Tesco 2008 Annual Report Download - page 25

Tesco PLC Annual Report and
Financial Statements 2008 23
Internal controls Accountability for managing risk at an operational
level sits with management. We have a Group-wide process for clearly
establishing the risks and responsibilities assigned to each level of
management and the controls which are required to be operated
and monitored.
The CEOs of subsidiary businesses are required to certify by way of annual
statements of assurance that the Board’s governance policies have been
adopted both in practice and in spirit. For certain joint ventures, the Board
places reliance upon the internal control systems operating within our
partners’ infrastructure and the obligations upon partners’ boards relating
to the effectiveness of their own systems.
The Board acknowledges that it is responsible for the Company’s system
of internal controls and for reviewing the effectiveness of the system.
Such a system is designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or loss.
The Board has conducted a review of the effectiveness of internal controls
and is satisfied that the controls in place remain appropriate.
Monitoring The Board oversees the monitoring system and has set
specific responsibilities for itself and the various Committees as set out
below. The minutes of the Audit Committee and the various non-statutory
Committees (Finance, Compliance and Corporate Responsibility Committees)
are distributed to the Board and each Committee submits a report for
formal discussion at least once a year. These all provide assurance that the
Group is operating legally, ethically and in accordance with approved
financial and operational policies. We noted the updates to the Turnbull
Guidance and keep under review how the Turnbull Guidance has been
applied. In addition, both Internal Audit and our external auditors play key
roles in the monitoring process, as do several non-statutory Committees:
the Finance Committee, Compliance Committee and Corporate
Responsibility Committee.
Audit Committee Annually, the Audit Committee reports to the Board
on its review of the effectiveness of the internal control systems for the
accounting year and the period to the date of approval of the financial
statements. Throughout the year the Committee also receives regular
reports from its external auditors covering topics such as quality of
earnings and technical accounting developments. The Committee
also receives updates from Internal Audit and has dialogue with senior
managers on their control responsibilities. It should be understood that
such systems are designed to provide reasonable, but not absolute,
assurance against material misstatement or loss.
Internal Audit The Internal Audit department is fully independent of
business operations and has a Group-wide mandate. It operates a risk-
based methodology, ensuring that the Group’s key risks receive appropriate
and regular examination. Its responsibilities include maintaining the Key Risk
Register, reviewing and reporting on the effectiveness of risk management
systems and internal control with the Executive Committee, the Audit
Committee and ultimately to the Board. Internal Audit facilitates oversight
of risk and control systems across the Group through audit and compliance
Committees in each of our international businesses and our joint ventures.
The Head of Internal Audit also attends all Audit Committee meetings.
External Audit PricewaterhouseCoopers LLP, the Company’s external
auditor, contributes a further independent perspective on certain aspects
of our internal financial control systems arising from its work, and reports
to both the Board and the Audit Committee.
The engagement and independence of external auditors is considered
annually by the Audit Committee before it recommends its selection to the
Board. The Committee has satisfied itself that PricewaterhouseCoopers LLP
is independent and there are adequate controls in place to safeguard its
objectivity. One such measure is the requirement to rotate audit partners
every five years. This year the audit engagement partner, having served five
years on the Tesco audit, has been rotated. We have a non-audit services
policy that sets out criteria for employing external auditors and identifies
areas where it is inappropriate for PricewaterhouseCoopers LLP to work.
Non-audit services work carried out by PricewaterhouseCoopers LLP is
predominantly the review of subsidiary undertakings’ statutory accounts,
transaction work and corporate tax services. PricewaterhouseCoopers LLP
also follow their own ethical guidelines and continually review their audit
team to ensure their independence is not compromised.
Finance Committee Membership of the Finance Committee, which is
not a statutory committee, includes Non-executive Directors with relevant
financial expertise, Executive Directors and members of senior management.
The Committee usually meets twice a year and its role is to review and
agree the Finance Plan on an annual basis, to review reports of the Treasury
and Tax functions, and to review and approve Treasury limits and delegations.
Compliance Committee Membership of the Compliance Committee,
which is not a statutory Committee, includes three Executive Directors and
members of senior management. The Committee normally meets six times
a year and its remit is to ensure that the Group complies with all necessary
laws and regulations in all of its operations worldwide. The Committee
has established a schedule for the regular review of operational activities
and legal exposure. Each international business in the Group has a local
compliance committee designed to ensure compliance with local laws
and regulations as well as Group compliance policies, and each country
compliance committee reports to the Group Compliance Committee on
a regular basis.
Corporate Responsibility Committee The Committee, which is not a
statutory committee, is chaired by the Corporate and Legal Affairs Director
and membership is made up of senior executives from across the Group.
It meets at least four times a year to support, develop and monitor policies
on SEE issues, reviewing threats and opportunities for the Group. Progress
in developing Community initiatives is monitored by the use of relevant
KPIs in the UK and our international businesses. The Board formally
discusses the work of the Committee on a regular basis, including progress
in implementing our Community Plan.
The Corporate and Legal Affairs department and the Trading Law and
Technical department provide assurance and advice on legal compliance,
health and safety, and SEE matters. These functions report on their work
on a regular basis and escalate matters as appropriate.
Management In our fast moving business, trading is tracked on a daily
and weekly basis, financial performance is reviewed weekly and monthly,
and the Steering Wheel is reviewed quarterly. Steering Wheels are
operated in business units across the Group, and reports are prepared
of performance against target KPIs on a quarterly basis enabling
management to measure performance.
All major initiatives require business cases normally covering a
minimum period of five years. Post-investment appraisals, carried out
by management, determine the reasons for any significant variance
from expected performance.