QinetiQ Annual Report 2017

60 Corporate governance QinetiQ Group plc Annual Report and Accounts 2017
Code Principle C – Accountability continued
Report of the Audit Committee continued
During the year under
review, the Committee
monitored the
effectiveness of the
systems of internal
control to gain
assurance that an
effective control
framework was
maintained.
Other matters considered during the year:
The following matters are examples of items which the
Committee considered during the year under review as
part of its annual cycle:
––
External audit strategy for FY17: The external auditor
presented a paper on their FY17 audit strategy.
Significant risks to be reviewed included, among
others, timing and recognition of revenue and profit,
value of goodwill, tax treatments and accounting,
and pensions accounting.
––
Audit tender process: The Committee was kept
informed on the work of the working group it had set
up to carry out the audit tender process. A meeting
of the Committee was held in January 2017 solely for
the purpose of considering the final two candidates
and for making a recommendation to the Board.
Details of the audit tender process and its outcome
can be found on page 63.
––
Group tax policy review: The CFO presented a
paper to update the Committee on the Group’s tax
priorities and issues. Various aspects of the Group’s
R&D expenditure credit claims were discussed. The
tax policy was considered to be cautious and the
Company was up to date with its tax compliance.
––
Annual review of the Committee’s Terms of Reference
and annual schedule of activities: No changes were
made to the Terms of Reference. The annual schedule
of activities was updated to reduce the number
of meetings in May from two to one.
a) Internal controls:
During the year under review, the Committee monitored
the effectiveness of the systems of internal control to
gain assurance that an effective control framework was
maintained. Reports on the effective operation of the
control framework were received from management
and reviewed by the Committee along with key policies
and processes.
During the year under review, at four meetings, reports
on the operation of internal controls and risk management
processes, including the confidential reporting process,
were received from the internal auditor.
Particular attention was given to the timely and effective
implementation of remedial actions, either identified by
the business directly, or by the internal audit function,
with updates on improvement actions being scheduled
for follow-up at a later meeting during the year. The
internal audit function’s risk based strategic and annual
plan was presented to, and scrutinised twice during the
year by, the Committee, to provide assurance that
resources were adequate and directed towards
key risk areas.
The annual plan is structured to ensure that all
significant financial and non-financial risks are reviewed
within a rolling three-year strategic plan. The audits
include the review of financial systems, programmes
and projects, as well as the management of specific
risks identified through the Group’s risk management
processes. During the year under review, the internal
audit function audited constituent parts of the Group’s
transformation programme, in line with a programme
to support adherence to plans and achievement of
outcomes. Other areas of focus during the year were
anti-bribery and corruption processes and I.T. risk
and control.
Internal audit activity in the year continued to indicate
that, overall, an effective control environment was in
place, with an open culture of continuous improvement
being demonstrated by regular management requests
for internal audits to be undertaken.
The Committee also regularly reviews the effectiveness
of the financial risk management framework, including
reviewing key financial risks and assessing the
effectiveness of management’s remedial action plans.
During the year, the Committee undertook a detailed
review of the financial risk register, noting (i) risks being
actively managed through internal mitigation activity,
including the timeframe for current mitigation to improve
the risk position, (ii) risks managed at post-mitigation
levels but heavily influenced by external factors and/or
that require ongoing monitoring, and (iii) retired risks.
As noted on page 50, following on from the Board
effectiveness review, the format for the Group Risk
Register and for risk reporting was reviewed by the
Board at its September and March meetings respectively.
The Board approved a revised and updated Group Risk
Register at its September meeting, and the effectiveness
of the register will be considered during the financial
year ended 31 March 2018.
The process in respect of QinetiQ North America is
adjusted to take into account the Proxy arrangements
referred to on page 57. The executive management
function has regular contact with the Chair of the Proxy
Board and with US executive management, and the
Group’s internal controls have been applied as far as
possible within the requirements of the Proxy regime.
The internal audit function continues to work closely
with US management to gain assurance that an
effective control environment is in place. In addition, the
Executive Directors attended meetings of the US Board
during the year and further such meetings are planned.
The Committee confirms its view that it has received
sufficient, reliable and timely information from
management in the last financial year to enable
it to fulfil its responsibilities.