Board Audit Committee
Board Audit Committee members
Phil Rivett (Chair), Mai Fyfield and Tim Tookey.
Board Audit Committee Terms of Reference
18 November 2020
1.1 The purpose of the Board Audit Committee (“the Committee”) is to provide oversight and advice to the Board in respect of financial reporting, financial crime, internal and external audit, and the adequacy and effectiveness of internal controls and risk management systems and to report formally to the Board on those matters after each meeting.
2.1 The Committee is a Committee of the Board from which it derives its authority and to which it regularly reports.
2.2 The Committee has delegated authority from the Board in respect of its functions and responsibilities as set out in these Terms of Reference.
2.3 The Committee may sub-delegate any or all of its powers and authority as it sees fit, including, without limitation, the establishment of sub-committees to analyse particular issues and to report back to the Committee.
2.4 The Committee has authority to oversee any investigation of activities relating to Nationwide which are within its Terms of Reference.
2.5 The Committee is authorised to seek any information it requires from any employee of the Society in order to perform its duties or call on any employee to be questioned at a meeting of the Committee as and when required.
2.6 The Committee may obtain, at the Society’s expense, external legal or other professional advice on any matter within its Terms of Reference.
3.1 Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination and Governance Committee in consultation with the Chair of the Audit Committee.
3.2 The Committee shall be made up of at least three members including a member of the Board Risk Committee and a member of the Remuneration Committee. The Committee as a whole shall have competence relevant to the banking sector and at least one of whom shall have recent and relevant financial experience. All members of the Committee shall be independent non-executive directors.
3.3 The Board shall appoint the Committee Chair who shall be an independent non-executive Director.
3.4 In the absence of the Committee Chair and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.
3.5 The Chair of the Board shall not be a member of the Committee.
3.6 Appointments to the Committee shall be for a period of up to three years, which may be extended for a further three year period (or, in exceptional circumstances, two such periods), provided the director still meets the criteria for membership of the Committee.
3.7 Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chair of the Board, Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Internal Auditor, other Executive Directors, external audit partners, external adviser(s) and representatives from relevant business functions may be invited to attend all or part of any meeting as and when appropriate.
4.1 The Society Secretary or their nominee shall act as the Secretary of the Committee and will ensure that the Committee receives information and papers in a timely manner to enable full and proper consideration to be given to the issues.
5.1 The quorum necessary for the transaction of business shall be two members, one of whom must be the Chair of the Committee or a member of the Board Risk Committee.
5.2 A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.
5.3 In the event of difficulty in forming a quorum, independent non-executive Directors of the Society who are not members of the Committee may be co-opted as members for individual meetings.
5.4 A decision of the Committee may be taken by written resolution including electronic mail. A decision may not be taken in accordance with this provision if the members of the Committee would not have formed a quorum at a meeting.
5.5 The members of the Committee shall be deemed to meet together if they are in separate locations, but are linked by conference telephone, video or other communication equipment. For the avoidance of doubt, a quorum in that event shall be as set out in 5.1 above. Such a meeting shall be deemed to take place where the largest group of members of the Committee participating is assembled or, if there is no such group, where the Chair is located.
6. Frequency of meetings
6.1 The Committee shall meet at least four times at appropriate times in the financial reporting and audit cycle, and otherwise as required.
6.2 Outside of the formal meeting programme, the Committee Chair, and to a lesser extent other Committee members, will maintain a dialogue with key individuals involved in Nationwide’s governance, including the Board Chair, the Chief Executive, Chief Financial Officer, the External Audit lead partner and Chief Internal Auditor.
6.3 At least once a year, without the presence of executive management, the Committee shall meet with the external auditors to discuss matters relating to its remit and any issues arising from the audit. The Committee shall meet once a year with the Chief Risk Officer, and once a year with the Chief Internal Auditor, without other executive management present.
7. Notice of meetings
7.1 Meetings of the Committee shall be called by the Secretary of the Committee at the request of the Committee Chair.
7.2 Meetings of the Committee shall be called by the Secretary of the Committee at the request of any of its members or at the request of the external auditors or Chief Internal Auditor if they consider it necessary.
7.3 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee and any other person required to attend, no later than three working days before the date of the meeting.
7.4 Supporting papers shall be sent to the Committee members and to other attendees as appropriate, at the same time.
8. Minutes of meetings
8.1 The Secretary of the Committee shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance.
8.2 The Secretary of the Committee shall record any conflicts of interest reported at the meeting.
8.3 Draft minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board unless in the opinion of the Committee Chair it would be inappropriate to do so.
9. Duties and responsibilities
9.1 Financial reporting
The Committee shall:
9.1.1 monitor the integrity of the consolidated and Society financial statements of Nationwide, including annual and interim reports, preliminary results announcements, summary financial statements and any other formal announcements relating to financial performance. (by reviewing significant financial reporting issues and judgements which they contain, and all material information presented with the financial statements). In particular, the Committee shall review and challenge where necessary, taking into account the external auditor’s views:
a) the appropriateness and application of significant accounting policies and any changes to them;
b) the methods used to account for significant or unusual transactions where different approaches are possible;
c) whether applicable accounting standards have been adopted and appropriate estimates and judgements made;
d) whether the financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary to members to assess the Nationwide’s performance, business model and strategy;
e) all material information presented with the financial statements.
9.1.2 review any financial information contained in other publicly disclosed documentation,
9.1.3 review and challenge where necessary management’s assessment of the Nationwide’s Financial Position and Prospects and Directors’ Risk Assessment.
9.1.4 where the Committee is not satisfied with any aspect of the proposed financial reporting, it shall report its views to the Board.
9.2 Internal controls and risk management systems
The Committee shall:
9.2.1 Keep under review the adequacy and effectiveness of internal controls including the internal financial controls system and, in respect of financial reporting, assess and monitor their effectiveness for each financial reporting period; that identify, assess, manage and monitor financial risks, and other internal control and risk management systems;
9.2.2 Review and recommend to the Board for its approval the statements to be included in the Annual Report concerning internal controls and risk management prior to their endorsement by the Board and the external auditors.
9.2.3 Hold an annual joint meeting with the Board Risk Committee to review the Society’s assurance plans.
9.3 Economic crime
The Committee shall:
9.3.1 oversee the adequacy and effectiveness of the systems and controls for anti-money laundering; anti-bribery and corruption; counter terrorism financing; economic crime; and the financial impact of fraud; and
9.3.2 review regular reports from the Economic Crime Function and the Money Laundering Officer.
9.4.1 The Committee shall provide advice to assist the Remuneration Committee in exercising its discretion regarding risk adjustments made to variable pay awards and the release of deferred or retained awards under variable pay plans.
9.5 Internal Audit
The Committee shall:
9.5.1 monitor and assess the effectiveness, performance, resourcing, independence and standing of the internal audit function;
9.5.2 oversee the work of the Internal Audit which reports functionally into the Chair of the Committee
9.5.3 approve the appointment and removal of the Chief Internal Auditor;
9.5.4 approve the Internal Audit Charter;
9.5.5 review and approve the Annual Internal Audit Plan and budget, ensuring appropriate coverage of systems for ensuring compliance with the regulatory environment within which Nationwide operates, including assurance over the effectiveness of the Risk function;
9.5.6 ensure Internal Audit has unrestricted scope, the necessary resources and access to information to enable it to fulfil its mandate, ensuring that there is open communication between different functions and that the internal audit function evaluates the effectiveness of these functions as part of its internal audit plan, and ensuring that the internal audit function is equipped to perform in accordance with appropriate professional standards for internal auditors
9.5.7 consider findings of internal investigations and review and monitor management's responsiveness to the findings and recommendations of the internal auditor to protect Nationwide’s assets, reputation and sustainability and ensure the effectiveness of relevant risk management and governance processes;
9.5.8 ensure material issues arising from the work of Internal Audit relating to matters falling within the scope of other committees are communicated to those committees and that feedback is received from them. Accordingly, Internal Audit shall provide relevant reports to other committees.
9.5.9 obtain an internal effectiveness review on an annual basis and obtain an independent and objective external assessment of the Internal Audit function as a whole at least every five years.
The Committee Chair shall:
9.5.10 set out the objectives of the Chief Internal Auditor and assess their performance with support from the CEO and oversee and approve the appointment process for the independent assessor to review the internal audit function at least every five years;
9.5.11 ensure that the Chief Internal Auditor shall be given the right of direct access to the Chair of the Board and to the Committee, providing independence from executive management and accountability to the Committee; and
9.5.12 recommend the annual remuneration of the Chief Internal Auditor for approval by the Remuneration Committee.
9.6 External audit
The Committee shall oversee the relationship with the external auditor including, but not limited to:
ENGAGEMENT TERMS AND FEES
9.6.1 considering and making recommendations to the Board, to be put to members for approval at the Society Annual General Meeting (AGM), in relation to the appointment, re-appointment and removal of the external auditor, which may include consideration of the risk of auditor withdrawal from the market;
9.6.2 overseeing the selection process for the new auditor and if an auditor resigns, investigating the issues leading to this and decide whether any action is required. Oversee the tender of the external audit appointment at least every 10 years, and the rotation of the audit partner / firm in accordance with regulatory requirements;
9.6.3 approval of the auditor’s remuneration, whether fees for audit or non-audit services, ensuring that the level of fees is appropriate to enable an effective and high-quality audit to be conducted; and
9.6.4 review and approval of the auditor’s engagement letter.
INDEPENDENCE AND QUALITY CONTROL
9.6.5 assessing annually the auditor’s independence and objectivity, taking into account relevant professional and regulatory requirements and the relationship with the audit firm as a whole, including the provision of any non-audit services;
9.6.6 satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and Nationwide (other than in the ordinary course of business);
9.6.7 agreeing with the Board a policy on the employment of former employees of the external auditor, and monitoring the implementation of this policy;
9.6.8 developing and implementing a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter;
9.6.9 assessing annually the external auditor’s qualifications, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures;
9.6.10 undertaking an annual review of the effectiveness of the external audit process;
9.6.11 monitoring the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners and senior staff, the level of fees paid by the Society compared to the overall fee income of the firm, office and partner and other related requirements; and
9.6.12 meeting regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage. The Committee shall meet the external auditor at least once a year, without management being present, to discuss their remit and any issues arising from the audit.
CONDUCT AND RESULTS OF AUDIT
9.6.13 reviewing the annual audit plan and ensuring that it is consistent with the scope of the audit engagement;
9.6.14 reviewing the findings of the audit with the external auditor. This shall include but not be limited to:
18.104.22.168 A discussion of any major issues which arose during the audit,
- any significant or unresolved accounting and audit judgements, problems or reservations; major judgemental areas;
- alternative accounting treatments together with the potential ramifications;
- any significant adjustments;
- the going concern assumption and viability statement;
- compliance with accounting standards, stock exchange rules and legal requirements;
- reclassifications or proposed additional disclosures;
- any material changes in accounting policies and practices, any communications provided by the external auditor to management,
- levels of errors identified during the audit; and
- any other matters the external auditor wishes to discuss.
22.214.171.124 reviewing any representation letter(s) requested by the external auditor before they are signed by management; and
126.96.36.199 reviewing the management letter and management's response to the auditor's findings and recommendations.
10. Reporting responsibilities
10.1 The Committee Chair shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities including:
- the significant issues that it considered in relation to the financial statements and how these issues were addressed;
- its assessment of the effectiveness of the external audit process; and
- any other issues on which the Board has requested the Committee’s opinion.
10.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
10.3 A report to members on the Committee’s activities is to be included in the Society’s Annual Report and Accounts. The report shall include a description of the significant issues dealt with by the Committee.
10.4 Where any disagreements between the Board or the Board Risk Committee and the Committee cannot be resolved, the Committee has the right to report the issue to members as part of its activities in the Annual Report and Accounts.
11. Senior manager regime prescribed responsibilities and key functions
11.1 Assist the Senior Manager Function (SMF) role holder(s) in respect of their escalation of the following Prescribed Responsibilities to the Committee:
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|Prescribed Responsibility||Description||SMF||SMF Committee Status|
|J||Responsibility for safeguarding the independence of, and overseeing the performance of, the internal audit function, including the performance of a person approved to perform the Head of Internal Audit function on behalf of the firm, in accordance with the PRA rules Compliance and Internal Audit 3 and FCA rules SYSC 6.2 (Internal Audit)||Chair of Audit Committee||Member (Chair)|
|Q||Responsibility for the production and integrity of the firm’s financial information and its regulatory reporting under the regulatory activities and system||Chief Financial Officer||Attendee|
11.2 Where matters are being discussed in relation to a prescribed responsibility, the relevant SMF role holder should attend and participate in the discussion, or if they are unable to attend to ensure that they are suitably represented. If the Committee makes a decision relating to their prescribed responsibility that they are not supportive of, then the SMF should escalate this to the Board, or in the Chair’s case, the Senior Independent Director.
12. Annual General Meeting
12.1 The Chair of the Committee or a deputy chosen from the Committee membership shall attend the Annual General Meeting, prepared to respond to any member questions on the Committee's activities or any matter within the remit of the Committee.
The Committee shall:
13.1 give due consideration to applicable laws and regulations, including the PRA and FCA’s Principles and Rules, the UK Listing Authority’s Listing Rules and Disclosure Guidance and Transparency Rules, the Building Societies Act 1986 and to the recommendations of the UK Corporate Governance Code, as appropriate;
13.2 be cognisant of the conduct risks arising (or increasing) as a result of their judgements, taking proactive steps to avoid or prevent these where possible;
13.3 work and liaise as necessary with all other Board Committees as required;
13.4 have access to sufficient resources in order to carry out its duties, including access to Nationwide’s Secretariat for assistance as required;
13.5 receive appropriate and timely training relevant to its activities, both in the form of induction training for new members and on an ongoing basis for all members; and
13.6 at least once a year, to review its own performance, constitution and Terms of Reference to ensure it is operating effectively and in line with PRA and FCA requirements and report the results of this review and recommend any changes necessary to the Board for approval; and
13.7 For the purposes of these Terms of Reference, “the Society” shall mean Nationwide Building Society and “Nationwide” shall mean Nationwide Building Society and its subsidiaries.
Nationwide Internal Audit Charter
19 January 2021
The activities of Internal Audit (IA) in Nationwide Building Society and its subsidiary companies are governed by the Internal Audit Charter. The Charter defines the role, authority and responsibilities of IA and is approved annually by the Audit Committee.
The contents of the document are as follows:
- Purpose and scope.
- Responsibilities of IA.
- Audit Practice Standards.
2. Purpose and scope
As the Society’s third line, IA provides independent assurance to the Board and executive management on the design adequacy and operating effectiveness of governance, risk management and internal controls to monitor, manage and mitigate key risks to achieving the Society’s objectives and protecting its assets, reputation and sustainability. IA has adopted an agile approach to be better placed to respond with a risk-based approach to the dynamic risk environment that the Society operates in.
IA’s scope is unrestricted and covers all the activities of the Society, its subsidiaries and those performed by third parties on behalf of the Society. This includes but is not restricted to:
- The design and operational effectiveness of the Society’s governance structures, policies and processes, including achievement of intended outcomes.
- The information presented to the Board and Executive management for strategic and operational decision making.
- The setting of, and adherence to, risk appetite.
- The Society’s risk and control culture.
- The Society’s values and culture which underpin our Mutual ethos articulated through the Nationwide Cornerstones;
- The risk of poor customer outcomes, giving rise to conduct or reputational risk.
- Capital and liquidity risks.
- Key events, including significant process changes, introduction of new products and services.
- Outsourcing decisions and acquisitions / divestments.
- Effectiveness of risk management framework.
IA derives its authority from the Board through the Audit Committee. This includes prompt and unrestricted access to all systems, records, property and personnel, the right of attendance at management committees and executive meetings in an observational capacity, and the right to be informed of material decisions and changes. All relevant information and data obtained by IA in the course of audit work is treated with confidentiality. Additionally, the Chief Internal Auditor has direct and unrestricted access to the Chairman of the Board and the Chairman of the Audit Committee.
IA is independent of the Society’s operational management and has no direct operational responsibility or authority over the activities it reviews.
All IA employees report directly or indirectly to the Chief Internal Auditor. They are responsible for being independent, objective, and constructive in the conduct of their work and avoiding conflicts of interest and personal, business or other issues that may impair impartiality.
In order to ensure independence
- The Chief Internal Auditor reports directly to the Chairman of the Audit Committee, with a secondary administrative reporting line to the Chief Executive.
- The Audit Committee Chairman is responsible for setting the objectives and reviewing the performance of the Chief Internal Auditor, including making recommendations on remuneration to the Remuneration Committee as appropriate.
- The Chief Internal Auditor meets regularly with the Audit Committee Chairman in private to ensure that the Chief Internal Auditor has an opportunity to raise any issues directly;
- The Audit Committee holds, at least annually, a meeting with the Chief Internal Auditor without management being present, to ensure that the Chief Internal Auditor has an opportunity to raise any issues directly with the Committee.
- IA employees have no operational responsibilities for any of the activities reviewed, and policies are in place to ensure that any employees working on projects or organisational wide initiatives, transferring into, or seconded to, IA from other Communities, are not involved in auditing activities for which they have been responsible for 12 months.
- IA does not set risk appetite, implement risk management processes, carry out quality assurance, controls testing or risk oversight on behalf of management, or design and implement risk mitigation activities in response to control weaknesses reported.
- On the approval of the Chief Internal Auditor, IA can engage in consultancy work to assist management in activities such as developing effective control frameworks. This will form a limited proportion of IA’s work, and individuals’ involvement in the work is considered in light of their future audit work to ensure IA’s independence and objectivity are not compromised; and
- The Chief Internal Auditor confirms IA’s independence to the Audit Committee on an annual basis.
5. Responsibilities of IA
The principal responsibilities of IA in planning, executing and reporting on its work are as follows:
- Developing an annual Internal Audit Plan on a 6-monthly basis, showing a firm view for the following 6 months with an indication of audits planned for the subsequent 6 months. This plan is presented for approval by the Audit Committee which is designed to address key risks and allow flexibility to respond to business and risk profile changes.
- Completing the audit work set out in the Audit Plan and reporting findings to management.
- Providing quarterly reports to the Audit Committee including significant control weaknesses, themes arising from audit work and other interactions with management, emerging risks and issues, significant findings from selected post-incident reviews of major adverse events, and the effectiveness of management in addressing issues raised.
- Providing at least annually an assessment of the overall effectiveness of the governance and risk and control framework across the Society.
- Undertaking issue validation assurance on a sample basis every 6 months to conclude on whether actions taken by management in response to issues raised are appropriate and implemented effectively.
- Taking into consideration the work of first and second line control and oversight functions including evaluating the effectiveness of those communities and assessments on whether to amend the scope or nature of audit activity, and co-ordinating work as appropriate.
- Liaising with the Society’s external auditors to co-ordinate work and to maximise efficiency.
- Maintaining an open relationship with regulators, including in exceptional circumstances communicating significant issues to regulators in the event that management has not done so.
- IA may place a degree of reliance on the work of other assurance functions but only after a thorough evaluation of their effectiveness.
It is the responsibility of the Chief Internal Auditor to manage IA effectively. This includes:
- Setting the strategy for the Audit Community and driving actions to deliver that strategy.
- Ensuring that appropriate skills and resources are maintained and reported regularly to discharge IA’s responsibilities effectively, including the use of external specialists through co-source arrangements.
- Maintaining a Quality Assurance team, and ensuring that the scope of quality assurance work is appropriate and that results of this activity are reported and are used to drive continual improvement in audit quality.
- Using methodology guidance that supports the delivery of effective and efficient audit engagements.
- Using a suite of management information to monitor the performance of IA.
- Ensuring that operational risks within IA are managed.
- Working with management to facilitate secondments of employees into and out of IA to increase expertise within IA and promote the development of high performing individuals.
Additionally, at least once every five years IA’s effectiveness will be evaluated by an external and independent organisation.
6. Audit Practice Standards
IA conforms with the Chartered Institute of Internal Auditors (CIIA) Guidance on Effective Internal Audit in the Financial Services Sector, and operates in accordance with the CIIA International Professional Practices Framework (IPPF). These include the International Standards for the Professional Practice of Internal Auditing (IIA Standards) and the Code of Ethics.
The Chief Internal Auditor is responsible for ensuring that IA complies with the above standards, guidance, and with the appropriate regulatory requirements. This is confirmed by the Chief Internal Auditor on an annual basis to the Audit Committee informed by a programme of work carried out by Quality Assurance to evaluate conformance with with CIIA Standards and IA policies and procedures. The Quality Assurance team, part of IA Strategy and Operations, is independent of those staff who carry out the audit work. IA must also comply with all relevant policies, procedures and professional body standards of conduct.