ITC Hotels Ltd has taken its first step towards corporate governance by constituting a multi-layered auditing structure on the lines of the recommendations of the Cadbury Committee report.
According to the report, audit committees are essential to improve the financial aspects of corporate governance and to improve the image of the financial management of major companies.
The structure, created by a recent resolution of the ITC Hotels board, includes an Audit Committee, a social audit committee looking at social responsibilities and human relations, introduction of self audit mechanism within the organisation, and setting up of project audit at each project location.
At the head of the structure is the Audit Committee. It will be headed by K L Thapar, director on the companys board. Other members are appointed by the board from among the directors of the company. The number of members will be at least three and at least half of them will be non-executive directors of the company. The company secretary will be the Audit Committees secretary.
We are working out for ITC Hotels a system of corporate governance which could be a model for various other companies, says K L Thapar.
The committee is authorised by the board to investigate or direct an investigation into any activity that impinges on its overall objectives. It can call for any document or seek any information from any employee and all employees have to comply with any request of the committee. It can obtain outside legal or other independent professional advice and secure the attendance of outsiders with relevant experience and expertise. The duties of the Audit Committee will include:
Review of internal audit reports as well as any written comments of the external auditors given on a management report;
Review of the companys statement on internal control systems prior to endorsement by the board;
Review of the internal audit programme, ensuring co-ordination between the internal and external auditors, and ensuring that the internal audit function is adequately resourced and has appropriate standing within the company;
Consideration of the major findings of internal investigations and the managements response.
The Audit Committee will meet at least four times a year. The external auditors can request a meeting if they consider it necessary. Two committee members will constitute the quorum for its meetings.
The managing director, vice-president (finance), head of the internal audit department and a representative of the external auditors will normally attend the meetings of the Audit Committee.
Other board members will also have the right to attend. How-ever, at least once a year, the committee will meet with the external auditors in the absence of the executive board members.
Under the Audit Committee will be various wings focusing on spot checks, energy audits, quality controls, environment audits, social audit, self audits, computer audits, closer interaction with external auditors, project audit, knowledge dissemination, controls in-built in computer systems, safety audits, technical audits, security audits and surprise checks.
The focus on social audit stems from the realisation that business undertakings have social responsibilities and that their performance as a whole should be viewed in this context.
To be headed by Gopi Arora, the social audit would cover the various social costs and benefits of actions of the enterprise including relations with people, relations with environment and relations with product.
The objective of social audit would be to examine the companys policies and procedures with regard to meeting its social obligations and moral responsibilities to its shareholders, employees, the government, society and local community.
We are working out a system of corporate governance which could be a model for various other companies K L Thapar Director, ITC Hotels
