Last year the Committee’s activities involved a strategic reappraisal of the internal audit assurance plan, continued challenge of the Group risk process and tolerance, an internal audit effectiveness review, continued understanding of key business areas and their associated risks, and improving ongoing Committee learning. Our progress is outlined in further detail in this section.
The Committee has closely monitored the strategic progress of the business against the plan set out in 2010. In line with last year, the Committee continued its usual programme of receiving presentations from across the business to better understand key elements of the strategic plan, the associated risks and how these are being mitigated. These are lively, challenging discussions where the Committee members contribute from their own experiences. A brief overview of these discussions is provided in this section.
As Robert Swannell referenced in his overview, my time as a non-executive director of M&S is coming to an end and after six years of service I will step down from the Board on 19 June 2013 and Andy Halford will take over as Chairman of the Audit Committee. Andy brings a wealth of knowledge from his business career and recent and relevant financial experience from his role as Chief Financial Officer at Vodafone. I leave the Committee in good hands.
The Committee recommended the reappointment of PricewaterhouseCoopers LLP (PwC) for 2013/14. We believe their independence, the objectivity of the external audit and the effectiveness of the audit process is safeguarded and remains strong. This is displayed through their robust internal processes, their continuing challenge, their focused reporting and their discussions with both management and the Audit Committee.
We judge PwC through the quality of their audit findings, management’s response and stakeholder feedback. No decisions are taken by PwC over the design of internal controls and they do not perform the role of management as part of any of the work they undertake.
Their audit and non-audit fees are set, monitored and reviewed throughout the year (see note 4 of the Financial Statements PDF 455kb). We ensure that our Auditor engagement policy, which is reviewed annually and disclosed on our website, is adhered to when non audit work is commissioned. This policy has been further strengthened in the 2012/13 financial year.
The Committee recognises that this year the non audit fees are higher than in previous years. This is predominantly due to two significant projects – one HR-related and the other to advise in the development of our integrated controls framework to document the processes and controls across M&S’ core business activities. In both instances other providers were considered. However, it was felt that PwC were best positioned to provide the services required given their deep understanding of the business, its culture, and strategy, thus providing better cost effectiveness without compromising their independence. This aside, the Committee is very mindful that these were exceptional items and aim to maintain non audit fees at a lower level going forward.
Tenure of Auditor
PwC and its predecessor firms have been the Auditor for M&S since the Company first listed on the London Stock Exchange in 1926 (a breakdown of how our Auditors have evolved is provided in the governance section of our corporate website).
To maintain the objectivity of the audit process M&S actively supports audit partner rotation – Stuart Watson was appointed as lead Audit partner in 2008/09 and has now come to the end of his tenure with M&S. Stuart will be succeeded by Paul Cragg.
The Committee recognises that length of tenure of auditors has been a topic of much debate. It notes that the UK Governance Code is being updated, adding a requirement that the external Audit contract be put out to tender at least every ten years. In view of this, the Committee intends to conduct a tender of the Audit contract during the course of the coming year.
Detailed updates from the business units were introduced three years ago. These updates are fully embedded as fixed agenda items for each meeting, with one or more areas represented. This year these topics covered:
EDC / NDC
- updated on the new structure to provide a faster, more agile and lower cost service;
- updated on the strategy to consolidate our network, provide greater capacity, improve availability to stores and service levels to M&S Direct; and
- reviewed the key risks and mitigating actions around implementation, testing and launch of the EDC/NDC.
- reviewed levels of preparedness for crisis management and business recovery both nationally and internationally;
- reviewed changes to the out of hours call out process;
- received updates on significant national and international incidents – ranging from fires, flooding and adverse weather to medical evacuation, power grid failure and country-specific national security incidents; and
- discussed enhancement of the ‘Travel Safe’ programme and the third party integration into the Employee Travel Tracker.
Plan A – Annual
- reviewed progress made over the last year and the business' ongoing objectives. In the year the number of objectives were increased from 100 to 180; 93 of the original 100 have been achieved with 139 achieved overall;
- discussed commitments unlikely to be achieved and the external factors impacting these;
- discussed the business’ improvements in fuel efficiency and the milestones delivered to become Carbon Neutral;
- received an update on the UK sustainable learning stores, including Cheshire Oaks;
- reviewed the effectiveness of engaging consumers in Plan A;
- updated on our collaboration with the World Economic Forum (WEF) consumer industries group, and provided an overview on how we are actively involved in re-framing the consumer agenda around sustainable consumption;
- discussed progress of the External Advisory Board and its new appointments (Prof. Yunis and Joanna Lumley); and
- updated on the significant improvement in our clothing recycling programme (Shwopping) and the engagement of Joanna Lumley as our global ambassador for Plan A.
- updated on the Multi-channel Foundation Programme, the complexities of integrating legacy systems and the overriding focus on the customer and the user experience through design and build process;
- explored how the IT Strategy was educating the business in the practicalities of multi-channel trading;
- updated on the key risks to the project, security and the testing process and received an overview of how these are being managed;
- updated on how the project compares to competitor and market activity; and
- debated operating concerns with the current platform.
HR shared services
- updated on the new people system integration, including online payslips, salary exchange, centralised HR, ways of working and staff roster management;
- reviewed target completion dates and opportunities regarding our international operations;
- reviewed the internal audit report regarding implementation and embedding of the new systems within both head office and store environments; and
- discussed the positive metrics and risk planning for the new people system project, especially given the significant number of individual transactions involved.
- received an overview of the customer experience, the operating model, service style and customer contact management
- updated on improvements in service levels, with particular focus on furniture delivery where the supplier, the packaging and the communication had all been changed resulting in a substantial reduction in refunds in this area;
- reviewed risks and mitigating actions including training, clear reporting and measurement and escalation procedures; and
- discussed future plans with particular focus on support for the Multi-channel Foundation Programme.
Food pricing and promotions
- updated on the changes to the Food group covering business guidelines, processes and methods of monitoring;
- updated on the progress of the Simply M&S range introduced in May 2012;
- updated on the promotional strategy, brand impact and customer perceptions;
- reviewed the findings of the internal audit report; and
- discussed overall food safety and product quality and the development of healthy food ranges, while ensuring value is maintained for the customer.