INTERNAL AUDIT CHARTER - LEC Home...INTERNAL AUDIT CHARTER April 2015 \ The Charter is aformal written document that defines the Purpose, Authority, and Responsibility of the internal

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INTERNAL AUDIT CHARTERApril 2015

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The Charter is a formal written document that defines the Purpose, Authority, andResponsibility of the internal Auditing Office. The Charter establishes the Internal Audit Office's positionwithin the organization; authorizes access to records, personnel, and physical properties relevant to the

performance of engagements; defines the scope of work.

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A. INTRODUCTION:Internal Audit is an independent and objective assurance and consulting activity that isguided by a philosophy of adding value to improve the operations of the Lesotho ElectricityCompany (LEe). It assists LECin accomplishing its objectives by bringing a systematic anddisciplined approach to evaluate and improve the effectiveness of the organization'sgovernance, risk management, and internal control.

B. PROFESSIONALISM:

The LECInternal Audit will govern itself by adherence to The Institute of Internal Auditor'smandatory guidance including the Definition of Internal Auditing, the Code of Ethics, andthe International Standards for Professional Practice of Internal Auditing (Standards). Thismandatory guidance constitutes principles of the fundamental requirements for theprofessional practice of internal auditing and for evaluating the effectiveness of the internalaudit's performance.

The Institute of Internal Auditor's Practice Advisories, Practice Guides, and Position Paperswill also be adhered to as applicable to guide operations. In addition, the internal auditdepartment will adhere to LEC relevant policies and procedures and the internal audit'sstandard operating procedures manual.

C. AUTHORITY:The internal audit, with accountability for confidentiality and safeguarding records andinformation, is authorized full, free, and unrestricted access to any and all of LECrecords,physical properties, and personnel pertinent to carrying out any engagement. Allemployees are expected to assist the internal audit in fulfilling its roles and responsibilities.The internal audit will also have free and unrestricted access to the Board.

D. TITLEAND POSITIONING:

The Head of Internal Audit in LECshall be called the "Head of Internal Audit"

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The positioning of the HEAD OF INTERNALAUDIT shall be determined by the Board havingbeen guided by their risk appetite and the due process of the job evaluation assessment. Inachieving this, the Board shall ensure that the function contributes to better governancewhen strategically positioned to promote independence and increase external perception(i.e. investors and external auditors -level of confidence in LEe).

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E. ORGANIZATION:

The Head of Internal Audit will report functionally to the Board and administratively (day today operations) to the Managing Director.

The participation of the Head of Internal Audit in different forums/committees will be inaccordance with the Board Charter, Delegation of Authority and Audit & Finance Committeeterms of reference.

The Board will:I

• Formulate and adopt the internal audit charter

• Approve the risk based internal audit plan

• Approve the internal audit budget and resource plan

• Receive communications from the Head of Internal Audit on internal auditdepartment's performance relative to its plan and other matters.

• Approve the appointment and removal of the Head of Internal Audit

• Approve the remuneration of the Head of Internal Audit

• Make appropriate inquiries of management and the Head of Internal Audit todetermine whether there is inappropriate scope or resource limitations.

The Head of Internal Audit will communicate and interact directly with the Board,including in executive sessions and between Board meetings as appropriate.

The Managing Director in relation to Internal Audit function will:

• Oversee budgeting and management accounting

• Ensure human resource administration, including evaluations and compensation

• Facilitate internal communications and information flows

• Administer organization's internal policies and procedures

F. INDEPENDENCE AND OBJECTIVITY:

The internal audit department will remain free from interference by any element in theorganization, including matters of audit selection, scope, procedures, frequency, timing, orreport content to permit maintenance of necessary independent and objective perception

of stakeholders.

Internal auditors will have no direct operational responsibility or authority over any of theactivities audited. Accordingly, they will not implement internal controls, developprocedures, install systems, prepare records, or engage in any other activity that may impair

internal auditor's judgment.

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The Head of Internal Audit will confirm to the Board, at least annually, the organizationalindependence of the internal audit.

G. RESPONSIBILITY:The scope of internal auditing encompasses, but is not limited to,

• the examination and evaluation of the adequacy and effectiveness of theorganization's governance, risk management, and internal controls

• the quality of performance in carrying out assigned responsibilities to achieve thecompany's stated goals and objectives.

More specifically the scope covers:

• Evaluating risk exposure relating to achievement of the organization's strategicobjectives.

• Evaluating the reliability and integrity of information and the means used to identify,measure, classify, and report such information.

• Evaluating the systems established to ensure compliance with those policies, plans,procedures, laws, and regulations which could have a significant impact on thecompany.

• Evaluating the means of safeguarding assets and, as appropriate, verifying theexistence of such assets.

• Evaluating the effectiveness and efficiency with which resources are employed.

• Evaluating operations or programs to ascertain whether results are consistent withestablished objectives and goals and whether the operations or programs are beingcarried out as planned.

• Monitoring and evaluating governance processes.

• Monitoring and evaluating the effectiveness of the company's risk managementprocesses.

• Evaluating the quality of performance of external auditors and the degree ofcoordination with internal audit.

• Performing consulting and advisory services related to governance, riskmanagement and control as appropriate for the company.

• Reporting periodically on the internal audit's purpose, authority, responsibility, andperformance relative to its plan.

• Reporting significant risk exposures and control issues, including fraud risks,.governance issues, and other matters needed or requested by the Board.

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• Evaluating specific operations at the request of the Board or Management, asappropriate.

H. INTERNAL AUDIT PLAN:

Annually, the Head of Internal Audit will submit an internal audit plan to SeniorManagement for review and to the Board for approval. The internal audit plan will consistof a work schedule as well as budget and resource requirements for the next financial year.The Head of Internal Audit will communicate the impact of resource limitations andsignificant interim changes to Senior Management and the Board.~

The internal audit plan will be developed based on a prioritization of the audit universeusing a Risk-Based methodology, including input of Senior Management and the Board. TheHead of Internal Audit will review and adjust the plan as necessary, in response to changesin the company's business, risks, operations, programs, systems, and controls. Anysignificant deviation from the approved internal audit plan will be communicated to SeniorManagement through the department reports and approved by the Board.

I. REPORTING AND MONITORING:

A written report will be prepared and issued by the Head of Internal Audit or designeefollowing the conclusion of each internal audit engagement and will be distributed asappropriate. Internal audit results will also be communicated to the Board.

The internal audit report may include management's response and corrective action takenor to be taken in regard to the specific findings and recommendations. Management'sresponse, whether included within the original audit report or provided thereafter (i.e.within thirty days) by management of the audited area should include a timetable foranticipated completion of action to be taken and an explanation for any corrective actionthat will not be implemented.

The internal audit will be responsible for appropriate follow-up on engagement findings andrecommendations. All significant findings will remain in an open issues file until cleared.

The Head of Internal Audit will periodically report to senior management and the Board onthe internal audit's purpose, authority, and responsibility, as well as performance relative toits plan. Reporting will also include significant risk exposures and control issues, includingfraud risks, governance issues, and other matters needed or requested by seniormanagement and the Board.

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J. QUALITY ASSURANCE AND IMPROVEMENT PROGRAM:

The internal audit will maintain a quality assurance and improvement program that coversall aspects of the internal audit work. The program will include an evaluation of the internalaudit's conformance with the Definition of Internal Auditing and the Standards and anevaluation of whether internal auditors apply the Code of Ethics. The program also assessesthe efficiency and effectiveness of the internal audit and identifies opportunities forimprovement.

The Head of Internal Audit will communicate to senior management and the Board on the-:

internal audit's quality assurance and improvement program, including results of ongoing

internal assessments and external assessments conducted at least every five years.

K. REVIEW OF THE AUDIT CHARTER

The Board will review and adopt the Audit Charter as and when it is required.

o+-Approved this _1_ day of A PR; L.. ,;to IS-.

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Managing Director Chairman of the Board

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