The Audit Committee functioned in terms of the Audit Committee Charter approved by the Board which is regularly reviewed and updated.
The main roles and responsibilities, which are clearly identified in the Charter of the Audit Committee, include inter alia; the following -
Reviewing the financial information of the Bank in order to monitor the integrity of the Bank's financial statements, its annual report, accounts etc.
Monitoring, reviewing and evaluating the adequacy and effectiveness of the Bank's internal audit function.
Reviewing the internal audit reports, external audit management letters and subsequent follow up audits together with Management's responses to them.
Evaluating the adequacy and effectiveness of internal controls.
Ensuring that the Board is made aware of matters which may significantly impact the financial condition or affairs of the business, in a timely manner.
Regularly update the Board about Committee activities and make appropriate recommendations.
The Audit Committee comprises three Non-Executive Directors of the Board.
The following Directors served as the members of the Committee during the year under review -
*Mr. V Kanagasabapathy - Chairman
(Alternate Director to Mr. S R Attygalle,
Ex officio Director)
Mr. Raju Sivaraman
Mr. K L Hewage
*Mr.V. Kanagasabapathy, Alternate to Ex officio Director ceased to be the Chairman of the Committee with his departure from the Ministry of Finance & Planning on his retirement from the Government service and Mr. R M A Ratnayake, new Alternate to Ex officio Director was appointed as the Chairman of the Committee from 30th January 2013.
According to Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks issued by the Central Bank of Sri Lanka (CBSL), the Chairman of the Audit Committee should be independent and hold qualifications and experience in accountancy and/or audit. During the year under review, Bank of Ceylon used the services of Mr.V. Kanagasabapathy, a Chartered Accountant with experience in the fields required who was the Alternate to Mr. S.R. Attygalle, Ex officio Director. Mr. R.M.A.Ratnayake, a Class 1 Member of the Sri Lanka Accountants' Service and a Fellow member of the Institute of Public Finance Accountants of Sri Lanka, who is also the new Alternate to Mr. S.R. Attygalle, Ex officio Director, functions as the Chairman, Audit Committee from January 2013. Mr.Kanagasabapathy and Mr. Ratnayake cannot be considered Independent Director in terms of the definition given for an Independent Director in the said Direction as they represent the Government of Sri Lanka which is the sole shareholder of the Bank. Since the Directors of the Bank are appointed by the Minister in charge of the subject of Finance, in terms of the Bank of Ceylon Ordinance No.53 of 1938 and its amendments, the Bank has resorted to the above measure in the best interest of the Bank. CBSL has approved of this arrangement. Despite ceasing to be the Alternate Director, Mr. Kanagasabapathy on the invitation extended to him by the Board assisted the Committee in finalizing the audit of the financial statements of the Bank under new accounting standards, which was closely followed up during his tenure as Chairman, Audit Committee.
The wide range of experience brought to the Committee from positions held by the members can be seen from the Directors' biographical details appearing on pages 34 and 37 of this Annual Report.
The quorum of the Committee is two members.
The General Manager, a representative of the Auditor General (External Auditor of the Bank), the Chief Internal Auditor and the Chief Financial Officer of the Bank are present at the meetings. A Partner from M/s. Ernst and Young, Chartered Accountants who were the external auditors appointed by the Auditor General to assist him in the annual audit of the consolidated financial statements of the Bank and its subsidiaries for the year 2012 was also present for the meetings subsequent to their appointment.
The other members of the Management and other staff members of the Bank are invited to attend the meetings when the Committee requires their presence. The Secretary, Bank of Ceylon/Secretary to the Board functions as the Secretary to the Committee.
The Committee met 14 times during the year under review. The attendance of Committee members at meetings is given in the table on page 149. For all these meetings due notice together with details/memoranda for discussion were made available.
The Committee carried out the following activities during the year under review –
Internal Audit of the Bank is carried out by the Internal Audit Division headed by the Chief Internal Auditor in terms of the Charter which is regularly reviewed and updated by the Committee.
Effectiveness of the implementation of the Internal Audit Plan for year 2012 was monitored by way of regular reports and appropriate follow up action were taken where necessary.
Reviewed significant internal audit findings and Management's responses thereto with a view to taking timely corrective action to avoid recurrence in future and to ensure that internal controls are effective.
Developed the Internal Control Matrix for year 2012 in order to support the internal control certification process.
Submitted an updated Internal Audit Manual which provides the basic framework for internal audit function of the Bank.
Approved the Audit Plan of the Internal Audit Division for year 2013.
Reviewed investigation reports and necessary internal controls were strengthened/introduced.
External Audit is carried out by the Auditor General in terms of the Constitution of the country who was assisted by M/s Ernst and Young, Chartered Accountants during the year 2012.
Reviewed the report of the Auditor General to the Parliament of Sri Lanka on the accounts of the Bank for the year ended 31st December 2011, Management Letter, Management's responses thereto and followed up on the corrective measures taken by the Bank to avoid recurrence of the issues highlighted.
Reviewed the responses submitted to the Parliamentary Committee on Public Enterprises by the Management on the matters referred to in the Auditor General's aforesaid Report.
Reviewed the quarterly reports submitted to CBSL on the Statutory Examinations carried out by CBSL and followed up on outstanding issues.
A meeting with the Auditor General was held with the participation of the qualified Auditors appointed to assist him in the audit of the Consolidated Financial Statements of Bank of Ceylon and its subsidiaries for the year ended 31st December 2012 to discuss and finalise the nature and scope of audit in compliance with the Banking Act Direction No.11 of 2007 on Corporate Governance issued by CBSL.
Reviewed and recommended the adoption by the Board of the Consolidated Accounting Policies under the new Accounting Standards viz. Sri Lanka Financial Reporting Standards (SLFRS) and Lanka Accounting Standards (LKAS).
Assisted the Board in ensuring that annual audited financial statements and quarterly financial statements are prepared and published in accordance with the requirements prescribed by the supervisory and regulatory authorities and applicable accounting standards.
This year being the first time financial statements are prepared in accordance with the new Accounting Standards (SLFRS and LKAS), the Committee took the initiative, deliberated and followed up the preparation and presentation of the financial statements under these standards. The services of a firm of consultants were obtained to assist the Bank in this process.
A special unit was established under the Chief Financial Officer to carry out this task. New qualified accountants were recruited and deployed in this unit to strengthen the process and to bring in professionalism. Progress was closely monitored and reviewed by the Committee.
Reviewed the necessity to introduce checks and balances available in the Bank with new Accounting Standards.
Reviewed quarterly financial statements for publication.
Reviewed relevant Corporate Governance compliances.
Facilitated training programmes on Treasury Audits, implementation of new Accounting Standards, Islamic Banking operations, etc. for the Internal Audit staff.
In order to strengthen the group performance, a follow up meeting was held with the Directors and Chief Executive Officers of subsidiaries and associates to discuss their performance, based on the Subsidiaries Management Charter.
Introduced a Policy on Internal Audit of the Subsidiaries as a basis for assistance in their internal audit functions.
With a view to strengthening the group performance, assessed the performance of the subsidiaries and associates on quarterly basis highlighting any issues of concern and action that has to be taken to rectify them.
Reviewed/revised Policies on Conflict of Interest and Related Party Transactions.
In order to enhance the professionalism, facilitated the appointment of qualified Chartered Accountants to both Internal Audit and the Finance & Planning Divisions.
Reviewed the Islamic Banking Operations and recommended adopting the Manual of Islamic Banking Operations.
Adequate minutes of the Committee proceedings are maintained at the Board Secretariat. All minutes of the Committee meetings are tabled and ratified at meetings of the Board and approval of the Board thus is obtained for implementation of the recommendations made by the Committee. Follow up action is taken on outstanding matters on a regular basis.
The Committee reviewed the reports submitted based on the Whistle – Blower Policy which was in place during the year under review indicating procedure for the receipt, retention and treatment of complaints received by the Bank regarding accounting, internal controls and audit matters etc.
The members of the Audit Committee collectively evaluated the performance of the Audit Committee, Chief Internal Auditor and the Internal Audit function of the Bank. The Committee is confident that the internal audit function of the Bank is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care. The Audit Committee regularly reviews the adequacy of the internal controls of the Bank.
Statement on Internal Control by the Directors and Auditor General's report on it is given on page 233 to 235 of this Annual Report. Accordingly, the Committee is of the view that necessary checks & balances are in place to provide reasonable assurance that the Bank's assets are safeguarded and that the financial position and the results disclosed in the audited accounts are free from any material misstatements.
The Committee also wishes to place on record an appreciation for Mr. V. Kanagasabapathy, former Chairman of the Audit Committee for the tremendous contribution made by him in improving the Audit Committee activities to bring it to a very high standard and thus giving comfort to the Board on matters coming under the Committee.
R M A Ratnayake
Chairman
Audit Committee
21st March 2013
Colombo
The main responsibilities of the Committee, which are mainly based on the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri Lanka are as follows –
Determining the remuneration policy (salaries, allowances and other financial payments) relating to the General Manager (GM) and Key Management Personnel (KMP) of the Bank.
Setting goals and targets for the GM and KMP.
Evaluating the performance of the GM and KMP against the set targets and goals periodically and determining the basis for revising remuneration, benefits and other payments of performance based incentives.
Reviewing staff matters referred to it by the Board.
Determining the Human Resource Policy and Organization Structure of the Bank.
In the Bank, the Directors, GM, Deputy General Managers (DGMs) and members of staff in the allied grade are considered as KMP.
The Committee comprises of four members of the Board. The Chairperson of the Committee is a Non-Executive Director.
The following Directors served as the members of the Committee during the year under review -
Ms. Nalini Abeywardene - Chairperson
Mr. Raju Sivaraman
Mr. Chandrasiri de Silva
Mr. K.L. HewageThe quorum of the Committee is two members. The GM is present at all meetings except when matters relating to the GM are discussed. The other members of the staff are invited to attend the meetings when the Committee requires their presence. The Secretary of the Bank/Secretary to the Board functions as Secretary to the Committee.
The Committee has met 5 times during the year under review. The attendance of members at meetings is given on page 149. All minutes of the Committee meetings are tabled and ratified at meetings of the Board and approval of the Board thus is obtained for implementation of the recommendations made by the Committee. Follow up action is taken on outstanding matters on a regular basis.
According to the aforesaid Banking Act Direction No. 11 of 2007, this Committee has to determine the remuneration policy relating to Directors. However, in the case of Bank of Ceylon, the remuneration of Directors is determined in accordance with the circulars and instructions issued by the Ministry of Finance & Planning on behalf of the Government of Sri Lanka, the sole shareholder of the Bank. The provisions in the Bank of Ceylon Ordinance No.53 of 1938 and its amendments, the Act of Parliament that established Bank of Ceylon are also taken into consideration with regard to the Directors' remuneration and benefits given to them. Bank has a Remuneration Policy in place prepared based on the above provisions, which is reviewed as and when new regulations are issued by the Ministry. This policy was revised within the year under review. The details of the remuneration given to Directors are fully disclosed in the Annual Report on a yearly basis.
The remuneration of employees is revised once in 3 years with the approval of the Minister in charge of the subject of Finance in accordance with the provisions of the said Bank of Ceylon Ordinance. Prior to finalizing the salaries of the Senior Management (viz. GM, DGMs and Assistant General Managers), the Committee deliberates on the proposals and makes its recommendation. In year 2012, this matter was discussed and the Committee recommended that the final approval be obtained from the Board.
Goals and targets for GM and DGMs are embodied in the rolling Corporate Plan and Action Plan. The GM is responsible for the implementation of the Corporate Plan through the DGMs. With regard to evaluating their performance the procedure adopted in the Bank is for the GM to evaluate the DGMs based on the achievements on the Action Plan and report to the Board for their evaluation. Targets for Directors are not given since all the Directors are Non-Executive.
In this year, the Committee recommended to the Board the adoption of the following policies -
Training and Development Policy
Appeal Policy and Procedure
Reward and Recognition Policy
Policy to decide the number of vacancies available before calling for applications for a particular grade
The Committee also required to do a comprehensive analysis with regard to the recruitment of external Management Trainees using the data base of the applications received for the last round of recruitment for Management Trainees and to update the qualifying examination and the eligibility criteria to best suit the Bank.
The Committee reviewed the evaluation criteria for promotion to the grade of Deputy General Managers and Assistant General Manager and the finalized criteria are being re evaluated.
The Committee shall continue to assist the Board in its oversight responsibilities in regard to human resource and remuneration matters.
Nalini Abeywardene
Chairperson
Human Resources & Remuneration
Committee
21st March 2013
Colombo
The Committee is mainly responsible for the following:
Implementing procedures to select/ appoint the General Manager (GM) and Key Management Personnel (KMP).
Setting the criteria such as qualifications, experience and key attributes for eligibility to be considered for appointment or promotion to the post of GM and the key management positions.
Ensuring that GM and KMP are fit and proper persons to hold office as specified in the criteria given in Direction No. 3(3) of the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri Lanka and as set out in the statutes.
Considering and recommending from time to time, the requirements of additional/ new expertise and succession arrangements for KMP.
Determining the methods and execution of the annual evaluations of the Board and each Board Subcommittee's effectiveness and supporting the annual performance evaluation process.
Reviewing periodically the Bank's Code of Ethics.
The Committee comprises of three members of the Board. The Chairman of the Committee is a Non-Executive Independent Director.
The following Directors served as members of the Committee during the year under review -
Mr. Raju Sivaraman - Chairman
Mr. S R Attygalle
Mr. K L Hewage
GM attends the meetings by invitation. Other members of staff are invited to attend the meetings when the Committee requires their presence. The Secretary of the Bank/Secretary to the Board functions as the Secretary to the Committee.
The Committee met 5 times during the year under review. The attendance of Committee Members at meetings is given on page 149. All minutes of the Committee meetings are tabled and ratified at meetings of the Board and approval of the Board thus is obtained for implementation of the recommendations made by the Committee. Follow up action is taken on outstanding matters on a regular basis. According to the aforesaid Banking Act Direction No. 11 of 2007, the Nomination and Corporate Governance Committee has to implement a procedure to select/appoint new Directors. However, in the case of Bank of Ceylon, which is fully owned by the Government of Sri Lanka, the appointment of Directors are carried out by the Minister in charge of the subject of Finance, as provided in the Bank of Ceylon Ordinance No.53 of 1938 & its amendments. As such the Nomination and Corporate Governance Committee does not play any role in connection with the appointment of Directors.
During the year under review the Committee carried out the following activities –
Reviewed the authorities delegated by the Board of Directors of Bank of Ceylon to the Management at the request of the Board and its recommendations.
Reviewed and suggested improvements to the existing procedure for selection of senior management.
Reviewed the suggested new organization structure and suggested carrying out improvements to it. This matter is being studied and followed up.
Recommended the new Performance Potential Appraisal System.
Reviewed the outcome of the Competency Development Training Programme, part of which has now been successfully completed which was initiated by this Committee to fill the knowledge gap of staff members who would come up in the ladder for senior management positions.
Recommended the reviewed job profiles of the Corporate Management who form part of KMP where the qualifications and key attributes for those positions were detailed.
Reviewed the code of Ethics for Directors and Employees. Recommended revising the Code of Ethics of employees encompassing new thinking relevant to modern day banking.
Facilitated the Board in carrying out its self evaluation exercise including that of the subcommittee performance by recommending the evaluation process to be carried out and also by preparing the report on the self assessment.
Determined the level of compliance with the aforesaid Banking Act Direction No. 11 of 2007 with a view to complying with them.
The Committee will endeavour to enhance the Corporate Governance practices of the Bank.
Raju Sivaraman
Chairman
Nomination & Corporate Governance
Committee
21st March 2013
Colombo
The main role and responsibility of the Committee is to assist the Board in fulfilling its oversight responsibilities for all aspects of risk management. In this connection, the Committee focuses on and reviews risks such as credit, market, liquidity, operational and strategic risks through appropriate risk indicators and management information.
In addition to the above, the Committee is responsible for reviewing and/ or recommending the following which are identified in the Charter of the Integrated Risk Management Committee:
Policies, programmes and Management Committee Charters relating to risk management and compliance.
Risk limits and policies that establish appetite for credit, market, liquidity, operational and other risks as recommended by the Chief Risk Officer.
Adequacy and effectiveness of all Management Level Committees such as the Credit Committee and Assets & Liability Management Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the Committee.
Risk management reports on the risk profile of the Bank, as well as emerging market and regulatory risks and actions undertaken to identify, measure, monitor and control such risks.
Corrective action to mitigate the effects of specific risks in case such risks are beyond the prudent levels decided by the Committee on the basis of the Bank's policies and regulatory and supervisory requirements.
Appropriate actions against the officers responsible for failure to identify specific risks and prompt corrective action as directed by the Director of Bank Supervision or otherwise.
Adequacy and effectiveness of risk identification, measurement, monitoring and mitigation relating to credit, market, liquidity, operational and compliance risks.
The Integrated Risk Management Committee comprised of three Non- Executive Directors of the Board at the end of year 2012. They are as follows -
Mr. S R Attygalle
- Director / Chairman of the Committee
(In his absence Mr.V. Kanagasabapathy,* Alternate to Mr. S.R. Attygalle)
Mr. R Sivaraman
- Director
Mr. K L Hewage - Director
Mr. K Dharmasiri* - General Manager
Mr. M L J Fernando - Acting Chief Risk Officer
*Mr. V Kanagasabapathy chaired the meetings during the year under review and ceased to be the Alternate to Ex officio Director from January 2013. Mr. K. Dharmasiri, retired from the Bank's service from January 2013.
Mr. D.M. Gunasekara, the current General Manager is now a member of the Committee.
The details of the Committee members appear on pages 34 to 37 of this Annual Report.
The quorum of the Committee is two members.
The Secretary, Bank of Ceylon/Secretary to the Board functions as the Secretary to the Committee. The other members of the staff are invited to attend the meetings when the Committee requires their presence.
The Committee met 5 times during the year under review. The attendance of Committee members at meetings is given in the table on page 149.
Activities carried out by the Committee during the year under review are summarised below –
Reviewed the following policies and manuals and the risk profile of the Bank was assessed based on them -
(a) Credit Risk Management Policy
(b) Market Risk Management Policy and Manual
(c) Operational Risk Management Policy and Manual
(d) Stress Testing Policy
The Independent Integrated Risk Management Division of the Bank assessed the risks of the Bank on a monthly basis and summary reports were submitted before the Committee on a quarterly basis. The Committee reviewed them and submitted its recommendation to the Board immediately through minutes of the meeting and specific recommendations. Instructions were given to improve reporting on the area of risks attached to major strategies incorporated in the Corporate Plan.
Monitored quantitative and qualitative risks which have gone beyond the limits and made the necessary recommendations.
Necessary actions were recommended on specific quantitative and qualitative risks which were beyond limits and reported to the Committee by the Acting Chief Risk Officer.
Revised the Compliance Policy of the Bank.
Reviewed quarterly the comprehensive Compliance Reports submitted by the Compliance Officer. Improvements to the report were suggested and are to be incorporated to give a better satisfaction to the Board that all compliances have been met.
Recommended to strictly comply with the Credit Approval Format and Credit Scoring Models for retail customers.
The Dividend Policy was approved in principle.
Followed up on the upgrading of the Core Banking System to suit current needs of the Bank.
Reviewed the implementation of 5S System/Quality Circle for all operational departments which is in progress.
Followed up on the activities to assist the Subsidiaries and Associates in their risk management. In the process, ensured that guidelines on risk appetite and limit setting were made available to all Nominee Directors of the Subsidiaries and Associates.
Followed up on the activities of the Management Level Committees through reports submitted by the Acting Chief Risk Officer who participated at these Committees, to review the adequacy and effectiveness of all Management Level Committees.
Invited the Head of Investment Committee to give an opinion on strategies adopted by the Bank in making investments and this is to be carried out on a quarterly basis.
The Internal Capital Adequacy Assessment Process of the Bank was approved in principle.
The Committee reported to the Board by way of minutes giving its recommendations. All minutes of the Committee meetings are tabled and ratified at meetings of the Board and follow up action is taken on outstanding matters.
The members of the Integrated Risk Management Committee collectively evaluated the performance of the Committee. The Committee is of the view that the Bank has made a satisfactory progress towards meeting the challenges of risk management and compliance, complying with international standards.
The Committee wishes to place on record an appreciation for Mr. V. Kanagasabapathy, who chaired the meetings during the year under review, for his invaluable contribution towards the improvement of risk management practices of the Bank.
S R Attygalle
Chairman
Integrated Risk Management Committee
21st March 2013
Colombo
