International Workshop on Accountability in Science Funding
“Evaluating & Managing Risks“
The Hague, Netherlands
The Board and the Audit Function - Closing the Gap
Florian Habel
June 1, 2006
The Board and the Audit Function – Closing the Gap
1.
Introduction
2.
Public Company and Corporate Governance – a brief overview
2.1 US- Board- System
2.2 Societas Europea (SE)
2.3 German Aktiengesellschaft
2.4 The DFG
3.
Internal Audit and Audit Committee – Closing the Gap
1. Introduction
Corporate Governance
Basic rules that strengthen the supervision and day-to-day-management
of a company.
2.1 US- Board- System
Mostly part of the management
Other
members
CEO
Other
members
Board of directors
Internal
members
Independent,
external members
Day-to-day-business
monolithic
system
2.1 US- Board- System
¾ No staff members in the board of directors
¾ Meetings often 6 times per year
¾ Guidelines foreseen by the NYSE:
• Audit committee supervision of internal accounting and external auditors
• Compensation committee responsible for top management salaries
• Nomination committee responsible for selecting board members
• Other
¾ Well-balanced information structure within the board of directors
2.2 Societas Europea (SE)
Different models
Supervisory board
Board of directors
dualistic
system
Management
Day-to-day-business
Day-to-day-business
monolithic
system
2.2 Societas Europea (SE
¾ Possible legal form since 8. October 2004
¾ Different causes for this legal form, i.e.
fusion, Holding SE for European subsidiaries and other
¾ Annual accounts could be set up and established by the board of
directors
¾ No regulations concerning audit; governed by national rules
2.3 German Aktiengesellschaft
Other
Staff members
Supervisory board
dualistic
system
Management
Day-to-day -business
2.3 German Aktiengesellschaft
¾ No identity between CEO and head of supervisory board
¾ Meeting of supervisory board at least 1-2 times per year
¾ Large companies: participation of staff members in the supervisory board
¾ Problem: often lack of information in the supervisory board
¾ Different types of integration of the internal audit
• Internal audit assigned to management
• Internal audit assigned to supervisory board
¾ No regulations concerning audit committee
2.4 The DFG
Selected Auditors
cooperation
appointment
External Auditors
report
appointment
General Assembly
- establishes the directives/receives the annual report and annual account/ discharges the Executive Board of its
responsibilities
• institutions of higher education, that are research organisations of general importance
• other research organisations of general importance
academies, scientific associations
election
election
Executive Committee
Senate
all scientists
and
academics
eligible to
vote
election
- financial aspects of research
support
- research policy and programme
planning on the basis of decisions
made by the Senate
cooperation
cooperation
decision about
composition
Joint Committee
- annual budget
appointment
Review Board
Executive Board
assistance
Peer Reviewers
as defined by § 26 BGB
quality
assurance
President
selection
Secretary General
Head Office
- conducts the daily business
Internal Audit
report
2.4 The DFG
¾ No supervisory board
¾ Joint Committee is responsible for financial aspects
of research support and the annual budget
¾ No audit committee; external auditors, who
• check the internal audit
• verify the final accounts with respect to the discharge
of the Executive Board by the General Assembly
¾ Selected auditors; they report to the General Assembly
¾ Internal auditing section, reports to the Executive Board
¾ “multidimensional system“
Conclusion
¾ Information structure in a monolithic system
is more transparent than in a dualistic or “multidimensional system“
¾ In the context of corporate governance partly
less transparent information structure
The System of Surveillancy
Compliance
Risk
management
Company
Internal
management
Controlling
Early
warning
systems
Self auditing
Internal security
system
Internal monitoring system
3. Internal Audit and Audit Committee – Closing the Gap
Definition of Audit Committee:
An Audit Committee is a management circle, that allows substantial
decisions and discussions with the participation of management, internal
audit and external audit.
Internal Audit and Its Competitive Threat
External audit
Supervisory
board
Internal audit
Risk management
Other
Thesis:
•
Regarding changes in the environment, one should note that internal
audit can´t give all necessary information for the management and
supervisory board.
•
Well organized audit committees could disburden the supervisory board.
•
Internal audit should keep in mind that it plays a central role
in this function.
Deutsche
Forschungsgemeinschaft
German Research Foundation
Thank you for your attention!
further information under: www.dfg.de