WITNO00740133
WITNO0740133
. Exhibit WITN00740133,
Strictly Confidential
POLARC14 (2nd)
14/4 - 14/17
POST OFFICE LIMITED
(Company no. 2154540)
(the Company)
Minutes of a meeting of the AUDIT, RISK AND COMPLIANCE SUB-COMMITTEE held
on 6 March 2014 at 148 Old Street, London, EC1V 9HQ
Present:
Alasdair Marnoch Chairman of Committee
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
In attendance:
Chris Aujard General Counsel (GC)
Gill Catcheside Assistant Company Secretary
Chris Day CFO
Sarah Hall Head of Financial Control and Compliance
David Mason Head of Risk Governance
Malcolm Zack Head of Internal Audit
Mark Davies Communications Director (Minute POLARC 14/6-14/7 only)
Angus Grant Partner, Ernst & Young (Minute POLARC 14/8-14/10 only)
Steve Lyon Ernst & Young (Minute POLARC 14/8-14/10 only)
POLARC INTRODUCTION
1414
A quorum being present, the Chairman of the Committee opened the
meeting and welcomed all those present.
POLARC MINUTES OF THE LAST MEETINGS AND MATTERS ARISING
1415
(a) The Committee approved the minutes of the meetings held on 19
November 2013 and 11 February 2014 for signature by the Chairman of
the Committee.
(b) The Committee noted the actions list dated 26 February 2014.
(c) The Committee received a report on the Bank of Ireland's saving strategy.
It was noted that balances had been actively reduced to £16.0bn so that
the savings book could be grown in line with the mortgage book growth,
and that it was anticipated there would be no further re-structuring of the
balance sheet. CD advised that there was a statement of intent with Bank
of Ireland to grow both sides of the balance sheet with the Post Office but
that there was no contractual arrangement in place. Nick Kennett,
Director of Financial Services, was asked to confirm (i) that there were no
restrictions on Post Office by being tied to the structure and growth of
Bank of Ireland’s balance sheet; and (ii) details of the benchmark for
competitiveness to ensure that customers were not disadvantaged.
ACTION: NK
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POLARC ANNUAL REPORT AND ACCOUNTS 2013/14
1416
(a) Mark Davies, Communications Director, was welcomed to the meeting.
(b) The Committee noted the key messages and plans for the publication of
the Post Office's Report and Accounts for the financial year 2013/14
(“R&A”). It was agreed that the work of the Post Office Advisory Service
should be included in the public purpose section.
(c) Mark Davies was asked to circulate a timeline for the production of the
ACTION: MD R&A, together with more detail for the high level themes to include “the
most difficult words and issues”. It was agreed that a balanced sensible
approach was required as 2013/14 had been a tough year. It was agreed
that the R&A should be consistent with the Post Office’s corporate
branding.
(d) It was noted that the publication date for the R&A would be after that of
Royal Mail due to the price sensitive nature of the reporting of Mails. Chris
ACTION: CD Day undertook to advise Matthew Lester of Royal Mail of Post Office’s
R&A timeline.
POLARC ADOPTION OF NEW UK GAAP REGIMES
14/7
(a) The Committee received a report on the new UK financial reporting
framework, and considered Post Office’s response to the changes
outlined.
(b) Sarah Hall advised that, following consultation with the Company's
Pension providers and corporation tax advisers, there would be no
disadvantage to working towards early adoption of the new UK GAAP
regimes.
ACTION: SH (¢) The Committee asked Sarah Hall to raise the issue with the Shareholder
Executive, and subject to their agreement, agreed that Post Office should
early adopt the new UK GAAP regime and prepare the Company financial
statements for the 2013/14 financial year end under FRS 101 (reduced
disclosure).
POLARG AUDIT PLANNING REPORT 2013/14
14/18
(a) Angus Grant and Steve Lyon of Ernst & Young (“EY”) were welcomed to
the meeting.
{b) The Committee considered the Audit Planning report for the 2013/14
financial year. Angus Grant advised it would be a year of transition with
new corporate governance rules being introduced, including the “fair,
ACTION: EY balanced and understandable” requirement. Chris Day suggested it would
be helpful for EY to review Post Office’s 2012-13 R&A in light of the new
best practice and to provide examples of good reporting by other
companies.
(c) Angus Grant noted that the Fujitsu IT controls report had been received
and had no issues of concern. The Committee discussed the
independence of the report on Fujitsu's controls. It was noted that a
separate team from EY prepared the report against defined standards,
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and underwrote its accuracy. The Committee was advised that the audit
of the Fujitsu work had improved over the last two years with higher levels
of engagement and oversight, and that lessons learnt would be
implemented at the start of the re-platforming process to take place in
2015.
ACTION: (d) , , ;
CA It was agreed that the Business share its top risks with EY.
action: EY ()
It was also agreed that EY should be invited to provide a briefing to the
Financial Services Sub-Committee on regulation under the FCA.
(f)
The classification of exceptional items was discussed, including the
impact of the change in RMPP terms and the utilisation of Government
grant for transformation expenses. Counterparty risk was also discussed
and it was agreed that Gill Catcheside would forward to EY the Terms of
Reference for the Financial Services Sub-Committee which had oversight
of the Bank of Ireland capital and liquidity for Eagle Contract
requirements
(9)
The Committee discussed and noted EY’s fees for the 2013/14 audit work
which had been agreed with the CFO. It was noted that the inflationary
increase had been mitigated by efficiencies but there was a 7% uplift in
fees mainly due to the work required for the preparation of the interim
consolidated accounts for the first time in 2013-14.
ACTION: GC
POLARG REVIEW OF BUSINESS TOP RISKS
1419
(a) The Committee received a paper on the Executive Committee's
assessment of the key risks facing the Post Office in the achievement of
its strategic objectives.
ACTION: DM (b) It was agreed that a note on the key risks should be circulated to the
Board, and that a copy of the paper be sent to EY. It was noted that the
Executive Committee Governance structure included a Risk &
Compliance Committee, and that each committee within the structure had
tisk management incorporated into its Terms of Reference.
(c) A paper was tabled on the insurance-related issues for Project Sparrow.
The Committee was advised that the risks associated with Project
Sparrow were being identified and action taken to mitigate those risks,
and that this was being regularly monitored by the Board. The Committee
discussed the position with regard to Professional Indemnity insurance
(‘Pl’), and was concerned at the apparent lack of clarity on the
current/historic levels of insurance which might cover Sparrow risks.
Chris Day and Chris Aujard would provide a report to the 26 March 2014
ACTION: CD/ Board meeting to provide clarity on the insurance position, including Pl
cA cover, in respect of Sparrow; and the legal liabilities in respect of claims
made in connection with Sparrow
(d) The Committee reviewed the other eight key risks. It was noted that
these risks had been discussed by the Board.
(e) Chris Aujard advised that he was liaising with Nick Kennett regarding
ACTION: CA Project Titan and the implications of a potential FCA authorisation.
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(f) It was noted that the ExCo owner of the People Capability was now Neil
Hayward, and that Capability and Capacity to Change would be included
in the risk description.
(g) With regard to the Network Transformation programme, the Committee
agreed that it was important to deliver a sustainable network.
(h) The continuing trend of “red” mystery shops was discussed, and the
Committee agreed that an understanding of the process together with an
ACTION: NK urgent remedial action was required. Nick Kennett would be asked to
produce an update for the next Board meeting.
Lesley Sewell was asked to provide the Committee with an update on
Data Security/Integrity at the next meeting, to include lessons learnt and
what controls and processes were now in place.
action:is_
(j) The Committee was informed that the report from Price Waterhouse
Coopers on risks, risk management best practice and assurance in
relation to the IT Transformation programme would be considered by the
Board.
ACTION: (k) Chris Aujard, Chris Day and Dave Mason undertook to incorporate the
CDICA/DM Committee's feedback on the Business’ top risks.
() The Committee noted the progress made in the management of the risks
affecting the Post Office strategy.
POLARC CORPORATE GOVERNANCE AND KEY ACCOUNTING STANDARDS
14/10 BRIEFING
(a) Steve Lyon tabled a presentation outlining the changes to UK Regulatory
and Corporate Governance requirements.
(b) The Companies Act 2006 requirements for a Strategic report within the
R&A, and the need for the Board to present a fair, balanced and
understandable (FBU”) assessment of the Company's position and
prospects within the R&A was discussed. Angus Grant advised that the
Company did not have to make an FBU statement in the 2013/14
accounts, but should evaluate what work was necessary to be able to
make an FBU statement in next year’s R&A.
(c) Angus Grant would send through a model set of accounts reflecting the
recent changes in Corporate Governance and Key Accounting Standards.
ACTION: EY EY would also advise what level of reporting other companies were
considering for the current financial year.
(d) Angus Grant and Steve Lyon left the meeting.
POLARC INTERNAL AUDIT PLAN 2014/15
14/11
(a) The Committee received the proposed internal audit plan for 2014/15.
Malcolm Zack advised that the plan incorporated the Business’ top risks.
(b) It was agreed that an internal audit plan be recommended to the
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ACTION: MZ Committee at the next meeting, incorporating a prioritisation of work and
the necessary resource requirements.
POLARC INTERNAL AUDIT ACTIVITY REPORT
14112
(a) A paper on Internal Audit activity since November 2013 including key
outcomes, and proposed audit and advisory work for Q1 2014 was noted.
ACTION: LS (b) Lesley Sewell was requested to provide updates on the outstanding
actions.
ACTION: Mz (Cc) /t was agreed that Internal Audit should encourage management to
complete outstanding actions.
POLARC MORTGAGE MARKET REVIEW & BUSINESS COMPLIANCE
14/13 SCORECARD
(a) _ It was noted that the Mortgage Market Review and Business Compliance
Scorecard would be considered by the Financial Services Sub-
Committee.
POLARC ITEMS FOR NOTING
14/14
(a) The summary of 2013/14 IA activity was noted.
(b) I The recommendations log updates was noted.
(c) The review of the regulatory risk framework was noted.
POLARG ANY OTHER BUSINESS
14/15
(a) Chris Aujard advised that a report on the Data Centre procurement
process would be given at the next meeting.
POLARG DATE OF NEXT MEETING
14116
The date of the next meeting is 12 May 2014. It was agreed that the
timing of the meeting be altered so that Angus Grant was able to attend
by telephone.
POLARG CLOSE
14117
There being no further business, the meeting was declared closed.
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