RBS 2012 Annual Report Download - page 312

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Report of the Group Audit Committee continued
The Committee also monitored and reviewed aspects of the Group’s
external audit in the period. It reviewed the scope and planning of the
external audit and considered reports and recommendations from the
External Auditors. It monitored the External Auditors’ independence and
objectivity and ensured effective controls were in place to oversee
engagements for the External Auditors to provide non-audit services. The
Committee undertook an assessment of the External Auditors’
performance and recommended to the Board that re-appointment of the
External Auditors be submitted to shareholders for approval at the Annual
General Meeting in 2013.
During 2012, I met with the FSA and with the External Auditors on a
trilateral basis as envisaged by the FSA Code of Practice. The purpose of
this meeting was to discuss, in the framework of an open and cooperative
relationship between the supervisor and the External Auditors, issues
considered to be of interest to the parties in meeting their respective
responsibilities. This meeting formed part of the Committee’s oversight of
the Group’s relationship with its regulators.
The Committee reviewed the Group’s systems of internal controls and the
procedures for monitoring their effectiveness. The Committee placed
particular focus in 2012 on ensuring that the Group had articulated an
appropriate three lines of defence model that clearly stated individuals’
responsibility and accountability for risk and control at all levels. This
model is expected to be fully embedded in 2013 and the Group Audit
Committee will closely monitor delivery within the divisions and functions.
Litigation and regulatory investigations featured heavily on the agenda of
both the Group Audit Committee and Board Risk Committee in the
period, highlighting some deficiencies in the control environment. During
2012 the Board asked the Group Audit Committee to monitor progress of
the internal and various ongoing regulatory investigations and claims
based on allegations that the Group had made inappropriate submissions
to influence the setting of interest rates. The Committee met regularly to
receive updates on the investigations, including on an ad hoc basis. It
worked closely with the Group Performance and Remuneration
Committee to make decisions and recommendations in relation to
individual accountability.
The implications for the Group’s culture and control environment were
considered in light of this and other ongoing investigations. The
Committee in particular, reviewed proposed enhancements to the culture
and control framework in the Markets and International Banking divisions.
It has monitored the implementation of remedial action in the Markets
business and has overseen liaison with the Group’s regulators.
Independent assurance has been obtained regarding the
comprehensiveness and timeliness of plans. The Committee is confident
that the change programme will result in genuine behavioural change
across the business as well as robust and sustainable control
remediation. It will closely monitor implementation of these plans in 2013.
Inevitably, the challenges that have arisen during the year have meant
that members have had to dedicate some considerable time to the work
of the Committee. I would like to extend my thanks to my fellow
Committee members for their continued dedication and support
throughout 2012.
Brendan Nelson
Chairman of the Group Audit Committee
27 February 2013