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Internal control and risk

The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness, while the role of management is to implement Board policies on risk and control.

The system of internal control is designed to manage and mitigate rather than eliminate the risk of failure to achieve business objectives. In pursuing these objectives, internal controls –which include financial, operational and compliance controls –and risk management can only provide reasonable, and not absolute, assurance against material misstatement or loss. The Board has reviewed the effectiveness of internal controls during the year.

The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group; that this has been in place for the year under review and up to the date of approval of the Annual Report and Accounts; that this process is regularly reviewed by the Board; and that the process accords with the Turnbull Guidance. The key elements of the control framework and review processes in place across the Group are as follows:

  • The Board sets corporate strategy and business objectives. The GMB and Sector management integrate these objectives into their operational and financial business plans. Where areas for improvement in the system of internal control are identified, the Board considers the recommendations made by the GMB and the Audit Committee.
  • The GMB meets regularly together with other senior executives to consider Group operational and financial performance and business development. The Chief Executive reports to the Board on behalf of the GMB on significant changes in the business and the external environment. The Chief Financial Officer provides the Board with financial information which includes key performance and risk indicators.
  • Group Risk Management have designed a framework for risk management for TUI Travel PLC in line with Turnbull guidance, integrated with the short and long term business planning processes. They review the progress in line with this framework and report on the Group risk profile on a quarterly basis, providing a consolidated Group risk profile to the Audit Committee on a half-yearly basis. Additionally, at each Audit Committee meeting, the framework development is reported and individual Sector management teams are invited to review and discuss their risk profile on a rotational basis.
  • The Audit Committee, with assistance from certain related management committees, oversees key risks, such as financial risk, health and safety, corporate and social responsibility and the environment, where such risks apply across all Sectors. The Board believes that, in order to be effective, risk management processes must be driven down to each operating unit. Accordingly, each Sector Board now addresses risk management as a standing agenda item and is responsible for ensuring that the risks facing that Sector’s businesses are identified and that related action plans are implemented. Sectors formally report their risk profile on a quarterly basis.
  • The Group Audit Services function independently reviews the risk identification procedures and control processes implemented by management and reports its findings at each Audit Committee meeting, or more frequently if appropriate.
  • The Audit Committee reviews the proposed work plans of the Group Audit Services function; reports issued by Group Audit Services; progress made on addressing findings arising from these reports; as well as reports on systems; and controls from the external auditors covering material weaknesses. The Chairman of the Audit Committee reports to the Board on the outcome of the Audit Committee meetings held and the Board receives the minutes of all such meetings.
  • The Treasury position of the Group, including cash, foreign exchange and fuel hedging exposure, is managed centrally in accordance with policies appropriate for each Sector and is the responsibility of the Chief Financial Officer and Group Treasurer. Reports and forecasts are submitted monthly to the GMB and to each Board meeting. Weekly meetings on liquidity and fuel hedging take place attended by the Chief Executive, Chief Financial Officer, Group Treasurer and other senior managers as deemed necessary.
  • Financial forecasts, providing predicted results with sensitivity analysis, are prepared routinely throughout the year for review by the GMB and the Board. These forecasts also include details of the Group’s ongoing compliance with its regulatory and banking requirements. The Group has established investment appraisal and authorisation procedures and its capital expenditure is reviewed against budgets which have been approved by the Board.

Processes are in place to ensure appropriate action is taken where necessary to remedy any deficiencies identified through the Group’s internal control and risk management processes.

There are policies and procedures for the reporting by employees and the resolution of suspected fraudulent activities. It is the policy of the Group to employ staff and management of high integrity, to train them appropriately and to require compliance with all relevant laws, regulations and internal policies. The Group has independent third party reporting mechanisms that allow employees to raise concerns on financial reporting or other matters. Any reports received are passed direct to Group Audit Services which acknowledges receipt and periodically reports back on a confidential basis to the independent third party on any action taken. Within its regular report to the Audit Committee, Group Audit Services provides a summary of any confidential reports received and actions taken. A monthly report is also produced which includes a summary of all calls received highlighting any issues raised. For further information see Risk Management.