MISC Annual Report 2018

STATEMENT ON INTERNAL AUDIT FUNCTION The internal audit function of the Company was carried out in-house by the Group Internal Audit Department (GIA). GIA undertakes a systematic and disciplined approach to evaluate and improve the effectiveness of governance, risk management and control processes within the MISC Group. The Head of Internal Audit reports functionally to the BARC and administratively to the President/Group CEO of MISC. The incumbent, Mohd Nasiruddin Abdul Razak, is a member of Malaysia Institute of Accountants (MIA), a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW) and a professional member of the IIAM. He holds a Bachelor Degree in Accounting and Finance from University of Lancaster, United Kingdom. GIA adopts the Standards and Principles outlined in the Institute of Internal Auditors’ International Professional Practices Framework (IPPF) and the Committee of Sponsoring Organisations of the Treadway Commission (COSO) framework; a comprehensive, structured and widely used auditing approach, in conducting the audit activities. The conduct of internal audit work is also governed by the MISC Internal Audit Charter and GIA’s established procedures and guidelines. The annual audit plan and strategy including the scope of works and resources are approved by the BARC. The audit plan is established primarily using a risk based approach as well as taking into account input gathered from various sources, including feedback from Management and the BARC, trends and findings from past audit engagements. GIA conducts scheduled audits independently to ensure there is effective risk monitoring, internal controls, governance processes and compliance procedures to provide the level of assurance required by the Board. GIA also supports and conducts special reviews upon request by Management or the BARC. GIA submits its audit reports to the Management Committee (MC) for executive review. Subsequently, the reports together with deliberations by the MC are tabled at the BARC Meetings for endorsement. At the Board meetings, the BARC Chairman highlights the key audit issues and overall decisions and resolutions made during the BARC meetings to the Board. The audit reports prepared by GIA provide details of audit findings and corresponding Agreed Corrective Actions (ACAs). The status of implementation of these ACAs are captured through the Quarterly Audit Status Reports, from which, the ACAs are monitored and analysed. The consolidated reports are submitted and presented to the MC and BARC for deliberation and endorsement on a quarterly basis. Such regular monitoring is essential to ensure the integrity and effectiveness of the Group’s system of internal control. During the financial year, GIA had conducted the following audits as per the approved internal audit plan: Subsidiary • Audit on MISC Offshore Floating Terminal (L) Ltd and MISC Offshore Floating Terminal Dua (L) Ltd • Audit on ALAM Activities • Audit on MISC Maritime Services Sdn. Bhd. (MMS) • Audit on AMI Manning Services Pvt. Ltd. Joint Venture Entities • Audit on ELS Lightering Services SA • Audit on AET Sea Shuttle AS Procurement • Audit on Procurement Activities - Human Resource • Audit on Fleet Maintenance & Procurement Activities – Eaglestar ICT • Audit on SAP Financial & Controlling (FICO) and Material Manage- ment (MM) - MMS Others • Audit on Compliance to Risk Management Process • Audit on Corporate Finance and Cash Management • Audit on Post Implementation of Companies Act 2016 – MISC • Audit on Post Implementation of Companies Act 2016 – AET In addition, GIA had performed 2 special reviews and 1 investigation during the financial year, as requested by Management. GIA also conducted quarterly reviews on the internal control process and records of RPTs and RRPTs to provide assurance to the BARC that its implementations conform to the requirements of Bursa Malaysia. All internal audit activities for the financial year under review were performed by 19 internal auditors from diverse backgrounds, disciplines and operational experiences such as accounting and finance, business administration, information technology and shipping & logistics. In maintaining independence and objectivity, GIA ensures that the internal auditors are free from any relationship or conflict of interest when performing their duties. GIA continues its commitment to equip the internal auditors with adequate knowledge and proficiencies to discharge their duties and responsibilities by providing sufficient and relevant functional trainings. The total cost incurred in discharging the internal audit functions during FY2018 was RM6.54 million. STATEMENT ON RPTS AND RRPTS MISC has put in place internal controls, guidelines and procedures to ensure that RPTs and RRPTs are entered into on normal commercial terms and on terms which are not more favourable than those generally available to third parties dealing on arms’ length basis and are not detrimental to the minority shareholders of the Company. In ensuring adequate procedures and processes are in place, the BARC is responsible to ensure the following: 1. That a framework and appropriate procedures are in place for the purposes of identifying, monitoring, evaluating, reporting and approving RPTs and RRPTs; 2. That a review of any RPTs or RRPTs and conflict of interests that may arise within the Group is conducted; and 3. That the established procedures are adequate in order to ensure that the RPTs and RRPTs are entered into in the best interest of the Company, on fair and reasonable commercial terms and not detrimental to the interest of minority shareholders. The Group’s internal Guidelines on RPTs and RRPTs are summarised as follows: • Information on related parties and procedures applicable for RPTs and RRPTs which involve interest, direct or indirect, of such related parties shall be disseminated from time to time to all MISC’s business and service units as well as subsidiaries, for their reference. • All Business Units and Service Units shall review their existing infor- mation systems on an on-going basis to ensure that relevant features are incorporated in the systems for capturing information on RPTs and RRPTs at source. All Heads of Departments are advised to report on all transactions with related parties. • RPTs and RRPTs will only be undertaken after it has been ascertained that the transaction prices, terms and conditions, quality of products or services are comparable with those prevailing in the market and will meet industry standards. The transaction prices will be based on the prevailing market rates or prices of the service or product or to other- wise accord with the normal commercial terms and applicable industry norms. The interests of non-interested shareholders will be taken into account when entering into the RPTs and RRPTs to ensure that their rights and interests are upheld as per the MMLR. • Where possible, other contemporaneous or similar transactions with unrelated third parties for similar products or services and/or quanti- ties will be used as comparison, to determine whether the price and terms offered to or by the related parties are fair and reasonable and comparable to those offered to or by other unrelated third parties for the same or substantially similar type of products or services and/or quantities. In the event that quotation or comparative pricing from unrelated third parties cannot be obtained, the transaction price will be based on prevailing market rates or prices that are agreed upon under similar commercial arrangements for transactions with third parties, business practices and policies and on terms which are generally in line with industry norms in order to ensure that the RPTs and RRPTs is not detrimental to the Company or the Group. • On-going awareness sessions are arranged with employees and stakeholders to ensure sufficient knowledge and familiarity on RPTs and RRPTs in order to comply with the MMLR. Records of all transac- tions with the related parties are properly maintained by all Business Units, Service Units and the subsidiaries. • Group Internal Audit shall review the internal control process and records of RPTs and RRPTs within the affected scope to verify that rel- evant approvals have been obtained and review procedures in respect of such transactions are adhered to. Any divergence will be reported to the BARC. • The BARC shall review the internal audit reports and will also review from time to time any related party transactions that may arise within the Group. If the BARC is of the view that the procedures are insuf- ficient to ensure that RPTs and RRPTs are undertaken on an arm’s length basis and on normal commercial terms and on terms that are not more favourable to the transacting party than those generally available to public during their periodic review of the procedures, the BARC has the discretion to request for additional procedures to be imposed on the RPTs and RRPTs. BOARD AUDIT & RISK COMMITTEE REPORT HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 191 MISC BERHAD ANNUAL REPORT 2018 190