Canadian securities regulators have issued certain guidelines regarding disclosure of the approach taken by all public companies to corporate governance. It is the Company's intention to monitor developments in corporate governance practices and to adopt "best practices" as the size of the Company, its board and the nature of its business warrants.
Committees of the Board
The company's Board delegates certain responsibilities to handing committees;Audit, Compensation, Reserve and Corporate Governance and Nominating. The charters for each of these committees are available on this website, and we encourage shareholders to review them.
Audit Committee
The Audit Committee's role is to ensure that the company's management has designed and implemented an effective system of internal financial controls, and to review and report on the integrity of the consolidated financial statements of the company and related financial information. In pursuing these objectives, the Audit Committee oversees relations with the external auditors and reviews the effectiveness of the internal audit function.
The Audit Committee reviews accounting principles, policies and practices adopted in the preparation of all public financial information. The Committee also receives quarterly internal and external audit reports on the results of financial and operational audits.
The Audit Committee is comprised of the following members: German Efromovich, Donald Ford and Miguel Rodriguez, all of whom are independent non-executive directors.
External Audit
The Audit Committee approved the external auditors' terms of engagement, scope of work, the process for the 2008 interim review, the annual audit and the applicable levels of materiality. Based on written reports submitted, the committee reviewed, with the external auditors, the findings of their work and confirmed that all significant matters had been satisfactorily resolved.
Internal Audit
In June 2008 an internal audit function was created to provide assurance to both management and the Audit Committee regarding the effectiveness of all aspects of the company's system of internal control, risk management, and governance practices including operational effectiveness and compliance. The internal audit function established an internal control process to provide the Board of Directors and management with reasonable assurance regarding the achievement of the following objectives:
- Effectiveness and efficiency of operations
- Reliability of financial reporting; and
- Compliance with applicable laws and regulations
The head of the internal audit team is responsible for reporting the findings of the work to the Audit Committee on a quarterly basis, and findings are also reported to senior management. In 2008, the internal audit teams performed assessments of all controls and other procedures that are designed to ensure that information disclosed by the company in its filings is recorded, processed, summarized, and reported within the required time periods. Their activities also include controls and procedures designed to ensure that material information required to be disclosed by the company is accumulated and communicated to the company's management for timely assessment and disclosure. In coordination with management, the internal audit function established an assessment scope using a risk-based, top-down approach to the audit process, and evaluated the operating effectiveness of controls and procedures as of year end.
As a result of this evaluation, the company designed, developed, and placed into operation 413 controls on all company processes that can impact our financial statements, identified risks that involved significant accounts and relevant assertions, considered quantitative and qualitative factors to significant accounts and disclosures, identified vulnerabilities to fraudulent activities, and documented and maintained evidence to provide reasonable support for design and evaluations.
Through the evaluation, the company concluded that there are opportunities for improvement and some deficiencies considered significant that have since been addressed immediately by management to strengthen its internal control system in the following areas: improving financial procedures in the consolidation process to ensure timely compliance with filing requirements, providing training to key finance team players in Canadian GAAP and Canadian statutory reporting to strengthen our financial analysis and reporting, implementation of SAP as the corporate Enterprise Risk Program to facilitate accounting standardization and reporting, and properly defining management's roles and responsibilities.
Effectiveness of Internal Control and Risk Management
Internal Control
Pacific Rubiales' internal audit function is responsible for providing independent assurance to the Audit Committee on the effectiveness of the risk and control process throughout the company. The system of internal control, which is embedded in all key operations, provides reasonable rather than absolute assurance that the company's business objectives will be achieved within the risk tolerance defined by the Board. The Board also receives assurance from the Audit Committee, which derives its information from regular internal and external audit reports on risk and internal control throughout the company. The internal audit function has a formal collaboration process in place with the external auditors to ensure efficient coverage of internal controls.
Risk Management
Pacific Rubiales Energy adopted an Enterprise Risk Management approach in August
2008 that encompasses all significant business risks to the company, including financial, operational and compliance risk which could undermine the achievement of business objectives.
An Enterprise Risk Management approach depends on the internal audit function for reassurance, facilitation, and consultation to identify opportunities for business improvement and cost savings. Continuous monitoring of risks and control processes, across headline risk areas and other business-specific risk areas, provides the basis for reporting to management the Board. |