The Board is responsible for the Group’s system of internal controls to safeguard shareholders’ investment and the Company’s assets. However, any system can only provide reasonable assurance against material misstatement or loss. As part of its responsibility, the Board regularly, and at least annually, reviews the effectiveness of its internal controls. The Group has systems and procedures for internal controls that are designed to provide reasonable control over the activities of the Group and to enable the Board to fulfil its legal responsibility for the keeping of proper accounting records, safeguarding the assets of the Group and detecting fraud and other irregularities. However, it is recognised that it is in the nature of any business that business and commercial risks must be taken and that for a business to succeed, enterprise, initiative and the motivation of employees are key elements that must not be unduly stifled. It is not the intention of the Group to avoid all commercial risks and commercial judgements will have to be made in the course of the management of the business.
The Board has adopted a risk-based approach to establishing the system of internal controls. The application and process followed by the Board in reviewing the effectiveness of the system of internal controls during the year are as follows:
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Operating company management is charged with the ongoing responsibility for identifying risks facing each of the businesses and for putting in place procedures to monitor and manage risks.
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This system has been in place for the year under review and up to the date of approval of the Annual Report and Accounts.
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The responsibilities of the Chief Executive Officer and Chief Financial Officer at each operating unit to manage risks
within their businesses are periodically reinforced by Group executive management.
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Major commercial, technological and financial risks to the Group are formally assessed during the annual long-term business planning process around mid-year. These plans and the attendant risks to the Group are reviewed and considered by the Board.
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Large capital projects, product development projects and acquisitions and disposals require Board approval.
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The process by which the Board reviews the effectiveness of internal controls has been agreed by the Board and documented. This involves regular reviews by the Board of the major business risks of the Group, together with the controls in place to manage those risks as reported to the Board by the Chief Executives of each Division. In addition, each year businesses formally review, in detail, all of their business risks and their internal controls, including financial, operational and compliance controls. They then prepare statements that describe the extent of their compliance with control objectives. These statements are approved by the Chief Executive Officer and Chief Financial Officer of each operating unit and submitted to Group executive management for review. Any significant matters arising from this review are formally reported to the Board by the Group Finance Director. The risk and control identification and certification process is monitored and periodically reviewed by Group financial management.
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A centralised database of risks facing the Group, as well as each individual business, and an evaluation of the impact and likelihood of those risks is maintained and updated regularly.
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The Board has established a control framework within which the Group operates. This contains the following key elements:
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organisational structure with clearly defined lines of responsibility, delegation of authority and reporting requirements;
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defined expenditure authorisation levels;
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on-site and telephone conferencing operations reviews covering all aspects of each business are conducted by Group executive management on a regular basis throughout the year;
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comprehensive system of financial reporting. The annual budget and long-term plan of each operating company are reviewed in detail and approved by the Group Chief Executive Officer and Operations Executive. The Board approves the overall Group’s budget and plans. Monthly actual results are reported against prior year and monthly budgets. Forecasts are revised where necessary but formally at least once every quarter. Any significant changes and adverse variances are questioned by the Group Chief Executive Officer and Operations Executive and remedial action is taken where appropriate. Group tax and treasury is co-ordinated centrally. There is regular cash and treasury reporting to Group financial management and periodic reporting to the Board on the Group’s tax and treasury position.
The Board considers that it has fully complied with the Code during the year and up to the date of approval of the Annual Report and Accounts and that it accords with Turnbull guidance.
The Group implemented an internal audit function in August 2009, replacing the third party audit consultants. Ten audits took place in 2010, the details of which have been reported to the Audit Committee.
Going concern
The directors have made appropriate enquiries and consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the accounts.