Internal Controls

The Board is ultimately responsible for the good standing of the Company, the management of assets for optimum performance and for the operation of an effective system of internal control appropriate to the business. However, it must be recognised that any control system can provide only reasonable and not absolute assurance against material misstatement or loss.

Internal Control Environment

Day-to-day operating and financial responsibility rests with senior management at a divisional head and operating unit level, although performance is closely monitored through the executive management team which meets on a monthly basis throughout the year, chaired by the Chief Executive.

The process of internal control is communicated through various operating, risk management and accounting policies and procedures. The following key elements comprise the present internal control environment which has been designed to identify, evaluate and manage, rather than eliminate, the risks faced by the Group in seeking to achieve business objectives.

• an organisation structure with clear lines of responsibility and delegated levels of authority;
• a comprehensive financial planning, control, budgeting and rolling forecast system, which includes monthly risk and opportunity assessment reviews at Group level; and
• a flat management structure which facilitates open and timely communication.

The Board has considered the need for a separate internal audit function but has decided that, because of the present size of the Group, this function will continue to be carried out by existing finance staff. This position remains subject to annual review.

The internal control process described above, which is reviewed annually by the Board, has been in place throughout the year under review and up to the date of the 2007 Annual Report and Accounts.

Improvements Made During the Year

The following significant improvements were made to the internal control framework during the year:

• the implementation of a template for request and approval of significant capital expenditure and new business cases;
• the revision of internal accounting guidance for key areas such as capitalisation of internal costs and revenue recognition following the implementation of IFRS by the Group; and
• an improved programme for regular reviews of divisional balance sheets by head office management.

Internal Control Process

The CEO-led “Operational Excellence” programme, which includes the requirement for all operating units to conduct an annual self-assessment risk workshop, was launched early in 2007. This programme requires divisional management to identify the key risks facing their division and to assign responsibility for each risk to a member of local management. Risks are reviewed monthly at divisional management meetings, and progress is reported to the CEO, Group Finance Director, the Board and the Audit Committee. Central risks are managed by the executive management team.