Tesco 2002 Annual Report Download - page 10

8TESCO PLC
INTERNAL CONTROL
The Board has overall responsibility for internal control, including the
system of risk management, and sets appropriate policies having
regard to the objectives of the Group. Executive management has the
responsibility for the identification, evaluation and management of
risks and for the implementation and maintenance of control systems
in accordance with the Board’s policies.
The Board, through the Audit Committee, has reviewed the
effectiveness of the systems of internal control for the accounting
year and the period to the date of approval of the financial
statements, although it should be understood that such systems are
designed to provide reasonable but not absolute assurance against
material misstatement or loss.
The Group operates an objectives-driven approach aimed at
satisfying its core purpose that translates into a rolling five-year
business plan.The plan covers both revenue and capital expenditure
and forms the basis of business plans for all parts of the Group. From
this the Board, together with monitoring regimes based upon a
balanced scorecard, agrees the annual revenue and capital budgets.
The scorecard sets out targets for a wide variety of key performance
indicators and a quarterly review of achievement is considered
at Board level. This process establishes the control framework and
risk appetite.
The capital investment programme is subject to formalised
review procedures requiring key criteria to be met. All major
initiatives require business cases to be prepared, normally covering a
minimum period of five years. Post-investment appraisals are also
carried out.
At the macro level, the Board considers risk every time it meets
and significant risks are reviewed regularly. The two-day Board
Conference, referred to earlier, considers where future opportunities
and risks lie and helps shape our corporate strategy going forward.
At an operational level, internal controls have been developed in
line with the risk appetite and are subject to regular internal and
external audit. Routines exist which ensure that significant control
failures or events that represent risks to the Group’s objectives are
escalated to senior management and the Board, if necessary, on a
daily, weekly and periodic basis to allow timely corrective action to be
taken. The Board acknowledges that the Group operates in an ever-
changing environment, both externally in meeting the challenges in a
competitive marketplace and internally through the development of
new business streams, systems and procedures. The Board has
established a change management process that includes an evaluation
of risks and an identification of controls.
The Executive Committee sets aside sufficient time for an annual
assessment of the effectiveness of managing the key risks and takes
appropriate action depending upon the outcome of their assessment.
This is then communicated and discussed with the Board.
A programme of communication exists and is constantly being
developed to ensure that all staff are aware of the parameters that
constitute acceptable business performance and the expectations of
the Board in managing risk. This provides clear definition of the
Group’s purpose and goals, accountabilities, responsibilities and the
scope of permitted activities of companies within the Group,
executive functions and individual staff. The Group employs over
260,000 people including over 1,700 senior managers. Management
control exists at all levels and is regulated by cascading limits of
authority.
Underpinning the internal control process is the whole system of
monitoring risk and control. The monitoring of strategic and
operational risks are responsibilities of the Board and line managers
respectively. The internal audit function also operates on a risk-based
approach providing a level of expertise to management in fulfilling
their risk responsibilities and assisting in the mapping of risks and
controls. PricewaterhouseCoopers, our external auditors, contribute
a further independent perspective on certain aspects of the internal
financial control system arising from their work and annually report
their findings to the Audit Committee. Overall, the Audit Committee
seeks to ensure that the whole management process provides
adequate control mechanisms over all major risks to the Group.
To ensure that the international expansion of the Group takes
place within agreed policies and procedures, two further control
committees have been established, reporting to the Audit
Committee.They focus on activities in Europe and Asia respectively.
Other specialist functions within the Group, notably Trading Law
and Technical and Company Secretariat, provide assurance and advice
on health and safety, regulatory and legal compliance and
environmental issues. These functions report their findings on a
regular basis to the Compliance Committee.
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility reflects one of our values – ‘treating
people how we like to be treated’. As such, we recognise our respons-
ibility to communities and to the environment, wherever we operate.
More detailed information about Tesco’s commitment to Corporate
Social Responsibility is available at www.tesco.com/everylittlehelps
PENSION FUNDS
The assets of the pension funds established for the benefit of the
Group’s employees are held separately from those of the Group.
A trustee company manages both the Tesco PLC Pension Scheme
and the remaining assets of the Tesco PLC Money Purchase Pension
Scheme. During the year, over 99% of eligible staff took the
opportunity to change their future pension entitlement from the
Money Purchase Pension Scheme to a defined benefit scheme under
the overall control of the Tesco PLC Pension Scheme. The trustee
company Board comprises one Executive Director, three senior
managers and five members appointed from staff and pensioners.
Management of the assets is delegated to a number of independent
fund managers. These fund managers have discretion to invest in
shares of Tesco PLC, but only to the proportional weighting of the
shares in the total market. Details of pension commitments are set out
in note 27 to the financial statements on pages 37 and 38.
corporate governance continued