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
- The organization’s plans, programs, goals, and objectives are achieved.
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 (IA) adopts a risk-based audit approach in formulating the annual audit plan and strategy that align to the key strategies and risks across the Group’s business and are 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 (AC). The assurance and control advisory reviews are aimed at assisting the Board through the AC 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 IA 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 AC. The findings and any improvement opportunities are reviewed by AC which then are reported to the Board for guidance and oversight. Significant concerns, which have been reported by Meralco IA and the implementation of responsive remedial measures by Management, are monitored by AC and the Board. The Audit Committee 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 First Vice President, Ms. Melanie T. Oteyza, who reports functionally to the Audit Committee (AC) and administratively to the President and CEO as outlined in the Company’s Internal Audit Charter approved by the AC and the Board.
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 provide a confirmation of their independence to the Audit Committee on an annual basis.
TThe Company’s Chief Executive Officer and Chief Audit Executive attest that in 2022, a sound internal audit, control and compliance system is in place and working effectively. The Board of Directors has conducted its review of and has found adequate the Company's material controls (including operational, financial and compliance controls) and risk management systems.
Revised Internal Audit Charter |
252 KB |
Download PDF |
Confirmation on Internal Control | 213 KB | Download PDF |
External Auditors
SyCip Gorres Velayo & Co. (SGV & Co.) was reappointed as the independent external auditor of the Meralco through the recommendation of the Audit Committee and the approval of the Board. The official appointment of SGV was confirmed by the stockholders in the Annual Stockholders’ Meeting held on May 31, 2022.
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) |
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2021 |
2022 |
Financial Statements Audit* |
18.1 |
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 |
0.7 |
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. This meeting was chaired by Ret. Chief Justice Artemio V. Panganiban, the Company’s lead independent director and Chairman of the Audit Committee. 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. The agenda in these meetings involves matters the Audit Committee or 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 2022. 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.
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 1-12, 2022The 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.