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’ Royal Mail - Strictly Confidential
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@ ARC 03/36 TO ARC 03/45
ROYAL MAIL HOLDINGS pic
(Company no. 4074919)
AUDIT AND RISK COMMITTEE
Minutes of the meeting held at 148 Old Street on 11 7 2003
Members of the Committee Present:
Rosemary Thorne Non Executive Director, Chair of the Committee
John Neill Non Executive Director
Bob Wigley Non Executive Director
@ In attendance:
Alian Leighton Chairman
Elmar Toime Executive Deputy Chairman
Adam Crozier Chief Executive, Royal Mail Holdings pic
Marisa Cassoni Chief Financial Officer
Jonathan Evans Company Secretary
Derek Foster Internal Audit and Risk Management Director
Frank Schinella Director, Financial Management & Control
John Lappin UK Finance Director, for minute ARCO3/41
David Lindsell Ernst &Young
Rachel Harper Ernst &Young
Andrew Poole Notes
ARC03/36 MINUTES.
The minutes of the meeting of the 11 September 2003 were
considered and approved subject to the following drafting
changes being made.
(a) ARCO3/30(h): that a guest speaker would be attending a
future Board Meeting to reassure the directors that
appropriate audit trails were in place to demonstrate that
action was being taken to ensure compliance with the Health
& Safety requirements and to provide an assessment of the
procedures currently in place.
(b) I ARCO03/31(d): that any issues arising in Information
Technology Security would be addressed through Prism
alliance
The minutes of a meeting of the Corporate Risk Management
Committee held on 23 October 2003 were noted. It was
agreed that future minutes of the Corporate Risk
Management Committee would be clarified by expanding the
commentary where necessary to reflect the broader
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Derek Foster
ARC03/37
ACTION
Derek Foster
ACTION
Derek Foster
ARC03/38
(a)
(b)
(c)
(d)
(a)
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The status of actions from the meeting held on
41 September 2003 was noted, in particular:
progress report on key actions to kriprove: Safety :
performance and in the report on the current position of the:
Vital Few Controls that level of compliance remained an
cultural behaviour,
ARC03/29(d) the Committee asked what measures could be: :
pips velioredi A road os eal yale tao yoy
for clear performance management at the highest level. It
was agreed that the number of controls would be reviewed
and that a smaller number of key measures, ideally around
10 per Unit, would be identified and approved;
that a Corporate Social Responsibility Committee had been
established under the Chairmanship of Mike Hodgkinson and
that a action plan was now in place to tackle many of the
outstanding issues;
a report would be produced for the next meeting setting out
the actions that management had taken to address these
issues and agreed that key control measures would be
presented to the Holdings Board for approval.
HALF YEAR REPORT AND EXTERNAL AUDIT REVIEW
Frank Schinella introduced a paper presenting the Interim
Report for review and for recommendation to the Board
Accounts Sub Committee to approve and sign the report. The
Committee noted: -
the Interim Report, including the Chairman's Statement,
Financial Review, relevant Financial Statements and
ARC03/39
(c)
(d)
(b)
(d)
(a)
(b)
(c)
(d)
(e)
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an analysis of performance against prior year and the
balance sheet movements from the year end;
a draft Letter of Representation addressed to the external
auditors.
After proper consideration, the Committee:-
reviewed the Interim Report for the 2003-04 half -year and
agreed that the proposed amendments since the version
presented to the Holdings Board be made to the Interim
Report;
noted the accounting issues;
agreed the content of the Letter of Representation for issue
to the auditors on behalf of the Board;
endorsed the Interim Report for approval by the Board
Accounts Sub Committee.
EXTERNAL AUDIT - PROPOSALS FOR AUDIT AND FEES
David Lindsell introduced the Auditors report to the Audit and
Risk Committee covering the results of the Half Year Review,
in particular the Committee noted:
publishing the Interim Report for the half year ended
28 September marked the halfway point in the three-year
renewal plan;
progress was being delayed by the Unions, but that
Management were taking decisive action to recover lost
ground by accelerating other initiatives and by appealing
directly to the workforce,
the real impact on return to profitability would not be seen
until the year-end as much of the workforce downsizing was
forecast to happen in the second half. Another determining
factor would include the outcome of Postcomm’s review of
Access pricing;
the funding implication of the Pension Fund deficit was now
understood and the first half reflected an increased SSAP24
pension cost. The Auditors warned against letting the focus
‘on the cash funding deficit (i.e.£2.5 billion) undermine the
accounting treatment;
whilst there was clearly room for judgement on the issue of
Provisions the auditors were content with the current position
and confirmed that they had seen reasonable justification for
the figures included in the Half Year Review,
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ACTION
Frank Schinella
ACTION
Frank Schinella
ARCO3/40
)
(g)
(a)
(b)
{c)
(d)
(e)
“the Internal Audit function was currently six people short, this
Royal Mail - Strictly Confidential
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the Letter of Representation to the Auditors and suggested.
that it would be helpful to have a similar letter signed off by
each Divisional Finance Director, it was agreed that this
process would be adopted for the year-end and, due to the
timescales, an interim arrangement adopted for the Interim
Report,
the proposed external audit fees of £850,000 for UK based
work was presented and agreed in principle together with a
£14,000 overrun on the Interim Report, it was further agreed
that Frank Schinella would provide further detailed analysis
by hours worked by key audit crew and present his findings
to the next meeting of the Audit Committee.
INTERNAL AUDIT AND RISK MANAGEMENT QUARTERLY
REPORT
The Internal Audit & Risk Management Report for the period
September to October 2003 was received, and in particular
the following was noted;
external pressure on the control environment had continued
to increase and internally the strike action had diverted
Management attention from the core activities,
the business had recognised the importance and scale of the
risks and control issues, and had taken significant steps to
address a number of specific issues. Evidence in the period
indicated that there remained a significant amount to do and
that the internal and external pressures meant that the.
control environment did not protect the Organisation at
certain times;
71% of rated audits in the period showed ‘no’ or ‘limited’
assurance ratings. 35% of Vital Few Controls reviewed were
not effective at the date of review,
internal Audit had recently carried out a review of the
Organisation's Security and Vetting Recruitment Procedures.
No assurance could be provided over the adequacy or
deployment of the procedures for the recruitment of both
permanent and casual staff,
quarterly assessment of business continuity against industry
benchmark showed a score of 71%, which represents a
positive result,
the issue of non-compliance was a serious problem for the
business and the Committee's view was that this was
unacceptable. The need to address this issue was accepted;
ARCO3/41
ARC03/42
(a)
(c)
(b)
Royal Mail - Strictly Confidential
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impacting ability to deliver to plan, and that action was being
taken to fill the vacancies;
a number of significant risks had been identified with the
Single Daily Delivery Programme and these were highlighted
in the report
CONTROLS- SINGLE DAILY DELIVERY
John Lappin was welcomed to the meeting to introduce a
paper on the Financial and Operational Control framework for
Single Daily Delivery. The Committee noted;
targets had been established using a bottom up approach,
with each Delivery Office Manager (DOM) advising the level
of savings to be realised in each individual unit;
that once the Unit had fully deployed the revision, the
monitoring process commenced to assess whether the target
was being achieved and whether payment of the pay
supplement was warranted. Once the target had been
achieved for four consecutive weeks the pay enhancement
would be consolidated into basic pensionable pay,
a Post Implementation Review would be undertaken in each
of the 1400 units and a report provided to the Management
Board on a monthly basis;
it would be necessary to carefully monitor and control
‘backfilling’ in order to prevent such occurrences from
happening.
SECURITY REPORT
The Security report for November 2003was received, and in
particular the following was noted:
Royal Mail personnel related crime cost the business
approximately £26 million per year. In 2002/03 the Company
had prosecuted 324 People, formally cautioned 108 others,
recommended 47 cases to the Procurator Fiscal and taken
legal action in a further 43 cases. These were noted as
minimum figures, since there may also be cases where local
action is taken to deal with offenders;
there had been a significant increase in the number of
viruses observed over the last two months. The figure for
September suggested a figure of 423 individual attempts per
day.
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