MISC Annual Report 2019

Other Key Internal Control Processes On a semi-annual basis, the process owner at the management levels and operating entities is required to complete the FCF testing and present the results to the Management. The Management will submit a Letter of Assurance to PETRONAS which provides confirmation on the effectiveness of specified internal controls over financial reporting of the entities and be accountable for the reliability of financial statements. If ineffective controls exist, the process owner will have to put in place appropriate remediation plans and the control owner will monitor the execution plans to ensure the controls are mitigated by the next FCF compliance testing and reporting period. 5. The Group continues to monitor debt covenants on its external borrowings on a quarterly basis, to ensure that they are observed and complied with under the PETRONAS Debt Compliance Management reporting. 6. There is a clear process for the evaluation of investments or divestments and the process includes risk assessment, financial appraisal, due diligence and execution. The investment appraisals are reviewed by the Management before being recommended to the approving authority. 7. MISC’s Procurement Manual provides the overall procurement principles, scope, functions, governance, operational procurement processes, procedures and exceptions to be adopted in relation to procurement activities within MISC. Tender Committees and Quotation Committees are established to ensure procurement activities are conducted in an effective, transparent and fair manner whereas Vendor Performance Review Committee is established to review, deliberate and endorse on overall vendor performance matters including application for suspension, blacklisting, uplifting and reinstatement. 8. Project management of LNG and AET newbuilds are handled by Project Management (PM) of the Eaglestar Group, whereas the project management for the Offshore Business will be monitored by the Project Delivery Team (PDT). The primary objective of PM and PDT unit is to strategize, lead and control shipbuilding/conversion of vessels and conversion of floaters respectively, to ensure safe and successful execution of projects within the agreed schedule and allocated budget limits. Two main functions of Eaglestar’s PM are (i) project engineering, which mainly manages project tendering and contracting, including feasibility studies, design and scope of work; and (ii) project management, which handles contract administration, supervision and appraisal of builders’ performance. PM site team constantly reviews the execution of the project against the project execution plan, which includes the planned program, procurement schedule, factory test schedule and commissioning schedule. PM also maintains regular reporting to management on progress and to escalate pertinent issues. The Offshore Business’s PDT provides support and oversight for all project phases from bid, through FEED and execution until handover to asset management. During project execution, the team will carry out regular project reviews and risk assessment and formulate risk mitigation to ensure that appropriate actions are taken in a timely manner. Independent reviews are performed during the project execution phase by MISC GIA. 9. ICT is extensively deployed in MISC to automate work processes and to collect key business information. MISC’s information and communication system, which acts as an enabler to improve business processes, work productivity and decision making, are implemented throughout the Group. The Information and Communications Technology Steering Committee (ITSC) provides strategic directions and guidance on ICT initiatives. Progress of ICT initiatives is monitored and reported at the ITSC meetings to ensure smooth implementation of ICT initiatives. System reviews are initiated and conducted to ensure that adequate controls are in place in order to confirm to the Group’s business objectives, policies and procedures. The Group adheres to the industry cybersecurity standards. The Group has invested on processes, tools, skills, services and applications to mitigate the Group’s risk in cybersecurity threats. Reviews are conducted regularly to ensure that the Company’s businesses and processes are safeguarded from cybersecurity threats. 10. The professionalism and competency of employees are enhanced through structured development programs and potential entrants or candidates are subject to a stringent recruitment process. A Performance Management System was established with performance indicators to measure employees’ performance and performance reviews are conducted twice annually. Action plans to address employees’ developmental requirements are prepared and implemented in a timely manner. This is to ensure that employees are able to deliver the expected performance so that the Group can meet its plans and targets. A structured Succession Planning framework was developed and implemented to identify and develop a leadership pipeline in the Group. The Succession Planning framework takes into account the potential successor’s performance track record, leadership capability and display of the MISC cultural beliefs. The Succession Planning framework also provides development plans to be mapped appropriately for each potential successor in order for them to be ready to assume critical positions as the opportunity arises. A special talent review session by the Management Development Committee is conducted bi-annually to assess and gauge the identified talent pool’s suitability as well as their readiness level for the proposed critical position. To ensure that the organisation has the right competency and capability, a structured Functional Competency and Leadership Competency framework is applicable to all employees in the Company. The objective of the Functional Competency and Leadership Competency framework is to have a competent and capable workforce through a structured and holistic developmental process, which ultimately feeds into the talent pipeline for the Succession Planning framework. Through the framework, all employees are required to go through the functional and leadership competency assessment annually where they are assessed against the competency required for their role and at their job level respectively. Based on the competency gap identified from the assessment, employees are empowered to identify and propose suitable intervention plans to address their competency gap via one on one discussion with their supervisors. The Functional Competency and Leadership Competency framework, together with the Succession Planning framework, demonstrates the Group’s commitment towards developing future leaders of MISC. 11. The Compliance & Ethics Programme is a comprehensive programme which underpins the role of the Board and Management in combatting bribery and corruption and provides enhanced training and communication programmes, implementation of appropriate counter-party due diligence and anti-bribery risk assessments. The Group has adopted an ABC Policy Statement and observes the Code of Conduct and Business Ethics (CoBE) that extends to employees and directors within the MISC Group and third parties performing works or services for or on behalf of MISC Group of Companies. MISC also observes the Statement on Risk Management & Internal Control To further enhance the internal control systems, the Group’s other internal control processes are as follows: 1. The Board reviews quarterly reports from Management on key operating performance, legal, environmental and regulatory matters. Financial performance is deliberated monthly by the Management Committee (MC) and tabled to the BARC and the Board on a quarterly basis. 2. The Group performs a comprehensive annual planning and budgeting exercise which involves the development of business strategies for the next five years to achieve the Group’s vision. The long-term strategies are supported by initiatives to be pursued in the upcoming year, and for effective implementation, the initiatives are tied to specific measurable indicators which will be evaluated against the relevant business/service units and subsidiaries’ deliverables. The Group’s strategic direction is then reviewed annually taking into account the current progress level and other indicators such as latest developments in the industry, changes in market conditions and significant business risks. In addition, the Group’s business plan is translated into budgetary numbers for the next five years and financial performance and variance against budget is analyzed and reported monthly to the MC and quarterly to the BARC and the Board. 3. The Limits of Authority manual provides a framework of authority and accountability within the organisation and facilitates sound and timely corporate decision making at the appropriate level in the organisation’s hierarchy. 4. To enhance the quality of the Group’s financial reports, the Group continues the execution of the PETRONAS Financial Control Framework (FCF). FCF is a structured process of ensuring the adequacy and effectiveness of internal controls operating at various levels within the Group at all times. FCF covers internal controls related to financial reporting based on the identified processes and risks. It is a consistent approach in which the internal controls over financial reporting are documented and evaluated for their effectiveness in design and operations. FCF requires documentation of process workflows, process narratives, control descriptions, testing on control effectiveness as well as remediation of control gaps. FCF testing requirement is performed semi-annually for relevant processes. 227 226 OUR GOVERNANCE MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019