RBS 2011 Annual Report Download - page 267

RBS Group 2011 265
Internal Control
In 2011, the Group Audit Committee tracked progress in the development
and implementation of the new Group Policy Framework across the
Group and will continue to monitor progress in embedding the framework
throughout 2012. It will review the results of assurance activity in respect
of the new framework in the latter half of the year.
The Group Audit Committee reviewed the control framework in place to
ensure that it is operating effectively and specifically reviewed progress
against its plan for a number of large strategic initiatives such as the
Finance and Risk Transformation Programme. It also tracked progress in
relation to mandatory and remedial projects including the Group’s Anti-
Money Laundering Programme and the progress of the Group’s US
regulatory initiatives.
The Committee reviewed the effectiveness of the Group New Product
Approval Process, the Credit Quality Assurance Process and considered
the operation of the Group Notifiable Event Process as it applies in
specific circumstances.
The Committee received reports and considered the Group’s compliance
with the requirements of the Sarbanes-Oxley Act of 2002. It was regularly
advised of: whistle-blowing events which occurred within the Group;
complaints raised with members of the Group’s executive team; and
significant internal investigations undertaken within the Group.
Divisional Risk and Audit Committees have been established with
responsibility for reviewing the business of each division and reporting to
the Group Audit Committee and Board Risk Committee. Given the size
and complexity of the Group, these committees are an essential
component of the governance framework that supports the effective
operation of the Group Audit Committee and Board Risk Committee
across the organisation. The Committee has agreed changes to the
Divisional Risk Reporting framework and these improvements will be
implemented during 2012. Quarterly reports are received by the Group
Audit Committee and Board Risk Committee from each Divisional
Committee.
Internal audit
The Group Audit Committee oversees the work of Group Internal Audit,
and receives a quarterly report from the Head of Group Internal Audit.
This report rates the quality of the control environment of all the Group’s
divisions and of management’s level of awareness on these matters. It
offers the Group Audit Committee oversight of Group Internal Audit’s
work, and allows the Group Audit Committee to monitor the level of
internal control within the Group by reporting on areas where
improvements are required to the control environment.
During 2011, the Committee sought to enhance further management
responsiveness to Group Internal Audit findings and has developed a
process to invite management to respond, either directly or in writing, to
the Committee regarding identified deficiencies. The Group Audit
Committee monitors these findings and management responses ensuring
that issues raised are dealt with in a timely and appropriate manner.
The Group Audit Committee also considers Group Internal Audit’s annual
plan and the adequacy of its resources and budget. During 2011, the
Group Audit Committee actively supported the development of the
Internal Audit vision and strategy and the transition to thematic reporting
and the development of centres of excellence. It has supported increased
resources for the function and has been directly involved in the process
for the appointment of the new Head of Group Internal Audit.
An external review of the effectiveness of Group Internal Audit takes
place every three to five years, in line with best practice, with internal
reviews continuing in intervening years. In January 2012, the Group Audit
Committee undertook an internal evaluation of Group Internal Audit. The
evaluation concluded that Group Internal Audit had operated effectively
throughout 2011.
External audit
Deloitte LLP have been the company’s auditors since March 2000. There
are no contractual obligations restricting the company's choice of external
auditor.
During 2011, the External Auditors provided the Group Audit Committee
with reports summarising their main observations and conclusions arising
from their year end audit, their half year review and their work in
connection with the first and third quarters and their recommendations for
enhancements to the Group’s reporting and controls. Deloitte also
presented for approval to the Committee their audit plan, their audit fee
proposal and engagement letter, as well as confirmation of their
independence and a comprehensive report of all non-audit fees.
The Group Audit Committee undertakes an annual evaluation to assess
the independenceand objectivity of the External Auditors and the
effectiveness of the audit process, taking into consideration relevant
professional and regulatory requirements. The annual evaluation is
carried out following completion of the annual accounts and audit. In
assessing the effectiveness of the Group’s External Auditors, the Group
Audit Committee has regard to:
xthe experience and expertise of the senior members of the
engagement team;
xthe proposed scope of the audit work planned and executed;
xthe quality of dialogue between the External Auditors, the
Committee and senior management;
xthe clarity, quality and robustness of written reports presented to the
Committee setting out the External Auditors’ findings arising form
the audit;
xthe quality of observations provided to the company by the External
Auditor on the Group’s systems of internal control; and
xthe views of management on the performance of the External
Auditors.