Audit Committee - Terms of Reference

Membership
Members of the Audit Committee ("the Committee") shall be appointed by the Board, on the recommendation of the Nomination Committee and in consultation with the Chairman of the Committee. The Committee shall be made up of at least three members.

All members of the Committee shall be independent non-executive directors, at least one of whom shall have recent and relevant financial experience. The Chairman of the Board shall not be a member of the Committee.

Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman of the Board, Chief Executive, other members of the Board, or members of the executive may be invited to attend all or part of any meeting as and when appropriate.

The Society's Secretary shall attend all Board sub-committees in fulfilling his obligations as Secretary and assist the smooth running of the Board and its committees by setting agendas; preparing papers; presenting papers, as required; and advising the Board and its committees on Board procedures and compliance with the Annotated Combined Code.

The external auditors will be invited to attend meetings of the Committee on a regular basis.

Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three year periods and annually thereafter, provided the director remains independent.

The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.

Secretary
The Society’s Secretary or their nominee shall act as the Secretary of the Committee.

Quorum
The quorum necessary for the transaction of business shall be two members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

Frequency of Meetings
The Committee shall meet at least four times a year at appropriate times in the reporting and audit cycle, quarterly and otherwise as required.

Notice of Meetings
Meetings of the Committee shall be called by the Secretary of the Committee at the request of any of its members or at the request of external or internal auditors if they consider it necessary.

Unless otherwise agreed, notice of each meeting confirming the venue, time and date, together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend and all other non-executive directors, no later than five working days before the date of the meeting. Supporting papers shall be sent to Committee members, and to other attendees as appropriate, at the same time.

Minutes of Meetings
The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance.

The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly.

Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board.

Annual General Meeting
The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any member’s questions on the Committee’s activities.

Duties
The Committee should carry out the duties below for the Society:

Financial Reporting
The Committee shall monitor the integrity of the financial statements of the Society, including its annual and interim reports, preliminary results’ announcements and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain. The Committee shall also review summary financial statements, significant financial returns to regulators and any financial information contained in certain other documents.

The Committee shall review and challenge where necessary:

• the consistency of, and any changes to, accounting policies both on a year on year basis and across the Society;
• the methods used to account for significant or unusual transactions where different approaches are possible;
• whether the Society has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;
• the clarity of disclosure in the Society’s financial reports and the context in which statements are made; 
• all material information presented with the financial statements, such as the operating and financial review and the corporate governance statement (insofar as it relates to the audit and risk management); and
• the annual financial statements of the pension funds where not reviewed by the Board as a whole. 

Internal Controls and Risk Management Systems
The Committee shall:

• keep under review the effectiveness of the Society’s internal controls and risk management systems; and
• review and approve the statements to be included in the Annual Report concerning internal controls and risk management, unless this is done by the Board as a whole.

Whistle-blowing
The Committee shall:

• review the Society’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow-up action; and
• review the Society's procedures for detecting fraud.

Internal Audit
The Committee shall:

• monitor and review the effectiveness of the Society’s internal audit function in the context of the Society’s overall risk management system;
• approve the appointment and removal of the internal auditors;
• consider and approve the remit of the internal audit function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards. The Committee shall also ensure the function has adequate standing and is free from management or other restrictions;
• review and assess the annual internal audit plan;
• review promptly all reports on the Society from the internal auditors;
• review and monitor management’s responsiveness to the findings and recommendations of the internal auditor; and
• meet the internal auditors at least once a year, without management being present, to discuss their remit and any issues arising from the internal audits carried out. In addition, the internal auditors shall be given the right of direct access to the Chairman of the Board and to the Audit Committee.

External Audit
The Committee shall:

• consider and make recommendations to the Board, to be put to Members for approval at the AGM, in relation to the appointment, re-appointment and removal of the Society’s external auditor. The Audit Committee shall oversee the selection process for new auditors and, if an auditor resigns, the Audit Committee shall investigate the issues leading to this and decide whether any action is required;
• oversee the relationship with the external auditor including (but not limited to):
  • approval of their remuneration, whether fees for audit or non-audit services and that the level of fees is appropriate to enable an adequate audit to be conducted;
  • approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
  • assessing annually their independence and objectivity, taking into account relevant UK professional and regulatory requirements, and the relationship with the auditor as a whole, including the provision of any non-audit services;
  • satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and the Society (other than in the ordinary course of business);
  • agreeing with the Board a policy on the employment of former employees of the Society’s auditor, then monitoring the implementation of this policy;
  • monitoring the auditor’s compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Society compared to the overall fee income of the firm, office and partner and other related requirements; 
  • assessing annually their qualifications, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures;
  • seeking to ensure co-ordination with the activities of the internal auditors; and
  • considering the risk of the withdrawal of the Society's present auditor from the market.
• meet regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage. The Committee shall meet the external auditor at least once a year, without management being present, to discuss their remit and any issues arising from the audit;
• review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement;
• review the findings of the audit with the external auditor. This shall include, but not be limited to, the following:
  • a discussion of any major issues which arose during the audit;
  • any accounting and audit judgements; and
  • levels of errors identified during the audit.

The Committee shall also review the effectiveness of the audit by:

• reviewing any representation letter(s) requested by the external auditor before they are signed by management;
• reviewing the management letter and management’s response to the auditors’ findings and recommendations; and
• developing and implementing a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter.

Reporting Responsibilities

• The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.
• The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
• The Committee shall compile a report to the members on its activities to be included in the Society's Annual Report.

Other Matters
The Committee shall:

• have access to sufficient resources in order to carry out its duties, including access to the Society’s Secretary for assistance as required;
• be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members;
• give due consideration to laws and regulations and the provisions of the UK Corporate Governance   Code as appropriate;
• be responsible for co-ordination of the internal and external auditors;
• oversee any investigation of activities which are within its terms of reference and act as a court of the last resort; and
• at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

Authority
The Committee is authorised:

• to seek any information it requires from any employee of the Society in order to perform its duties;
• to obtain, at the Society’s expense, outside legal or other professional advice on any matter within its terms of reference, in accordance with the procedure agreed by the Board; and 
• to call any employee to be questioned at a meeting of the Committee as and when required.