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Corporate Governance |
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Internal Control and the Control Environment
The Board is responsible for establishing and maintaining a sound system of internal control in the Group and for reviewing the effectiveness of the systems. The primary responsibility for the operation of the internal control systems is delegated to the executive management. Internal control systems are designed to manage rather than eliminate the risk of failure to achieve the Group's strategic objectives and can only provide reasonable but not absolute assurance against material misstatement or loss.
In accordance with the guidance of the Turnbull Committee on internal control, an ongoing process has been established for identifying, evaluating and managing the significant risks faced by the Group. The Group’s key internal control procedures which operated over the period covered by the financial statements and up to the date of signing the accounts can be summarised as follows:
Financial Review Process
The Board undertakes a comprehensive review of the financial cycle and following on from the annual business planning review, approves the annual budget. Performance is monitored monthly, compared to budget and the prior year, the reasons for variances explained and relevant action taken swiftly, allowing updated forecasts to be produced and tracked, as applicable, throughout the year.
Operational Review Process
The Board is provided with relevant, accurate and timely information, based on management information systems, which are continually being improved and updated. This enables the Board to regularly review key performance metrics on the Group’s operations.
Management Structure and Delegation of Authority
The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the Board. The executive Directors together with the senior management team constitute a Management Committee, which meets to discuss day-to-day operational matters. Each executive Director has been given responsibility for specific aspects of the Group’s affairs with clearly stated lines of responsibility and reporting, supported by the appropriate framework for delegation of authority and authorisation to incur expenditure.
Quality, Integrity and Business Conduct
The Board considers the quality and integrity of its personnel as an essential part of the control environment and the ethical standards expected are communicated through a formal Code of Business Conduct which allows staff to raise concerns in confidence. The appointment of senior executives within the Group requires the approval of the Board.
Control Environment and Procedures
Financial and non-financial controls, policies and procedures are kept under ongoing review by both the senior management team and Internal Audit function to ensure they remain effective and reflect the current risk profile of the activities and transactions in the Group.
Risk Management
The Board is responsible for identifying the major business risks faced by the Group and for determining the appropriate level of controls and procedures to manage and monitor those risks including taking the appropriate actions to mitigate the risks. These risks are reviewed regularly by the Board throughout the year assisted by periodic reports from senior management updating the Board on newly identified risk areas, how these are currently being addressed and any further actions or controls that are due to be established.
The executive Directors and the senior management team are responsible for implementing the risk management strategy and ensuring that an appropriate framework is operating effectively across the Group, demonstrating that robust and embedded risk management processes are operated throughout all aspects of the Group’s operations and activities. They discharge this responsibility by establishing an ongoing risk assessment process whereby key risks in each Business Division are kept under regular review and monitored throughout the year by the Management Committee. These are reported to the Board and Audit Committee by the executive Directors and form an integral part of the Board meetings. This ensures that the key risks are given the due level of focus and that appropriate responsive action plans are developed and implemented. Various outputs from the ongoing risk assessment process are considered in the development of the internal audit plans and assist the external audit function in planning their work.
Monitoring and Reviewing Internal Control and Controls over Financial Reporting
Controls are monitored by a number of different parties including all levels of management, by the executive Directors, and by the Internal and External Auditors. The Audit Committee has responsibility for reviewing the effectiveness of all the internal control process, both financial and operational, with these parties and for considering the relevant action needed in respect of any control issues raised by the Internal and External Auditors. The Audit Committee’s role also includes monitoring the integrity of the Group’s financial statements and other formal announcements relating to the Group’s financial performance. In addition to considering internal controls over the underlying financial reporting systems, as part of its review of the effectiveness of the systems of internal control, the Audit Committee considers the appropriateness of the Group’s accounting policies, (including changes thereto), reviews significant judgements reflected in the Group’s financial statements and considers guidance issued by the Financial Reporting Council. Compliance of the financial statements with legislation, regulation and accounting standards is managed by the Group’s Finance function, which includes professionally qualified accountants, who as part of the Group's training and development programmes, are regularly kept up-to-date on developments in financial reporting.
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