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DEP Eurocurrency

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									COI Euro conversion plan
Introduction
  1. This document sets out a provisional plan of how COI would convert to
     trading in euros, in the event that HM Government announces that a
     referendum will be called on euro conversion. It has been compiled based on
     guidance from HM Treasury as set out in the ‘the third outline National
     Changeover Plan’.
  2. This document identifies the COI systems affected by conversion and
     identifies initial planning considerations for the process and possible timings
     of conversion.
  3. A review of the COI’s current IT and general financial systems indicates that a
     conversion to euros should not entail a significant amount of work or
     additional cost. However, the COI needs to ensure that a conversion is done
     smoothly and within statutory timeframes to avoid reputational damage.
     Effort therefore needs to focus on 2 fronts:
        ensuring internal systems and processes are converted correctly
        good communication is maintained with COI clients and suppliers, to
         avoid potential cashflow problems caused by non payment of fees.

  4. Although the current assessment is that conversion will not be a significant
     issue for the COI, this should be periodically reviewed to ensure it continues
     to reflect the position and any developments in euro conversion from Central
     Government are taken into account. This plan will therefore be included
     within COI’s Business Continuity Plans to ensure it is kept undated and
     relevant.

COI systems and financial processes affected by conversion

  5. The COI’s systems and financial processes affected by conversion can be
     broadly divided between:

        corporate IT systems
        Locally used financial processes.

  Corporate IT Systems affected by introduction of the Euro
  6. The COI operates 3 corporate systems, of which two can be classified as
     business critical, ie should the system not be available, the COI would
     experience significant operational difficulties. The non business critical
     systems have no linkages to the business critical systems (ie are standalone)
     and in the main do not contain financial data that would need to be converted
     to euros. The COI’s corporate systems and their euro compatibility are
     summarised in appendix 1.


  7. The COI’s main financial system, FJMS, is a euro compliant package (it is
     used by organisations within the Euro-zone) that supports dual currency
     payments. As yet, COI has not made any payments in euros and the system
     would therefore need to be tested to verify its euro compatibility. COI’s
     payroll is outsourced to Logica CMG. Logica have indicated that they are



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        euro compliant. However this would need to be tested as would the feed into
        FJMS.


    Local financial process affected by introduction of the Euro
    8. Local financial processes are defined as locally developed processes for
       deriving financial information, such as WIP figures, management accounts
       figures. The table below summarises the key local financial processes

     Local                        Description of system                          Assessment of euro
     system/process                                                              compatibility
     Management                   Excel macro                                    Compatible
     accounts
     Finance team data            Excel macros and                               Compatible
     collection and               spreadsheets
     modelling tools

    9. These are not business critical processes, but because the information
       generated by these systems is needed for corporate financial reporting
       purposes, it is important that such information is capable of being produced in
       euros. Furthermore staff responsible for producing the information must be
       confident that if the data is converted to euros, they are able to identify any
       conversion errors and omissions.
    10. Local financial systems are based around Excel macros and worksheets and
        are therefore euro compliant (values entered into spreadsheets will be
        entered in euros rather than pounds). However, care needs to be taken to
        ensure consistency in the currency used in spreadsheets. Worksheets can
        easily provide a euro conversion using macros, therefore it is recommended
        that spreadsheets are maintained in pounds but with a euro conversion
        backing which can be used as needed.

Potential timescales for conversion

    11. In its document ‘Outline national changeover plan’, HMT assessed that a
        national changeover to Euros could be achieved in 40 months or less:



        D           R            T
                             (Join EMU)         RT
                                          (Retail transition)
                                                                   E            S
            (Referendum)                                        (EUR Cash)




       Minimum                         Around
                                                                   2 Months
       4 Months                       30 Months
                                                                       06 April XX


Where: D: Decision – the Government’s assessment on EMU membership;
• R: Referendum – UK electorate vote on joining EMU;
• T: Time of entry and start of transition. UK joins EMU. The euro-sterling


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exchange rate would be irrevocably fixed;
• RT: Beginning of Retail Transition. Euro denominated retail financial services
would start to be available from this point;
• E: Euro cash introduced and end of transition. UK euro notes and coins would
be introduced. All non-cash transactions would be denominated in euro; and
• S: Sterling ceases to be legal tender. End of dual circulation period.


      12. The proposed timescale is approximately half that available to first wave
          countries and may be dependent on the timings of Parliament. The COI
          needs to ensure that systems are euro compliant to meet statutory deadline
          for conversion, which is likely to co-incide with the start of the tax year. The
          COI should aim to convert to euro during its year end closedown. There are 4
          advantages to this approach:

            ‘Clean start’ to the new financial year, with the whole of the new financial
             year being in euros.
            Reconciliations verifying the accuracy of conversion can be part of normal
             year end processes
            Annual accounts can be manually converted to Euros
            conversion costs will only occur at year end.

13.      In considering timetables for conversion, COI needs to balance:
            allowing sufficient time to test internal systems (both business critical
             systems and local financial systems) to ensure euro compatibility
            dealing with euros (with £ equivalents) to fit with other public sector body
             timescales and to increase familiarity of staff, suppliers and audited
             bodies.

      14. The exact timetable will be set by the euro project team (see below) following
          the announcement of a referendum; and an indicative timetable is set out in
          appendix 3.

Proposed approach to conversion of systems to Euro
      15. The COI’s approach to conversion should be to set up a cross-functional
          project team to project manager all aspects of conversion. The project
          should be managed in accordance with Prince 2 methodology. The team
          should have representatives from each area of COI and it is suggested that
          the representatives are the nominated Information Asset Owner (IAO):
           Finance
           HR
           IT
           Corporate Communications
           Specialist Directors
           Internal Audit
           Business Continuity Coordinator.

      16. It is essential that the Board are kept informed of conversion progress, once
          there is a decision to convert, and it is therefore suggested that the Director of
          the project team is the Finance Director.
      17. The team should be set up when the decision to hold a referendum is taken (if
          the result is against conversion, the team can be disbanded, but by setting up
          the team at an early stage, time is not lost identifying and forming a team if


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       the result is for conversion). The team should have responsibility for
       determining a communications and a training strategy to be approved by the
       team’s sponsor.

Communications strategies and interdependencies
   18. In addition to systems being euro compliant, it is essential that there is a
       consistent and adequate flow of information to staff and external parties, on
       the COI’s euro conversion status (once a decision to convert has been taken).

   Internal communications
   19. All COI staff need to be familiar and comfortable working with euros and
       therefore training and communication needs must be considered. Staff will
       also require support (and reassurance) that the COI’s payroll is correctly
       converted to euros and understand their euro pay packets.

   External communications and interdependencies
   20. COI has 3 key interdependencies (ie interfaces with other organisations):
        Central Government departments
        Maconomy Ltd for support of the ledger
        Suppliers, in particular media buying agencies.

   21. To ensure a successful conversion, COI must actively manage the above
       interdependencies by keeping organisations informed of COI’s planning and
       maintaining a good dialogue. Attention should focus particularly on other
       Central Government departments to:
        keep them informed of when COI will accept payment of fees in euros
        demonstrate that in conversion, fees charged in euros are comparable to
           those charged in pounds.
   22. Failure to maintain good communication with COI's clients may have a
       negative impact on COI’s cashflow if fees invoices are paid late. Effective
       communication with suppliers is essential to ensure the smooth transition of
       payments from sterling to euros and the agreed rate of conversion of disputed
       or outstanding balances.

Staff training
   23. It is anticipated that all staff will require some level of training, but the level of
       training will vary depending on the role of the employee. All staff need to be
       familiar and comfortable working in euros, but finance and client-facing staff in
       particular need to be able to make sterling to euro conversions and be able to
       satisfy clients that proposed fees in euros have been correctly calculated.
       Equally, such staff need to be able to understand supplier invoices and be
       able to access if invoices are correctly stated. A range of training approaches
       will need to be considered by the cross-functional project team, tasked with
       overseeing the conversion project.

Budgetary provision for costs of conversion
   24. Budgetary provision is needed to cover the costs of COI converting to euros.
       Significant costs are not expected to be incurred as primary IT systems are
       either already euro compliant or are not affected by currency changes. The
       most significant costs are therefore expected to be:

          the costs of the in-house euro project team.



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        staff training and communication
        any printed communication for clients and suppliers

     An indicative budget of £50k is proposed to cover indicative costs, although
     this budget would need to be refined once the euro conversion team has
     been established.


Risk assessment
  25. An assessment of the risks associated with converting to euros is attached as
      appendix 2 to this report. The euro risk log will be incorporated in the COI’s
      overall risk log and updated every quarter, in the event that a decision to hold
      a referendum on adopting the euro is taken.




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                                                                       Appendix 1
    Table of COI financial systems
Corporate System          Description of system                   Assessment of euro
                                                                  compatibility
Business critical:
FJMS                      Financial system incorporating all of   Compatible
                          the COI financial functions (cash,
                          invoicing, payments etc), including
                          pensions but excluding payroll.
Payroll (Logica CMG)      Externally provided payroll system      Verified by Logica to be euro-
                                                                  compatible, but testing would
                                                                  be required
Livelink                  Document handling system                Not applicable as no financial
                                                                  data held within the system
Non business critical:
Global Expense            Outsourced expense management           Verified by Global Expense Ltd
                          system                                  to be euro- compatible, but
                                                                  testing would be required
Artemis                   Response and conversion analysis        Testing would be required to
                          system, holding data from various       verify euro compatibility
                          media buying campaigns. Data held
                          offsite at OMD data
Research Tracking         Research database holding details       Contains financial data and is
Database                  of jobs managed by the team.            not euro compliant.
                                                                  Developments within FJMS
                                                                  are likely to mean this
                                                                  database will not be required
                                                                  long term.
Snowdrop                  HR management system. Details of        Need to test to verify pay
                          pay held in this system that would      details can be shown in euros
                          need to shown in euros
Goldmine                  Database of client, supplier and        Not applicable as no financial
                          stakeholder contact details and for     data held within the system
                          recording cross-COI knowledge
                          about specific clients.
Retain                    Excel spreadsheet model for             Excel can convert sterling to
                          recording details of jobs.              Euros, but model would need
                          Maintained by Strategic                 testing to verify.
                          Consultancy`
Knowledge Archive         The Knowledge Archive is a              System based in Livelink and
                          database of COI jobs (jobs opened       contains no financial
                          since 10th April 2006).                 information

E-CFS                     Database for tracking CFS returns       Not applicable as no financial
                                                                  data held within the system

    Other systems operated by COI are externally hosted and maintained and therefore
    euro compliance will be the responsibility of the supplier. Present understanding
    from suppliers is that systems either already euro compliant or would be euro
    compliant within the 40 month timescale set by HM Government




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                                                                                                                           Appendix 2
COI risk assessment of euro conversion
    Risk                                                    Probability    Impact   Mitigation
    Conversion process
1   COI does not convert to euros within the statutory      L              H        COI’s conversion to euros should be managed as a
    deadline                                                                        project using Prince2 methodology and accordingly a
                                                                                    project team should be set up with representation
                                                                                    from all areas of the COI:
                                                                                    - Communications
                                                                                    - Finance
                                                                                    - HR
                                                                                    - IT
                                                                                    - Specialist Directors
                                                                                    - Corporate Communications
                                                                                    The group should be represented at Board by the
                                                                                    Finance Director.
    Corporate IT systems
3   The FJMS ledger and all its associated modules          L              H        Test conversion of the ledger in a test environment,
    fails to convert to euros- euros cannot be received                             before the go-live date
    and payments not made                                                           Benchmark with existing euro users.

4   Key finance and IT staff are not available for the      L              H        Ensure timetable for euro conversion is set early and
    euro conversion weekend                                                         notified to key staff
    Local systems
5   Internally used financial spreadsheets and models       M              M        Internal date set [the ‘conversion date’] for when
    are not consistently converted to euros, resulting in                           information is to be reported solely in euros.
    incorrect values used and/or a mix of euro and £                                Until the conversion date, COI Finance team to
    being used                                                                      ensure the currency of corporately used
                                                                                    spreadsheets is clearly specified.
                                                                                    All corporate spreadsheets until conversion date to
                                                                                    operate in £, but with totals also converted to euros.
    Fee setting and income




                                                                   Page 7 of 9
                                                                                                                    Appendix 2
COI risk assessment of euro conversion
6    Central Government bodies and other COI clients       M           H     COI should communicate to its clients that it will take
     do not convert easily to euros causing delay in                         payments in euros and £ pre the final conversion
     payment of fees and subsequent cash flow                                deadline ie before the end of the 40 month period
     problems for COI                                                        [actual date that payment could be received in euros
                                                                             needs to be verified, but as the ledger currently
                                                                             receives euros, this date could be within 4 months of
                                                                             the UK decision to convert].

7    Project Managers incorrectly set fees at the wrong    M           H     Project Managers receive appropriate training and
     rate in the euro currency                                               information to allow them to convert existing fees into
                                                                             euros (for comparison purposes) and to set new fees
                                                                             in euros
8    COI clients dispute fees in euros because they are    M           M     The 40 month conversion timetable is likely to cover
     perceived to be inflated (risk of ‘currency creep’)                     2 financial years. Cost estimates should be in
                                                                             written in euros and pounds for both years.
                                                                             Testing should also be done to identify if fee invoices
                                                                             can be printed showing £ and euro amounts.

     Internal and external communication:
9    Staff awareness                                       L           L     The euro project team should maintain regular
     Internal staff not clear on COI conversion approach                     contact with staff to keep them informed on the
     and in particular have concerns that their salaries                     status of the conversion process. This can be done
     in euros is wrong                                                       through periodic emails/newsletters to all staff plus
                                                                             contact with staff Trade Unions.
                                                                             If practical, salaries should be shown in euros and
                                                                             pounds in pay packets for several months.
10   Client Stakeholder awareness                          L           L     COI should ensure that external bodies with whom
     COI clients and major suppliers are not aware of                        there is a financial relationship are clear on when
     the COI conversion plans and timetable for                              COI will be invoicing, receiving cash and making
     receiving and paying in euros                                           payments in euros, to avoid confusion and possible
                                                                             cashflow implications.




                                                               Page 8 of 9
                                                                                                                              Appendix 3
    Illustrative COI conversion timetable
Year 1                                    Year 2                     Year 3                                      Year 4
         Conversion    COI action              COI action                     Conversion     COI action                   Conversion     COI action
         status                                                               status                                      status
Jan                                       Jan   Approval budget      Jan                                         Jan
                                                in £
F                                         F                          F                                           F        € coins
                                                                                                                          introduced
M                      Year end in £      M     Year end in £                                Year end in £       M
A        Decision      COI Euro project   A                          A        Retail         Accounts            A        6 April        End of conversion
                       team set up                                            transition     produced in £                End of         process
                                                                              begins         and manually                 conversion
                                                                                             converted to €               process        Year end accounts
                                                                                                                                         produced in €
M                                         M                          M                       Ledger and          M
                                                                                             payroll converted
                                                                                             to €

J                                         J                          J                                           J        £ no longer
                                                                                                                          legal tender
J        Positive                         J                          J                                           J
A        Referendum                       A                          A                                           A
S        Exchange                         S                          S                                           S
O        rate locked   Begin business     O     Begin business       O                       Begin business      O
                       planning in £            planning in £ and                            planning € with £
                                                €                                            equivalents
                                                Cost estimates to                            shown
                                                contain euro
                                                equivalent
N                                         N                          N                                           N
D                                               D                    D        Dual display   Fees can be         D
                                                                              of customer    received in €
                                                                              facing
                                                                              literature




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