The Board has overall responsibility for the Group’s system of internal control, which is designed to safeguard the assets of the Group and to ensure the reliability of financial information for both internal use and external publication and to comply with the Turnbull Committee guidance. The schedule of matters reserved to the Board ensures that the directors control, among other matters, all significant strategic, financial and organisational issues.
The Board delegates to executive management the responsibility for designing, operating and monitoring both the system and the maintenance of effective internal control. Procedures are in place for identifying, evaluating and managing any significant risks that face the Group. These procedures are designed to manage rather than eliminate risk, and can provide only reasonable and not absolute assurance against material errors, losses, fraud or breaches of laws or regulations. Mandatory written policies and procedural manuals exist for all businesses, compliance with which is reviewed by the Board annually. These internal control procedures provide that all major projects require technical, financial and Board approval, while all capital expenditure within each project requires senior management approval at appropriate stages. Adherence to internal control procedures is ensured by a regular reporting system that details both technical progress of projects and the Group’s financial affairs. All material joint ventures follow the Group’s formal systems of internal control, and their internal control procedures are regularly reviewed by the Group’s internal audit function.
Risk assessment and evaluation form an integral part of the annual planning process. Each business division documents its strategic objectives and the significant risks in achieving them. The divisions report regularly on progress towards fulfilment, whilst the key risks are reviewed regularly by the Board. There is a comprehensive budgeting and planning system for all items of expenditure with an annual budget approved by the Board. Results are reported against budget on a monthly basis, with significant variances investigated and the Chief Executive and Chief Financial Officer undertake regular financial and operational reviews of the business divisions. Revised forecasts for the financial year and financial projections for future years are prepared on a regular basis.
The Company has in place internal control and risk management systems in relation to the Company’s financial reporting process and the Group’s process for preparation of consolidated accounts. They include policies and procedures which provide:
- that transactions and disposals of assets are accurately and fairly reflected;
- reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with International Financial Reporting Standards;
- assurance that representatives of the businesses have certified that their reported information provides a true and fair view of the state of the financial affairs of the business and its results for the period; and
- that reported data has been reviewed and reconciled.
The Board receives reports from the Chief Executive, Chief Financial Officer, business division presidents and other senior executives to enable it to assess on an ongoing basis the effectiveness of the systems of internal control and risk management. The Audit Committee periodically reviews the effectiveness of the system of internal control through reports from the internal audit function. The internal audit function follows a planned programme of reviews that are aligned to the risks existing in the Group’s businesses. It has the authority to review any relevant aspect of the business and a duty to report on any material weaknesses.
2011 review of effectiveness
The Board, with the assistance of the Audit Committee and Corporate Responsibility Committee, conducted an assessment of the effectiveness of the systems of risk management and internal control during the financial year and up to the date of this annual report. The review, co-ordinated by the internal audit function, included a Group-wide certification that appropriate internal controls were in place to facilitate the Board’s review of effectiveness.
The internal audit function monitored and selectively checked the results of this exercise, ensuring that the representations made were consistent with the results of its work during the year. Where weaknesses have been identified, remedial action plans were also reported. The results of this exercise were summarised for the Audit Committee, Corporate Responsibility Committee and the Board.
This assessment is carried out every year. In the event that any significant losses were to be incurred during any particular year as a result of a failure of controls, a detailed analysis would be provided to the Audit Committee, Corporate Responsibility Committee (if appropriate), and the Board.
The Board confirms that no significant weaknesses were identified in relation to the review conducted during the year and accordingly no remedial action is required.