P5 characteristic of good governance 1.2

defined as org's governing body i.e board of directors , supervisory board

Purpose to establish vision, mission, values>set strategy and org structure>govern board policies>ensure availability of resources>accountability to shareholders and being responsible to relevant shareholders> Delgate resources and work to management or subcommitees>monitor perfomance>set risk appetite

Success requires enterpernual while prudent control>sufficient know of working but separate daily magmt>sentive to pressure of short term yet think long term, knowledge local issues and wider competitive influences, focused on commercial need and acting righ to staff , partners and society

COMPOSITIONS - CHAIRMAN, CEO, NEDS AND EXECS

Two board - unitary or dual - see other slide for pros and cons

Single made up of NEDs and EXECS. Chairman manage board and CEO the org. 

Dual consist of 2 separate board one supervisory and other managerial

Leadership

• company headed by effective board responsible for L/T success 
• clear division CEO and charimand - no individual have unfettered power of decisions
• chairman responsible leadersip of board/ NEDS constructively challenge

Effectiveness 

• Board and committes balance of skill, experience and independence and knowledge company
• formal procedure appointment of directors/ submitted for re-election regular intervals
• All directors allocate sufficient time for responsibilities
• supply of information to be timely/ undertaken formal rigourous annual evaluation of Board

Accountability

• present fair, balanced assessmet of co. position and propsect
• determine extent and nature of significant risk acceptable to achieve obj - maintain sound RM system
• formal and tranparent corporate reporing, RM and IC principles and for appropriate audit relations

Remuneration

• levels sufficient to attact, retain and motivate directors  of quality to run co. well - avoid paying more than neeeded - judged by remuneration committee, sensitve to parallels,consider compensation committements, reflect time of NEDS, if option granted shareholder approaval needed in advance, consult chaireman/CEO about proposals
• remuneration link reward to corporate and individual performance
• formal and tranparent procedure for policy on EXEC remuneration and fixing packages for individuals - NO DIRECTOR INVOLVED DECIDED OWN

Relations with stakeholders

• should be dialogue wth shareholders based on mutual understanding of objectives - satisfactory one responsibility of board - chairman ensure view communicated to board and directors aware of issues 
• board use AGM to communicate  with investor and encourage participation - chairman arrange subm commitee chairs availability to answer question and attendance of all directors.

CEO - manages business and is accountable to board

Chairman - role to manage board and evaluate performance of CEO. 

NOTE:

• chairmand not previously CEO as compromise independence
• To comply with UK CG code if post held by same person must be justified utilising compy and explain in Annual Report.
• may combine  due to track record with evidence of competence and commitment, quicker decision making benefial in times of change with merger
•  e.g. stuart rose at M & S formally, sharehold voice concern in AGM with 38% against dual role by same person
• needs for corporate governance clearly recognised - concern with focus of power on one individual and ability to control information and stakeholders noted
• practically the two roles required differrent skills set.

UKCG CODE DEFINED:

set out standard for good practice in relation to board leadership, effectiveness, accountability, remuneration and relations with shareholder

all premium listed companies have a statutory duty to report how they have applied code in their annual report and accounts

EFFECTIVENESS:

• Evaluation of board should be externally facilitated at least every 3 years
• All direction of FT 350 shoudl be subject to annual re-election by shareholders
• NEDS served longer than 9 year subject to re-election

ACCOUNTABILITY :

• PUT EA CONTRACT OUT EVERY TEN YEARS
• NEDS

Role

•  independent challeng on issues of power between owner, shareholders and management
• oversight for org strategy
• remuneration restricted to time and comments - not performance related
• conflict of interest to be declare - need to be truly independent not have worked for com with last few years

• Skills -  industry related skills, 1 with recent, relevant financial qualification
• Knowledge of biz but independent in additon commercial experitise
• service after 9 year there shoudl be re-election

• UK Code - 3 NEDS or 2 for small org/ 50% if board
• senior NED - figure head and intermediary

• Reviews Higgs - new definiion independent, skill, improved recruit, inductiondevelopment, description of role, drawn from wide pool of candidate, audit and risk committess , closer relations with major shareholders

Most importance for IA - oversight IA / EA and monitor integrity financial statment 

• HIA INTERACT AND HAS APPROPRIATE ACCES TO DELIVER EFFECTIVE IAS
• AC  DUTIES DIRECTLY IMPACT WORK OF IA AND EA INCL APPOINTMENT AND DISMISSAL OF HIA
• APPOINTMENT, RE-APPOINTMENT AND DISMISSAL OF HIA 
• ENSURE LIAISON BETWEEN BOTH IA AND EA

UKCG:

• EST AC RE AUDITOR - SHOULD COMPRISE 3 NEDS IF SMALLER 2 IND NEDS 1 RECENT REL FIN EXP
• ROLES AND RESPONSIBILITIES IN TORS ACCESSIBLE
• INDEPENDENT OF MANAGEMENT AND ACTIVITY IMPACT OBJECTIVITY

GOVERNANCE

• REC APPT EA APPROVE THEIR REMUNERATION AND TOENGAGEMENT
• REVIEW THEIR IND AND OBJ, EFF OF AUDIT PROCESS CONSIDER PROF AND REGS
• DEV AND IMPLE POLICY ON EA NON AUDIT WORK CONSIDER ETHICAL GUIDE

GOVERNANCE 

• MONITOR INTEGRITY FINANCIAL STATEMENT/REPORTING
• >REVIEW INTERNAL FINANCIAL CONTROL AND RM SYSTEMS, EFFECTIVENESS OF IA
• > REPORT TO BOARD ACTION  OR IMPROVMENT NEEDED AND RECOMMENDED STEPS
• REC APPT EA APPROVE THEIR REMUNERATION AND TOENGAGEMENT
• REVIEW THEIR IND AND OBJ, EFF OF AUDIT PROCESS CONSIDER PROF AND REGS
• DEV AND IMPLE POLICY ON EA NON AUDIT WORK CONSIDER ETHICAL GUIDE

Important role in helping ensure effective governance including:

advising board

•  co. overall risk appetite and strategy including macro economic (as whole) and financial strategy/oversee current risk exposure and future risk strategy
• re risk assessment - review overall process and inform decision making with quant & qual metrics>review and approve parameters used and methodology adopted>std/time reporting
• review capability to id and manage new risk types
• review reports on material breaches of risk limits and adequency response
• adequancy and arrangement for staff to raise concerns in confidence about wrong doing
• review procedures for detecing fraud and prevention of bribery
• consider and approve remit of RM function
• review reports from chief risk officer & monitor mgmt response to their findings and recommendation
• ADVANTAGE - Buy in at top, allow comms key risk to sm & escalation,oversight RM, more focus than AC
• DISADVANTAGE - consist SM ignore bottom up view, added bureacracy in decisions, focus high level risk thus other risk not managed

Important part of effective corporate governance 

Consist of at least 3 NEDS. Chairman member but not chair as long as were independent on appt as chairman

Roles include:

• devised packages contentious - bonus for bankers
• decision taken by those who do not benefit directly
• No direction involved in decison on own package
• delegated authority for setting for all exe dir and chairman incl pension right
• monitoring the structures and levels of remuneration for other senior executives and making recommendations as appropriate
• ensuring the Institute's policies support the recruitment and motivation of high quality personnel.

Output - to retain highly skill and senior mgrs

UKCG - significant proportion exec pay link reward to indivi and corporate peformance. NEDS reflect time and commitment. if exception share option approved required

Important oversight in effectiveness of governance arrangements related to operational 
RM 

ADVANTAGE 

• CENTRAL COORDINATION POINT 
• FACILTIATE CONSOLIDATED REPORTING TO RISK COMMITTEE AND BOARD
• MAY ADD SPECIALIST KNOWEDGE TO ENSURE ADHERE TO BEST PRACTICE & REGS

DISADVANTAGE

• STAFF PERCEPTION ROLE MANAGING RISK FOR CRO NOT THEM
• OVER RELIANCE MY REDUCE SM ACCOUNTABILITY OVER RM
• OVER DEPENDENCY ON CRO AS KEY PERSON 

IMPORTANT  ROLE IN HELPING ENSURE EFFECTIVE GOVERNANCE RE OPERATIONAL RM

ADVANTAGE

• CENTRAL COORDINGATION POINT 
• ENSURE RISKS IDENTIFIED, ASSES AND MANAGED CONSITENTLY ACROSS ORG
• FACILITATE EFFECTIVE DAY TO  DAY MONITORING OF RM

DISADVANTAGE

• STAFF PERCEPTION ROLE IN MANAGING RISK LIE WITH RM FUNCTION, NOT THEM
• INCEASED COST FOR ORG TO STAFF SPECIALIST FUNCTION

IMPORTANT ROLE IN GOVERNANCE FINDING MEMBERS OF THE BOARD OF DIRECTORS.

COMPRISED NED AND EXECS - MAJORITY SHOULD IND NEDS

INCLUDE:

• NEW APPT & REAPPOINT TO BOARD & OTHER SM POST
• ENSURE FORMAL, RIGOUS AND TRANPARENT PROCEDURE
• EVALUATE BALANCE OF KNOWLEDGE SKILL & EXPERIENCE - PREPARE DECRIPTION OF ROLE AND CAPABILITIES REQ
• MAKES RECOMMENDATION TO BOARD

iMPORTANT IN EFFECTIVENESS - give upward asssurance  by assess and opinion on hw effective operation are working - see slide on reporting structure, line of communciation, rights, responsibilities and roles in an organisaton Top shareholders or parliament or board of commitees, then Board>SM>Business>Financila and other operations then feeding in are internal audit with interest across org and external audit who's interest is in financial statements and reporting reporting independent to the Board

• ACHIEVE ORG OBJ THRU THEIR AND THEIR STAFF ACTIVITIES - BOARD STRATEGY
• ENSURE ECONOMIC EFFICIENT AND EFFECTIVE MGMT OF RISK - ORG RESOURCE
• ENCOURAGE ETHICAL CULTURE
• PROACTIVE MONITORING & COLOUR OVER ACTIVITIES
• PROVIDING ACCURATE COMPLETE TIMELY OBJ REPORT
• DEVEL/IMPLEMENT  OF POLICIES
• ENSURE COMPLIANCE WITH POLICIES, EXTERNAL LAWS, REGS AND STDS

The output is pack of information which goes updward to board and proposals for new ventures

Secretariat organise reporting / Board may set KPI - key to measure success of any initiative e.g no. of audit completed on plan/ no. of auditor available no. of audit's completed to budget as help report outcome, identifiy improvements and quality and have independent stakeholder input

      >           Shareholder

V

Senior magmt <

2 way

business 

V V

financial operation other operations

EA < Upward

Internal Audit

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

About the definition

The Definition of Internal Auditing is the statement of fundamental purpose, nature and scope of internal auditing.

The definition is authoritative guidance for the internal audit profession from the Global Institute of Internal Auditors. It is part of the International Professional Practices Framework.  

INDEPENDENT -AUDIT SERVICE FREE FROM MGMT, REPORT 2 ARC INDEPENDENT AND MADE UP OF NEDS

OBJ IA FREE TO DETERMIN SCOPE, WORK OBJ, CODE OF ETHICS , UNBIASED> ASSURANCE - AGREED PLAN, RESPONSE 2 RISK, HISTORICIAL - SCOPE  DEFINED IN CHARTER, HAVE EXPERTISE, ANALYSIS, NEGOTIATING, INTERVIEWING -NOT TAKE OPERATIONAL ROLE

2110 Governance (NATURE OF WORK)

The internal audit activity must assess and make appropriate recommendations for improving the governance process in its accomplishment of the following objectives:

• Promoting appropriate ethics and values within the organisation;
• Ensuring effective organisational performance management and accountability;
• Communicating risk and control information to appropriate areas of the organisation; and ON INTRANET
• Coordinating the activities of and communicating information among the board, external and internal auditors and management.

Role to:

• independtly verify account against recognised stds
• Statutory
• Focus on financial system & ctrls
• Be professionally qualified
• Report to sharedholders

5 key principles underpin work:

• Evidence
• due audit cae
• fair presentation
• independent
• ethical conduct

tem External audit Internal audit Recipient of reports Shareholders or members Board members and senior managers Objective(s) Add credibility and reliability to reports from the organisation to its shareholders by giving an opinion on them. Provide the assurance that members of the board and senior management use to fulfill their duties Coverage Financial reports and related disclosures, financial reporting cycle, focused on objective of audit opinion. All categories of risks, their management including the flow of information around the company and governance. Timing and frequency Project(s) tied to financial reporting cycle, focused on ojective of audit opinion. Ongoing and pervasive. Focus Mainly historical. Ideally forward-looking. Responsibility for improvement None - duty to report problems. Fundamental to the purpose of internal auditing. Status and authority Statutory and regulatory framework. International professional standards and code of corporate governance Independence Professional ethical standards overseen by audit committee and regulatory framework. Professional ethical standards overseen by audit committee.

Both provide independent assurance for board  but specific roles different - EA review financial statement to ensure they can be relied upon by stakeholders. EA may do consultancy but issue of independence and conflict of interest

IA provide assurance for board on risk management, control and governance processes.  By carrying out independent reviews of activities as basis for assurance and identifiying weaknesses and making recommendation to mgmt

IA provide independent assurance for board on corporate governance through

• risk based programme target key activities
• overall opinion and summary rec for improvement as basis for action 
• report of effectivenes  of corporate governance framework >ethical culture & embed RM
• reviews comission by board on concerns

IA source of expertise:

• advide on best practise, committee structures, risk assessment and mgmt techniques, need for monitoring and reporting.  sector knowledge mean tailor to specific needs

INTRO - UKCG code requied statement in annual report of effective IA function or explain why none. code intened for co. listed on stock exchange but basis provision accept as good pracice in other sectors also.

Primary purpose - IA provide independent assurance for board on corporate governance through

• risk based programme target key activities
• overall opinion and summary rec for improvement as basis for action 
• report of effectivenes  of corporate governance framework >ethical culture & embed RM
• reviews comission by board on concerns

Also, IA source of expertise:

• advide on best practise, committee structures, risk assessment and mgmt techniques, need for monitoring and reporting.  sector knowledge mean tailor to specific needs

CONCLUDE - IA ROLE STRENGTHEN CG FRAMEWORK:

• work with board monitor governance
• coordinate with eA and RM team synergy
• advise mgmt all levels on issues
• education staff assessment risk and impl or ctrls, review cause nr missed the ctrl failures to id preventive measue + ad hoc involved project teams

IA set up within a charity.

advantage

• access to infor easiere
• separation with external
• specific sector experience plus development
• confidentiality
• cheaper
• responsive to emergent issues regarding organisational change
• knowledge retain on audit work and organisation relations and contacts
• develo capability - guaranteeing a more stable resource supply, consistency with QAIP and AC oversight - established relations with AC
• commercial awareness

disadvantage

• lack of specialist skills
• lack of benchmark against other sector and industries 
• lack of exposure to other expertise from commercial sector

provide is contracted out to external suppliers

advantage

• acces to wide range knowlege and experitise which in-house cannot afford to develop e.g. IT
• vfm through competitive tendering - level and cost specified in contract
• external provided must kee p on development in best audit practice 

Disadvantage

• treat to independen if accountancy firm provide IA service thru sister company
• conflict when provider reluctant to challenge SM fear losing busines
• ltd organisation knowed and thus effectiveness
• difference culture
• little influence on staffing to mainatin continuity and quality of service 
• no post to train and develop in house staff

in house with varyign levels of external service provision, thus supplemented with outside help to asssist IA with specific task, partnering consultants, working on continuous basis but reporting to HIA

ADVANTAGE - 

• STRATEGY TO FOCUS ON KEY BIS OF CHARITY - REDUCE/ELIMINATE NON CORE WORK 
• ACCESS TO WIDER RANGE OF SKILLS AND KNOWLEDE E.G CAATTS, IT 
• FLEXIBLE TO MEET PEAK S IN AUDIT ACTIVITY WITHIN MAINTAINING PERMANCE STAFF AT ALL TIMES E.G. YEAR END
• VFM IN COMPETITIVE TENDER
• POOL OF AUDITORS ALLOW ROTATINO - FRESH GUARDING FAMILIARITY
• KNOWLEDGE SHARING
• SHARE RISK OF NON-PERFOMANCE
• ATTRACTIVE ASSURANCE

DISAVANTAGE - SEE FOR OUTSOURCE

ON BALANCE ORG MUST CHOOSE WHICH SUITS NEED, SIZE AND BUDGET.

HOWEVER GIVEN CHOICE, CO-SOURCE GIVE BEST BOTH WORLD WITH KNOWLEDGE OF EXISTING BIZ PARTNERING WITH WIDER EXPERTISE FROM EXTERNAL PROVIDER.  

PLUS CONTRACT FOR EXTERNAL PROVIDER CAN BE TAILOR TO ORGANISATION CHANGES WITHIN ORG THUS A MORE FLEXIBLE SOLUTION.

A

A.

A