Directors' Report: Governance - British American Tobacco

www.bat.com/annualreport2009
and/or individual market audit and CSR committees. A corporate
audit committee sits at the same level as the regional committees and
focuses on the risks and the control environment within the Group’s
operations which do not fall within the regional committees’ remit,
for example head office central functions, global programmes and
above-region projects. It comprises members of the Management
Board and is chaired by a Management Board member responsible
for one of the Group’s Regions to maximise its independence from
central executive management. It is in turn supported by separate
audit committees covering the Group’s global IT and operations
functions, which were introduced as separate committees in 2009.
The relevant external and internal auditors regularly attend meetings
of these committees and have private audiences with members of the
committees at least once each year. In addition, central, regional and
individual market management, along with internal audit, supports
the Board in its role of ensuring a sound control environment.
Risk management and internal control processes
Risk registers, based on a standardised methodology, are used at
Group, regional, area and individual market level to identify, assess
and monitor the key risks (both financial and non-financial) faced
by the business at each level. Mitigation plans are required to be
in place to manage the risks identified and the risk registers and
mitigation plans are reviewed and, where appropriate, updated on a
regular basis. They are also reviewed regularly by the relevant regional
audit and CSR committee, the corporate audit committee and, in the
case of the Group risk register, by the Board’s Audit Committee.
Group companies and other business units are required at least
annually to complete a checklist of the key controls which they are
expected to have in place, called Control Navigator. Its purpose is
to enable them to self-assess their internal control environment, assist
them in identifying any controls which may require strengthening and
support them in implementing and monitoring action plans to address
control weaknesses. The Control Navigator checklist is reviewed
annually to ensure that it remains relevant to the business and covers
all applicable key controls. In addition, at each year end, Group
companies and other business units are required to:
■ review their system of internal control, confirm whether it remains
effective and report on any material weaknesses and the action
being taken to address them; and
■ review and confirm compliance with the Standards of Business
Conduct and identify any material instances of non-compliance
or conflicts of interest identified.
The results of these reviews are reported to the relevant regional audit
and CSR committee or to the corporate audit committee and, where
appropriate, to the Board’s Audit Committee to ensure that appropriate
remedial action has been, or will be, taken where necessary.
Directors’ report: Governance
British American Tobacco Annual Report 2009
The Group’s internal audit function provides advice and guidance
to the Group’s businesses on best practice in risk management and
control systems. It is also responsible for carrying out audit checks
on Group companies and other business units, and does so against
an audit plan presented annually to the Audit Committee, which
focuses in particular on higher risk areas of the Group’s business.
Review
The Turnbull Guidance (the Guidance) sets out best practice on
internal control for UK-listed companies to assist them in assessing the
application of the Code’s principles and compliance with the Code’s
provisions with regard to internal control. The current version of the
Guidance applies to listed companies for financial years beginning on
or after 1 January 2006.
The processes described above, and the reports that they give rise
to, enable the Board and the Audit Committee to monitor the internal
control framework on a continuing basis throughout the year and to
review its effectiveness at the year end. The Board, with advice from its
Audit Committee, has completed its annual review of the effectiveness
of the system of internal control for the period since 1 January 2009.
No significant failings or weaknesses were identified and the Board
is satisfied that, where specific areas for improvement have been
identified, processes are in place to ensure that the necessary remedial
action is taken and that progress is monitored. The Board is satisfied
that the system of internal control is in accordance with the Guidance.
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