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Report of the Group Audit Committee
52
Letter from Brendan Nelson,
Chairman of the Group Audit Committee
Dear Shareholder,
2013 has been a year of significant change for the Group, presenting a
number of challenges to the Group Audit Committee. The priority of the
Committee has been to ensure the quality and transparency of disclosure
and the integrity of the Group’s financial statements. Most notably the
Committee supported the Board in its decision to release a trading
statement in advance of announcing the Group’s full year results
prompted by the recognition of further provisions relating to conduct and
litigation, primarily relating to mortgage-backed securities litigation and
past conduct issues. These provisions are substantial and have had a
significant impact on the Group’s performance for the year.
During 2013, the Committee also scrutinised the disclosures relating to
management actions to accelerate the rebuild of capital strength and to
focus on core businesses (including the creation of RCR), included in the
Group’s Q3 2013 Interim Management Statement.
A key aspect of the Committee’s responsibilities is to satisfy itself that the
key accounting decisions, risks and significant management judgements
that underlie the financial statements are appropriate through discussion
and deliberation with management. The Committee reviewed the
conclusions of the External Auditor and, where applicable, other experts
and has concluded that disclosures in the financial statements about
these judgements and estimates are transparent and appropriate.
Progress on remediating known control issues has remained a focus of
the Committee during 2013. On behalf of the Board, the Committee has
overseen the Controls and Culture Remediation Programmes within the
Markets division and has questioned management in relation to the
prioritisation of issues, delivery of remediation, quality assurance and
contingency plans. The Committee received reports from Risk
Management and Internal Audit and commissioned independent
assurance that the programmes were progressing according to plan; that
issues were being remediated to industry standard; and that internal
reporting accurately reflected progress. On behalf of the Committee I
discussed progress and prioritisation with the Prudential Regulatory
Authority (PRA). The progress made by management during the course
of 2013 was encouraging. However, we will continue to exercise
oversight of the areas remediated to ensure improvements are sustained
and that further progress is made during 2014.
The Markets Controls and Culture Remediation Programmes have
served to underline the importance of an effective three lines of defence
model. This was a priority in 2013 and the Committee received regular
reports on embedding the model within divisions and functions and
articulating the responsibilities and capabilities of the business.
Embedding the model and maintaining standards of internal control will
continue to be a key priority for the Group during 2014 as the
organisational changes announced following the strategic review are
implemented. The Committee will monitor this closely.
The Committee has also monitored the progress of various regulatory
investigations and claims based on allegations that the Group had
inappropriately tried to influence benchmark interest rates. Working
closely with the Group Performance and Remuneration Committee,
recommendations were made in relation to individual accountability. The
Committee continues to consider the output of the review of certain high-
risk rates which were not subject to investigation by external authorities.
The annual programme of joint visits by the Group Audit and Board Risk
Committees to the Group's business divisions and control functions
continued in 2013. The programme allows members of the Committees to
spend additional time with areas of the business which the Committees
judge would benefit from a more detailed review. Invitations to attend are
extended to all non-executive directors. During 2013, the Committees
undertook a total of eight visits, including a week long visit to the Group’s
operations in Asia and a two-day visit to Ulster Bank. During these visits I
took the opportunity to meet with local regulators to gain a better
understanding of their perspectives and concerns on our business and
key control issues.
In all our work we seek to strike the right balance between on the one
hand providing independent oversight and on the other encouragement
and support to management. It has been another demanding year for the
Group Audit Committee and I would like to extend my thanks to my fellow
Committee members for their continued dedication and support
throughout 2013.
Brendan Nelson
Chairman of the Group Audit Committee
26 February 2014