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<strong>KNM</strong> GROUP BERHAD I Annual Report 201235Audit Committee Report (cont’d)INTERNAL AUDIT FUNCTIONSThe Group has an in-house Internal Audit Department which operates across the Group and independent of theactivities or operations of the subsidiaries and departments. The duties of the Internal Audit Department are to providereasonable assurance in the effective execution of responsibilities of Committee members by providing verifications,examinations and evaluations of the Group’s system of internal controls.The Head of the Internal Audit Department reports directly to the Committee highlighting major weaknesses incontrol procedures of auditable areas as set out in the internal audit plan. Where appropriate, relevant correctiveand/or preventive actions will also be recommended for implementation in order to further strengthen the existingsystem of internal controls of the Group. During the year, among others, Internal Audit Department had carried outthe following activities:-• reviewed and ascertained adequacy of internal controls through operational and compliance audits;• reported audit findings of highlighted weaknesses with recommendations to the Audit Committee on a quarterlybasis; and• performed follow-up review for corrective and/or preventive actions of the weaknesses.The costs amounting to approximately RM481,000 (2011: RM381,000) were incurred for the internal audit functionsin respect of the financial year ended 31 December 2012.
36<strong>KNM</strong> GROUP BERHAD I Annual Report 2012Statement on Risk Management and Internal ControlThe Board of Directors is committed to maintaining a sound system of internal controls in the Group and is pleasedto provide the following statement on risk management and internal control that outlines the nature and scope ofrisk management and internal control of the Group during the year as required under Paragraph 15.26(b) of theBursa Malaysia Securities Berhad Main Market Listing Requirements. The Board is ultimately responsible for theGroup’s system of internal controls and reviewing its effectiveness. The Board also believes that the Group’s systemof internal controls and risk management practices are vital to good corporate governance.RISK MANAGEMENTThe Group has developed a risk management framework and has put in place an Enterprise-Wide Risk Managementframework to identify the key risks faced by the Group, the potential impact and likelihood of those risks occurring,the control effectiveness and the action plans being taken to manage those risks to the desired level. Such a systemis designed to identify, evaluate and manage the significant risks faced by the Group in its achievement to achieveits objectives and strategies. A process has been put in place for the year under review and up to the date of thisstatement. On-going reviews are and will continuously be carried out to ensure the effectiveness, adequacy andintegrity of the system of internal controls in safeguarding the Group’s assets and shareholders’ investment in theGroup. Where necessary actions have been taken to remedy any significant failings or weaknesses identified from theperiod reviewed. However, actions taken can provide only a reasonable and not an absolute assurance against risk.INTERNAL CONTROLThe key elements of certain operating activities of the Group’s system of internal controls are as follows:-• An organisational structure specifying lines of responsibility and delegation of authority.• The Financial Authority Limits delineate authorization limits for securing of jobs and services, purchases ofgoods and/or services and capital expenditure for each level of management to ensure proper identificationof accountability and segregation of duties.• Management executive committee meetings involving the Executive Directors, senior management and projectspersonnel were conducted to discuss the state of affairs and progress for projects and operational businesses.• The Quality Assurance departments conducted internal quality audits to monitor compliance with ISOrequirements at respective subsidiaries with ISO accreditation.• The Health, Safety and Environment departments at the fabrication facilities carried out health, safety andenvironment activities to promote staff safety awareness and compliance.• The Board and Audit Committee reviewed the operational and financial performance at quarterly Board andAudit Committee meetings.The Head of the Group Internal Audit Department reports audit matters directly to the Audit Committee of the Groupto preserve the independence of the internal audit function. The internal audit work is focused on areas of priority inaccordance with the audit plan as approved by the Audit Committee.ASSOCIATED COMPANIES AND JOINTLY-CONTROLLED ENTITIESThe Group’s system of internal controls does not cover associated and jointly-controlled entities.MONITORINGThe system of internal controls will continue to be reviewed, added to or updated by the Board in line with the changesin operating environment.The Board has received assurance from the CEO and CFO that the Group’s risk management and internal controlsystem is operating adequately and effectively, in all material aspects, based on the risk management and internalcontrol system of the Group.The Board is pleased to report that there were no material losses or contingencies requiring disclosure in the Group’sAnnual Report 2012 under review as a result from weaknesses in internal control.
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