Internal Control

Internal Control is one of our Ordina’s main priorities. The internal control structure is constantly reviewed and professionalised, with the emphasis being placed on the governance structure, processes, systems and specific controls as well as raising awareness amongst management and staff of the importance of the proper application of such controls.

Our internal governance is composed of the following building blocks:

Strategy development

At Ordina, we scrutinise our strategy and related objectives and ambitions annually and adjust them where necessary on the basis of market developments and an analysis of opportunities and threats. The Management Board bears responsibility for this effort, in close collaboration with the members of the Executive Committee. Ordina’s strategic course is also discussed at length with the Supervisory Board, in the presence of the members of the Executive Committee, on an annual basis.

From strategic targets to business plans and long-range ambitions

The strategic targets, including key opportunities and threats, are shared with the Boards of the different divisions, both on a group and individual basis. Ordina’s overall strategic targets and the contributions to achieving them by the different divisions form the foundation for the business plans and long-range plans for each division. In addition to setting the financial budget, each division’s business plan includes several concrete business targets that are translated into a number of key performance indicators (KPIs), which are consistently monitored for progress throughout the year.

Analysis of results and forecasts as well as monthly internal reporting cycle

The financial results of the divisions and their forecasts are analysed monthly using the Ordina Management Information System (Ordina MIS), both at local and at corporate level. The divisional management and business controllers, as well as the Management Board, Executive Committee and Group Finance & Control Division all have direct access to Ordina MIS.

The divisional management and business controllers submit monthly progress reports in respect of the targets defined in their business plan, the related KPIs, and the respective division’s financial performance to the members of the Executive Committee and Group Finance & Control. Based on the reports, progress meetings are held monthly, which serve to discuss any previously agreed actions, relevant commercial developments, the financial performance for the past month and the updated forecasts, staff turnover and recruitment, and any progress made in the execution of important projects.

Transparent internal control structure

We have formalised responsibilities, mandates, segregation of duties, guidelines, procedures and processes within Ordina in a clear and accessible format in the Ordina Digital Handbook. The Handbook was updated in 2007. For each process, we have added a description of relevant risks and the appropriate key controls. The divisional management and business controllers are responsible for the correct application of the processes and systems. This improved structure of our risk management system will enable us to continue to raise awareness on how important it is to apply the system consistently in 2008.

Where financial reporting is concerned, there is no margin for error. The financial accounts are kept in SAP, our primary system for accounting and operations. The decision to process financial information at our shared service centre contributes to the consistency and quality of our financial reporting. Most of the Ordina organisation uses this system. As soon as acquisitions are properly embedded in our organisation, their guidelines, procedures, processes and systems are integrated as well. The Dutch internal governance model serves as a guideline for the further development and professionalisation of risk management at our Belgian operations.

Project management

A critical review of opportunities and threats in the course of the commercial process and the mandatory involvement of management at the right level (depending on the size of a prospective contract) are the first steps in the control and management of projects with responsibility for deliverables. To this end, we improved our Deal Review System in 2007 to allow for an informed decision to be taken at each stage of the bidding process. Or to determine whether or not to submit a bid (bid no bid). Key elements of the Deal Review System include the assessment of risks and measures available to mitigate those risks. By accepting a project we inherently accept risk, but our track record, experience, stringent project management and contractual agreements with our clients that limit our liability are all measures to identify and manage these risks.

In order for the Deal Review System to be consistently applied, bid and contract management, and the execution of large Consulting, IT and Application Outsourcing contracts have been centralised. Project progress is monitored centrally by the Project Support Office. Ordina BPO also has a project office that actively monitors project progress, including transitions and migrations to the new target environment. Reports on progress and any complicating factors are submitted monthly. The most important findings are addressed in the monthly review meetings between the local management and the members of the Executive Committee.

Control self-assessment and internal and external audits

The final element in our internal governance structure is formed by a control self-assessment amongst management as well as internal and external audits. The Internal Audit Department, which reports directly to the Chief Financial Officer, initiates the internal control self-assessment and carries out audits of the correct application of, and compliance with, internal procedures and guidelines. Both financial and operational audits are conducted. The objective is to further improve our internal control structure. In addition, these instruments contribute to a greater risk awareness within the Ordina Group.

Ordina BPO has an autonomous internal audit department that specifically focuses on the effectiveness and design of the administrative organisation, partly in view of the requirements that are imposed in this regard by regulators such as the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM).

In addition to internal audits, independent external auditors conduct external audits of the quality system, organisation of the administration and the financial statements. Apart from this, we provide independent assurance to specific clients (in BPO en Application Outsourcing) that we have an effective internal control structure in place. The financial statement audit focuses on the correct application and effectiveness of the internal control procedures that are relevant for the preparation of the financial statements. The findings of these audits by the external auditor are reported, both verbally and in writing, to the Management Board as well as to the Supervisory Board.

Opinion

It is the opinion of the Management Board that Ordina takes a professional approach to the design, application and continual improvement of its internal control structure and the related systems. Nevertheless, we cannot provide absolute assurance that no material misstatements will occur at Ordina. Based on all actions that have been performed in this regard during 2007, the Management Board is satisfied that the risk management and internal control systems provide reasonable assurance that the financial information generated by our systems is reliable and in accordance with the relevant legislation.

Outlook