Internal Controls and Audit
Internal Control
The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities over the Company’s system of internal control. It is responsible for monitoring, overseeing, and evaluating the duties and responsibilities of management, the internal audit activity, and the external auditors as those duties and responsibilities relate to the organization’s processes for controlling its operations.
The internal control framework of the Company is embodied in the Management Control Policy. This Policy defines the roles and responsibilities of the Management, the Internal Audit, and the Audit Committee relating to controls over the organization’s processes. It also describes the responsibility for a system of checks and balances and emphasizes the importance of internal control processes.
Management is charged with the responsibility for establishing a network of processes with the objective of controlling the operations of the company in a manner which provides the Board of Directors reasonable assurance that:
- Data and information published either internally or externally is accurate, reliable, and timely;
- The actions of directors, officers, and employees are in compliance with the organization’s policies, standards, plans and procedures, and all relevant laws and regulations;
- The organization’s resources are adequately protected against loss, fraud, misuse, and damage;
- Resources are acquired economically and employed profitably; quality business processes and continuous improvement are emphasized; and
Internal control is an integral part of MERALCO’s governance system and risk management. It is the responsibility of managers at all levels of the organization to:
- Identify and evaluate the exposures to loss which relate to their particular sphere of operations
- Specify and establish policies, plans, operating standards, procedures, systems, and other disciplines to be used to minimize, mitigate, and/or limit the risks associated with the exposures identified.
- Establish practical controlling processes that require and encourage officers and employees to carry out their duties and responsibilities in a manner that achieves the control objectives of the Organization
- Maintain the effectiveness of the controlling processes that have been established and foster continuous improvement to these processes.
Internal Audit
Meralco Internal Audit adopts a risk-based audit approach in formulating the annual audit plan and strategy that aligns to the key strategies and risks across the Group’s business and is reassessed quarterly to consider business changes and emerging risks. This plan is developed in coordination with the relevant business units and subsidiaries and reviewed and approved by the Audit Committee (AuditCom). The assurance and control advisory reviews are aimed at assisting the Board through the AuditCom in promoting sound enterprise risk management, robust internal controls, and good corporate governance.
Design and operating effectiveness of controls that govern the key business processes, systems and risk areas at the Distribution Utility and subsidiaries are evaluated particularly on financial reporting, operations, information technology systems reviews, cybersecurity, data privacy, sustainability, revenue assurance, legal and regulatory compliance and subsidiary oversight. This provides an independent assurance to the Audit Committee on the adequacy and effectiveness of the governance, risk management, internal controls, and compliance systems.
Meralco Internal Audit communicates the results of audit engagements covering various units of the Company and its subsidiaries including specific areas of concerns identified by Management to the AuditCom. The findings and any improvement opportunities are reviewed by AuditCom which then are reported to the Board for guidance and oversight. Significant concerns, which have been reported by Internal Audit Group and the implementation of responsive remedial measures by Management, are acted upon by Management and monitored by AuditCom. The AuditCom Report to the Board included the review of Meralco Group’s system of internal controls (financial, operational, and compliance controls) and risk management systems which are found to be in place and functioning. A Certification attestation of the Internal Controls is issued bi-annually as a result of the combined risk and control assessment of the Management and Internal Audit including the scope of audit review for the financial year.
Meralco’s Internal Audit (IA) is headed by the Group Chief Audit Executive and Senior Vice President, Ms. Melanie T. Oteyza, who reports functionally to the AuditCom and administratively to the President and CEO, as outlined in the Company’s Internal Audit Charter. The appointment and removal of the Chief Audit Executive require the approval of the AuditCom.
All internal auditors are members of the Institute of Internal Auditors (IIA) and adopts the International Standards for the Professional Practice of Internal Auditing laid down in the International Professional Practices Framework. The internal auditors are comprised of highly certified professionals – Certified Public Accountants, Certified Internal Auditors, Certified Information Systems Auditors, Certified Quality Assurance Validator, Certified Fraud Examiner, Registered Electrical Engineers and others with Certification in Control Self-Assessment, Certification in Risk Management Assurance, and Qualification in Internal Audit Leadership.
Meralco Internal Audit recruits and employs suitable and qualified professional staff with the requisite skillsets, competencies, and experience. Relevant trainings and continuing professional development are provided to its staff to ensure that internal audits are performed effectively and that the team possess the technical knowledge needed for the job and to remain relevant and value-adding to the organization.
Meralco Internal Audit also provides a confirmation of their independence to the Audit Committee on an annual basis.
| Revised Internal Audit Charter |
252 KB |
Download PDF |
| Confirmation on Internal Control | 213 KB | Download PDF |
External Auditors
The Company’s external auditor, SGV was evaluated, nominated, and recommended for appointment including its audit fees by the AuditCom, and such recommendation was approved by the Board. The re- appointment of SGV was thereafter confirmed by the shareholders in the ASM held on May 30, 2023.
The Audit Committee reviews and confirms the independence of the external auditor by obtaining statements from the auditors on relationships between the auditors and the Company, and evaluate any relationships or services disclosed that may affect the objectivity, independence, or quality of services of the external auditors. Any non-audit service to be performed by the external auditor, if allowed or approved, are disclosed in the Company’s Annual Report and Annual Corporate Governance Report.
|
Consolidated EXTERNAL AUDITOR’S FEES* (in million PhP) |
||
|
|
2023 |
2022 |
|
Financial Statements Audit* |
21.1 |
19.0 |
|
Audit of financial statements in accordance with the requirements of the Business Separation and Unbundling Plan of the ERC and Audit of universal charge reports as required by PSALM |
0.8 |
0.7 |
|
Note: The fees for non-audit services did not exceed those for audit services. |
||
The Audit Committee, which is composed of non-executive directors undertakes executive sessions with the Chief Audit Executive (CAE) and the External Auditors without the presence of Management. The conduct of executive session with the external auditors and the chief audit executive at least once a year is provided for in the charter of the Audit Committee. On 07 December 2023, the Audit Committee held separate executive session with the engagement partner of the external auditors, SGV, including the private session of the Audit Committee Chair with the Chief Audit Executive. The agenda in these meetings involved matters the Audit Committee and the auditors believe should be discussed without the presence of the executive director or officers from management.
Mr. Narciso T. Torres, who has extensive accounting and auditing experience, is the SGV lead engagement partner for the external audit of MERALCO for 2023. He is duly accredited by the SEC under Group A category with Accreditation Number 84208, valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions.
Pursuant to the General Requirements of SRC Rule 68, Par. 3 (Qualifications and Reports of Independent Auditors), the Company has engaged SGV as external auditors, and Mr. Narciso T. Torres Jr. is the partner-in-charge beginning the audit of the 2018 financial statements.
As a covered firm under SEC Memorandum Circular No. 9, Series of 2017 or the Rules and Regulations on the Implementation of the Securities and Exchange Commission (SEC) Oversight Assurance Review (SOAR) Inspection Program, SGV &Co. was subjected to SOAR Inspection on August 1 to 12, 2022. The names of the members of this engagement team were provided to SEC during the inspection.
There has been no disagreement with the external auditors on any matter of accounting principles, practices or auditing scope or procedure, nor on financial statement disclosure.
