corporate governance - woolworths holdings limited

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customer service Our customers' expectations continue to increase and we are committed to understanding and meeting their expectations. Our customer service trial demonstrated that the key requirement is to ensure product availability throughout our trading period. In addition, the length of till queues requires attention to ensure that our customers enjoy their shopping experience. compliance with the new Credit Act The new Credit Act has been promulgated and we need to comply with the requirements from the effective date of 1 July 2007. Compliance to the Credit Act will require enhancements to our current business process and system design. armed robbery We are concerned with the increasing level of armed robbery affecting retail stores. In the 2006 financial year there were fifteen armed robberies in our stores, compared to seven in the prior year. Whilst we were fortunate during the year that none of our employees or customers were seriously injured, the increase in armed robbery represents a real threat to safety. Over and above the processes and controls in place to manage our key risks, the group has a comprehensive asset and liability insurance programme. crime prevention and detection A key priority is the implementation of effective processes to reduce the level of crime, which includes shrinkage, burglary, armed robbery, internal fraud, theft and corruption. Armed robbery has now been identified as a key risk given the increasing levels and the threat to employee and customer safety. Measures are in place to manage this as reported under our key risks. With respect to fraud, theft and corruption we have continued to build on our progress and during the year we: ■ extended the scope of our independent and confidential shrinkage hotline, to include fraud, theft and unethical practices; ■ completed several investigations which resulted in disciplinary action and criminal charges being laid. This demonstrates our commitment and where required the results of the investigations are used to improve the control environment; and ■ commenced the implementation of fraud risk assessments to identify our fraud risk and ensure appropriate controls are in place. 23
24 audit committee The audit committee consists of three independent non-executive directors including Mike Leeming, who chairs the committee. The terms of reference of the audit committee were reviewed and updated to ensure the committee is effective in its monitoring role. The Chairman of the audit committee attends the annual general meeting. The main responsibilities of the committee set out in the terms of reference include: ■ assisting the directors in fulfilling their responsibilities for ensuring that there is an adequate and effective system of internal control in place and that the assurance providers are operating effectively; ■ review of the accounting policies and practices and all proposed changes thereto; ■ facilitating the credibility, objectivity and reliability of published financial reports and ensuring that financial statements comply with the International Financial Reporting Standards; ■ providing an objective, independent forum for the resolution of significant accounting and reported related matters; ■ approval of engagement of external auditors, for non audit services; ■ supporting the overall effectiveness of corporate governance processes; and ■ considering and making recommendations to the board on the following: ■ the appointment and retention of external auditors; ■ external audit fees; ■ interim and annual report financial disclosure; ■ effectiveness of liaison between assurance providers; and ■ effectiveness of internal audit. Separate meetings are held with the external auditors to ensure that matters are considered without undue influence. In addition, the board has approved an external auditor independence policy, which provides guidelines where management wishes to engage the external auditors for non audit services. Compliance with this policy is monitored and reported to the committee on a quarterly basis. There is a strong integration and co-ordination between the activities of the risk and audit committees and Mike Leeming and Nigel Colne are members of both committees to ensure the appropriate exchange of key ideas. Based on a review of management and audit reports and appropriate discussion and enquiry by the members, the committee believes that it performed the functions set out in its terms of reference. The committee met a total of four times during the year. The details of individual attendance at the audit committee meetings are set out on page 31. The Chief executive officer, the Finance director, the external auditors, and the Head of risk and audit attend the meetings as invitees. The Chairman attends the meetings in February and August following the group’s financial half year and year end. internal control The board is accountable for the group’s system of internal control and has delegated this responsibility to management.The system of internal control is designed to ensure that the significant risks are being appropriately managed and provide reasonable assurance that: ■ business objectives will be achieved in normal and adverse trading conditions; ■ operations are efficient and effective; ■ management information is reliable; ■ company assets and information are appropriately safeguarded; and ■ there is compliance with applicable laws and regulations. The board recognises the importance of the control environment in ensuring the effectiveness of internal controls. As such there is an ongoing focus to ensure that roles and responsibilities are clearly defined and that management are held accountable for compliance with the key processes and controls. assurance providers To assist management and the audit committee in forming their opinion on the adequacy and effectiveness of internal controls, there are a number of assurance processes in place.These assurance processes are outlined in more detail below. control self-assessment Within key business areas such as retail operations and logistics there are regular management control self-assessment processes in place.The purpose of these self-assessments is to ensure that there is compliance with the key internal controls, from both an operational and financial perspective.The results of the selfassessments are summarised in the monthly business unit scorecards and are reviewed by management. internal audit The objective of internal audit is to provide independent assurance that there are adequate and effective processes and controls in place to manage the significant risks down to an acceptable level. In addition to providing this fundamental assurance, internal audit uses its risk and control knowledge to advise management on best practice processes and controls that can be implemented to improve the control environment in a meaningful and sustainable manner. Internal audit remains a highly valuable and effective monitoring activity, which is utilised by both directors and management to ensure that appropriate and cost effective controls are in place and complied to. The key elements that have contributed to the effectiveness of internal audit are: ■ risk based planning: The audit plan is based on an independent assessment of the risks and is reviewed and approved by the audit committee in May of each year. However, whilst the plan is annual it is revised quarterly to take cognisance of any changes within the risk environment and these changes are approved by the committee; ■ people: The audit team has a wealth of business and audit knowledge, which is leveraged by working within multi-disciplinary teams, to enhance the quality of the audit opinion and associated recommendations; and ■ reporting: Key audit findings are reported to the audit committee each quarter in the red flag report. This report sets out the significant areas of concern in the control environment and defines the required controls which should be implemented. Progress in implementing the required controls to address these red flag items is audited quarterly and the results are reported to the committee until the item has been satisfactorily resolved. This enables the committee to ensure that prompt action has been taken to address the key areas of concern. The board has recognised that to be truly effective internal audit needs to remain independent and objective. As such the Head of risk and audit reports functionally to the audit committee and administratively to the Head of corporate governance.
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