Audit & Operational Risk Committee Terms of Reference

Approved by the Board of Commissioners on 5 December 2024.

The Audit & Operational Risk Committee is primarily responsible for overseeing financial reporting, internal controls and the enterprise risk management framework within the JFSC. It plays a crucial role in the corporate governance structure of the JFSC by maintaining transparency and accountability. It is through this lens that matters should be considered when deciding whether to bring forward items for the Committee’s attention.

Membership

The Audit & Operational Risk Committee (Committee) shall comprise at least four members.

At least two members should be qualified accountants with recent and relevant financial experience, and at least one member should have operational risk experience. Neither the Chair of the Board of Commissioners (hereafter referred to as the Board) nor the Director General shall be a member of the Committee.

Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee, in consultation with the Chair of the Committee.

Only members of the Committee have the right to attend Committee meetings. However, the Director General, Chief Risk Officer and Executive Director of Finance, Strategy and Change will be invited to attend meetings of the Committee on a regular basis, and other individuals may be invited to attend all or part of any meeting as and when appropriate.

The Board shall appoint the Committee Chair. In the absence of the Committee Chair, the remaining members present will elect one of themselves to chair the meeting.

Secretary

The Commission Secretary, or their nominee, shall act as the secretary of the Committee and will ensure that the Committee receives information and papers in a timely manner.

Quorum

The quorum necessary for the transaction of business shall be three members.

Frequency of meetings

The Committee will meet at least three times a year at appropriate times, and otherwise, as required.

Notice of meetings

Meetings of the Committee will be called by the secretary of the Committee at the request of the Committee Chair or any of its members.

Unless otherwise agreed, notice of each meeting confirming the venue, time and date of the meeting, together with an agenda of items to be discussed and supporting papers, shall be forwarded to each member of the Committee and any other person required to attend, no later than five working days before the date of the meeting.

Minutes of meetings

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

Draft minutes of Committee meetings shall be circulated to all members of the Committee and included in the next Committee meeting papers.

Duties

The Committee has the main duty of conducting oversight of the JFSC’s:

• Financial management, oversight and reporting;
• External audit;
• Operational risk management, including JFSC’s internal financial controls;
• Risk appetite;
• Ongoing internal risk assurance activity;
• Anti-fraud and corruption; and
• Any matters it considers necessary to oversee in relation to that duty.

Financial management, oversight and reporting

The Committee shall:

• Oversee the integrity of the financial statements of the JFSC, including its annual reports, budgets and forecasts, and any other formal statements concerning its financial performance.
• Recommend to the Board the approval of the annual and 5+7 budget, and its alignment with JFSC’s long term investment strategy and spending appetite.
• Where requested, and in-line with the Delegated Authority Table, consider, and where relevant, approve expenses and investments that fall outside of budget.
• In particular, the Committee shall oversee:
  • The application of significant accounting policies;
  • The methods used to account for significant or unusual transactions;
  • Whether the JFSC has adopted appropriate accounting policies and made appropriate estimates and judgements;
  • The clarity and completeness of disclosures in the financial statements; and
  • Whether all material information presented with the financial statements, throughout the annual report and accounts, including the strategic report and the corporate governance statements, are presented in a fair, balanced and understandable way and provide the information necessary for States Assembly members to assess the JFSC’s financial position and performance against its strategy.

External audit

The Committee shall:

• Oversee any tender procedure for the appointment of the external audit firm.
• Make recommendations to the Comptroller & Auditor General in relation to the appointment, re-appointment, and removal of the JFSC’s external auditor.
• If an external auditor resigns, investigate the issues leading to this and decide whether any action is required.
• Oversee the relationship with the external auditor. In this context the Committee shall:
  • After recommendation by the Director General, approve their remuneration, including both fees for audit and non-audit services; and
  • Approve their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit.
• Assess any threats to the auditor’s independence and the safeguards applied to mitigate those threats.
• Set out its policy on the employment of former employees of the JFSC’s external auditor, taking into account ethical standards and legal requirements.
• Assess annually the qualifications, expertise, independence and resources, of the external auditor and the effectiveness of the external audit process.
• Develop and recommend a formal policy on the provision of non-audit services by the external auditor, including prior approval of non-audit services by the Committee.
• Meet the external auditor without management being present, to discuss the auditor’s remit and any issues arising from the audit.
• Assess the findings of the external audit with the external auditor. This shall include but not be limited to, the following:
  • A discussion of any significant issues which arose during the audit;
  • The auditor’s explanation of how the risks to audit quality were addressed;
  • Key accounting and audit judgements;
  • The auditor’s view of their interactions with senior management; and
  • Levels of errors identified during the audit.
• Oversee the management letter and management’s response to the external auditor’s findings and recommendations; and
• Review the effectiveness of the external audit process.

Operational risk management, including JFSC’s internal financial controls

The Committee shall:

Oversee the ability of the JFSC’s operational risk management and internal control systems to identify, assess, manage and mitigate risks (including financial risks) facing the JFSC. It shall seek assurance on the principal risks the JFSC identifies as those to which it may be exposed.

Oversee the JFSC’s capability to identify and manage new and emerging risks.

Advise on the likelihood and the impact of principal risks materialising, and the JFSC’s ability to manage and mitigate principal risks to reduce the likelihood of their incidence or their impact.

Evaluate the JFSC’s principal risks when assessing the JFSC’s future strategy and advise on the risk aspects of proposed changes to the JFSC’s strategy.

Monitor and review the effectiveness of the JFSC’s risk management and internal control systems.

Make recommendations for third party review of controls (including financial controls) where it considers that warranted.

Review and approve the statements to be included in the annual report concerning internal controls, risk management and the viability statement.

Risk appetite

The Committee shall:

• Set the JFSC’s overall operational risk appetite, tolerance and strategy, and advise on the principal and emerging risks the JFSC is willing to take in order to achieve its long-term strategic objectives.
• Re-assess the JFSC’s operational risk appetite on an annual basis.

Ongoing internal risk assurance activity

The Committee shall:

• Advise and recommend to the Board the adequacy of the internal assurance activities within the JFSC and, as part of this:
  • Review and assess the annual internal risk assurance work plan;
  • Receive and note any report on the results of internal risk assurance work;
  • Determine whether it is satisfied that the quality, experience and expertise of any internal risk assurance resources are appropriate for the JFSC; and
  • Review the actions taken by management to implement any recommendations of internal risk assurance work and to support the effective working of the assurance function.

Anti-fraud and corruption

The Committee shall:

• Oversee the adequacy and security of the JFSC’s arrangements for its employees, contractors and external parties to raise concerns, in confidence, about possible wrongdoing in financial or other matters.
• Oversee the JFSC’s procedures for detecting fraud, money laundering and bribery and receive periodic reports on areas of non-compliance.

Reporting responsibilities

The Committee Chair shall report on its proceedings after each meeting on all matters within its duties and responsibilities and shall report to the Board on how it has discharged its 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 on its activities to be included in the JFSC’s annual report, describing the work of the Committee. In compiling the reports, the Committee shall:

• Report on the principal risks facing the JFSC; and
• Exercise judgement in deciding which of the issues it considers in relation to the financial statements are significant but should include at least those matters that have informed the Board’s assessment of whether the JFSC is a going concern and the inputs to the Board’s viability statement.

Other matters

There will be direct access between the Committee and the Director General, Chief Risk Officer and the Executive Director of Finance, Strategy and Change.

The Committee shall:

• Have access to sufficient resources in order to carry out its duties, including access to the Commission Secretariat for advice and assistance as required.
• Give due consideration to all relevant laws and regulations applicable to the JFSC.
• Oversee any investigation of matters which are within its terms of reference.
• Work and liaise, as necessary, with all other Board Committees.
• Ensure that a periodic evaluation of Committee performance is carried out.
• At least annually, review its 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:

• Request the attendance of any JFSC employee at a meeting of the Committee and/or seek any information it requires from any employee of the JFSC in order to perform its duties.
• Delegate any matter or matters to another Committee or person(s) as it deems appropriate.
• Have the right to publish in the JFSC’s annual report, details of any issues that cannot be resolved between the Committee and the Board.
• Obtain, at the JFSC’s expense, independent legal or other professional advice on any matter within its terms of reference, if it believes it necessary to do so.