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FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT 2014
Internal Control System
The key features of the Group’s internal control system are as follows:
• the Group has established an organization structure with clearly defined lines of responsibilities and appropriate
levels of delegation and authority, including financial limits of authority. The organization structure sets out
clear reporting lines and segregation of duties for major operational functions like operations, sales and
collections, procurement and payment, human resource, capital expenditure, research and development,
financial reporting, corporate affairs, and investments;
• a process of hierarchical reporting is established which provides a documented and auditable trail of
accountability;
• annual budgetary exercise is carried out, requiring all business units and companies in the Group to prepare
financial budgets which are then consolidated into a Group budget, presented to the Board for comments and
approval. Quarterly review of the Group’s performance against budget is carried out at Board meetings where
explanations on significant variances are furnished by Management. Management meetings at operational level
are conducted to review financial performance against business plans and monitor the respective business
unit’s performance against budget;
• significant changes in business development are reported to the Board at scheduled meetings. This oversight
review enables the Board to evaluate and monitor the Group’s business performance to enable the Group to
achieve its corporate objectives;
• internal policies and procedures pertaining to business processes have been formalized for application across
the Group. These policies and procedures serve as a guide to ensure compliance with internal controls and
applicable laws and regulations; and
• where issues arise that affect the reliability and integrity of financial information of any business unit, special
audits are commissioned to assist the Board in fulfilling its oversight responsibilities.
Internal Audit Function
The internal audit function is outsourced to an independent professional firm, which adopts the International
Professional Practices Framework (“IPPF”) in carrying out internal audit of the Group. The IPPF encapsulates,
amongst others, the attribute and performance standards for internal auditing promulgated by the Institute of Internal
Auditors, a global professional body for internal auditors. The Audit Committee reviews the work of the internal
audit function, its observations and recommendations to ensure that it obtains the necessary level of assurance
with respect to the adequacy and effectiveness of risk management and internal control systems. The internal audit
function reviews the Group’s system of internal controls and reports its observations, including Management’s
response and action plans thereof, directly to the Audit Committee. The internal audit function also follows up and
reports to the Audit Committee the status of implementation by Management on the recommendations highlighted
in its internal audit reports. The internal audit plan is developed based on the risk priority of the geographical
segments of the Group. Business units in Malaysia and Singapore were selected for internal audit during the year,
with the Audit Committee’s concurrence, whilst a follow-up internal audit was conducted for business units that
were previously audited, including the business unit located in the Philippines. Further details of the internal audit
activities are provided in the Audit Committee Report.
The Group’s external auditors, in the course of their statutory audit, carry out a review of the Company’s system of
internal controls to the extent of their planned reliance as laid out in their audit plan. Any significant weaknesses
identified during the reviews together with the improvement measures to strengthen the internal controls are
reported to the Audit Committee. The Audit Committee reviews the observations raised by the internal and external
auditors, as well as actions taken by Management to address the areas of concern, and evaluates the adequacy
and effectiveness of the Group’s risk management and internal control system. The Audit Committee reports to
the Board the outcome of its engagement with the internal and external auditors concerning the adequacy and
operating effectiveness of the Group’s system of risk management and internal control, including actions taken or
are being taken by Management to remedy any significant weaknesses noted.
STATEMENT ON RISK MANAGEMENT
AND INTERNAL CONTROL
(cont’d)
