content · pdf filecontent message from organizers ... financial economics (skbi) had decided...

Content

Message from Organizers

Securities Investors Association (Singapore) (SIAS)

The Institute of Internal Auditors Singapore (IIA)


Sim Kee Boon Institute for Financial Economics (SKBI)

Message from Sponsor

RSM Ethos Pte Ltd

The Importance of Internal Audit

The Selection Process

The Winning Companies

Winner : Singapore Telecommunications Limited

Runner Up : Singapore Airlines Limited

: DBS Group Holdings Merit : Wilmar International Limited

: ARA Asset Management Limited

Special Recognition : Mr. Chor Khee Yang Singapore Telecommunications Limited

3

4

5

7

8

9

6

11

12

13

14

1515

16

The importance of Internal Audit function in a listed company needs no emphasis. For investors to have the comfort of knowing that their investments are safe in the companies in which they

invest, listed companies must have in place an effective internal audit function. Companies must, therefore, set aside adequate budget to enable internal audit personnel to perform their task assigned effectively.

Many public listed companies do not have internal audit staff of full-time employees and instead use independent contractors. One draw back of outsourcing the internal audit function is that the company’s audit committee may find it difficult to obtain the key piece of information which is a sense of the culture of the organisation. It is, therefore, important to have at least one full-time employee as the head of internal audit who can perform the internal function. There must be an effective coordination between the internal auditor and the outsourced external auditor.

The internal auditor is, in fact, the eyes and ears of the shareholder of the company. A company that can demonstrate to its shareholders that the management does not control the internal audit department will have the support of investors.

Many companies do not wish to establish an internal audit function because of the cost of doing so. Whilst it is a fact that establishing an internal audit function can be costly, scandals are costlier.

It is to encourage listed companies to put in place an effective internal audit function for the benefit of the company and its shareholder, SIAS together with IIA and Sim Kee Boon Institute for Financial Economics (SKBI) had decided to launch this year jointly the Internal Audit Excellence Awards 2011.

David GeraldPresident / CEOSecurities Investors Association Singapore (SIAS)


Securities Investors Association (Singapore) (SIAS)

3



Pointillism is a style of painting where tiny dots of color are used to form a picture. Georges Seurat, the French painter who created this form of art, used over three million dots to

complete “A Sunday Afternoon on the Island of La Grande Jatte”, a pointillism masterpiece.

Just like the pointillist, the internal auditor provides recommendations and insights to help the organization achieve its “big picture” strategic and operational objectives.

To be an effective internal auditor, the King III Report on Corporate Governance emphasizes that the internal auditor should prioritize his work based on a risk assessment of the company’s operations.

The internal auditor should also provide the board with annual assessments on the effectiveness of the company’s system of internal control and risk management.

The King III Report, together with the SGX Listing Rules and the Singapore Code of Corporate Governance, has established the canvas for the internal auditor to paint his dots.

A Sunday Afternoon, which measures about 2 by 3 metres, took 2 years to complete. Similarly, the work of the internal auditor spans across complex operations and geographical locations. But a dot at a time, the work of the internal auditor makes a great painting.

Loh UantchernImmediate Past PresidentInstitute of Internal Auditors Singapore

4

With the dynamic transformations and developments in the business and regulatory landscape, the internal audit function is in a better position, more than ever, to add value to the

organization. The International Professional Practices Framework requires internal auditing to provide an independent and objective assurance and consulting activity to add value and improve the organization’s operations so it could achieve its mission and objectives.

Internal audit would serve as the “sleeping pill” for the stakeholders with possible sleepless nights due to concerns over financial, operational and compliance risks. We know that there are many competent internal auditors playing a proactive role to provide assurance to the boards and the management that their organisations’ processes and controls are sound and robust. It is in this regard that the Internal Audit Excellence Award is introduced, i.e., to recognise internal audit functions and in so doing there will be greater awareness on the importance of doing it effectively.

We aim to inspire the internal auditors to continue to raise the bar of proficiency in internal auditing and to become the catalyst for the needed changes and transformations in their organizations.

Eric LimPresidentThe Institute of Internal Auditors Singapore



5

Sim Kee Boon Institute for Financial Economics (SKBI)


Internal audit is one of the key pillars of sound corporate governance. Its importance is articulated in the Singapore Code of Corporate Governance which encourages companies to establish an

internal audit function.

In the pursue of corporate objectives, companies developed and implemented policies, systems and processes to enhance conformance and performance. But how do key stakeholders know that they are operating as designed and effectively? The internal audit provides this assurance by way of its independent oversight. The nature of its independence from operations and management serves to inspire confidence in the integrity of the governance framework and business processes. In essence, internal audit makes sound governance sense.

SMU is honored to collaborate with The Institute of Internal Auditors Singapore (IIAS) and Securities Investors Association (Singapore) (SIAS) in the launch the Internal Audit Excellent Award.

Foo See LiangAssociate Professor (Practice), Co-Director, School of Accountancy Research (SOAR) & Co-Director, Centre for Corporate and Investor Responsibility (CCIR) Sim Kee Boon Institute for Financial Economics, Singapore Management University.

6

An effective IA function is key to enhancing the robustness of an organisation's risk management, control, and governance processes, especially in the current economic climate.

In today’s dynamic environment, organisations have to address and proactively manage business risks effectively to have a higher chance of weathering adverse economic conditions while maintaining investor and shareholder confidence. Organizations have to keep up or risk losing their competitive edge. This entails the need to regularly review the effectiveness of risk management, control, and governance processes, and therefore the need to establish effective internal audit functions. The continuing challenge that businesses face is to establish a cost effective yet professionally competent Internal Audit function.

RSM Ethos is proud to support the Internal Audit Excellence Award that recognises exemplary achievements and standards set by the winners of the award. This award will continue to encourage internal audit functions to do even better to raise the standards of corporate governance.

Chris LiewChairmanRSM Ethos Pte Ltd

Message from Sponsor

RSM Ethos Pte Ltd

7

The Importance of Internal Audit

The Singapore Code of Corporate Governance recognises the internal audit function as an integral part of sound governance. The outcome of sound governance is an organisation that is well directed

and controlled towards achieving its objectives. With the business environment getting increasing complex and uncertain, preserving and create corporate values is a profound challenge. The unfolding of high profile financial scandals has escalated these challenges to new heights. At the same time, it has ushered internal audit function into the forefront of corporate governance. Internal audit provides assurance to key stakeholders on the tenacity and integrity of organizational conformance and performance.

On the conformance front, the importance effective adherence to an organisation’s policies, procedures and related controls have always been part of internal audit universe. In the course of such endeavours, governance policies and design deficiencies and/or gaps are identified, and remedial measures on improving efficiency and cost savings are recommended. From the board of directors’ perspective, the internal auditors provide additional safeguard by being on the ground to ensure that appropriate procedures are in place and, adhered to.

On the performance front, the risk-centric approach has taken centre stage in line with concerns over the uncertain business landscape. Being on ground provides internal auditors with a vantage point to report on the evolving risk profile to alert the board of directors, namely audit committee.

Sound corporate governance is essential framework fraud prevention, detection and deterrence. There is empirical evidence to suggest that “organizations with an internal audit function are more likely than those without such a function to detect fraud within their organizations. Further, organizations that rely solely on outsourcing for their internal audit function are less likely to detect fraud than those that undertake at least part of their internal audit function themselves. These findings suggest that internal audit adds value through improving the control and monitoring environment within organizations to detect fraud.1 ” The intrinsic value of an effective internal audit function goes beyond the “dollars and cents” lens.

As more Singapore aspires to become a global financial hub, it must have a complementary sound corporate governance framework to compete with more established global players. The quality of governance practices, including internal audit function, can either provide significant competitive advantage or be a key limitation.

The importance of internal audit function is not limited to ensuring effective compliance of polices and processes. An effective internal audit helps promote the appropriate ethics and values of the organisation. Its presence helps foster and reinforce a sound enterprise-wide governance culture into the DNA of an organization.

1 Paul Coram, Colin Ferguson & Robyn Moroney. 2007. The Importance of Internal Audit in Fraud Detection.http://aaahq.org/audit/midyear/07midyear/papers/Coram_TheImportanceOfInternalAudit.pdf. See also Internal Audit, Alternative Internal Audit Structures and the Level of Misappropriation of Assets Fraud. Accounting & Finance, Vol. 48, No. 4, pp. 543-559, December 2008.

8

SIAS Investors’ Choice Awards (ICA) - Internal Audit Excellence Award: The Assessment Framework and Selection Process

The thrust of internal audit is to inspire confidence. Its importance is recognized and embedded in the Singapore Code of Corporate Governance. In essence, internal audit is an integral part of an effective corporate governance framework.

What is the role of internal audit? “The internal auditor’s job is to leave no stones unturned. He is the watchdog, the buddy to the CEO. He is the conscience to the board and the CEO. As the guardian angel to the CEO, he should tell him where the devils are.” (David Gerald, President and CEO of SIAS, CPA Forum, 11 July 2011).

To recognise and promote the importance of internal audit, The Institute of Internal Auditors Singapore (IIAS), Securities Investors Association (Singapore) (SIAS) and Singapore Management University (SMU) launched the “Internal Audit Excellence Award” as part of SIAS Investors’ Choice Awards. This award honours publicly listed companies that have put in place an effective internal audit function to enhance corporate governance and to bring forth the need for excellence in internal audit.

To establish internal audit excellence, companies need to possess:• Positioning excellence• Proficiency excellence• Process excellence• Performance excellence

In positioning excellence, internal audit builds up an organisational status to enhance its value preposition. For proficiency excellence, the internal audit should be equipped with the capability and capacity to deliver excellent service. For process excellence, the internal audit must be both efficient and cost effective. In performance excellence, the internal audit makes a difference to the organisation and provides high quality assurance for the governance, risk and controls processes and systems.

A key to the success of the Singapore Internal Audit Excellence Award lies in a framework that encompasses the views of key stakeholders. Based on this principle, the Singapore Internal Audit Excellence Award Framework embraces a four-party view of excellence through the lenses of participating organisation’s Chief Audit Executive/Head of Internal Audit, Chief Executive Officer, Audit Committee Chair and External Auditor (see framework below). Audit Committee and External auditor are independent and essential elements of sound corporate governance. The inclusion of these two key independent stakeholders makes the framework distinctive and enhances the robustness of the framework with a wider and a more balanced perception of internal audit excellence.

The Selection Process

9

The selection process comprises three phases. Phase one entails the four key stakeholders (i.e. CEO, CAE, AC chair and external auditor) of participating organizations to independently submit their self-assessment of their internal audit functions. In Phase two, the applicants are shortlisted based on the self-assessment scores. And in Phase three, shortlisted applicants were further assessed and ranked based on quantitative and qualitative factors (e.g. track records of excellence in corporate governance) to determine the eventual winners for the award.

With the business environment getting increasing uncertain and complex, the Singapore Internal Audit Excellence Award aims to showcase leading internal audit practices and reinforces the ethos that internal audit is an essential element of sound corporate governance. Professor Mervyn King, a world authority on Corporate Governance, said, “The only way of ensuring that there is quality information coming out of the company is for the institution to test the quality of the governance of the company.” More importantly, winners of the inaugural awards exhibited and conveyed the message that internal audit makes sound business sense as it helps to preserve and create corporate value.

10

Singapore Internal Audit Excellence Award Framework

SingTel’s IA function exemplifies the ability of internal audit to evolve over time and remain relevant to the needs of a company. Established in 1992 to provide the board with independent

assurance on the adequacy and effectiveness of internal controls to address key business risks, SingTel Internal Audit has over the last two decades grown to cover financial and operational audit, information technology audit, revenue assurance audit, investments audit and fraud risk. It has even evolved to take on an internal consulting and control advisory role, with up to 20 percent of SingTel IA’s resources dedicated to the control advisory role.

Each unit within SingTel IA is able to make tangible contributions to the company. For example, the Revenue Assurance Audit Unit has been able to identify causes of revenue leakage. The Fraud Risk Unit has been able to improve fraud and control awareness among employees. Most significantly, SingTel IA as a whole has been able to help improve the company’s risk management and internal control systems through performing reviews and making recommendations.

SingTel has also organised the SingTel Regional Chief Audit Executives Forum since 2004, with the objective of promoting IA excellence among the IA functions of SingTel’s regional mobile associates in the Asia-Pacific region. As part of the relationship established through the forum, SingTel Internal Audit also carries out joint audit reviews and other collaborations with its counterparts in the company’s regional mobile associates in Africa, India, Indonesia, Thailand, the Philippines and Pakistan.

Over the years, SingTel IA has grown in headcount and organisational status, with many changes taking place over the last decade. Since 2001, the head of internal audit at SingTel has held a top management role, reporting to the Audit Committee functionally and to the Group CEO administratively. Between 2002 and 2011, the size of the internal audit team grew from 39 to 53 as the geographical footprint of SingTel’s operations increased. One growth spurt took place in 2004, when after SingTel acquired Optus in Australia and both internal audit teams were merged.

More recently, in 2006, a dedicated Fraud Risk Unit was established to enhance the independence and effectiveness of investigations into fraud and other irregularities. The Fraud Risk Unit was augmented with the launch of an independently managed external whistle blower hotline in 2008, and today investigations into fraud and whistle blower complaints are handled by a team of seven staff on a full time basis.

Singapore Telecommunications Limited


Singapore Telecommunications Limited is Asia’s leading communications group, with more than 130 years of operating experience providing voice, data and video services over fixed and wireless platforms. The SingTel Group is a major communications player across Asia and Africa, with further investments in India. SingTel is the largest listed company on the SGX mainboard.

11


Singapore Airlines Limited

The internal audit function of an organisation that operates literally worldwide, with a network spread across six continents, may be said to have a broader task than usual. For Singapore

Airlines Limited, the IA function contributes to increasing transparency and control knowledge organisation-wide. This task is accomplished firstly through education: the IA function establishes and runs familiarisation and course based training programmes for key personnel overseas. Within these courses, control matters are discussed at both a generic and specific level with regards to the area of posting.

To further ensure that audit and other teams can learn from their counterparts in other locations, the SIA IA function regularly shares information about common control issues. For example, the IA function assisted the department in charge of monitoring account crediting and usage for customer loyalty accounts. The IA team developed data analytic tools and shared them with the department so that the department could better manage the authenticity of data in customer accounts and more easily detect suspect or unusual activities.

This broad reach is possible because the SIA IA function holds audit responsibilities for all the subsidiaries in the SIA Group, including some joint ventures where SIA or its subsidiary has obtained approval for audit coverage. The IA function also has charge of the Group’s fraud management and whistleblower programmes. The latter was implemented in the mid-2000s, at the same time that the IA function moved from a compliance monitoring focus to a more holistic governance centric model.

The SIA IA function was first established more than two decades ago and has played an increasingly significant role over the last decade. For example, the IA function initiated a control self assessment programme for company operations in the mid-2000s, as well as continuous monitoring and data analytics review techniques. The whistleblowing programme was also an IA initiative.Besides these, the SIA IA function also hosts a number of governance improvement and awareness programmes including a Management Control Self Assessment (CSA) programme, a Human Resource Talent Attachment to Internal Audit programme, a Fraud Continuous Monitoring programme and a pre-out-station posting control and audit matters familiarisation programme.

Singapore Airlines Limited is the flag carrier airline of Singapore and a top global air transport company with a network across six continents. In addition to operating its aircraft fleet, Singapore Airlines owns a range of air travel-related businesses.

12

DBS Group Holdings


Internal audit is about inspiring confidence, and this is emphatically the case for the DBS IA function, Group Audit. Since DBS was incorporated in 1968, it has been under the onus of

upholding Singapore’s reputation as one of Asia’s premier financial centres, and internal audit is an integral part of the system of checks and balances that maintains safe and sound business practices for DBS. As the third line of defence, Group Audit proactively shapes the risk and control culture of the bank, focusing on issues that are of real impact to the bank and keeping all three lines of defence in alignment with the bank’s business objectives.

The DBS IA function was set up at the same time as DBS was incorporated. Today, it has grown from a single Singapore-based team to include teams in DBS’s key markets of Hong Kong, China, Taiwan, Indonesia and India, with Singapore as the headquarters. The audit teams in Singapore and Hong Kong support other locations, including international branches, in specialised areas such as technology and risk management. Together, the teams make up a multi-disciplinary professional services function, using a common risk-based audit methodology, language and system .

As DBS’ business operations grew in scale and complexity over the years, the IA function has shifted to an integrated risk-based audit approach rather than the conventional checklist-based approach, ensuring end-to-end audit coverage. This approach has been fully implemented since 2009. It enables to perform comprehensive end-to-end integrated risk-based audit reviews on loan portfolios including business risk, credit quality and processes, and focus more closely on Basel II and III regulatory requirements. Further, it emphasises the first line of defence and allows greater coordination between audit and the second line of defence.

Under this approach, Group Audit has also moved to greater usage of computer-assisted audit techniques for greater efficiency and effectiveness, and shifted towards a ‘continuous monitoring’ audit approach allowing for more timely assessments of risk and controls.

DBS Group Audit works closely with the CEO, senior management and the first and second lines of defence and has an in-depth understanding of DBS’ businesses and risks, including corporate governance and risk management frameworks and the key internal control issues in the operating environment. This understanding enables the IA team to engage stakeholders effectively and respond efficiently to changes in the environment. For example, Group Audit was instrumental in helping the board and audit committee achieve compliance with SGX Listing Rule 1207 (10) within only several months of the amendments to the rule.

DBS Group Holdings was established in 1968 as the development bank of Singapore and is today one of Asia’s leading financial services groups. DBS operates in 15 markets and is headquartered in Singapore and listed on the SGX mainboard.

13


Wilmar International Limited

For Wilmar International Limited, the internal audit (IA) function goes beyond the basic auditing role; it is a unifying factor that brings different departments, offices and companies together. Given Wilmar’s

worldwide operations, a key function of IA is to promulgate best practices across companies in different geographical regions, raising standards and increasing efficiency throughout the Group.

Due to the organisation’s size, it is inevitable that individual departments are sometimes unfamiliar with each others’ functions. In the course of performing its function, the IA team is able to bridge this knowledge gap and tighten the process flow, bringing about improved communication and teamwork.

At the Group level, Wilmar’s IA function acts as a link between the Singapore HQ and overseas subsidiaries, surfacing issues and difficulties faced on the operational level to the corporate level so that group policies can be streamlined and better controls implemented. This helps to provide senior management with a deeper understanding of ground operations, assisting them in the making of informed strategic decisions.

Wilmar’s IA function has been established since 2001, with the initial objective of ensuring proper internal controls to match the company’s speedy growth, and has since expanded to contain IA teams in China, Indonesia, Vietnam and Malaysia. The IA teams have reported directly to an independent Audit Committee since 2006, when Wilmar was listed.

The role of the IA function has evolved alongside its size. Today, Wilmar’s IA function encompassesformulating policies and procedures at group level, ensuring that knowledge and best practices are shared across the Group, and guiding and standardising practices across the different companies in the Group. For example, the IA team was able to identify lapses in the accuracy of operational reports, which are critical shared information across the Group, and provide recommendations for improvement. Building on that, the IA team then initiated the sharing of useful reports on the SAP system.

Wilmar’s internal audit team further contributes to many other aspects of the Group’s operations, including IT projects. For example, the team was involved in the implementation of a software that handles segregation of duties such that conflicting duties and approval limits can be better managed. The IA team also plays a role in special projects such as conducting due diligence work for M&A initiatives.

Wilmar International Limited is Asia's leading agribusiness group and the world’s largest edible oils refiner, with business activities covering the entire value chain of the agricultural commodity processing business. Wilmar is ranked amongst the largest listed companies by market capitalisation on the SGX mainboard.

14

ARA Asset Management Limited


As a company grows, its standards of corporate governance must grow as well, and the experience of ARA Asset Management shows that its internal audit function plays a major role in this growing organization.

ARA Asset Management was formed in 2002, making it the youngest company among this year’s award winners. By 2010, it had made the Forbes Asia Best Under a Billion list, where it remained in 2011, and the company currently manages S$21.8 billion worth of investors’ money in the form of properties across 11 cities in the Asia Pacific region. Throughout its growth, the ARA IA function has expanded in tandem with the business and plays a significant role in maintaining the high standards of corporate governance required to uphold investors’ trust.

The ARA IA function is an integral part of ARA that maintains effective checks and balances on management and its operations. The ARA IA team assists the Audit Committee in carrying out the audit plan which covers a review of financial, operational and compliance controls of the Group, and ensure that management maintains a robust system of internal controls and follows an appropriate set of standards. As an extension of the ARA IA function, the ARA team advises the management team on corporate governance matters such as enterprise risk management framework, control self assessment in compliance, business continuity planning and updating of operations manuals.

As the business grew, the ARA IA team carried out a review and update of the Group’s policies and procedures. The team reviewed existing written policies and procedures, interviewed business process owners, identified improvements to documentation and recommended appropriate control standards to management. The revised operations manuals help to enhance the adequacy and coverage of business processes and operating procedures within ARA.

As ARA upholds the trust investors placed in the company, the ARA IA team plays an important role in ensuring that high standards of corporate governance and robust system of internal controls are maintained by management. The ARA team adds value to the company by bringing along a systematic and disciplined approach to evaluating and improving ARA’s governance, control and risk management processes.

ARA Asset Management Limited is an Asian real estate fund management company focused on the management of public-listed REITs and private real estate funds. ARA, which is listed on the SGX mainboard, currently manages REITs listed in Singapore, Hong Kong and Malaysia and spanning the retail, office, industrial and logistics sectors; private real estate funds investing in Asia; and provides real estate management services, including property management and convention & exhibition services; and corporate finance advisory services.

15

Special Recognition

Mr. Chor Khee YangSingapore Telecommunications Limited

Mr Chor Khee Yang, Group Chief Internal Auditor of Singapore Telecommunications Limited, is an active advocate of the importance of internal audit in Singapore. The primary objective of internal audit, he says, is to support the board by providing independent assurance on the company’s risk management and internal controls, and thereby helping to ensure that the necessary controls are in place to mitigate the key risks in the business.

In his role with SingTel IA, Mr Chor leads his team to not only uphold that objective but take it further. As head of internal audit, he holds a top management role, and under his leadership SingTel IA benchmarks its practices against the best-in-class IA functions globally. He and his team actively advise the company on best practices relating to risk management and internal controls. With his guidance, SingTel has been able to implement the COSO Internal Control Integrated Framework in control self-assessment programmes, aligning itself with international standards. He has also led the SingTel IA team to play a significant role in helping the company to benchmark its whistle-blower programme against global best practices, such as with the 2008 launch of its independently managed external whistle blower hotline.

Mr Chor pinpoints three factors that are crucial to the effectiveness of internal audit and that have enabled his team and himself to achieve excellence. First and foremost, internal auditors must be objective in the discharge of their duties and be free from any interference from management. Secondly, the IA function must have adequate resources and requisite skillsets. And thirdly, the internal audit team must work closely with management to understand the business and its associated risks, and focus on those risks that are most important to the company.

In this, says Mr Chor, he has had the full support and understanding of his board: “We are fortunate that in SingTel, the Board and Senior Management have always embraced good corporate governance and therefore, they have never failed to give their full support to any initiatives that are aimed at improving our risk management and internal control systems.”

16

content · pdf filecontent message from organizers ... financial economics (skbi) had decided...

Documents