BOARD AUDIT COMMITTEE REPORT GOVERNANCE STATEMENT ON INTERNAL AUDIT FUNCTION The internal audit function of the Company was carried out in-house by the GIA. GIA undertakes a systematic and disciplined approach to evaluate and improve the effectiveness of governance, risk management and control processes within the Group. The Head of GIA reports functionally to the BAC and administratively to the President/Group CEO of MISC. Mohammad Romzi Shafi’e is the Head of GIA. He is a Fellow Member of the Institute of Chartered Accountants in England and Wales (ICAEW) and holds a Bachelor of Science (Honours) Accounting from the University of Wales, UK. 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 BAC. The audit plan is established primarily using a risk-based approach as well as input gathered from various sources, including feedback from Management and the BAC, 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 BAC. GIA submits its audit reports to the Management Audit Committee (MAC) for executive review. Subsequently, the reports together with deliberations by the MAC are tabled at the BAC Meetings for endorsement. At the Board meetings, the BAC Chairman highlights the key audit issues and overall decisions and resolutions made during the BAC 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 MAC and BAC 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 reported the following audits as per the approved internal audit plan: Subsidiary • Audit on AET Sea Shuttle AS and AET Sea Shuttle II AS • Audit on Magellan X Pte. Ltd and its subsidiaries • Audit on MISC Maritime Services Sdn Bhd Joint Venture Entities • Audit on Vietnam Offshore Floating Terminal (Ruby) Ltd • Audit on ELS Lightering Services S.A. Procurement • Audit on Procurement for Non-Tendering Activities - AET • Audit on Procurement for Non-Tendering Activities - Eaglestar Others • Audit on Bareboat Charter of FSO Mekar Bergading • Audit on Dry Docking Activities - Eaglestar • Audit on General Information Technology Controls - AET • Audit on Business Development and Marketing - Offshore Business • Audit on Anti-Bribery Management System (ABMS) for MISC Berhad • Audit on Fixed Asset Management and Finance Lease Receivables - AET GIA also conducted quarterly reviews on the internal control process and records of RPTs and RRPTs to provide assurance to the BAC that its implementation conforms to the requirements of Bursa Malaysia. All internal audit activities for the financial year under review were performed by 24 internal auditors from diverse backgrounds, disciplines and operational experiences such as accounting and finance, business administration, human resource, engineering, information technology, and shipping and 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 FY2021 was approximately RM7.8 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 BAC is responsible to ensure the following: a) That a framework and appropriate procedures are in place for the purposes of identifying, monitoring, evaluating, reporting and approving RPTs and RRPTs; b) That a review of any RPTs or RRPTs and conflict of interests that may arise within the Group is conducted; and c) 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 segments and service units shall review their existing information 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 required 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 otherwise 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 quantities 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. MISC Berhad 262 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 263
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