Tesco 2014 Annual Report Download - page 43

C. Accountability Whilst no internal control system can guarantee that losses will not occur, the
Board is satisfied that management have remained diligent in their efforts to
ensure that an appropriate level of control remains in place.
C.3 Role and responsibilities of the Audit Committee
The Audit Committee supports the Board in its responsibilities in relation to
corporate reporting and risk management and internal controls, and with
maintaining a relationship with the Company’s auditors.
The Audit Committee’s report on pages 33 to 36 sets out a description of the
work of the Committee.
D. Remuneration
D.1 Level and elements of remuneration
The Directors’ Remuneration Report on pages 41 to 61 explains the level of
remuneration received by the Directors and how the Company has aligned the
remuneration received to corporate and individual performance.
D.2 Development of remuneration policy
The development of our remuneration policy and our rationale for the level
and structure of the remuneration for our senior management is set out in the
Directors’ Remuneration Report on pages 56 to 61.
E. Relations with shareholders
E.1 Shareholder engagement
We are committed to conducting constructive dialogue with shareholders to ensure
that we understand what is important to them and enable clear communication of
our position. The Chairman, CEO and CFO hold regular meetings with shareholders
and update the Board on the outcome of those meetings. Investor Relations
keep the Board informed of broker and analyst views and report and present formally
to the Board twice a year. In addition we carry out a survey each year of a cross-section
of shareholders in order to assess shareholder perception of the Company.
We support greater engagement with institutional shareholders as envisaged
by the Stewardship Code. We are also keen to develop engagement with private
shareholders through various channels of communication, including the AGM,
the Company’s website and social media.
E.2 Constructive use of the AGM
Our 2014 AGM will be held in London on 27 June 2014. The whole Board is
expected to attend the AGM and be available to answer questions from
shareholders present.
In 2013 Ken Hanna was unable to attend the AGM due to a long-standing prior
engagement. All other Directors were present and talked to a number of
shareholders before and after the meeting.
To encourage shareholder participation, we offer electronic proxy voting and
voting through the CREST electronic proxy appointment service. At our AGM all
resolutions are proposed and voted upon individually by shareholders or their
proxies. All votes taken during the AGM are by way of electronic poll. This follows
best practice guidelines and allows the Company to count all votes, not just those
of shareholders attending the meeting.
C.1 Financial and business reporting
The Directors’ statement of responsibilities for the preparation of the Annual
Report and Financial Statements 2014 can be found on page 64. Information on
the Company’s business model can be found on pages 10 and 11 and its strategy
can be found on pages 3 to 7.
The Directors’ confirmation that the business is a going concern can be found
on page 63.
C.2 Risk management and internal control systems
The Board has overall responsibility for ensuring the Group has appropriate
risk management and internal controls in place and that they continue to
work effectively.
There is a comprehensive process for the review and consideration of risk at Tesco.
Risk Registers are in place for all businesses and some key Group functions also
maintain a specific Risk Register. The Group also maintain a Group Key Risk
Register which describes key risks faced by the Group and their likelihood and
impact, as well as the controls and procedures implemented to mitigate them.
Group risks are determined by discussion with senior management and are
reviewed by the GroupExecutive Committee and then agreed by the Board.
In addition to reviewing the Group Risk Register, the Board carries out in-depth
reviews of key risk areas eachyear.
The Company maintains a comprehensive framework of internal controls
addressing the key strategic, financial, legal, reputational and operational risks to
the business and the accountability for operating these controls rests with senior
management as a first line of defence.
Colleagues are required to confirm annually that they complied with the Code
ofBusiness Conduct which sets out individual obligations and responsibilities for
anyone working at Tesco.
Group Finance is responsible for preparing the Group’s financial statements.
Last year it took steps to make the processes more robust by developing a key
financial control framework to describe a mandatory suite of controls across key
business processes. Compliance is monitored by an annual self-assessment.
A number of key management committees play a role in monitoring compliance
with internal controls. The Group Compliance Committee is responsible for
monitoring legal compliance across the Group, including receiving reports from
the individual business unit compliance committees.
The Audit Committee reports each year on its assessment of the effectiveness
of the risk management and internal controls systems. Throughout the year the
Committee receives regular reports from the external auditor covering topics such
as quality ofearnings and technical accounting developments. Internal Audit and
senior management also regularly provide updates to the Committee and any
significant breaches of control, together with the appropriate remediation
arrangements are discussed.
The Board conducted a review of the effectiveness of the Company’s risk management
and internal controls during the year. To support the Board in their annual assessment,
a summary report is prepared which describes the arrangements that the Board has
put in place for internal control and risk management systems and summarises the
key issues or non-compliances arising from those processes.
These arrangements include:
1. The Annual Risk Management Process (as described in the principal risks and
uncertainties section on pages 20 to 25) – there is a comprehensive process for
the review and consideration of risk at Tesco. Risk Registers are in place for all
Business Units and for some key Group Functions, including Group Finance.
These are considered regularly by subsidiary boards to assess their control
systems and have all been reviewed at least once in the last year. The Group Key
Risk Register was reviewed by the Executive Committee in January 2014 and the
Board in February 2014. During the reviews all the Group risks were challenged
and refreshed.
2. The Internal Audit Programme – a risk-based programme of Internal Audit is
conducted annually and the findings of those audits, together with the
monitoring of the progress of management’s remediation programmes is
reviewed by the Board.
3. Evaluation of the Control Findings from External Audit – PwC are not a part of
Tesco’s internal control system. However, they do form an assessment on the
financial control environment as they conduct their audit work and this is
another point of reference and information for the Board and senior
management to consider on the operation of our controls.
4. Assessment of Compliance Activities at a Group and Business Unit Level – the
results of a number of other key compliance activities are also considered during
the review of the effectiveness of risk management and internal control
arrangements. These include: the outputs from the Group and Business Unit
Compliance Committee processes; the returns from the Annual Code of
Business Conduct declaration process; the results of the Key Financial Controls
Self-Assessment process; the results of store-based compliance reviews of stock,
cash and price integrity processes; the results of the Group Technical and
Trading Law assessments including ethical audits; the outputs from the Tesco
Bank Risk Assurance and Compliance process; reports from the Fraud and Code
of Conduct Investigations; and, the results from the Information Security
reviews and incidents that occurred in the year.
40 Tesco PLC Annual Report and Financial Statements 2014
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