INTEGRATED ANNUAL REPORT 2024 200 201 SECTION 12: GOVERNANCE www.miscgroup.com MISC BERHAD KEY INTERNAL CONTROL PROCESSES IN ENTERPRISE RISK AREAS MISC Group Management Framework (MGMF) functions as a guide that aligns the Group’s activities on an integrated platform providing the first point of reference with guiding principles for the following areas which defines how the Group fulfils its obligations to regulators, employees, customers, shareholders, and the community: Corporate Governance and Communication 1 Values 2 Decision-making Philosophy 3 Approach to Governance Management 4 MISC Excellence Management System (ExMS) 5 In operationalising MGMF, MISC uses myGOVERNANCE, a digital system that has been designed as a central hub to streamline document management across all levels to ensure compliance, facilitate online adoption, deviation handling, and provide comprehensive performance reports for governance activities. myGOVERNANCE which was approved for implementation in August 2023, has been in operation since January 2024. During the year under review, MISC conducted 710 self-assessments via myASSURANCE, an online assurance platform, covering Health, Safety, Security, Cyber Security, Environment, Finance, Tax, Procurement and Legal areas to ensure compliance with internal governance requirements, established under the Group’s frameworks, guiding principles and guidelines. Other than self-assessment via myASSURANCE, amongst other MISC Group’s key internal control processes in Enterprise Risk Areas are as follows: FINANCIAL Limits of Authority (LOA) The LOA manual provides a framework of authority and accountability within organisation and facilitates sound and timely corporate decision-making at the appropriate level in the organisation’s hierarchy. Reporting The Board reviews quarterly reports from management on key operating performance, legal, environmental and regulatory matters. Financial performance is deliberated monthly by the ELT and tabled to the BAC and the Board on a quarterly basis. Planning and Budgeting 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 the 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 analysed and reported to the ELT, BAC, and the Board. Financial Reporting Control Assurance To enhance the quality of the Group’s financial reports, the Group continues the execution of the PETRONAS Financial Reporting Control (FRC) Assurance. FRC Assurance is a structured process of ensuring the adequacy and effectiveness of internal controls operating within the Group. FRC covers internal controls related to financial reporting based on the identified processes and risks. The FRC includes among others, documentation of controls, testing of internal control design effectiveness, remediation of control gaps as well as a periodic testing of control operating effectiveness. The objective of conducting the assurance and evaluating the test results is to conclude whether the controls are designed and operating effectively to support the financial statement assertions. If internal control deficiencies are noted during the testing, management shall determine whether they constitute a material misstatement to the financial statements. The root cause for each deficiency shall be documented and the Corrective Action Plan for the ineffective controls shall be monitored and reported periodically. FRC Assurance testing requirement is performed annually for relevant processes. Statement on Risk Management & Internal Control MISC Financial Policy MISC Financial Policy (MFP), outlines the financial management framework and incorporating principles of financial risk management. The MFP governs financial risk management practices across the Group and establishes a framework for identifying and managing risk exposures to ensure efficient capital and liquidity management. MISC is committed to become a financially resilient organisation. MISC shall continuously strive to achieve the following: • Capital efficiency in pursuit of business objectives with appropriate balance between risk and reward. • Maintain an investment grade credit rating (if applicable). • Sustain a strong cash repatriation discipline in the most optimal manner. • Uphold strong governance at all times. Adherence to this Policy is everyone’s responsibility. Note: MISC refers to MISC Berhad and its subsidiaries, excluding the joint venture companies and associate companies. MISC Group is committed to be a responsible taxpayer by: • Complying in good faith with all applicable tax laws, regulations, guidelines and international tax treaties, and settling tax obligations when legally due, as company and employer; and • Maintaining cooperative working relationships with tax authorities. Adherence to this Policy is everyone’s responsibility, by referring all tax related matters to the appropriate parties. Note: MISC refers to MISC Berhad and its subsidiaries, excluding the joint venture companies and associate companies The MFP is in alignment with the existing Petronas Corporate Financial Policy (CFP) which serves as a supporting framework and guidelines to manage its finance risk exposure that include liquidity management, cash repatriation, financing, investment, banking, asset-liability management, foreign exchange management, credit, tax, inward financial guarantee and documentary credit, and integrated financial risk management. Debt Covenant Monitoring The Group monitors its financial and non-financial covenants set out under all its external financing facilities on a quarterly basis, to ensure that the covenants are observed and complied with. Financial Risk Appetite The Group has established the Financial Risk Appetite Setting (FRAS), which sets out KRIs as a means of monitoring and mitigating against adverse trends in the following financial risk areas: The KRIs thresholds are reviewed and refreshed annually. MISC Tax Policy With the tax policy in place, MISC Group continues to enhance its tax compliance with the required legislations, including OECD’s Base Erosion and Profit Shifting 2.0 Pillar 2 or otherwise known as Global Minimum Tax (GMT), in the countries where it has presence, with the aim for the Group to be a responsible corporate taxpayer and to maintain cooperative relationships with the relevant tax authorities. • Interest rate risk appetite limit, where the Weighted Average Cost of Debt (WACD) for the year is set to monitor the overall cost of debt of the Group. • Debt appetite limit, where the debt threshold is set to monitor the Group’s leverage levels. • Minimum liquidity requirement level, to ensure that the Group can meet its immediate operating expenses payables, committed debt service obligation and capital expenditures. In addition to the minimum liquidity requirement, additional cash reserves and credit facilities available for utilisation are maintained to meet contingent payments and opportunistic investments. • Foreign exchange risk appetite, to set out thresholds for net currency exposures to mitigate the financial risk arising from non-functional currency transactions. • Financial institution credit counterparty risk appetite, to mitigate financial exposures arising from failure of financial institution counterparties. Statement on Risk Management & Internal Control
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