BP 2007 Annual Report Download - page 80

of BP’s enterprise level controls was examined through the annual
assessment undertaken by the internal audit function.
In addition to the standing items on the agenda, the committee
considered a range of other topics including an update on TNK-BP,
a review of the group’s decommissioning provisions and the legal
settlements reached in the US. The committee also received an
independent report on the group’s US trading operations and visited
the trading operations in the UK.
External auditors
The lead audit partner from Ernst & Young attends all meetings of the
audit committee at the request of the committee chairman. Other audit
partners are invited to attend meetings where they can utilize their areas
of expertise, for example, during business segment or function reviews.
The committee held two private meetings during the year with the
external auditors without the presence of BP management, in order
to discuss any issues or concerns from either the committee or
the auditors.
Performance of the external auditors is evaluated by the audit
committee each year, with particular scrutiny of their independence,
objectivity and viability. Independence is assisted through the limiting of
non-audit services to tax and audit-related work that fall within defined
categories. This work is pre-approved by the audit committee and all
non-audit services are monitored quarterly.
Fees paid to the external auditors for the year (see Financial
statements – Note 17 on page 126) were $75 million, of which 16%
was for non-audit work. Non-audit services provided by Ernst & Young
have remained constant from 2006, and audit fees ($63 million in 2007
compared with $61 million in 2006) are also little changed as the impact
of inflation and exchange rate movements have been offset by
efficiency gains.
A new lead audit partner is appointed every five years and other senior
audit partners and staff are rotated every seven years. No partners or
senior staff from Ernst & Young who are currently connected with the
BP audit may transfer to the group. During the year, the committee
approved the appointment of a new lead partner from Ernst & Young to
replace the current partner who reaches five years’ service in early 2008.
The audit committee has considered both the proposed fee structure
and the audit engagement terms for 2008 and has recommended to the
board that the reappointment of the external auditors be proposed to
shareholders at the 2008 AGM.
Internal audit
BP’s internal audit function advises the committee on the company’s
identification and control of risk. The general auditor attends each
committee meeting at the invitation of the committee chairman and
presents a quarterly internal audit and controls report.
During the year, the audit committee evaluated the performance of the
internal audit function and agreed to the proposed forward programme of
work. The committee was also involved with finding a successor to the
general auditor who is due to retire in 2008. An external consultant was
engaged to undertake the search and the committee approved the
appointment of an external candidate with deep audit experience.
In 2007, the committee met once with the general auditor in a private
session without the presence of executive management.
Fraud reporting and employee concerns on financial matters
The audit committee received a quarterly report from internal audit
on instances of actual or potential fraud, and concerns relating to the
financial accounting of the company. The committee also received
reports on a quarterly basis from the group compliance and ethics
function, which captured issues relating to financial matters raised
through the employee concerns programme, OpenTalk, together
with topics highlighted by the company’s annual certification process.
Performance evaluation
The committee conducts a yearly evaluation of its performance. For
2007, the review methodology included a survey of committee members
and those individuals who regularly attend committee meetings. The
survey results were analysed by the company secretary’s office and
discussed at the November audit committee meeting. Areas for future
focus were identified following the evaluation, including training
opportunities for committee members. These have been incorporated
into the committee’s agenda for 2008.
The audit committee plans to meet 12 times during 2008.
Safety, ethics and environment assurance committee report
Membership
The committee’s members consist solely of independent non-executive
directors who have been selected to provide a wide range of operational
and international expertise appropriate to fulfil the committee’s duties.
Members of SEEAC during 2007 were Dr Walter Massey (chairman),
Antony Burgmans, Sir William Castell and Sir Tom McKillop. Support
was provided by the committee secretary, David Pearl (deputy
company secretary).
The committee chairman, Dr Massey, will retire as a director at the
2008 AGM. The appointment of his successor will be announced at
the 2008 AGM. Mrs Cynthia Carroll will be joining the committee in
due course.
Meetings and attendance
SEEAC met eight times during 2007.
At the request of the committee chairman, each SEEAC meeting is
attended by the lead partner of the external auditors (Ernst & Young) and
the BP general auditor (head of internal audit).
Reports and presentations to SEEAC are led by a member of
executive management. Following a change in executive responsibilities
during the year, the executive liaison with SEEAC changed from
Iain Conn to Dr Anthony Hayward, who attended three meetings
of the committee in the second half of 2007. Private sessions
without executive management in attendance are held at the end
of each meeting.
Role and authority of the committee
On behalf of the board, SEEAC monitors observance of the executive
limitations policy relating to the environmental, health and safety, security
and ethical performance of the company and compliance to its code
of conduct.
In common with the other BP board committees, the board
governance principles set out the main tasks and requirements for
SEEAC. These include monitoring and obtaining assurance that the
management or mitigation of material non-financial risks is appropriately
addressed by the group chief executive.
Agendas
The committee’s tasks are broad as they cover all non-financial risk, and
in constructing the forward agenda, the committee considers the risks
identified in BP’s business and annual plans and also the review of risks
conducted by the general auditor.
The forward agenda includes standing items that enable the
committee to monitor and assess how the executive limitations policy
is being observed (for example, health, safety and environment reports)
and to review the non-financial risks identified in the business plan (for
example, regional risk reviews). The committee also holds a joint session
with the audit committee to review the general auditor’s report on
internal controls and risk management.
During the year, the forward agenda is supplemented with any
emerging issues or developments that may arise.
Information
The committee receives information on agenda items from both internal
and external sources, including internal audit, the safety and operations
function, the group compliance and ethics function and Ernst & Young.
Like other board committees, SEEAC can access independent advice and
counsel if it requires, on an unrestricted basis.
The activities of the committee and any issues that have arisen are
reported back to the main board by the committee chairman following
each meeting.
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