Internal Audit
The Head of Internal Audit attends all meetings of the Committee and on each occasion meets with the Chairman of the Committee ahead of the meeting. The Committee holds at least one private meeting with the Head of Internal Audit each year to provide an additional opportunity for open dialogue and feedback without executive management being present.
Internal Audit's annual plan for 2010/11 was reviewed and approved by the Committee in January. The Committee approved an extension of Internal Audit's scope to provide assurance to the Committee on Internal Controls over Financial Reporting and to integrate its audit work with the Group's SAS70 provider.
Internal Audit provides the Committee with quarterly assessment of the effectiveness of the Group's control environment having regard to the Group's risk management framework. This is supported by reports on Internal Audit's key findings in the quarter together with management's proposed actions. Internal Audit tracks management actions and verifies them when reported by management as complete. The Committee receives quarterly reports on overall progress on these actions and specific reports on risks that have not been quickly or adequately mitigated. The Committee raises any concerns on matters needing further attention with the Finance Director.
The Committee considers the effectiveness of Internal Audit annually. This review is carried out at least every five years by an independent consultant (last reviewed in 2006) and otherwise annually by internal survey. Input is also sought from the external auditors.
Risk management
The Head of Risk attends all quarterly meetings of the Committee to report on current market conditions, the Group's risk profile and regulatory developments. The Committee is provided with current position and forward looking assessments of capital adequacy, liquidity adequacy, earnings risk, credit risk, market risk and operational risk. Forward looking assessments include comparison between the Board's risk appetite and the results of various stress test scenarios. The Committee's focus in 2009/10 has been the impact of banks' willingness and ability to lend to fund products, and how this affects the Group's discretionary lending to funds. Close attention is also paid to the value at risk on proprietary positions.
The Head of Compliance reports quarterly on emerging trends in global and local regulation and the potential impact on the Group. The report also covers any compliance incidents and how they have been resolved.
Other activities
In addition to reviewing regular reports from the Finance Director, Financial Controller, Head of Internal Audit, Head of Compliance and Head of Risk as part of their routine work, other matters considered by the Committee during the year included:
Committee evaluation
The Committee conducts an annual review of its performance and effectiveness. In 2009/10 this was an internal review facilitated by the Company Secretary and the Committee Secretary based on a written questionnaire completed by all Board members. The review concluded that the Committee was effective in carrying out its duties and identified a number of areas for further attention and improvement in 2010/11. These included enhancing the investment management expertise on the Committee, reviewing the time commitment required, providing members with additional educational and development opportunities and further improving the quality of Committee Papers.
Patrick O'Sullivan
Chairman of the Audit and Risk Committee
