2006 - Interparfums

control to obtain a description of the internal control system
by sending managers a sample of entities selected according
to the degree of risk they generate for the company when
they have an impact on the company's financial statements,
a self-assessment questionnaire to measure the application
of internal controls on the basis of voluntary statements.
If processes and the associated controls are not formalized or
are considered insufficient a remediation plan is implemented
by the manager concerned to complete the existing system
of internal controls.
This concerns entities involved in the following processes:
■ the management of orders and their settlement,
■ the management of trade payables,
■ inventory management,
■ marketing budget management,
■ the management of royalties,
■ monitoring currency hedges,
■ monetary compliance with social security,
and tax obligations,
■ account cut-offs,
■ information system management.
On the basis of these questionnaires, the company analyses
the description provided and conducts a review of risk areas
not yet identified.
These risk areas are identified when internal control
procedures for processes are implemented and for which key
controls are developed to provide an accurate map of risks.
This undertaking is part of an ongoing proactive and
preventive approach both at the level of Inter Parfums S.A.
and the Group. This work has led to the creation of a strategy
for conducting tests in the principal areas concerned.
Every year, after updating all company procedures and
identifying, when applicable, new risk areas, the company
implements a program of tests and analysis for the year
in progress and repeats all tests again. In addition to the
assistance by the consulting firm Ernst and Young,
the company has implemented an organization destined
to ensure the independence and objectivity of company
personnel when conducting these tests. After the different
phases of analysis and tests have been completed,
Ernst & Young issues a report summarizing control issues
and highlighting eventual dysfunctions or potential
dysfunctions that could result from inadequate controls.
This report contributes to increased accountability by all
parties involved in internal control procedures. It may be
accompanied by a remediation plan to complete and refine
existing internal controls and when necessary an action plan
to formalize, harmonize and improve internal control
procedures for greater effectiveness.
Assessments of these different tests are transmitted
to the Finance Department that issues an opinion concerning
weaknesses that may have been identified and more
generally on the quality of internal control.
4.
Tests of internal control procedures
conducted in 2006
In November 2006, based on information available to it and
after consultation with the different concerned management,
the company updated and finalized all its manuals of internal
procedures.
It then identified potential risk areas and adapted in
consequence the control procedures. Similarly, it reviewed
existing key controls to ensure that they adequately
addressed the map of risks that was produced.
It was able to validate all internal control procedures.
Particular attention was focused on the volume and quality
of the sampling according to the following breakdown.
The 92 controls performed based on 77 risks areas
concerned the following operating entities:
■ sales, 9 controls,
■ purchasing, 12 controls,
■ stocks, 9 controls,
■ royalties, 2 controls,
■ marketing / Advertising, 4 controls,
■ payroll, 15 controls,
■ taxes and equivalent, 5 controls,
■ fixed assets, 6 controls,
■ cash management, 11 controls,
■ information systems, 6 controls,
■ account cut-offs processes, 13 controls.
The result of these tests did not indicate any significant
control deficiencies.
5.
Forecasted trends for 2007
The company assures permanent oversight of organizational
changes to anticipate, adapt and optimize internal control
procedures in real time. Its internal control procedures are
also designed to respond to both regulatory requirements
and future issues facing the company.
In 2006, a supply-chain planning system was implemented
to optimize inventory management and production processes
and sourcing from suppliers. This tool will be operational
in 2007.
In addition, starting in 2007 internal control procedures
will be extended to new European subsidiaries included
in the Group organization.
In line with this focus on ongoing improvements in internal
controls, the company will continue to set new priorities
with the following objectives:
■ pursue the formalization of procedures,
■ strengthen controls over operating and administrative
entities within the framework of remediation plans,
■ extend testing to new internal control processes,
■ quality financial information and effective management
of the principal risks and monitoring regulatory requirements.
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