RBS 2012 Annual Report Download - page 315

RBS GROUP 2012
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The Committee also reviewed the effectiveness of the Group New
Product Approval Process and received quarterly reports from the Credit
Quality Assurance function. It considered the Group’s compliance with
the requirements of the Sarbanes-Oxley Act of 2002 and was regularly
advised of whistle blowing disclosures which took place in the Group;
complaints raised with members of the Group’s executive team; and
significant and sensitive internal investigations.
Divisional Risk and Audit Committees have responsibility for individual
divisions and report to the Group Audit Committee and Board Risk
Committee. Given the size and complexity of the Group, these
committees are essential components of the governance framework that
supports the effective operation of the Group Audit Committee and Board
Risk Committee. The Committee agreed improvements to the divisional
risk reporting framework and these changes will be implemented during
2013. Quarterly reports were received by the Group Audit Committee and
Board Risk Committee from each Divisional Risk and Audit Committee.
Internal audit
The Group Audit Committee oversaw the work of Group Internal Audit
throughout 2012, and received regular reports from the Head of Group
Internal Audit. These included bi-annual opinion reports which rated both
the quality of the control environment of all the Group’s divisions and of
management’s level of awareness. The reports from Group Internal Audit
enabled the Committee to monitor internal control within the Group by
reporting on areas where improvements to the control environment were
needed.
In response to Group Internal Audit findings during 2012, the Committee
requested presentations from the International Banking business on
improvements to its control environment. More generally, Group Internal
Audit raised observations regarding the Group’s management of the
conduct risk agenda. Following discussion at the Group Executive
Committee, Stephen Hester presented management's action plan
responding to these findings to the Committee.
The Group Audit Committee considered Group Internal Audit’s annual
plan and the adequacy of its resources and budget. Nicholas Crapp
joined the function at the beginning of 2012 and the Committee reviewed
the strategy for Group Internal Audit under his leadership.
In line with best practice, an external review of the effectiveness of Group
Internal Audit takes place every three to five years, with internal reviews
continuing in intervening years. In January 2013, the Group Audit
Committee undertook an internal evaluation of Group Internal Audit. It
concluded that Group Internal Audit had operated effectively throughout
2012. Minor observations and recommendations will be implemented.
Oversight of the Group’s relationship with its regulators
The Group Audit Committee has a responsibility to monitor the Group’s
relationship with the Financial Services Authority (FSA) and other
regulatory bodies. During 2012, it received regular reports on the Group’s
relationship with all its regulators and highlighting significant
developments. It received reports on regulatory actions and
investigations. Over the course of the year the chairmen of the Group’s
senior Board committees met with the FSA on an individual basis and
also participated in certain Regulatory College meetings with the Group’s
primary regulators. The FSA attended a Group Audit Committee meeting
in October 2012 as an observer.
During 2012, the Chairman of the Group Audit Committee also met with
the FSA and with the External Auditors on a trilateral basis.
The Committee closely monitored the Group’s relationship with its
international regulators and significant time continued to be dedicated in
particular to understanding the regulatory requirements in the US and the
implications on the Group’s US operations and structure.
Processes for external audit
During 2012, the External Auditors provided the Group Audit Committee
with reports summarising their main observations and conclusions arising
from their year end audit, half year review and work in connection with
the first and third quarters and their recommendations for enhancements
to the Group’s reporting and controls. The External Auditors also
presented for approval to the Committee their audit plan and 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 independence and 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 in two stages. An initial review was carried out in early 2013.
In assessing the effectiveness of the Group’s External Auditors, the
Group Audit Committee had regard to:
x the experience and expertise of the senior members of the
engagement team;
x the proposed scope of the audit work;
x the quality of dialogue between the External Auditors, the
Committee and senior management;
x the clarity and quality and robustness of written reports presented to
the Committee setting out the External Auditors’ findings;
x the quality of observations provided to the company by the External
Auditors on the Group’s systems of internal control; and
x the views of management on the performance of the External
Auditors.
The second phase of the review will be conducted following completion of
all year end processes and will involve targeted interviews with
individuals based on outputs from the initial phase and level of interaction
with the External Auditors.