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Audit & Finance Committee Terms of Reference

Section 1 - Membership

The Committee shall be appointed by the Board and shall consist of not less than three independent non-executive directors. The Chairman of the Board shall not be a member of the Committee. A quorum shall be three members. Members shall serve a period of three years from date of appointment. At least one member of the Committee shall have recent and relevant financial experience.

The Chairman of the Committee shall be appointed by the Board. The Company Secretary or his nominee, as agreed with the Chairman of the Committee, shall act as Secretary to the Committee.

Section 2 - Meetings & Minutes

Attendance

A quorum shall comprise three members. Only members of the Audit & Finance Committee are entitled to attend and vote at Committee meetings. The Head of Internal Audit and Risk and the Chief Executive, while not members of the Committee will normally, at the invitation of the Chairman, attend meetings. The Finance Director and a representative of the External Auditor should, at the invitation of the Chairman, attend meetings convened to discuss the nature and scope of the annual external audit and/or to review the annual financial statements and External Auditor’s Management letter. Other Board members who are not executives or employees of BGE shall also have the right of attendance.

The Audit and Finance Committee should have a discussion with each of the External Auditor and the Head of Internal Audit and Risk at the Committee’s discretion as and when required but at least once a year, without executive members of the Board or other employees of BGE present, to ensure that there are no unresolved issues of concern.

Frequency

Meetings shall be convened at the discretion of the Chairman, but shall be held at least four times per annum. Such meetings should coincide with key dates in the financial reporting cycle. The Board, Committee Members or the Head of Internal Audit and Risk and/or the External Auditors may also request further meetings if they consider it is necessary to do so.

Minutes

The Secretary shall be responsible for recording the minutes of each meeting. Minutes of meetings will be circulated to all Members in advance of their formal adoption by the Committee.

Section 3 - Authority

The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. It is also authorised to seek any information it requires from the External Auditor. The Committee is also authorised to obtain outside legal or other independent professional advice if considered necessary and if necessary invite outsiders with relevant experience to attend meetings.

Section 4 - Duties and responsibilities

The duties and responsibilities of the Audit & Finance Committee are, subject as provided below in relation to Gaslink, to assist and where relevant make recommendations to the Board on the discharging of its responsibilities as they relate to external financial reporting, external and internal audits, ensuring that an effective system of internal control, comprising financial, operational controls, compliance and risk management, is maintained and operated, and in particular:

Internal Controls

  1. to assist the Board in fulfilling its responsibilities in ensuring the appropriateness and completeness of the system of internal control, reviewing the manner and framework in which management ensures and monitors the adequacy of the nature, extent and effectiveness of internal control systems, including accounting control systems and thereby maintaining an effective system of internal control. The Committee will carry out this responsibility in close liaison with the Board Risk Committee, which will advise the Board in establishing the Board’s risk appetite and setting standards for the Board’s risk control framework
  2. to review and make a recommendation on BGE’s statement on internal control systems prior to endorsement by the Board.

Financial Statements

  1. to ensure that BGE keeps proper books of accounts.
  2. to review the annual financial statements and submit a recommendation to the Board, focusing particularly on:
    • changes in accounting policies and practices
    • major judgemental areas
    • significant adjusted or unadjusted audit differences
    • the going concern assumption
    • compliance with accounting standards
    • ensuring compliance with legal requirements
    • consistency of other information presented alongside the financial statements (e.g. Chief Executive’s report)
  3. to review any formal announcements prior to publication relating to BGE’s financial performance.

External Auditors

  1. to consider and recommend the appointment, reappointment and removal of the External Auditor, the audit fee and any questions of resignation or dismissal.
  2. to develop and implement a policy on the engagement or the award of contracts to the External Auditor or affiliate for non-audit work, taking into account relevant best practice and ethical guidelines.
  3. to ensure that the external auditors are aware of the corporate governance requirements outlined in the Code of Best Practice for Governance of State Bodies
  4. to discuss with the External Auditor before the audit commences the nature and scope of the audit.
  5. to discuss matters arising from the interim and final audits and any other matters the External Auditor may wish to discuss.
  6. to resolve disagreements regarding financial reporting between Management and the External Auditor.
  7. to review the External Auditor’s Management letter and Management’s response and any other communications addressed to the Board.
  8. to monitor and review at least annually the performance, qualifications, expertise, resources and independence of the External Auditor.
  9. to annually assess the effectiveness of the external audit process

Internal Audit

  1. to review and approve the Internal Audit Charter on an annual basis and to review and approve the Internal Audit plan on at least an annual basis
  2. to monitor and review the effectiveness of the internal audit programme, ensure co-ordination between the Internal and External Auditors and ensure that the internal audit function is adequately resourced and that adequate attention is paid to value for money auditing.
  3. To receive reports from the Internal Audit function.
  4. to consider compliance with the Code of Practice for the Governance of State Bodies via the Internal Audit function.
  5. to consider the major findings of internal investigations and Management’s response.
  6. to review the effectiveness of the Internal Audit function on an annual basis.
  7. to approve the appointment or termination of appointment of the Head of Internal Audit & Risk.

Other Activities

  1. to develop a policy by which staff may, in confidence, raise concerns about possible business, financial or other improprieties and ensure that arrangements are in place to investigate such matters.
  2. to consider and make recommendations to the Board on the annual operating plan and budget for BGE.
  3. to consider other topics or matters delegated to it by the Board. The Audit & Finance Committee is not responsible for reviewing executive decisions or for monitoring the efficiency of management.

Gaslink

In the case of Gaslink Independent System Operator Limited (“Gaslink”) the duties of the Committee are circumscribed by the legislative requirement for independence of Gaslink as regards its organisation and its power to make decisions with respect to carrying out its responsibilities for operating the BGE transportation system.

The Committee shall:

  1. review and report to the Board on the annual audited accounts of Gaslink as approved by the Gaslink Board; and
  2. (b) review, consider and report to the Board in respect of such other reports made by Gaslink to BGE as may be determined by the Board from time to time.

The above listing is not exhaustive and the Committee may, in addition, perform such other functions as may be necessary or appropriate for the effective performance of its function.

Section 5 - Reporting procedures

The Chairman shall report formally to the Board on the Committee’s proceedings after each meeting on all matters within its duties and responsibilities. The Committee shall compile a report describing its membership and its duties and activities during the year, to be included in the Annual Report and Accounts.

Management and the Head of Internal Audit and Risk will ensure that all information relevant to the discharge by the Committee of its responsibilities, as detailed above, is provided to the Committee (as requested by the Committee). Management will also ensure that matters of material concern that are relevant to the Committee’s responsibilities are brought to the attention of the Committee promptly.

Section 6 - Review

On an annual basis, the Committee will review the effectiveness of its operations and report to the Board on its findings and recommendations.

On an annual basis, the Committee will review these terms of reference and make recommendations on updating or amending them to the Board as appropriate.

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