Tesco 2015 Annual Report Download - page 46

B.5 Provision of information and support
Board papers are circulated a week before each meeting to give the Directors and Committee members sufficient time to fully consider the information.
All Directors have access to the services of the Company Secretary and may takeindependent professional advice at the Company’s expense in conducting their duties.
B.6 Board and committee performance evaluation
During the year the Board undertook an internal review of its performance and that of its Committees and individual Directors, with the exception of the former Chairman
and the Audit Committee; further detail can be found on page 36.
An external evaluation was due this year however this has been deferred to later this year. Further information can be found on page 32.
B.7 Re-election of Directors
All Directors were subject to shareholder re-election at the 2014 AGM and, with the exception of Stuart Chambers and Ken Hanna, all of the current Directors will be standing
for election or re-election by the shareholders at the 2015 AGM.
Information about the Directors can be found in their biographies on pages 28 and 29.
C. Accountability
C.1 Financial and business reporting
The Directors’ statement of responsibilities for the preparation of the Annual Report and Financial Statements 2015 can be found on page 74. Information on the Company’s
business model can be found on pages 8 and 9 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 71.
The disclosures required under DTR 7.2.6 are contained in the Directors’ Report on pages 70 and 71.
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.
Successful management of risk is supported by controls, management oversight and sources of assurance.
There is a comprehensive process for the review and consideration of risk at Tesco. Risk Registers are in place for all businesses and 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. Actions are followed up by Internal Audit.
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.
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 its annual assessment,
a report is prepared by Internal Audit 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.
The Control Environment has not been fully effective in the year. This has manifested itself primarily in the events around commercial income and the resultant impact
on the financial statements.
The business has invested significant time and resource to understand, evaluate and remediate the control weaknesses. Clear control improvement plans are in place.
These arrangements include:
1. The Annual Risk Management Process (as described in the principal risks and uncertainties section on pages 22 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. Risk Registers 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 and the Board. 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.
Whilst an internal control system cannot guarantee that losses will not occur, the Board is satisfied that management has 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 37 to 39 sets out a description of the work of the Committee.
Corporate governance report continued
44 Tesco PLC Annual Report and Financial Statements 2015