for the year ended 31 December 2011
The function of the audit committee is to support the board by monitoring the decisions and processes designed to ensure the integrity of financial reporting and robust systems of internal control and risk management.
The audit committee's responsibilities include:
- Monitoring the integrity of the financial statements and formal announcements relating to the group's financial performance and reviewing significant reporting judgements.
- Reviewing the accounting principles, policies and practices which have been adopted by the group in the preparation of the Annual Financial Statements, financial reporting issues and disclosures in financial reports.
- Reviewing and monitoring the effectiveness of the group's internal control and risk management systems, including reviewing the process for identifying, assessing and reporting key risks and control activities.
- Approving the internal audit plan and reviewing regular reports from the head of internal audit on the effectiveness of the internal control system.
- Making recommendations to the board on the appointment, re-appointment or change of the group's external auditors and approving the remuneration and terms of engagement of the group's external auditors.
- Overseeing the board's relationship with the external auditors and ensuring the group's external auditors' independence and objectivity and the effectiveness of the audit process is monitored and reviewed.
- Developing, implementing and maintaining a policy on the engagement of the group's external auditors' supply of non-audit services.
- Reporting to the board any matters which have been identified that the committee consider need to be considered, actioned or improved upon.
- Monitoring the group's compliance with legal and regulatory requirements including ensuring that an effective whistle-blowing procedure is in place.
Chairman, Audit committee
The audit committee comprises three independent non-executive directors and oversees the group's financial reporting and internal controls and provides a formal link with the external auditors.
To ensure the audit committee discharges its responsibilities, the audit committee met six times during the year. Attendance of members during 2011 is shown in the previous table.
Mr AJ Quinn was appointed to the committee at the time of appointment to the board on 1 November 2011. Dr K Dagdelen resigned the same day following his appointment to the governance and nomination committee. For reasons described in the Corporate Governance Report, the board considers all members of the audit committee to be independent.
In terms of the directors' remuneration policy, for service to the audit committee for the year, Mr CL Coleman was paid US$35 000, Dr Dagdelen US$29 167, Mr Quinn US$5 833 and Dr K Voltaire US$50 000.
The audit committee is regularly updated on new legislation and other information pertinent to its role, relevant information and reports are presented to the committee as required, usually by internal staff, legal counsel, or external consultants. To assist management in providing the information to allow the audit committee to discharge its responsibilities the group's chief financial officer, other executive management, external auditors and the head of internal audit regularly attend meetings.
The chairman of the audit committee has a PhD in finance and two of the members have considerable years of experience in the financial services sector as detailed in the biographies on pages 4 and 5 of this Annual Report. The board believes that this level of experience continues to be sufficient to meet the standards set by the UK Corporate Governance Code. In the event that any issues should arise which would be deemed outside the areas of expertise of the members, independent professional advice would be sought.
The audit committee reviews the company's published results, the effectiveness of its system of internal control, legal and regulatory compliance including the Sarbanes-Oxley Act (Sox) and the services provided by the external auditors.
The board acknowledges that pursuant to the Companies (Jersey) Law, 1991, and the UK Corporate Governance Code it has a responsibility to present a balanced and understandable assessment of the company's and the group's position and prospects. This extends to the preparation and publication of the annual report and any other release of information, price sensitive or otherwise. The board also acknowledges that the UK Corporate Governance Code provisions include the requirement for an explanation of the basis on which the group generates or preserves value over the longer term and the strategy for delivering the objectives of the group.
The directors are required to prepare Annual Financial Statements for the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The directors have chosen to also prepare Annual Financial Statements for the company in accordance with IFRS as issued by the International Accounting Standards Board. The directors are responsible for the maintenance of proper accounting records and the preparation, integrity and fair presentation of the Annual Financial Statements of the company and the group.
The directors have also prepared the other information included in the Annual Report and are responsible for both its accuracy and its consistency with the Annual Financial Statements.
The directors have general responsibility for selecting suitable accounting policies and applying them consistently, and for taking such steps as are reasonably open to them to safeguard the assets of the group and prevent and detect fraud and other irregularities. The going concern basis has been adopted in preparing the Annual Financial Statements. The directors have noreason to believe that the group and company will not be a going concern in the foreseeable future based on forecasts and available cash resources. The viability of the company and the group is supported by the Annual Financial Statements.
The group has operated a code of ethics, which has recently been updated, since its United Kingdom listing in July 1997. The code includes specific reference to the company's financial managers and the chief executive officer. A copy of the revised code is available on the company's website www.randgoldresources.com.
The group's external auditors are BDO LLP and the audit committee monitors the external auditors' independence and the objectivity and effectiveness of the audit process. This is undertaken within the framework of the detailed audit committee's terms of reference. The audit committee has implemented a policy that non-audit services may not be provided by the external auditors.
The audit committee has also agreed that going forward there will be a tender process for external audit services at least every five years. A copy of the audit committee's terms of reference is available on the company's website www.randgoldresources.com.
The committee makes recommendations to the board in relation to the appointment, re-appointment and any changes to the external auditors. BDO LLP were appointed in 2007 and served as external auditors for the group for the 2011 financial year and their appointment will be recommended to shareholders at the April 2012 annual general meeting. Taking into account the output of the audit committee's review of the group's external auditors' independence and objectivity, and, the effectiveness of the audit process, together with other relevant review processes conducted throughout the year, the audit committee was satisfied that it could make a recommendation to the board to propose to shareholders the re-appointment of BDO LLP. There are no contractual restrictions on our ability to appoint alternative auditors. The board has established a policy that, going forward, the group's external audit will be subject to a tender process every five years, to ensure that the group continues to receive high quality and cost effective audit services.
The audit committee meets regularly and this includes quarterly meetings which are used to consider and approve the company's quarterly results. The external auditors are regularly invited to attend meetings to report on their activities. The audit committee also meets with the external auditors, independent of the executive directors or management. Such a meeting took place in both October 2011 and January 2012 following the presentation of a report by the BDO audit partner.
The audit committee reviewed and updated its terms of reference during the year. The new terms of reference can be accessed via the group's website.
During the year, as a result of work performed in connection with the company's US Annual Report on Form 20-F for the year ended 31 December 2010, PricewaterhouseCoopers, the company's previous external auditors were paid US$21 903 (2010: US$20 903). PricewaterhouseCoopers were not engaged to provide any non-audit services in 2011 or 2010 respectively.
During 2009, the company appointed a chartered accountant who is responsible for monitoring the group's compliance with respect to Sox and internal audit and reporting findings to the audit committee. The head of internal audit has direct access and responsibility to the audit committee and attended four meetings during the year to discuss the reports submitted, Sox and internal audit projects during the year and the proposed internal audit plans. During the year, the head of internal audit also met with members of the audit committee without management present. The head of internal audit works across the group with responsibility for reviewing, evaluating, developing and providing assurance on the adequacy of the internal control environment, operating efficiency and risk identification and management across all of the group's operations. The internal audit function's mandate, terms of reference and annual audit coverage plans were approved by the audit committee during the year.
During 2011, the internal audit function has focused on various group activities and operations, covering a variety of financial, operational, strategic and compliance related business processes. No significant weaknesses were identified as a result of risk management and internal controls reviews undertaken by internal audit during 2011. The executive management continues to undertake regular reviews of various parts of the group's operations and details of their reports are submitted to the audit committee and board for comment when necessary. During 2012, a formal internal audit plan which has been approved by the audit committee will be executed across the operations using internal resources and supplemented through the engagement of external practitioners upon specified terms.
The audit committee assessed the effectiveness of the group internal audit function during the year, finding that adequate work had been undertaken providing effective assurance around financial processes and controls in relation to the Sox work performed in the year, and that the internal audit function has had full access to all areas of the group and is of good standing within the organisation. However, the audit committee noted that continued investment is required in the internal audit function to ensure its development matches the group's expansion. The audit committee, chief financial officer and the head of internal audit concluded that a co-source relationship was required to support the internal audit function and during the year a tender process was performed to engage an external assurance advisory firm to provide a co-sourcing relationship and resource as required by the head of internal audit to satisfy the approved 2012 internal audit plan.
The board notes that no cost effective system will preclude all errors and irregularities and so the group's system of internal controls provides reasonable, but not absolute assurance, against material misstatement or loss.
The group has had in place, for a number of years, a whistleblowing programme at all its operations to allow staff to confidentially raise any concerns about business practices. The programme, which is monitored by the audit committee, makes available a selection of telephonic, email and mail communication channels to any person across the operations who has information about unethical practice in the company and its managed operations. Any reports received by the general counsel and secretary are referred to an appropriate line manager or the internal audit function for investigation and resolution. The committee considers the whistleblowing procedures in place to be appropriate for the company. To date, while the programme has been used in several instances, none has resulted in a fraudulent incident being identified.
In addition the company has adopted a policy in accordance with the US Foreign Corrupt Practices Act and the UK Bribery Act and all operations, key employees, customers, major suppliers, managers and other key stakeholders have been briefed concerning the implication of the Acts, particularly in the light of the provisions of the Dodd-Frank Act. The company has continued to work with its US legal counsel regarding the effects of the Dodd-Frank Act and any applicable regulations which have been published.
The group maintains a sound system of internal control which is embedded in all operations, as part of the commitment to the long term success of the company and the protection of the value of its reputation and assets in order to safeguard the interests of our shareholders. An effective system of operational and financial controls, including the maintenance of qualitative financial records, is an important element of the group's internal control. The system of internal control provides reasonable rather than absolute assurance that the group's business objectives will be achieved within the risk tolerance levels defined by the board.
The audit committee reviews the internal control process, including financial reporting, and its effectiveness on an annual basis to ensure it remains robust in identifying control weaknesses as well as to comply with Sox requirements. The group is focused on maintaining a sound system of internal control, based on the group's policies, procedures and guidelines, in all operations.
This review includes quarterly reports from the head of internal audit in respect of findings from internal control reviews and testing, assurance obtained in relation to the certifications required under the Sox Act 2002 as a results of the company's Nasdaq listing, and other assurances from regular management reviews as appropriate.
The group also carried out an assessment of its internal control over consolidated financial reporting pursuant to Section 404 of the Sox Act 2002 and the US Disclosure Rules and Transparency Rules. The management of the company, which is responsible under the Sox Act 2002 for establishing and maintaining an adequate system of internal control over consolidated financial reporting, evaluated the effectiveness of that system using the COSO framework. Based on that evaluation, the management of the company expects to conclude in its Annual Report on Form 20-F filing with the US Securities and Exchange Commission that the system of internal control over consolidated financial reporting was effective as at 31 December 2011.
The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board believes in the maintenance of sound risk management and internal control systems.
Risk is managed by means of the risk management triangle shown below. The board, at the pinnacle of the triangle, has reserved for its approval the management of risk. The board considers the group's strategic plan annually or when issues may arise which could affect parts of the plan. In addition, at its quarterly meetings the board considers the company's five-year plan, group valuation and the corporate models being updated for this purpose. The audit committee requested at its May 2011 meeting that the financial director, executive management and the internal audit manager refresh the group risk control framework. Out of this exercise a new Risk Register was established which allowed the audit committee and board to better understand, analyse and assess the key risks facing the group and whether these risks were appropriately managed. This Risk Register has been populated in discussion with senior management using the existing risk matrix, while a universal risk prioritisation and rating scale, against which all the risks have been graded and prioritised, has also been developed. The format assists management in identifying and assessing the key risk facing the business. Some of the features of the Risk Register include the risk area, the actual risk, detail regarding responsibility, the inherent risk assessment, controls and mitigation being in place; residual risk assessment. The inherent risk assessment features two key components, the first being a measure of probability and the second a measure of the impact were such a risk to arise. The audit committee accepted that the Risk Register was a dynamic document used by management in undertaking their duties, while at the same time allowing the internal audit function the opportunity to review and evaluate the activities of management in their efforts to control issues of risk and assess whether these activities are sufficient for the mitigation and management of risk. This document will be tabled for review by the audit committee at least on an annual basis.
The executive as part of their oversight of the group's activities attend the various operational monthly meetings. While at the executive committee's weekly meeting, general managers' report on their weekly output and the critical issues affecting their specific operations. All of the actions, mentioned above, act in a way to reduce the risk exposure of the group.
As part of the preparation of the company's Annual Report on Form 20-F, which is filed with the United States Securities and Exchange Commission (SEC), the substantial risk factors are again identified and set out highlighting to the market those aspects which could have a material effect on the company's business.
The board has identified various risk factors which it considers either individually or in a combination as having the potential to have a material adverse effect on its business. Full details relating to these risk factors as well as those relating to our industry can be found in our Annual Report on Form 20-F filed with the SEC, a copy of which is contained on the company's website www.randgoldresources.com. In this report, the board has itemised several key risks, including the Key Performance Indicators (KPI), and how these are being managed (see facing page).
In the current economic climate cash management is a key focus for the group. The role of group treasury is to manage and monitor our external and internal funding requirements and financial risks in support of our strategic objectives. Treasury activities are governed by policies and procedures approved by the audit committee, most recently at the October 2011 audit committee meeting.
A treasury committee, chaired by our chief financial officer, meets on a monthly basis to review treasury activities. Its members receive management information relating to treasury activities. The committee recommends group policy, relating to all aspects of funding, management of interest rate and foreign exchange exposures, hedging and other financial risk management, which is submitted to the group audit committee bi-annually for approval. It also coordinates relationships with banks, rating agencies and other financial institutions. The committee monitors all significant treasury activities undertaken by group companies and ensures compliance with group policy.
The overall objective of the treasury committee is to effectively manage credit risk, financial risk, liquidity risk, foreign currency risks and other market risks in accordance with the group's strategy. Other responsibilities of the treasury committee include safeguarding and management of the group's cash resources and funding programmes, approval of counterparties and relevant transaction limits, ensuring the most competitive return on surplus cash resources, and the monitoring of all significant treasury activities undertaken by the group. The group uses conventional financial instruments to manage these risks.
In 2011, the focus of the treasury committee was managing counterparty risk with banks where the group places cash deposits, recognising the considerable increase in the group's cash resources as well as the volatility of the banking system in general. The group treasury policy ensures surplus cash is placed with institutions with credit ratings of:
- 'A' and higher, on strict terms concerning placement duration (maximum 3 months) with no more than 5% of total funds or US$25 million (the lower of) being placed with any one institution; or
- 'AA-' and higher, on strict terms concerning placement duration (maximum 3 months) with no more than 20% of total funds or US$100 million (the lower of) being placed with any one institution.
Credit ratings and market information are reviewed on a continuous basis to ensure the treasury committee is abreast of information pertaining to the management of group cash resources, and the group has employed the services of a Fiduciary Deposit Service to improve the flow and quality of market information.