Terms of Reference
Development Bank of Wales Group (“the Group”)
Audit and Risk Committee
1 CONSTITUTION
1.1 The Board of Development Bank of Wales plc (‘the Board’) has established a committee of the Board known as the Audit and Risk Committee (‘the Committee’).
1.2 The Development Bank of Wales Group (‘Group’) comprises Development Bank of Wales plc and its direct and indirect subsidiary companies and certain limited partnerships.
2 PURPOSE
2.1 To ensure that any assurance provided by the Board to outside stakeholders is sufficient, reliable, valid and is supported by appropriate assurance received by the Board from the management of the organisation including the Chief Executive Officer’s responsibility for ensuring regularity, propriety, and value for money for the use of public money provided by the Welsh Government.
The committee fulfils this through carrying out their duties as listed in section 10.
3 MEMBERSHIP AND ATTENDANCE
3.1 Appointments to the committee are made by the Board on the recommendation of the Nomination committee and in consultation with the Chair of the Audit and Risk committee and shall be for a period of up to three years which may be extended for up to two additional three-year periods, provided members continue to be independent. All members shall be Non-Executive Directors. At least one member shall have recent and relevant financial and accounting experience.
3.2 Neither the Chair of the Board or the Chief Executive Officer of the Development Bank of Wales plc shall be members of the committee.
3.3 Unless a private meeting is called by a member of the committee, the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, a representative of the Welsh Government and the Group’s Internal and External Auditors will attend meetings of the committee.
3.4 The Board shall appoint the committee Chair who shall be a Non-Executive Director who should, except in an emergency, have served on the committee for at least 12 months. In the absence of the committee chair, the chair will nominate a Non-Executive Director committee member to carry out the chair’s duties. If the Chair is not available, the remaining members present shall elect one of themselves to chair the meeting. The Chair of the Board shall not be the Chair of the Audit and Risk Committee.
3.5 The committee shall, at its discretion, invite other persons to attend the meetings to provide information so as to assist the Committee in the discharge of its duties. For the avoidance of doubt, such persons shall not be entitled to vote on any resolutions of the Committee.
3.6 All members of the committee shall be advised of the business to be transacted at any meeting even if they are unable to be present.
3.7 It is desirable that the committee members have recent and relevant financial experience, should have a professional qualification from one of the professional accountancy bodies. The need for a degree of financial literacy among the other members will vary according to the nature of the Company, but experience of corporate financial and governance matters will normally be required.
4 SECRETARY
4.1 The Company Secretary or their nominee shall act as the secretary of the Committee and will ensure that the committee receives information and papers in a timely manner to enable full and proper consideration to be given to the issues.
5 QUORUM
5.1 The quorum necessary for the transaction of business shall be two members. A duly convened meeting at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in the committee.
6 FREQUENCY OF MEETINGS
6.1 The committee shall meet at least three times per year and at such other times as the Chair of the Committee shall require. The Internal or External Auditors may request a meeting if they think it necessary.
6.2 Outside of the formal meeting programme, the committee Chair will liaise as necessary with key individuals involved in the company’s governance, including the Chair of the Board, the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the representative of the Welsh Government and the Group’s Internal and External Auditors.
7 NOTICE OF MEETINGS
7.1 Meetings of the committee shall be called by the Company Secretary or their nominee at the request of the committee Chair or any of its members.
8 MINUTES OF MEETINGS
8.1 The Company Secretary or their nominee shall minute the proceedings of all meetings including the names of those present and in attendance.
8.2 Draft minutes of committee meetings shall be circulated to all members of the committee and attendees. Once approved, minutes should be circulated to all other members of the Board and the Company Secretary or their nominee unless, exceptionally, it would be inappropriate to do so.
9 ENGAGEMENT WITH SHAREHOLDERS
9.1 The Chair of the committee should attend the Annual General Meeting of the Company’s shareholders to answer any Shareholder questions on the committee’s activities. In addition, the committee Chair should seek engagement with Shareholders on significant matters related to the Committee’s areas of responsibility.
10 DUTIES
10.1 The committee shall carry out the duties below for the parent company, subsidiary undertakings and the Group as a whole as appropriate.
11 FINANCIAL REPORTING
11.1 Review the appropriateness and any changes to accounting policies both on a year-on-year basis and across the Development Bank of Wales Group.
11.2 Review the accounting policies and methods used and estimates made by management, particularly where different approaches are possible.
11.3 Review whether the management have followed appropriate accounting standards and made appropriate assumptions and judgements including going concern considerations considering the views of the External Auditor.
11.4 The committee shall review the proper disclosures of all pertinent matters and that the Annual Report and accounts are fair balanced and understandable.
11.5 The committee shall review the annual report and financial statements and where appropriate recommend changes in advance of them being recommended to the Board for approval.
11.6 Review and recommend to the Board the content of the Strategic Report, Principal Risk information, Corporate Social Responsibility report and Corporate Governance Statement included in the annual report and accounts.
12 EXTERNAL AUDIT
12.1 Oversee the relationship with the External Auditors including but not limited to:
• Assessing their independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the audit firm as a whole including the provision of non-audit work,
• Review extra external quality assessment review (QAR) in external audit,
• Review the annual audit plan,
• Review the tender specification for the procurement of external audit services including the fees charged taking into account other services which may be provided by the relevant firm ensuring that these do not affect their objectivity,
• Recommend to the Board their reappointment in advance of the Annual General Meeting,
• Monitoring the Auditor’s compliance with relevant ethical and professional guidance on the rotation of audit partners and the level of fees paid by the Development Bank of Wales Group compared to the overall fee income of the firm,
• Assessing the effectiveness of the audit process,
• Approving the proposed materiality.
12.2 The committee shall meet the External Auditors at least once a year without management being present to discuss their remit and any issues arising from the audit.
12.3 The committee shall review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement.
12.4 The committee shall review the findings of the audit with the External Auditors including but not limited to a discussion of any major issues arising from the audit, any accounting and audit judgements as well as the level of errors identified during the audit both adjusted and unadjusted.
12.5 The committee shall also review any representation letter required by the External Auditors before they are approved for signing by the Board of Development Bank of Wales plc.
12.6 The committee shall review the management’s responses to the Auditor’s findings and recommendations.
13 GOVERNANCE, INTERNAL CONTROLS AND RISK MANAGEMENT SYSTEMS
13.1 Keep under review the adequacy of the effectiveness of the Development Bank of Wales Group internal controls and risk management systems.
13.2 Monitor and challenge the Board’s own governance and control processes.
13.3 Review Compliance and Quality Assurance work plans and receive an annual report relating to their adequacy of resources and effectiveness of operation.
13.4 Review Financial Conduct Authority correspondence and any assurance provided to them or to the Welsh Government.
13.5 Receive annual reports relating to the review of the Gifts & Hospitality Register, declarations of interest and personal dealings as well as senior executive and board member expense claims.
13.6 Receive assurance from senior management that arrangements are in place for the review and approval of group policies, including the frequency of such reviews.
13.7 Receive copies of any special reports, investigations, mandated reports, or internal control reports.
13.8 Receive annual reports from the whistleblower panel.
13.9 The committee shall monitor the integrity, accuracy, and consistency of the Sustainability and ESG disclosures of the Group.
13.9 Review and discuss any reports from the External Auditors on critical judgements and accounting policies including management’s response.
14 INTERNAL AUDIT
14.1 Monitor and review the effectiveness of the Development Bank of Wales Group Internal Auditors in the context of the overall risk management system including their compliance with applicable professional standards and Welsh Government requirements.
14.2 Review the internal audit plan and ensure the Internal Auditors have appropriate access to business records and information to enable them to perform their audit activities effectively, ensuring objectivity and in accordance with the relevant professional standards.
14.3 Review all final reports issued by the Internal Auditors and monitor management’s responsiveness to the findings and recommendations.
14.4 Meet the Internal Auditors at least once a year without management being present to discuss the terms of their engagement, and any issues arising from the internal audit reviews carried out.
14.5 Review the tender specification for the procurement of internal audit services including the fees charged taking into account other services which may be provided by the relevant firm ensuring that these do not affect their objectivity.
14.6 Monitor fund performance against fund risk appetite from time to time, including credit risk appetite.
15 PROBITY
15.1 Review the Development Bank of Wales Group arrangements for its employees to raise concerns in confidence about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.
15.2 Review the Development Bank of Wales Group procedures for detecting and preventing fraud including the Fraud Response Plan.
15.3 Monitor the Group’s processes for compliance with laws, regulations and ethical codes of practice.
15.4 Receive annual reports relating to the review of the Gifts & Hospitality Register, declarations of interest and personal dealings as well as senior executive and board member expense claims.
16 REPORTING
16.1 The committee Chair shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and shall also formally report to the Board on how it has discharged its responsibilities and in line with the requirements of the UK Corporate Governance Code.
16.2 The committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit.
16.3 The committee shall report to the Corporate Governance Committee of the Economy, Treasury and Constitution Group at least once a year on the discharge of its duties.
16.4 The committee shall provide a description of its work in the annual report in line with the requirements of the UK Corporate Governance Code and Companies Act 2006.
17 OTHER MATTERS
The committee shall:
17.1 At least once a year review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.
17.2 Be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members.
17.3 The committee shall have access to sufficient resources in order to carry out its duties including access to the Company Secretary for assistance as required.
18 AUTHORITY
18.1 The Board has delegated powers to the Audit and Risk Committee (with power to sub-delegate). The Board may co-opt onto the committee such persons who are not Directors of the company and give such persons voting rights on the committee under the DBW Articles of Association article 86 and 87.
18.2 The committee is authorised by the Board to seek any information it requires from any employee of the organisation in order to perform its duties.
18.3 The committee is authorised to obtain independent professional advice at the expense of the Development Bank of Wales plc if it considers this necessary. Arrangements for this advice should be channelled through the Company Secretary.
FURTHER READING
FCA Handbook
FRC Corporate Governance Code
https://www.frc.org.uk/library/standards-codes-policy/corporate-governance/uk-corporate-governance-code/
FRC Guidance on Audit Committees
https://media.frc.org.uk/documents/Guidance_on_Audit_Committees_April_2016.pdf
FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting
https://media.frc.org.uk/documents/Guidance_on_Risk_Management_Internal_Control_and_Related_Financial_and_Business_Reporting_September.pdf
Companies Act 2006
https://www.legislation.gov.uk/ukpga/2006/46/contents
Managing Welsh Public Money
Managing Welsh public money | GOV.WALES
