in both revenues and profitabilityand a strong financial platform fromwhich to launch its new ‘Trading Fund’status on 1 April 2008.

The principal customer and parent bodyremains the FCO, with more than 90% of business being undertaken throughthis source. However, FCO Services hascontinued to develop its wider marketscustomer base and generated a significantproportion of its revenues through thesechannels – a proportion which we expectto see increasing significantly as aTrading Fund.

Transferring and discontinuing activities

During 2006/07, FCO Services undertookan in-depth review of its business strategyand future prospects and took the decisionto cease providing a number of services.After full consultation and agreement withthe FCO, it was agreed that some of theseservices could best be provided by theFCO itself and these were transferred backto the FCO during the year. Under FRS6‘merger accounting’ rules, all transactionsrelating to these activities were excludedfrom the financial statements of FCOServices for the entire year and wereincluded within the FCO’s accounts. This necessitated a re-statement of the2006/07 financial statements to enablelike-for-like comparatives to be shown.Full details of these services are shown in note 16 to the accounts on page 84. The impact of this restatement is a reduction in operating profit beforeprovisions in 2006/07 from £8.2m to £5.3m.

A number of other services, principallyLanguage Training, were discontinuedduring the year as our main customer,the FCO, wished to make alternativearrangements for procuring these. As the value of these services is notmaterial in the context of the overallturnover of FCO Services, disclosure of their financial impact has been shownin note 17 to the accounts.

Financial outturn 2007/08

FCO Services’ financial statements for2007/08 are shown on pages 68 to 89.

FCO Services produced an operatingsurplus for the year of £8.6m on aturnover of £130.2m, representing anoperating margin of 6.6%. After allowingfor interest and additional re-structuringcosts, the net surplus for the year was£8.3m, equating to a net margin of 6.4%.

This compares with the previous year’s operating surplus (afterrestatement) of £5.3m on revenues of £120.6m, representing an operatingmargin of 4.4% and a net surplus (after restatement) of £1.6m, equating to a net margin of 1.3%.

FCO revenues in 2007/08 grew from£107.3m to £117.7m, representingsome 9.7% growth against the previousyear and demonstrating the value of theservices provided. 90.4% of revenueswere generated from FCO sources(2006/07: 89.0%).

During the same period, wider marketrevenues fell from £13.3m to £12.5m,representing a 6.02% reduction againstthe previous year. Although this result isdisappointing, it occurred in the contextof considerable strategic, operational andprocess change in readiness for TradingFund and with this in mind, the result is acceptable.

FCO Services has a remit agreed withthe Minister to grow revenues from widermarkets sources by 10% per annumwith a reduced dependency upon theFCO as the principal source of revenue.Its long-term plans reflect this movetowards a more diverse customer baseproviding a greater proportion of revenues.

The provision for restructure establishedin 2006/07 (£3.45m) was utilised in meeting the costs of redundanciesincurred in moving towards the newstrategic model during the financial year 2007/08, the cessation of certainactivities and the transfer back to theFCO of others. Part of the provision(£0.9m) was transferred to the FCO and an additional provision of £0.3mwas necessary in 2007/08 to meet the actual costs incurred.

Total net assets of £13.1m at 31 March2008 comprises restated total net assetsfor 31 March 2007 of £2.3m. The figureis represented by tangible fixed assets of£2.3m (2006/07 restated: £2.8m), stockof £1.0m (2006/07 restated: £1.1m),work in progress of £5.7m (2006/07restated: £5.9m), cash of £3.1m(2006/07 restated £12.4m) and othernet assets of £1.0m (2006/07 restated:(£19.9m Cr.).




Financial performance targets

FCO Services is measured against twokey financial performance measures:Return on Capital Employed (ROCE) and growth in wider market revenues.

The Return on Capital Employed (ROCE)calculation, based on simple average netassets (excluding restructure provision) of£9.43m, was 90.9%(2006/07: 43.0%)against a weighted average target of3.8% which, when combined with a6.6% operating margin, shows afinancially healthy position for the year.Although this figure may appear high,the ROCE achieved is a reflection of thefact that FCO Services is a people-basedorganisation with a disproportionatelysmall asset base relative to its turnover.

Against a 2006/07 normalised baselineof £12.35m, target growth in wider marketrevenues of 5% for the year led to a newcash target for 2007/08 of £12.96m. Theactual wider market revenue of £12.52mrepresented an increase over the baselineof 1.4% falling some £0.44m (3.4%)short of the agreed target.

Non-financial performance targets

In terms of customer satisfaction, 84%of customers included in our customersurvey described themselves as ‘Satisfied’or ‘Very Satisfied’. Although this figure is marginally below our stated target of85%, it still represents an impressiveresult, particularly given the significantamount of internal change we haveundertaken during the year.

Our other formal target was to improveour staff utilisation rate by 5%. Weexceeded this by achieving an increaseof 7.8%, which provides encouragingevidence that our recent efforts to increaseour focus on billable work and reducelow value-add activities are starting tohave an impact.

Payments from customers

Over the course of the year, we improvedsignificantly our billing processes (timeto initiate invoices and quality of billinginformation) and our debt recoveryfunctions. Indeed, we were able toreduce our overdue total debt from22.8% to 14.3% through these actions.

Our aim is to continue this improvementin 2007/08 with an average target timefrom job completion to invoice initiationof 15 days – a challenging target but necessary to improve our cashmanagement as FCO Services becomes a Trading Fund.

As a result of this improvement, the year end provision for bad and doubtfuldebts has reduced from £2.7m in March 2006 to £0.5m in March 2007and £0.3m in March 2008, which is a cumulative improvement of £2.4m.

The Late Payment of Commercial Debts (Interest) Act 1998 (effective from 1 November 1998) and the Late Payment of Commercial DebtsRegulations (effective from 7 August2002) provide FCO Services with the right to claim interest for late paymentsfrom all businesses and public sectorbodies including the FCO under a Terms of Business Agreement.

Performance against formal Ministerial targets

Long Term Goal

We will be a financiallysuccessful sustainablebusiness

We will be an efficient &effective business deliveringfor customers

?

Short TermObjective

To be a financially successfuland sustainable businessdelivering value throughmaximising opportunitieswith FCO and an expandingwider markets customer base

To be an efficientorganisation with an ethos of continuously improvingbusiness operations

To constantly improvecustomer satisfaction in allaspects of our products,services and service delivery

Key PerformanceIndicator

Return on Capital Employed

Growth in wider marketincome

Utilisation rate

(Staff utilisation rate based on billable hours as a percentage of totalexpected hours)

Customer satisfaction ratingin customer survey

Target for 2007/08

Weighted average Return onCapital Employed of at least 3.8%

An increase of 5% on thatachieved in 2006/07 assessedon a normalised baseline

An increase of 5% over the rate achieved in 2006/07

85% satisfied or very satisfied

Result

90.9%

1.4%

7.8%

84%




Payments to suppliers

FCO Services is committed to the prompt payment of bills for goods and services received. Payments arenormally made in accordance withspecified contract conditions or, wherethis is not specified, within 30 days. The Agency met this target in 88.5% of cases (2006/07: 93.9%).

Pensions

Information regarding pensions is given in the Remuneration Report anddescribed in note 3(c). The accountingpolicy note in the accounts also refers to our treatment of pensions.

Post Balance Sheet events

On 31 March 2008, the FCO ServicesExecutive Agency was wound up and the FCO Services Trading Fund wascreated by the FCO Services TradingFund Order 2008. At this time we wererequired to return our cash balances of £3.1m to the FCO to reduce our netassets to £10.0m as detailed in note 25 to the financial statements.

Immediately upon the creation of thenew Trading Fund on 1 April 2008,these net assets were appropriated to the new organisation and two new and equal liabilities of Public DividendCapital and a long term loan werecreated, also as detailed in note 25.

On 1st April 2008, Home EstatesServices transferred from FCO Services to the FCO.

Auditors

These accounts have been audited by the Comptroller and Auditor General,whose certificate and report appears on pages 66 to 67. The total audit fee for 2007/08 is £75,000 (2006/07£75,000). There were no fees in respect of non-audit work.

As far as I, as the Accounting Officer am aware, there is no relevant auditinformation of which the National Audit Office are unaware and I havetaken all reasonable steps to ensure that I have made myself aware of any relevant audit information and to establish that the Agency’s auditors are aware of this information.

Christopher MoxeyChief Executive20 June 2008


Financial Report and AccountsRemuneration Report


This report provides details of theremuneration, compensation payments,service contracts and pensions of FCOServices Board members for the yearended 31 March 2008. The Board iscomprised of both Non-Executive andExecutive Directors and the relevantdisclosures of each are set out below.

Remuneration policy for senior civil servants

The remuneration of senior civil servants who are executive members of FCO Services is set in accordancewith the FCO’s agreed pay structureaccording to a framework of delegationsadministered through the FCO Servicesgovernance structure.

In setting such remuneration for each senior member of staff, thefollowing considerations have been taken into account:

the need to recruit, retain andmotivate suitably able and qualifiedpeople to exercise their differentresponsibilities;

government policies for improving the public services including therequirement on departments to meetthe output targets for the delivery of departmental services;

likely funds available to FCO Servicesfrom its trading relationship with theFCO and wider markets and the needto provide appropriate levels of serviceto customers in accordance with SLAand contractual agreements;

the requirement to meet agreedefficiency or headcount targets.

.

Evidence about wider economicconsiderations and affordability is alsoconsidered alongside the need to recruitthe appropriate calibre of staff.

Delivery against stretching objectives is a key determinant of the pay award.The SMS Pay Strategy governs themethod of assessing performanceconditions and SMS Staff Appraisaldocuments. Performance objectives are agreed at the start of the reportingperiod and cover operational outcomes.

At the end of the performance year, jobholders assess their ownperformance against the objectives.Their Reporting Officers then discusstheir performance, summarise the result and make recommendationsregarding the appropriate pay award to the Pay Panel.

Service contracts for ExecutiveDirectors who are civil servants

Civil Service appointments includingsenior executive members of FCOServices are made in accordance withthe FCO’s stated selection and recruitmentpolicy, the stated aim of which is “theselection of the most suitable person for the job.” This policy incorporatespractices for ensuring equal opportunitiesand will be conducted on an objectivebasis, dealing solely with the candidate’ssuitability for appointment.

The following senior executive membersof FCO Services Board are civil servantsand hold appointments as follows:

Christopher Moxey (Chief Executive and Accounting Officer) was appointedon a four year contract commencing on 6 February 2006.

Clive Heaphy (Finance Director) wasappointed on a three-year contractcommencing on 4 July 2006.

Nigel Morris (Group Director, Estatesand Security Group and Services and Logistics) was appointed on 1 September 2007 on an open-endedappointment until retirement.

Sarah Phelan (Human ResourcesDirector) was appointed on 30 April2007 and her appointment is open-ended until retirement.

Steven Rymell (Group Director, ICT and Chief Information Officer) was appointed on a four year contractcommencing on 5 February 2007.

Kerry Simmonds (Corporate ServicesDirector), until 29 February 2008.

Graham Smith (Group Director ClientServices), until 30 August 2007.

Early termination, other than formisconduct, would result in the aboveindividuals receiving compensation as set out in the Civil ServiceCompensation Scheme.

Service contracts for ExecutiveDirectors who are not civil servants

Veredus Interim Management provide the services of Phil Colley who was appointed as Interim Business Development Director from 1 September 2007.

Nesco Agency provided the services of Lynn Hugo (Interim Human ResourcesDirector), until 29 April 2007.

Remuneration Report


Salary

‘Salary’ includes gross salary;performance pay or bonuses; overtime;reserved rights to London weighting orLondon allowances; recruitment andretention allowances and any otherallowance to the extent that it is subjectto UK taxation.

This report is based on payments madeto members of the Executive Board andthus recorded in these accounts.

Benefits in kind

The monetary value of benefits in kind covers any benefits provided by the employer and treated by the InlandRevenue as a taxable emolument.




Phil Colley, Interim BusinessDevelopment Director (from 01/09/07) (note 1)

Clive Heaphy

Lynn Hugo, Interim HumanResources Director (until 29April 2007) (note 2)

Nigel Morris (from 01/09/07)

Christopher Moxey

Sarah Phelan (from 30/04/07)

Steven Rymell

Kerry Simmonds (until 29/02/08)

Graham Smith (until30/08/07)

Salary£000

-

100-105

-

40-45

130-135

75-80

100-105

80-85

25-30

Benefits in kind (to nearest £100)

-

Nil

-

Nil

Nil

Nil

Nil

Nil

Nil

Salary £000

-

65-70

-

N/A

105-110

N/A

15-20

75-80

70-75

Benefits in kind (to nearest £100)

-

Nil

-

N/A

Nil

N/A

Nil

Nil

Nil

Executive members’ remuneration

The above table and notes has been subject to audit.

Note 1. Veredus Interim Management provided the services of Phil Colley and the total fees paid to the Agency amounted to £140k-£145k (2006/07 £ Nil). This equates to £200k - £205k for a full year.

Note 2. Nesco Agency provided the Interim Human Resources Director and the total fees paid to the Agency amounted to £15k-£20k (2006/07 £90k - £95k). This equates to £205k - £210k for a full year.

2007-08 2006-07




Phil Colley (note1)

Clive Heaphy

Lynn Hugo (note 1)

Nigel Morris (from 01/09/07)

Christopher Moxey

Sarah Phelan(from 30/04/07))

Steven Rymell

Kerry Simmonds (until 29/02/08)

Graham Smith(until 30/08/07)

Accruedpension at

age 60 as at31/03/08

£000

–

5-10

–

25-30

0-5

0-5

0-5

15-20

25-30

Related lump sum

as at31/03/08

£000

–

–

–

75-80

–

–

–

20-25

85-90

Real increasein pension at age 60

£000

–

5.0-7.5

–

0-2.5

0-2.5

0-2.5

0-2.5

0-2.5

0 to -2.5

Real increasein lump sum

at age 60

£000

–

–

–

0-2.5

–

–

–

0-2.5

0 to -2.5

CETV at31/03/08

£000

–

90

–

597

65

36

23

250

557

CETV at31/03/07

£000

–

15

–

530

31

14

3

204

490

Real increasein CETV

£000

–

27

–

4

26

17

17

18

-2.5.0 to -5.0

The above table and note has been subject to audit.

Note 1. The above noted Board members are fixed term contract appointees to whom Civil Service pensions are not available.

Executive members’ pension benefits




Civil Service pensions

Pension benefits are provided throughthe Civil Service pension arrangements.From 30 July 2007, civil servants maybe in one of four defined benefit schemes;either a ‘final salary’ scheme (classic,premium or classic plus); or a ‘wholecareer’ scheme (nuvos). These statutoryarrangements are unfunded with thecost of benefits met by monies voted byParliament each year. Pensions payableunder classic, premium, classic plus andnuvos are increased annually in line withchanges in the Retail Prices Index (RPI).Members joining from October 2002may opt for either the appropriate definedbenefit arrangement or a good quality‘money purchase’ stakeholder pensionwith a significant employer contribution(partnership pension account).

Employee contributions are set at therate of 1.5% of pensionable earnings forclassic and 3.5% for premium, classicplus and nuvos. Benefits in classic accrueat the rate of 1/80th of final pensionableearnings for each year of service. Inaddition, a lump sum equivalent to threeyears’ pension is payable on retirement.For premium, benefits accrue at the rateof 1/60th of final pensionable earningsfor each year of service. Unlike classic,there is no automatic lump sum. Classicplus is essentially a hybrid with benefitsin respect of service before 1 October2002 calculated broadly as per classicand benefits for service from October2002 calculated as in premium. In nuvosa member builds up a pension based on his pensionable earnings during theirperiod of scheme membership. At theend of the scheme year (31 March) themember’s earned pension account iscredited with 2.3% of their pensionableearnings in that scheme year and theaccrued pension is uprated in line withRPI. In all cases members may opt togive up (commute) pension for lumpsum up to the limits set by the FinanceAct 2004.

The partnership pension account is a stakeholder pension arrangement.The employer makes a basic contributionof between 3% and 12.5% (dependingon the age of the member) into astakeholder pension product chosen by the employee from a panel of threeproviders. The employee does not haveto contribute but where they do makecontributions, the employer will matchthese up to a limit of 3% of pensionablesalary (in addition to the employer’s basiccontribution). Employers also contributea further 0.8% of pensionable salary tocover the cost of centrally-provided riskbenefit cover (death in service and illhealth retirement).

The accrued pension quoted is thepension the member is entitled toreceive when they reach pension age, or immediately on ceasing to be anactive member of the scheme if they are already at or over pension age.Pension age is 60 for members ofclassic, premium and classic plus and 65 for members of nuvos.

Further details about the Civil Servicepension arrangements can be found at the website www.civilservice-pensions.gov.uk

Cash Equivalent Transfer Values

A Cash Equivalent Transfer Value (CETV)is the actuarially assessed capitalisedvalue of the pension scheme benefitsaccrued by a member at a particularpoint in time. The benefits valued are the member’s accrued benefits and any contingent spouse’s pension payable from the scheme. A CETV is a payment made by a pension schemeor arrangement to secure pension benefitsin another pension scheme or arrangementwhen the member leaves a scheme andchooses to transfer the benefits accruedin their former scheme. The pensionfigures shown relate to the benefits that the individual has accrued as aconsequence of their total membershipof the pension scheme, not just theirservice in a senior capacity to which

disclosure applies. The figures include the value of any pension benefit inanother scheme or arrangement whichthe individual has transferred to the CivilService pension arrangements. They alsoinclude any additional pension benefitaccrued to the member as a result of theirpurchasing additional pension benefitsat their own cost. CETVs are calculatedwithin the guidelines and frameworkprescribed by the Institute and Faculty of Actuaries and do not take account of any actual or potential reduction to benefits resulting from LifetimeAllowance Tax which may be due when pension benefits are drawn.

Real increase in CETV

This reflects the increase in CETVeffectively funded by the employer. Itdoes not include the increase in accruedpension due to inflation, contributionspaid by the employee (including thevalue of any benefits transferred fromanother pension scheme or arrangement)and uses common market valuationfactors for the start and end of the period.

Compensation for loss of office

Graham Smith left under Flexible EarlyRetirement terms on 31 March 2008. He received immediate payment of hispension and an associated lump sum.

Non-Executive Directors

The following section provides details of the appointment, service contracts and remuneration of the Non-Executivemembers of FCO Services.

The Non-Executive Directors are appointedby the FCO Services Chief Executive in his capacity as Accounting Officer andconfirmed by the Director General Financefor the Foreign and Commonwealth Office,on fixed appointments. Their remunerationand terms are agreed at the time of theirappointment, which is normally for threeyears with the option to be extended undermutually agreed terms. No compensationis payable for early termination.


FCO Services’ Non-Executive Directors are not FCO Services’ employees and,except for Sir Richard Stagg, are notmembers of the Principal Civil ServicePension Scheme.

No pay or pension costs are included in FCO Services’ accounts in respectof Sir Richard Stagg, who is a civilservant within the Foreign andCommonwealth Office. Expenses are payable by FCO Services for his attendance at FCO Services Board meetings.

The following are the Non-ExecutiveMembers of the FCO Services Board:

Michael Hayle, appointed on a three year contract as a Non-ExecutiveDirector on 1 January 2008.

David Kogan, appointed on a three yearcontract as a Non-Executive Director on 1 March 2008.

Neil Masom, was renewed on 1 April 2007 on a twelve month contract as a Non-Executive Director. He was re-appointed on 1 April 2008for a further sixteen months.

Sir Richard Stagg (Non-Executive Chair)was appointed on a three year contractcommencing on 1 June 2007.

Remuneration payments to Non-Executive Directors

2007-08 2006-07£000 £000

Sir Richard Stagg (from 01/06/07) (note 1) - N/A

Michael Hayle (from 01/01/08) 0-5 N/A

David Kogan (from 01/03/08) 0-5 N/A

Neil Masom 10-15 5-10

The above table and note has been subject to audit.

Note 1. No pay or pension costs are included in FCO Services’ accounts in respect of Sir Richard, who is a civil servant within the Foreign and Commonwealth Office.Expenses are payable by FCO Services for his attendance at Board meetings.

Christopher MoxeyChief Executive and Accounting Officer20 June 2008

Page 60




Financial Report and AccountsStatement on Internal Control


1. Scope of responsibility

As Agency Accounting Officer, I haveresponsibility for maintaining a soundsystem of internal control that supportsthe achievement of FCO Services’policies, aims and objectives, as set bythe Minister responsible for the Agency,whilst safeguarding the public funds and assets for which I am personallyresponsible, in accordance with theresponsibilities assigned to me inManaging Public Money.

My responsibilities as Agency AccountingOfficer are defined more fully in a letter to me from the Permanent UnderSecretary and Accounting Officer of the Foreign and Commonwealth Office.This confirms that I am responsible tothe Secretary of State for Foreign andCommonwealth Affairs and accountableto Parliament for the Agency’s use ofresources in carrying out its functions.

2. The purpose of the system of internal control

The system of internal control is designedto manage risk to a reasonable level,rather than to eliminate all risk of failure,in order to achieve policies, aims andobjectives. It can therefore provide onlyreasonable and not absolute assuranceof effectiveness.

The system of internal control is basedon an ongoing process designed to:

identify and prioritise the risks to theachievement of the Agency’s policies,aims and objectives;

evaluate the likelihood of those risksbeing realised and the impact shouldthey be realised; and

manage them efficiently, effectivelyand economically.

The system of internal control has beenin place in FCO Services for the yearended 31 March 2008 and up to thedate of the approval of the AnnualReport and Accounts. The system is inaccordance with HM Treasury guidance.

3. Capacity to handle risk

As Accounting Officer I am personallyresponsible for ensuring that FCOServices has an effective riskmanagement process, including theregular review and updating of riskregisters. We have a documented risk policy that follows HM Treasury’sguidance on risk management andprocesses, defines what is meant by risk and risk management and outlinesthe key principles underpinning ourapproach to the management of risk.

All identified strategic and significantoperational risks are managed by theExecutive Committee and are allocatedto an appropriate Director to manage as primary risk owners.

We have adopted intranet-based policieswhich our staff have access to throughFCONet. These include detailed guidanceon standards of behaviour and conduct,equal opportunities, fraud, whistleblowingand health and safety matters.

During the last year, we have made good progress in implementing a commonrisk framework across FCO Services andembedding it throughout our organisationvia a series of training and workshopsessions. The top risks register is reviewedregularly by the Executive Committee, theFCO Services Board and Audit Committeein order to ensure that it remains up-to-date and relevant and that controls arestrengthened in areas of greatest exposure.

4. The risk and control framework

Our system of internal control is based on a framework of regular managementinformation, financial regulations andprocedures, clear delegations andaccountability and appropriatesegregation of duties. Key elements of our framework of control include:

i. an Executive Committee thatmeets regularly to consider the strategic direction and key monitoring information for FCO Services and whichconsiders the Risk Register,usually monthly;

ii. an Audit Committee thatconsiders all aspects of internalcontrol including the considerationof reports from the internal andexternal auditors;

iii. regular reports from Directors and senior managers onoperational and financial aspects of their activities;

iv. an annual process of budget setting through the Corporate Plan;

v. monthly monitoring of key performance measures and indicators including a comprehensive pack of trading accounts;

vi. a quarterly business review of operational and financialperformance;

vii. a system of cascaded delegationssupported by a clear mandateletter and enforced throughsystem controls;

viii. project management controlsdesigned to ensure the effectivemanagement of key programmesand projects using projectmanagement methodologies and Internet based tools.

Statement on Internal Control




An important issue when consideringresponse actions to risk is the level ofrisk we are prepared to accept or toleratebefore action is considered necessary.This is known as “risk appetite”. Werecognise that it is not possible to have a “one size fits all” risk appetite and areunlikely to achieve good value for moneyin trying to eradicate risk completely.Each risk is therefore judged on itsperceived importance to the businessobjectives and the response resourcesavailable when deciding an acceptablerisk tolerance level.

During 2007/08, we continued to adopt a “top down and bottom up” approachto ensure our risk identification iscomprehensive. My Executive Committeeand I identified, assessed and recordedin a risk register; the key risks that weconsider threaten the achievement ofFCO Services’ main objectives and itsability to prosper as a business. Eachidentified risk was allocated to anappropriate Director to own and manage.

Our operational staff identified andassessed the risks and opportunitiesrelevant to their work. Details ofoperational risks identified wererecorded in a separate register with the top risks reported to the ExecutiveCommittee. In turn, the ExecutiveCommittee agreed these key risks with the FCO Services Board at each meeting.

During the middle part of the year, we were subjected to high levels ofexternal scrutiny firstly by the NationalAudit Office through its ‘Fitness to Trade’review and secondly by the Office ofGovernment Commerce through itsstrategic review of the state of thebusiness. Both reviews were intended toprovide assurance to FCO Managementand to Parliament that the Agency wassufficiently robust to be able to progressto a Trading Fund structure from April2008. Both reviews concluded thatsignificant progress had been made butthat risks still existed and further work

was needed between the review dateand the financial year end. However, it was felt that the work should beachievable and was not a barrier toachieving Trading Fund status.

In addition to the internal control issuesidentified in Section 6 of this report, theother most significant potential risks thatwere identified and monitored during2007/08 were:

(i) the ability to comply with governmentaccounting regulations and ensureintegrity in our accounting systems.During this period the organisationhas built up its general ledgercapabilities and balance sheetcontrols and developed independentaccounting processes and a frameworkof financial reporting in order toensure that it is able to operate as an independent Agency. This workhas continued throughout the year,focussing on reporting results as well as recording events.

(ii) the control of cash resources.The organisation has needed to adapt to a cash based cultureinvolving the strengthening of itsbilling, debtor control and cashmanagement processes. Althoughwork is not yet fully complete,significant progress has been made to ensure that the organisation isable to operate effectively.

(iii) the skills and cultural ethos needed in a commercialorganisation. The change from aninternal department to a tradingorganisation reliant upon commercialskills and competencies is one thathas required considerable culturalchange and constant reinforcementthrough education, training andprocess change.

(iv) workforce planning. Having theappropriate level of human resourcein place, appropriately skilled andwith sound reward and performance

monitoring processes is critical to our future success and we havebeen working towards putting these in place throughout the year.

(v)our service to customers andcustomer satisfaction. As we seek todevelop our customer base, providingservices both to the FCO and a rangeof wider market customers, it isimperative that we closely monitorcustomer satisfaction in order todefend against deteriorating revenue.Accordingly, we have been active indeveloping and promoting mechanismsto ensure that our customers aresatisfied with our services and wehave been improving the means bywhich we monitor and act uponcustomer feedback.

(vi) health and safety. Raising health and safety awareness and ensuringan appropriate health and safetycontrol framework have been a highpriority for the Board. Significantimprovements have been made in ensuring that this objective has been met.

Although we have made significantprogress in identifying, assessing andrecording our risks, further work isplanned to ensure that the scope of ourrisk framework reflects, appropriately,our corporate business objectives. Keyrisk indicators are identified and monitoredand risk registers are reviewed moreregularly, updated and reported to theExecutive Committee.

The following processes and actions have helped us to embed risk management in our organisationalthough we continue to work onimproving this:

The availability to staff ofcomprehensive, intranet-based risk management policies within the context of a ‘no blame culture’ so that risks can be openly discussedand dealt with;




A rigorous system of checks andcontrols, such as automated 3-wayinvoice matching together withdetailed staff guidance to helpprevent and detect fraud;

The requirement for all colleaguesand Board members to adhere to thehighest standard of propriety as setout in Nolan’s ‘seven principles inpublic life’;

The utilisation of the Office ofGovernment Commerce (OGC)processes and tools and of theOverseas Journal of the EuropeanUnion (OJEU) to ensure value for money;

The development of projectmanagement processes, including the establishment of programme andproject boards, to oversee the deliveryof key projects and deliverables;

Effective financial control processesthat are subject to regular review and improvement where necessary;

Identification, through theperformance appraisal mechanism, of staff development and training needs; and

The development of an effectiveinternal audit function and anappropriate corporate governanceframework.

We are continually looking at ways to improve how we manage risks withexternal stakeholders and maintaincontinuity and growth in our revenues.For example:

It is important that we remain anactive partner of our key customer the FCO and we have developed astrategy designed to meet their needsmore closely. This is based on a deepunderstanding of the FCO’s keyobjectives in the areas of InformationTechnology, Security and Logistics

and our organisational structure is in the process of being realigned to be more responsive in these keystrategic areas.

We already work with a wide range of customers outside the FCO andenjoy good relations and high levels of customer satisfaction. In order toensure continuity and growth, wecontinue to improve our relationshipsby providing high-quality services thatmeet their needs at competitive prices.

5. Review of effectiveness

As Accounting Officer, I have responsibilityfor reviewing the effectiveness of oursystem of internal control. My review is informed by the work of the internalauditors and the Directors within ourorganisation who have responsibility forthe development and maintenance ofthe internal control framework. It is alsoinformed by comments from the externalauditors in their management letter and other reports.

The FCO Services Board and the Audit Committee have advised me on the implications of my review of theeffectiveness of our system of internalcontrol. A plan to address weaknessesand ensure continuous improvement of the system is in place.

The following organisational forums andprocesses help me maintain and reviewthe effectiveness of our system ofinternal control:

Executive Committee members – I usually meet weekly with the other members of my executive team to consider and discuss theAgency’s operational plans andobjectives and to discuss day-to-daymanagement issues;

The FCO Services Board – whichcomprises a Non-Executive Chair, afurther three Non-Executive Directorsand Executive Committee colleagues.

We meet usually 6 times a year todiscuss the Agency’s strategy andperformance, risks and progress on major projects;

The Audit Committee – which ischaired by an independent Non-Executive member. The AuditCommittee meets at least 4 times ayear, usually with both Internal andExternal Auditors present, to receiveand respond to reports, to considerand advise me on the appropriatenessof our corporate governance andinternal control arrangements and to review the financial statements;

Annual Assurance Statements –members of my Executive Teamconduct self-audits and are requiredto give me documented assurancesregarding compliance with theiroperational risk management andinternal control responsibilities;

Financial Control Framework – this is in place to ensure the integrity ofthe financial information received andthe adequacy of the financial process;

Internal Auditors – The FCO Internal Audit Department (IAD),supported by PricewaterhouseCoopers(PwC), undertake internal audits toGovernment Internal Audit Standardsand provide regular reports and anoverall annual opinion on riskmanagement, control and governancewithin FCO Services;

External auditors – The National AuditOffice (NAO) who provide internalcontrol comments in their managementletters and other reports; and

Other specific risk reviews – theseinclude health and safety reviews,OGC Gateway reviews of certain projectsand commissioned third party reviewsof certain policies and processes.




6. Significant internal control issues

2007/08 was our second year ofoperation as an Executive Agency andwe focussed on embedding the changein strategy, ethos and outlook agreed in the previous year. At an operationallevel, our work during the year involveddeveloping and embedding systems,processes and controls that support thischange and through this, a number ofissues have been identified:

i. The adequacy of managementinformation including projectcosting data. Although strongprogress has been made on the development of systems and processes to support ouroperations (including financialsystems and processes), work continues to ensure thatappropriate, accurate and timelymanagement information isproduced across FCO Services.This in turn will support theachievement of our strategicobjectives and help us control our business effectively.

ii. Cultural change and compliancewith key processes. Operating asan Executive Agency has broughtwith it a major cultural shift andhas emphasised the need to ensurecompliance with key processessuch as those relating to billingand debt collection, time recording,creditor payments and corporatecredit cards. During the year, itwas evident that certain processeswere not always being applied as stringently as needed and as a result, significant work wasundertaken to review and updateprocess and to enforce compliance.

This effort will continue to bebacked by an extensive trainingprogramme and an improvementin management information toensure that core processes areapplied as intended.

iii. Robustness of businesscontinuity plans and theircapability to deliver objectives.The complexities of operating atthree UK sites and globally as wellas complementing the businesscontinuity planing framework hasproved challenging. Further workis needed to ensure that we wouldbe able to deal adequately withany situation that may arise.

We identified the need for further work in developing a procurementstrategy, maximising OGC and otherprocurement opportunities, improvingcontract management skills andincreasing staff awareness ofprocurement procedures. Our workcontinues in each of these areas.

We became a Trading Fund on 1st April 2008. Our strategy focuses on the secure elements on our work and builds on our strengths andcompetencies as well as aligning moreclosely to our customers’ requirements.This will necessitate further changes in organisational structure, processesand systems and hence a review and amendment of control systemsduring 2008/09.

We have commenced work onaddressing key strategic HR issues to enable FCO Services to ensure that it can be sufficiently flexible in the way it utilises its people andattractive enough to be able to recruit and retain staff.

Christopher MoxeyChief Executive and Accounting Officer of FCO Services20 June 2008


Financial Report and AccountsStatement of FCO Services Agency’sand Accounting Officer’s Responsibilities


Under the Government Resources and Accounts Act 2000, Her Majesty’sTreasury has directed the FCO ServicesAgency to prepare for each financialyear a statement of accounts in theform and on the basis set out in theAccounts Direction.

The accounts are prepared on anaccruals basis and must provide a trueand fair view of the state of affairs of theAgency and of its income and expenditure,recognised gains and losses and cashflowsfor the financial year.

In preparing the accounts, theAccounting Officer is required to comply with the requirements of the Government Financial ReportingManual and in particular to:

observe the Accounts Directionissued by HM Treasury, including the relevant accounting anddisclosure requirements and apply suitable accounting policies on a consistent basis;

make judgements and estimates on a reasonable basis;

state whether applicable accounting standards, as set out in the Government FinancialReporting Manual, have beenfollowed and disclose and explain any material departures in thefinancial statements; and

prepare the financial statements on a going concern basis.

The Principal Accounting Officer of the Foreign and Commonwealth Officehas designated the Chief Executive asAccounting Officer of the Agency. Theresponsibilities of an Accounting Officer,including responsibility for the proprietyand regularity of the public finances for which the Accounting Officer isanswerable, for keeping proper recordsand for safeguarding the Agency’sassets, are set out in Managing PublicMoney issued by Her Majesty’s Treasury.

Christopher MoxeyChief Executive and Accounting Officer20 June 2008

Statement of FCO Services Agency’sand Accounting Officer’s Responsibilities


Financial Report and AccountsThe Certificate of the Comptroller

and Auditor General to the House of Commons


I certify that I have audited thefinancial statements of the Foreign and Commonwealth Office Services for the year ended 31 March 2008under the Government Resources and Accounts Act 2000.

These comprise the Income andExpenditure account and Statement ofTotal Recognised Gains and Losses, theBalance Sheet, the Cashflow Statementand the related notes. These financialstatements have been prepared underthe accounting policies set out withinthem. I have also audited the informationin the Remuneration Report that isdescribed in that report as having been audited.

Respective responsibilities of the Agency, the Chief Executive and auditor

The Agency and Chief Executive, as Accounting Officer, are responsiblefor preparing the Annual Report, whichincludes the Remuneration Report andthe financial statements in accordancewith the Government Resources andAccounts Act 2000 and HM Treasurydirections made thereunder and forensuring the regularity of financialtransactions. These responsibilities are set out in the Statement of AccountingOfficer’s Responsibilities.

My responsibility is to audit the financial statements and the part of the Remuneration Report to be audited, in accordance with relevant legal and regulatory requirements and withInternational Standards on Auditing (UK and Ireland).

I report to you my opinion as to whetherthe financial statements give a true and fairview and whether the financial statementsand the part of the Remuneration Reportto be audited have been properly preparedin accordance with HM Treasury directionsissued under the Government Resourcesand Accounts Act 2000. I report to youwhether, in my opinion, certain informationgiven in the Annual Report, whichcomprises the sections headed ‘ManagingOur Business’ and ‘Financial Report andAccounts’, is consistent with the financialstatements. I also report whether in allmaterial respects the expenditure andincome have been applied to the purposesintended by Parliament and the financialtransactions conform to the authoritieswhich govern them.

In addition, I report to you if the Agencyhas not kept proper accounting records, if I have not received all the informationand explanations I require for my audit,or if information specified by HM Treasuryregarding remuneration and othertransactions is not disclosed.

I review whether the Statement on InternalControl reflects the Agency’s compliancewith HM Treasury’s guidance and I reportif it does not. I am not required to considerwhether this statement covers all risksand controls, or to form an opinion onthe effectiveness of the Agency’s corporategovernance procedures or its risk andcontrol procedures.

I read the other information contained in the Annual Report and considerwhether it is consistent with the auditedfinancial statements. I consider theimplications for my report if I becomeaware of any apparent misstatements or material inconsistencies with thefinancial statements. My responsibilitiesdo not extend to any other information.

Basis of audit opinion

I conducted my audit in accordance with International Standards on Auditing(UK and Ireland) issued by the AuditingPractices Board. My audit includesexamination, on a test basis, of evidencerelevant to the amounts, disclosures andregularity of financial transactions includedin the financial statements and the partof the Remuneration Report to be audited.It also includes an assessment of thesignificant estimates and judgementsmade by the Agency and Chief Executivein the preparation of the financialstatements and of whether the accountingpolicies are most appropriate to theAgency’s circumstances, consistentlyapplied and adequately disclosed.

I planned and performed my audit so as to obtain all the information and explanations which I considerednecessary in order to provide me withsufficient evidence to give reasonableassurance that the financial statementsand the part of the Remuneration Reportto be audited are free from materialmisstatement, whether caused by fraudor error and that in all material respectsthe expenditure and income have beenapplied to the purposes intended byParliament and the financial transactionsconform to the authorities which governthem. In forming my opinion I alsoevaluated the overall adequacy of the presentation of information in thefinancial statements and the part of theRemuneration Report to be audited.

The Certificate of the Comptrollerand Auditor General to the House of Commons


Financial Report and AccountsThe Certificate of the Comptrollerand Auditor General to the House of Commons


Opinions

Audit opinion

In my opinion:

the financial statements give a trueand fair view, in accordance with the Government Resources andAccounts Act 2000 and directionsmade thereunder by HM Treasury, of the state of the Agency’s affairs as at 31 March 2008 and of the surplus,total recognised gains and losses andcashflows for the year then ended;

the financial statements and the part of the Remuneration Report to be audited have been properlyprepared in accordance with HMTreasury directions issued under the Government Resources andAccounts Act 2000; and

the information given within theAnnual Report, which comprises the sections headed ‘Managing Our Business’ and ‘Financial Reportand Accounts’, is consistent with the financial statements.

Audit opinion on regularity

In my opinion, in all material respects,the expenditure and income have beenapplied to the purposes intended byParliament and the financial transactionsconform to the authorities which govern them.

Report

I have no observations to make on these financial statements.

T J BurrComptroller and Auditor GeneralNational Audit Office151 Buckingham Palace RoadVictoriaLondon SW1W 9SS27 June 2008


Financial Report and AccountsIncome and Expenditure Account


Restated2007-08 2006-07

Note £000 £000

Turnover 2 130,234 120,612Cost of sales 4(a) (86,631) (83,725)

Gross surplus 43,603 36,887

Operating expenses 4(a) (35,033) (31,605)

Operating surplus before restructure 8,570 5,282

Restructure costs 4(b) (254) (3,447)

Operating surplus after restructure 8,316 1,835

Cost of capital credit / (charge) 5 1 (198)

Surplus for the financial year 13 8,317 1,637

All income and expenditure are derived from continuing operations, except for non-material discontinued activities (see note 17).

Comparative figures are restated to exclude activities transferred to the Foreign and Commonwealth Office (see note 16).

Income and Expenditure Account for the year ended 31 March 2008

The notes on pages 72 to 89 form part of these accounts.


Financial Report and AccountsStatement of Total Recognised Gains and Losses


Restated2007-08 2006-07

Note £000 £000

Surplus for the financial year 8,317 1,637

Unrealised net surplus on revaluation of tangible fixed assets 14 19 19

Realised net surplus on tangible fixed assets not carried forward transferred to Income and Expenditure 14 (7) (11)

Realised gain on disposal of tangible fixed assets transferred to Income and Expenditure 14 (1) (2)

Total recognised gains and losses relating to the year 8,328 1,643

All income and expenditure are derived from continuing operations, except for non-material discontinued activities (see note 17).

Comparative figures are restated to exclude activities transferred to the Foreign and Commonwealth Office (see note 16).

Statement of Total Recognised Gains and Lossesfor the year ended 31 March 2008



Financial Report and AccountsBalance Sheet


Restated31/03/08 31/03/07

Note £000 £000

Fixed assetsTangible assets 6 2,332 2,754

Current assetsStocks and work in progress 7 6,634 7,004Debtors 8(a) 31,763 18,207Cash at bank and in hand 9 3,087 12,382

41,484 37,593

Creditors (amounts falling due within one year) 10(a) (30,717) (34,589)

Net current assets 10,767 3,004

Total assets less current liabilities 13,099 5,758

Provisions for liabilities and charges 11 – (3,447)

Net assets 13,099 2,311

Taxpayers’ equityGeneral fund 12 3,094 634Income and expenditure account 13 9,954 1,637Revaluation reserve 14 51 40

13,099 2,311

Note: Comparative figures have been restated to exclude those activities transferred to the Foreign and Commonwealth Office (see note 16).

On 1st April 2008, in accordance with the FCO Services Trading Fund Order 2008 (SI 2008 No.590), the assets and liabilities (excluding cash) were appropriated to the fund (see note 25).

Christopher MoxeyAccounting Officer20 June 2008

Balance Sheetas at 31 March 2008



Restated2007-08 2006-07

Note £000 £000

Net cash (outflow) / inflow from operating activities 15(a) (11,380) 23,263

Capital expenditure 15(c) (301) (912)

Financing inflow / (outflow) 12 2,386 (11,128)

(Decrease) / increase in cash in the period (9,295) 11,223

Comparative figures are restated to exclude activities transferred to the Foreign and Commonwealth Office (note 16).

Cash Flow Statementfor the year ended 31 March 2008


Financial Report and AccountsCash Flow Statement



Financial Report and AccountsNotes to the Accounts


Notes to the Accounts2007-08

1. Accounting policies

1.1 Basis of accounting

These financial statements have beenprepared in accordance with the accountsdirection issued by HM Treasury on11/12/2007 pursuant to section 7(2) ofthe Government Resources and AccountsAct 2000, which requires the Agency to comply with the accounting principlesand disclosure requirements of the2007-08 Government Financial ReportingManual (FReM). The accounting policiescontained in the FReM follow UK generallyaccepted accounting practice forcompanies (UK GAAP) to the extent thatit is meaningful and appropriate to thepublic sector.

1.2 Accounting convention

These accounts have been prepared in accordance with the accruals andhistorical cost convention, modified forthe revaluation of fixed assets and stockswhere material, at current costs or valueto the business.

1.3 Turnover

Turnover excluding value added tax and discounts, comprises sales to the internal market (Foreign andCommonwealth Office) and the widermarket (other UK Government bodiesand other organisations). Significantcontracts are included in the turnover on the basis of the sales value of workperformed during the year by referenceto the total sales value and stage ofcompletion of these contracts and incompliance with Statement of StandardAccounting Practice (SSAP) 9.

1.4 Capital charge

A charge reflecting the cost of capitalutilised by FCO Services is included inoperating costs. The charge is calculatedat a rate set by HM Treasury on theaverage carrying amount of all assetsand liabilities, except for balances withthe Office of the Paymaster General,where the charge is nil.

1.5 Value added tax

Output tax is applied where applicablebut some of the activities of FCOServices are outside the scope of VAT.Irrecoverable VAT is charged to therelevant expenditure category orincluded in the capitalised purchase cost of fixed assets. Where output tax is charged or input VAT is recoverable,the amounts are stated net of VAT. FCO Services is part of the FCO group VAT registration.

1.6 Operating leases

Leases are regarded as operating leases,unless substantially all risks and rewardsof ownership of a lease are borne byFCO Services. Operating leases and therentals are charged to the income andexpenditure statement over the term of the lease.

1.7 Stock, work in progress and long term contracts

Stocks of raw materials and componentsare valued at cost or where materiallydifferent at current replacement cost.Obsolete and damaged stock is writtendown to net realisable value.

Work in progress is valued at the lower of cost, including appropriate overheadsand net realisable value.

Long-term contract balances included in stocks comprise costs incurred, net of amounts transferred to cost of sales,after deducting foreseeable losses and related payments on account.

Costs include all direct material andlabour costs incurred in bringing acontract to its state of completion at the year end, including an appropriateproportion of indirect expenses.

Long-term contract balances do not include attributable surpluses and foreseeable contract losses are accrued or provided for.

The excess of payments received over amounts recorded as turnover isclassified under creditors due within oneyear. Amounts recoverable on contracts,being the amount by which recordedturnover is in excess of payments onaccount, is classified under debtors.

1.8 Transfer of assets and liabilities and restated figures

In the current year a number of business activities have been transferredby FCO Services to the Foreign andCommonwealth Office. All current yeartransactions and prior year transactionsrelevant to those activities have beenexcluded from these Accounts. Thisfollows the accounting treatment set out in FReM chapter 5.4 and DearAccounting Officer 16/07 “Machinery of Government Changes”.





1.9 Fixed assets and depreciation

Tangible fixed assets are stated atcurrent value using appropriate indicesor at valuation. The minimum level forcapitalisation of a single tangible asset is£3,000, subject to grouping conventionswhere appropriate. Furniture and fittingsare not capitalised.

On initial recognition tangible fixed assetsare measured at cost including any costssuch as installation directly attributableto bringing them into working condition.Assets are included in the accounts atthe cost or valuation applicable as at the balance sheet date; any movementsin valuation during the year are taken to the revaluation reserve or treated as impairments where appropriate.

Fixed assets are depreciated oramortised at rates calculated to writethem down to their estimated residualvalues on a straight-line basis over theirestimated useful lives. Assets underconstruction are not depreciated orrevalued until the asset is brought intouse. Asset lives have been set in thefollowing ranges:

Information technology - up to 8 yearsTransport equipment - 2 to 8 yearsPlant and machinery - 5 to 20 years

Fixed assets are reviewed annually for impairments and any impairment is charged to the income andexpenditure account.

1.10 Bad debts provision

Provisions for bad and doubtful debtsare only made in respect of wider market(external) debtors and no provision ismade for internal market debtors.

1.11 Provisions

FCO Services provides for legal andconstructive obligations which are of uncertain timing or amount at theBalance Sheet date on the basis of bestestimate of the expenditure required to settle the obligation. Where the effect of the time value of money is significant,the estimated risk-adjusted cash flowsare discounted using the Treasurydiscount rate of 2.2% in real terms.

1.12 Pension costs

Past and present UK-based employeesare covered by the provisions of thePrincipal Civil Service Pension Schemes(PCSPS) which are described in theRemuneration Report. PCSPS definedbenefit schemes are unfunded. FCOServices recognises the expected cost of providing pensions on a systematicand rational basis over the period duringwhich it benefits from employees’ servicesby payment to the PCSPS of amountscalculated on an accruing basis. Liabilityfor payment of future benefits is a chargeon the PCSPS. In respect of the definedcontribution schemes, FCO Servicesrecognises the contributions payable for the year.

1.13 Foreign exchange gains and losses

Transactions are translated into sterlingat the exchange rate ruling on the dateof each transaction, except where ratesdo not fluctuate significantly, in whichcase an average rate for the period isused. Monetary assets and liabilitiesdenominated in foreign currency at thebalance sheet date are translated at therates ruling at that date. These translationdifferences are dealt with in the Incomeand Expenditure account.


2. Turnover


Restated2007-08 2006-07

£000 £000

Internal market (Foreign and Commonwealth Office) 117,717 107,303Wider market (other UK Government bodies and other organisations) 12,517 13,309

130,234 120,612

3. Staff numbers and costs

3(a) The average number of whole-time equivalent persons employed during the year was as follows:

Restated2007-08 2006-07

Staff numbers Permanent Other Total Total

Operations 799 243 1,042 963Sales & Marketing 24 3 27 26Corporate Services 74 16 90 70

897 262 1,159 1,059

3(b) Staff costs (for the above persons)

Restated2007-08 2006-07

Permanent Other Total Total£000 £000 £000 £000

Salaries 35,952 9,408 45,360 41,336Social security costs 2,539 – 2,539 2,488Other pension costs 5,474 – 5,474 5,290

43,965 9,408 53,373 49,114

Page 74







3(c) Pensions

Pension benefits are provided throughthe Principal Civil Service PensionScheme (PCSPS) which is an unfundedmulti-employer defined benefit schemebut FCO Services is unable to identify its share of the underlying assets andliabilities. A full actuarial valuation wascarried out at 31 March 2007. Detailscan be found in the resource accountsof the Cabinet Office: Civil Superannuation(www.civilservice-pensions.gov.uk).

For 2007-08, employers’ contributions of £ 5,469,000 (2006-07 £5,303,000)were payable to the PCSPS at one of fourrates in the range of 17.1% to 25.5%(2006-07 16.2% to 24.6%) of pensionablepay, based on salary bands. The scheme’sActuary reviews employer contributionsevery four years following a full schemevaluation. From 2008-09, the salary bandswill be revised but the rates will remainthe same. (The rates will be changingwith effect from April 2009). Thecontribution rates are set to meet thecost of the benefits accruing during2007-08 to be paid when the memberretires and not the benefits paid duringthis period to existing pensioners.

Employees can opt to open a partnershippension account, a stakeholder pensionwith an employer contribution. Employers’contributions of £13,000 (2006-07 £ Nil)were paid to one or more of the panel of three appointed stakeholder pensionproviders. Employer contributions areage-related and range from 3% to 12.5%of pensionable pay. In addition employercontributions of £ 700 (2006-07 £ Nil),0.8% of pensionable pay, were payableto the PCSPS to cover the cost of thefuture provision of lump sum benefits on death in service and ill health of these employees.

Contributions due to the partnershippension providers at the balance sheet date were £ Nil (2006-07 £ Nil).Contributions prepaid at that date were £ Nil (2006-07 £ Nil).

In 2007-08 one (2006-07 three)individual(s) retired early on ill healthgrounds; the total additional accruedpension liabilities in the year amountedto £ 600 (2006-07 £ 5,000).




4. Cost of sales, operating expenses and restructure costs

4(a) Cost of sales and operating expenses


Restated2007-08 2006-07

Cost of Operating Total Cost of Operating Totalsales expenses sales expenses£000 £000 £000 £000 £000 £000

Staff costs 26,379 17,586 43,965 26,063 15,349 41,412

Agency staff and Fee Paid Officers * 7,422 1,986 9,408 6,046 1,656 7,702

Training and recruitment 68 1,293 1,361 138 2,539 2,677

Travel 6,867 1,937 8,804 10,229 2,340 12,569

Contractors * 17,259 – 17,259 13,259 – 13,259

Consultants – 3,046 3,046 – 2,051 2,051

Communications 3,820 783 4,603 5,686 1,041 6,727

Supplies, services & facilities management ** 9,424 5,301 14,725 4,808 3,158 7,966

Work in progress (increase)/decrease (54) – (54) 810 – 810

Freight 7,463 152 7,615 8,317 219 8,536

Maintenance 6,685 2,472 9,157 5,449 1,802 7,251

Operating leases – 17 17 – 43 43

Accommodation charges*** 564 318 882 2,015 866 2,881

Loss on exchange – 15 15 – 22 22

Other – 52 52 – 413 413

Depreciation 718 5 723 772 3 775

(Profit)/loss on disposal of fixed assets – (5) (5) – 28 28

Impairment losses on fixed assets 16 – 16 133 – 133

Auditors’ remuneration and expenses (no non-audit work) – 75 75 – 75 75

Total costs 86,631 35,033 121,664 83,725 31,605 115,330

During 2007 -08 significant improvements were made in the way costs were collected and analysed by category which has led to some significant apparent anomalies in the comparative figures.

* Agency staff and contractors charged to cost of sales are fee earning.

** Includes £ 2,723,000 in respect of management charges from the FCO (2006-07 £ 3,368,000).

*** Accommodation charges are payable to the FCO.





4(b) Restructure costs

Restated2007-08 2006-07

£000 £000

Restructure costs 254 3.447

The restructure cost relates to the cessation of certain activities and the transfer back to the FCO of others (see notes 16 and 17).

5. Cost of capital

Restated2007-08 2006-07

£000 £000

Cost of capital (credit) / charge at 3.5% (1) 198

The year on year decrease in the cost of capital charge is a result of the reduction in the average net assets used in the calculations.





6.Tangible fixed assets

Assetsunder Information Transport Plant and 31/03/08

construction technology equipment machinery Total£000 £000 £000 £000 £000

Cost or valuationAt 1 April 2007 (restated) 168 1,462 886 2,561 5,077Additions 261 6 41 40 348Assets under construction movements (168) 10 158 – –Transfers to the Foreign and Commonwealth Office – (10) – – (10)Disposals – (151) (204) (155) (510)Impairments – – – – –Revaluation – (53) 5 28 (20)

As at 31 March 2008 261 1,264 886 2,474 4,885

DepreciationAt 1 April 2007 (restated) – 767 621 935 2,323Provided during the year – 214 95 414 723Transfers to the Foreign and Commonwealth Office – – – – –Disposals – (151) (180) (146) (477)Impairments – – – – –Revaluation – (30) 2 12 (16)

As at 31 March 2008 – 800 538 1,215 2,553

Net book valueAs at 31 March 2008 261 464 348 1,259 2,332

At 1 April 2007 (restated) 168 695 265 1,626 2,754

Asset FinancingOwned as at 31 March 2008 261 464 348 1,259 2,332

All assets have been revalued at 31 March 2008 using appropriate indices.




Restated31/03/08 31/03/07

Amounts falling due within one year £000 £000

Trade debtors 26,610 15,705Amounts recoverable on long term contracts 165 –Other debtors 233 1,076Prepayments and accrued income 4,755 1,426

31,763 18,207


7. Stocks and work in progress

Restated31/03/08 31/03/07

£000 £000

Raw materials and consumables 965 1,114Work in progress* 5,669 5,890

6,634 7,004

* Included within work in progress is £5,562,000 in respect of the FCO (31/03/07 £ 5,640,000).

8(b) Intra-government balances

Restated31/03/08 31/03/07

£000 £000

Foreign and Commonwealth Office 24,230 13,747Other central government bodies 5,993 3,168NHS Trusts – 6

Subtotal: intra-government bodies 30,223 16,921Balances with bodies external to government 1,540 1,286

Total debtors at 31 March 31,763 18,207

8. Debtors

8(a) Analysis by type





9. Cash at bank and in hand

Restated31/03/08 31/03/07

£000 £000

Balance at Office of HM Paymaster General at 31 March 3,087 12,382

10(b) Intra-government balances

Restated31/03/08 31/03/07

£000 £000

Foreign and Commonwealth Office 16,953 19,928Other central government bodies 3,025 2,525Local authorities – 3

Subtotal: intra-government bodies 19,978 22,456Balances with bodies external to government 10,739 12,133

Total creditors at 31 March 30,717 34,589

10. Creditors

10(a) Analysis by type

Restated31/03/08 31/03/07

Amounts falling due within one year £000 £000

Trade creditors 7,582 10,612Accruals 4,732 6,317Payments on account * 12,326 7,812Other creditors** 5,800 9,751VAT*** 277 97

30,717 34,589

* Included within payments on account is £ 9,050,000 from the FCO (31/03/07 £ 7,308,000).** Included in other creditors is £ 1,715,000 (31/03/07 £ Nil) due to FCO in respect of management charges and accommodation.*** The amount shown is actually due to the FCO, as FCO Services is part of the FCO VAT Registration.





12. Reconciliation of movements in general fund

Restructure Provision

Restated31/03/08 31/03/07

£000 £000

Balance at 1 April 3,447 –Provided in the year 254 3,447Unutilised provision transferred to the FCO (913) –Provision utilised in the year (2,788) –

Balance at 31 March – 3,447

The restructure costs were provided at 31/03/07 and related to the cessation of certain activities and the transfer back to the FCO of others (notes 16 and 17). Followingthe completion of the restructure the unutilised provision has been transferred to the FCO and no further payments are to be borne by FCO Services in respect of the restructure.

Restated31/03/08 31/03/07

£000 £000 £000 £000

Balance at 1 April 634 25,239

Transferred Activities – 1,429

Non cash charges:Notional cost of capital (credit) / charge (1) 198Audit fee 75 75

74 273

Intercompany transfersTransfer to clear FCO trade debtors – (26,998)Transfer to clear FCO Services trade creditors – 11,819

– (15,179)

Intercompany cash financingFCO invoices paid by FCO Services – (14,628)Funding to the FCO (464) (22,000)Funding from the FCO 2,850 25,500

2,386 (11,128)

Balance at 31 March 3,094 634

11. Provisions for restructure





13. Reconciliation of movements in income and expenditure account

Restated31/03/08 31/03/07

£000 £000

Balance at 1 April 1,637 –Surplus for the year 8,317 1,637

Balance at 31 March 9,954 1,637

14. Revaluation reserve

Restated31/03/08 31/03/07

£000 £000

Balance at 1 April 40 34Unrealised net surplus on revaluation arising on tangible fixed assets during the year (see note 6) 19 19Realised net surplus on fixed assets not carried forward in the reserve credited to impairment. (7) (11)Realised gain on disposal of tangible fixed assets credited to profit on disposal (1) (2)

Balance at 31 March 51 40

15. Notes to the Cash Flow Statement

15(a) Reconciliation of surplus to operating cash flows

Restated2007-08 2006-07

Note £000 £000

Net surplus 8,317 1,637Adjustments for non-cash items 15(b) 149 (2,607)Decrease in stock 370 673(Increase)/decrease in debtors (13,556) 8,757(Decrease)/Increase in creditors (3,872) 14,803Use of provision 11 (2,788) –

Net cash (outflow) / inflow from operating activities (11,380) 23,263





15(c) Analysis of capital expenditure

Restated2007-08 2006-07

£000 £000

Tangible fixed asset additions 348 922Proceeds from disposal of fixed assets (47) (10)

Net cash outflow from capital expenditure 301 912

15(b) Adjustments for non-cash items

Restated2007-08 2006-07

Note £000 £000

Depreciation 723 775(Profit) / loss on disposal of fixed assets (5) 28Impairment 16 133Cost of capital (credit) / charge (1) 198Transfer to clear FCO trade debtors 12 – (26,998)Transfer to clear FCO Services trade creditors 12 – 11,819Unutilised provision transferred to the FCO 11 (913) –Auditors’ remuneration 75 75Provision provided in year 11 254 3,447Transferred activities – 7,916

149 (2,607)




Transferred activities Transfer Date

Estates Management Group: Lancaster House 01/07/07Estates Management Group: Government Hospitality 01/07/07Estates Management Group: VIP Visits 01/07/07Estates Management Group: Presidencies 01/07/07Estates Management Group: Sponsored Visits 01/07/07Estates Management Group: Conferences & Events 01/07/07Supply Chain Group: Supply Solutions Overseas 01/07/07Supply Chain Group: Travel and Movements (part) 01/07/07Supply Chain Group: Supply Solutions Purchasing (part) 01/07/07ICT Group: Comcen (Communication Centre) 01/07/07

Turnover for transferred activities in 2006-07 was £20,827,000. The surplus for transferred activities in 2006-07 was £2,836,000.

Transferable Transferred Movementin year

£000 £000 £000

Transferred Activities Assets and Liabilities:Fixed assets 2 2 _Stocks 388 388 _Debtors 4,781 64 4,717Cash at bank and in hand 713 713 _Creditors (4,403) (350) (4,053)

Net Assets attributable to transferred activities 1,481 817 664

Current Year transferred activity financed by FCO Services (797)

Net cash outflow for transferred activities in the current year (133)

The net cash outflow in the current year is included in these accounts as a debtor, payable by FCO UK to FCO Services.


16. Transfer of assets and liabilities

In the current year a number of businessactivities have been transferred by FCOServices to the Foreign and CommonwealthOffice. All current year transactions andprior year transactions relevant to those

activities have been excluded from these Accounts. This follows the accountingtreatment set out in FReM chapter 5.4and as Dear Accounting Officer 16/07“Machinery of Government Changes.





17. Discontinuation of activities

During the current year FCO Servicesdiscontinued various non-core activitiesand functions.

Cessation Discontinued activities Date

People and Best Practice: Language Training 31/12/07Estates Management Group: Publishing 30/09/07Estates Management Group: Films 30/09/07

2007Discontinued turnover and contribution £000

Turnover 1,945

Loss (567)

18. Commitments under leases

Commitments under leases to payrentals during the year following the yearof these accounts are given in the tablebelow, analysed according to the periodin which the lease expires.

Restated31/03/08 31/03/07

Obligations under operating leases comprise £000 £000

Operating leases:Expiry within one year 15 –Expiry after 1 year but not more than 5 years 3 43Expiry thereafter – –

18 43

There are no obligations under operating leases for land and buildings or for finance leases.




Non-interest Non-interest Non-interest Non-interestbearing bearing bearing bearing

financial financial financial financialassets liabilities assets liabilities

31/03/08 31/03/08 31/03/07 31/03/07£000 £000 £000 £000

CurrencySterling 3,087 _ 12,382 (3,447)

Gross financial assets/(liabilities) 3,087 _ 12,382 (3,447)


19. Capital commitments

There are contracted capitalcommitments of £ 40,000 (2006-07 £ Nil) for IT Software at 31 March 2008for which no provision has been made.

20. Other financial commitments

The Agency has not entered into any non-cancellable contracts (which are not leases).

21. Contingent liabilities

There are no contingent liabilities to be disclosed under Financial ReportingStandard (FRS) 12.

There are no contingent liabilities to bedisclosed under Parliamentary reporting.

22. Financial instruments

Financial Reporting Standard 13:“Derivatives and Other FinancialInstruments” requires disclosure of therole which financial instruments have hadduring the period in creating or changingthe risks an entity faces in undertaking its activities. Financial instruments play a more limited role in creating or changingrisk than would be typical of the listedcompanies and financial institutions towhich FRS 13 mainly applies.

FCO Services has very limited powers toborrow or invest surplus funds and financialassets and liabilities are generated onlyby day-to-day operational activities andare not held to change the risks facingFCO Services in undertaking its activities.

As permitted by FRS 13, debtors and creditors which mature or becomepayable within 12 months from thebalance sheet date have been omittedfrom the currency profile.

Liquidity riskFCO Services is not exposed to significantliquidity risk as liquidity requirements are met by financing from the FCO.

Interest rate riskFCO Services has no external borrowingsand is not therefore exposed to significantinterest rate risk.





22. Financial instruments (continued)

Foreign currency riskThe majority of the assets and liabilitiesare denominated in sterling and there isno associated currency risk. There are,however, some non-material transactionsthat are subject to currency fluctuations.Any gains or losses are taken to the incomeand expenditure account in the year.

Fair valuesSet out below is a comparison bycategory of book values and fair valuesof the FCO Services’ financial assets and liabilities as at 31 March.

Book Fair Book Fairvalue value value value

31/03/08 31/03/08 31/03/07 31/03/07Primary financial instruments £000 £000 £000 £000

Financial assetsCash at bank and in hand 3,087 3,087 12,382 12,382

Financial liabilitiesProvisions – – (3,447) (3,447)

23. Losses and special payments

During the year, costs falling into thecategory of losses and special paymentswere below the level, of £250,000, at which they needed to be reportedseparately (2006-07 £ Nil).

24. Related party transactions

FCO Services is an Executive Agency of the FCO. The FCO (The Department) is regarded as a related party. During the year FCO Services had variousmaterial transactions with theDepartment. In addition, FCO Serviceshas had numerous material transactionswith other Government Departments and other Central Government bodies.

None of the Board members, keymanagerial staff or other related partieshas undertaken any material transactionwith FCO Services during the year.

25. Statement of net assetsappropriated from the Agency to the Trading Fund at 1 April 2008

On 1st April 2008 a Trading Fund was established in accordance with the FCO Services Trading Fund Order2008 (SI 2008 No.590), for the operationsof the Foreign and Commonwealth Office undertaken by FCO Services from that date.

The adjustments to the closing balancesheet of FCO Services as an On-VoteAgency to reflect its restructuring as a Trading Fund, were as follows:





Agency Adjustment TradingFund

31/03/08 01/04/08 01/04/08Note £000 £000 £000

Fixed assetsTangible fixed assets 2,332 – 2,332

Current assetsStocks and work in progress 6,634 – 6,634Debtors 31,763 – 31,763Cash at bank and in hand (a) 3,087 (3,087) –

41,484 (3,087) 38,397

Creditors (amounts falling due within one year) (30,717) – (30,717)

Net current assets 10,767 (3,087) 7,680

Total assets less current liabilities 13,099 (3,087) 10,012

Financed by:

Capital and ReservesPublic dividend capital (b) – 4,981 4,981Vesting day long-term loan from the FCO (b) – 4,980 4,980General fund 3,094 (3,094) –Income and expenditure account 9,954 (9,954) –Revaluation reserve 51 – 51

13,099 (3,087) 10,012

Movement in net cash (a)At 31 March 2008 3,087Surrendered to the Foreign & Commonwealth Office (3,087)

At 1 April 2008 –

25. Statement of net assets appropriated from the Agency to the Trading Fund at 1 April 2008 (continued)





25. Statement of net assetsappropriated from the Agency to the Trading Fund at 1 April 2008(continued)

Notes:(a) The balance at the bank on 31

March 2008, totalled £3,087,000.This was surrendered to the Foreign & Commonwealth Office on 2 April 2008.

(b) In accordance with the FCO ServicesTrading Fund Order 2008 (SI 2008No 590) the balance of assets andliabilities transferred was funded by a 50% vesting day long-term loan from the Secretary of State forForeign and Commonwealth Affairsand 50% public dividend capital.

The vesting day loan is repayablefrom 1 October 2011 to 1 October2015 and interest is fixed at 4.03%on the outstanding principal.

(c) A working capital loan of£10,000,000 was received from the Secretary of State for Foreign and Commonwealth Affairs on 1April 2008. The loan is repayablefrom 1 April 2009 to 1 October 2012and interest is fixed at 4.01% on the outstanding principal.

26. Post Balance Sheet events

On 1st April 2008 certain assets wereappropriated from the FCO Services On-Vote Agency to FCO Services Trading Fund in accordance with the FCO Services Trading Fund Order 2008 (SI 2008 No.590), for the operations of the Foreign and Commonwealth Office undertaken by FCO Services (note 25).

On 1st April 2008, Home EstatesServices transferred from FCO Services to the FCO. For 2007-08, turnover was £1,457,000 with a contribution of £226,000.

There are no other post balance sheet events to be reported.

These financial statements wereauthorised for issue on 27 June 2008 by the Chief Executive andAccounting Officer.

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