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• For each class of risk by specific departments —purchasing,
legal, IT and so on— responsible for that class of risk. They
identify the risks and define the relevant risk management
standards. They also monitor their implementation across the
Group.
• By internal auditing. Internal auditors assess risk management
measures according to schedules and regularly updated
Group risk mapping.
A Risk Manager was recently appointed and a Group Risk
Committee set up to overview these operations.
• The Risk Manager reports to the head of the Quality and
Organization Group Service. He or she will identify major risks
for the Group, develop the major risk identification and
remedial planning methods, supervise Operational Risk
management and ensure high risk management standards
are applied across the Group.
• The Risk Committee advises the Managing Partners and
recommends risk management and major risk control
strategies.
The Supervisory Board has set forth the guidelines governing
its own risk monitoring role as follows: it shall review the overall
risk management system annually. For each class of risk, in
consultation with relevant Group Services, it shall assess the
systems in place and the major risks together with relevant
prevention measures aimed at ensuring continued operations.
Moreover, starting in 2005, the Audit Committee’s review will
be supplemented by a report from the head of the Internal
Audit Department.
The Supervisory Board’s schedule for 2005 provides for a review
of several classes of risk and a detailed assessment of risk
management and mapping.
2. Continuous Improvement of Internal Control
On May 7, 2004 the Audit Committee heard the Group’s
Financial Department’s internal control plan, later presented to
the Auditors on June 24, 2004. This includes:
• Major steps to strengthen internal control; and
• The method, tools and schedule of operations for monitoring
and assessing continuous improvement in the area of internal
control of accounting and financial information.
Scope of operations in 2004
Preliminary work carried out in 2003 for the first internal
control procedure report and related recommendations
highlighted three areas of focus:
• Group subsidiary directors, their powers
and relevant checks
Including procedures and criteria of appointment and
renewal of the terms of directors, conditions for exercising
and delegating powers and relevant checks.
• Segregation of responsibilities
The general principles for optimal segregation of
responsibilities – authorization, implementation, reporting
and control – were reiterated and a self-assessment matrix
proposed for each main operational process (purchasing,
sales, inventory management and pay/compensation). This
serves to establish whether a person can perform more than
one of these roles.
• Means of payment
Procedure covering measures to ensure proper use of each
means of payment across Group companies.
Accounting and financial information control
Accounting and financial information procedures, described in
the previous report, were unchanged in 2004.
The transition to international accounting standards proceeded
according to plan.
The Group is currently reviewing financial statement generation
processes and related control tasks. This paves the way for a
finer assessment of the reliability and quality of existing internal
control procedures.
Preparation for switch to IFRS
The IFRS transition plan was launched by the Group’s Chief
Financial Officer in April 2002 and closely monitored by a
committee made up of representatives from Group Operational
units and Services.
The Group Auditors examined the IFRS transition process and
principles and reported on them to the Audit Committee.
The processes that impact reliability
of financial information
Method
Group consolidated financial statements to December 31, 2003
were analyzed for materiality and risk levels based on a number
of criteria, such as the complexity of underlying operations and
degree of decentralization.
A set of six processes was chosen for preliminary focus: the
purchasing cycle (demand to cash), sales (order to cash plus
inventory management), Group financing and financial risk
management, intra-group exchanges and identification of
commitments. This was supplemented by a review of internal
controls for corresponding IT operations.
For each process, a questionnaire serves to list the current ways
of identifying errors and to assess their efficiency.
Where necessary, an action plan is drawn up and
improvements are recommended.
A sample of companies representing around 80% of Group
accounts was taken. This covered all geographic zones and
operations – industrial, sales, financial and distribution.
Status report for 2004
Before addressing the full sample, a pilot phase was conducted
on the purchasing, sales and inventory management processes
in North America. This served to validate the method.
To date, the processes have been described and control
activities listed. This already gave rise to some
recommendations aimed at achieving more systematic