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Audit Committee - Terms Of Reference

Code of Practice

  • All members are required to adhere to the Statement of Principle and Code of Practice for Approved Persons in the Financial Services Authority Handbook.

Membership

  • The members of the Committee shall be appointed by the Board from the non-Executive Directors of the Society and shall consist of a minimum of three members.  A quorum shall be two members.
  • The duties and responsibilities of a member of the Audit Committee are in addition to those set out for a member of the Board of Directors.
  • Membership –I A Ross (Chairman), D Goldie and R J Mee

Appointment of Chairman

  • The Chairman of the Committee, who shall not be the Chairman of the Society, shall be appointed by the Board by formal Board resolution.

Attendance at Meetings

  • The Chief Executive and Finance Director have no automatic right to attend Audit Committee meetings, but may attend if invited, and will normally attend, except for items of business where it would be inappropriate.  Other non executive directors who are not members of the Audit Committee should have a right to attend Audit Committee meetings or request a meeting to be convened.
  • The Committee may instruct any officer or employee of the company to attend any meeting and provide pertinent information as necessary.
  • The Secretary of the Audit Committee shall be the Company Secretary or nominated deputy.

Frequency of Meetings

  • Meetings shall be held at least four times a year, normally February, May, July and November or more frequently as circumstances require.
  • The Audit Committee Chairman shall convene a meeting upon request of any Committee member who considers it necessary, or any other non executive director.
  • Whenever possible Committee meetings shall be scheduled to allow for adequate time for Committee business and so that issues can be reported promptly and effectively to the Board.

Other Meetings

  • At least once a year, the Committee shall meet separately with the Head of Group Internal Audit and the external auditors, each without the presence of Executive management, to discuss matters that any party believes should be discussed in this forum.
  • The Chairman of the Committee shall meet regularly with the FSA.  The purpose of these meetings is:
    • To enhance the FSA’s understanding of the issues relating to corporate governance and system of operation of the Society.
    • To provide an opportunity for the Chairman of the Committee to discuss with the FSA any concerns that they may have about the management of the Society.
    • To form a view on the effectiveness of the Audit Committee.

  • The Chairman of the Committee should be present at the AGM to answer questions, through the Chairman of the Board, on the report on the Audit Committee’s activities and matters within the scope of the Audit Committee’s responsibilities.

Authority of the Committee

  • The Committee is authorised by the Board to investigate any activity the Committee deems appropriate.  It is authorised to seek any information from any officer or employee of the Society, all of whom are directed to co-operate with any request made by the Committee.
  • The Committee is authorised to engage any firm of accountants, lawyers or other professionals as the Committee sees fit, to provide independent counsel and advice and to assist in any review or investigation on such matters, as the Committee deems appropriate.
  • The Head of Group Internal Audit is line responsible to the Audit & Compliance Director, has a dotted reporting line to the Chairman of the Audit Committee and has access to the Chairman of the Society, if required.

Duties of the Committee

The duties of the Committee shall be to:

Advise the Board on:

  • The effectiveness of Society procedures for identifying business risks and controlling their financial impact.
  • The effectiveness of the Society’s internal control systems and the extent to which the Board can rely on the systems (including without prejudice to the generality of the foregoing the Society’s financial control systems).
  • Promoting the co-ordination of internal and external audit services.
  • The arrangements for securing economy, efficiency and effectiveness.
  • The “control culture” of business
  • The impact on Group Internal Audit as business changes

General

  • Ensure that there is an open avenue of communication between the Group internal auditors, the external auditors, and the Board of Directors..
  • Review annually and if necessary, propose for formal Board adoption, amendments to the Audit Committee’s Terms of Reference.
  • “The Company Secretary will present to the Board a schedule of the management information submitted to them.  The Board is requested to review the information it receives both as main Board members and Board Committee members, to ensure that it is appropriate for its purpose.  The Audit Committee is requested to present the opinions of the Board to the July Audit Committee meeting.  A minute should be taken at this meeting to detail the outcome”.
  • Review the wording of the Chairman and Chief Executive’s Statements.
  • Receive minutes from trilateral meetings.  (Trilateral meetings are from the FSA, the Society and the Society’s external auditors.)

Effectiveness

  • Monitor annually, or more frequently if necessary, the implementation of approved recommendations and agreed actions relating to both internal audit reports and external audit reports and management letters and those of other ad hoc audits.
  • Monitor and review the effectiveness of the internal and external audit service.
  • Consider in consultation with the Head of Group Internal Audit and the external auditors, the audit plans and scope of the internal and external auditors work, ensuring that co-ordination between external and internal audit work is maximized.

Financial Statements

  • Recommend approval of the half-year accounts, Financial Summary Statement, the Annual Accounts, and the Chairman and Chief Executive’s Statements.
  • Review the significant financial reporting issues and judgments made in connection with the preparation of the Society’s financial statements, interim reports, preliminary announcements and related formal statements and the clarity and completeness of disclosures in the financial statements. If not satisfied with any aspect of proposed financial reporting the Audit Committee should report its views to the Board.
  • Monitor the integrity of the financial statements.
  • The Directors’ report should contain a separate section that describes the role and responsibilities of the Audit Committee and the actions taken to discharge those responsibilities.

Risk Committee

  • Review the Executive Summary of the monthly Risk Management Report.
  • Review the work of the Risk Committee by reviewing the minutes of the monthly Risk Committee meetings.
  • Review the risk appetite documented by the Risk Committee and propose the risk appetite to the main Board, at least twice a year or when there are any changes.

External audit

The Audit Committee is the body responsible for overseeing the Society’s relations with the external auditor.

  • Advise the Board on the appointment, reappointment and removal of external auditors.  Review and approve the scope, quality and findings of their work.  Formally review the appointment at the November meeting.
  • Ensure that an objective and professional relationship is maintained with the external auditors.
  • Ensure that any weaknesses identified by the external auditors in the Society’s systems and controls are rectified.
  • Review the independence, cost effectiveness, objectivity and resources annually.
  • Approve the Terms of Engagement and the remuneration to be paid to the external auditor in respect of audit services to be provided.

Group Internal audit

  • Review and approve the appointment, replacement, re-assignment, or dismissal of the Head of Group Internal Audit.
  • Review the effectiveness of the Society’s internal control and risk management systems and in particular financial control systems.
  • Ensure that Group Internal Audit has access to all records and documents including material prepared for and by the Board. Group Internal Audit is authorised by the Board to obtain information and explanation from employees at all levels, including Directors and Executives.
  • Review the Group Internal Audit plans to ensure all aspects of the Society’s business are covered in a manner, which in the opinion of the Directors satisfies the requirements of SYSC. The Group Internal Audit plan will identify the scope and frequency of work to be carried out in each area.  Audit effort should be focused on those areas identified in the risk analysis as higher risk, however all areas would be covered over a set time frame. 
  • Review the adequacy of resources, including number, experience, qualification and skills of staff within the audit function.
  • Review and approve Group Internal Audit - Terms of Reference and Group Internal Audit – Strategy
  • Review reports produced by Group Internal Audit or a summary of their reports.

Legal and Compliance

  • Group Internal Audit will provide assurance to the Audit Committee on the work undertaken by Legal & Compliance Financial Crime and Group Risk in ensuring the Society is compliant with regulation, legislation and guidance as a result of Legal & Compliance, Financial Crime and Group Risk review work across the organisation.

Corporate governance

To review the Society’s Corporate Governance statement on internal control systems prior to endorsement by the Board and in particular to review:

  • The adequacy of the Society’s systems of business control and in particular the arrangements for evaluating risks in relation to its existing and future business and capital requirements.
  • The Society’s policies for preventing or detecting fraud documented in the Financial Crime Strategy.
  • The Society’s policies for ensuring that the Society complies with the Building Society Act 1986 (as amended 1997) as well as the FSA rules and guidance.
  • The operational effectiveness of the policies and procedures.
  • Review the Society’s procedures for whistleblowing and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or financial control. Audit Committee will make any recommendations to the board felt necessary to address areas of concern or opportunities for improvement.

Reporting

  • The Chairman of the Committee shall report on Committee business to the Board with such recommendations, as the Committee may deem appropriate.
  • The Secretary shall distribute copies of the minutes of meetings of the Committee to all members of the Board.