Internal audit charter

Corporate Governance

ESB subscribes to best practice corporate governance. Board members responsibility statements and associated governance statements by senior management are supported by regular management reporting, formal risk analysis, financial control review and by the work of Group Internal Audit.

Scope & authority

Group Internal Audit derives its authority from the Board through the Board Audit Committee and the Chief Executive. The Group Internal Auditor reports functionally to the Audit Committee of the Board and administratively to the Executive Director Finance. The Group Internal Auditor meets regularly with the Chief Executive to discuss all audits and quarterly to discuss audits under the responsibility of the Executive Director Finance. The Group Internal Auditor operates with independence and authority in relation to audits carried out and has unrestricted access to the Chairman, the Chief Executive and the Chairman of the Audit Committee. Group Internal Audit is authorised to examine any of the activities of ESB, its subsidiaries and associated companies, and has unrestricted access to all records, assets and personnel necessary to discharge its responsibilities.

ESB management's responsibilities

It is management's responsibility to manage risk, maintain effective controls and implement audit agreed actions in a timely manner.

Managers will proactively interface with auditors, respond to draft reports in accordance with agreed procedures and agree actions and timescales to rectify control weaknesses identified.

Management have the primary responsibility for prevention of fraud and for detecting and dealing with any fraud that may occur. Formal reporting of suspected fraud should comply with ESB Group Fraud Guidelines.

Group Internal Audit's responsibilities

Group Internal Audit is an independent appraisal function charged with reviewing company activities across all areas within ESB Group, as a service to the Board and management. It objectively examines and reports on management of risk, the adequacy of internal control, and on the achievement of proper, efficient, effective and economic use of resources.

It discharges its responsibilities by critically reviewing on a risk focused basis:

• Compliance with objectives, policies, plans and procedures
• Compliance with external legislation and regulation
• The reliability and integrity of internal financial and other controls and of management information
• Controls to ensure risks are effectively identified and managed and that the Group's assets and interests are properly accounted for and safeguarded. This includes ensuring that the audit programme and methodology takes due account of the possibility of fraud and fully investigating any fraud or suspected fraud.
• That value for money is obtained across all activities.
• Group Internal Audit may place reliance on local management controls or existing specialist or engineering audit within Business Lines or the Corporate Centre, but in such instances will provide independent assurance to the Audit Committee that such measures are appropriate.

Independence

To preserve its independence and objectivity Group Internal Audit will not assume operating responsibilities and will remain independent of activities it audits. Without prejudice to its independence, it may selectively review projects in progress and advise management accordingly.

Confidentiality

The Group Internal Auditor will ensure that confidentiality and adherence to regulatory requirements is maintained over audit reports and all information and records obtained in carrying out audits.

Planning & reporting

Following consultation with Directors and review of risk analysis reports, the Group Internal Auditor will agree the annual audit plan with the Chief Executive prior to approval by the Audit Committee.

The Group Internal Auditor reports quarterly and as requested to the Audit Committee, Chief Executive and Executive Director Finance.

Final Audit Reports are issued to the Manager(s) concerned, the relevant Directors, and to the Chief Executive.

Group Internal Audit will follow up on implementation of audit recommendations and report any significant non-implementation to management and the Audit Committee.

Staffing & resources

Group Internal Audit will be given the multi-disciplinary resources it requires to adequately discharge its responsibilities. In general, audit staff will have a primary degree or professional qualification.

Group Internal Audit is a vehicle for the development of staff with managerial potential. Business Line Management will provide support in the rotation of suitable staff into and out of the area.