Audit Committee's Assessment of Internal Audit, Internal Control, Risk Management and Regulatory Compliance Functions; Committee Activities During the Reporting Period

Internal audit, internal control and risk management activities at Türkiye Finans are carried out by the Board of Auditors, the Internal Control Department, and the Risk Management Center, all of whose duties and responsibilities are spelled out in published regulations and which are organizationally independent of each other. The activities of these units are coordinated by the Audit Committee acting on behalf of the Board of Directors. The Regulatory Compliance Department also reports to the Board of Directors through the Audit Committee.

Board of Auditors (Internal Audit)

The Board of Auditors reports to the Board of Directors through the Audit Committee. The Board of Auditors is responsible for performing audits, inspections and investigations on behalf of the Board of Directors in line with the schedule and instructions provided by the Chairman.

The Board’s fundamental objective is to provide independent and impartial compliance and consultancy services that safeguard the activities of the Bank and its affiliates subject to consolidation and generate added value. Operating within currently applicable laws and related external regulatory frameworks, and the Bank’s own strategies, policies, principles and targets, the board provides assurance to the Senior Management about the effective and sufficiency of the Bank’s internal control, risk management systems and governance processes. The board aims to help the Bank reach its targets by introducing a systemic and disciplined approach in order to evaluate and improve the related systems.

The scheduled auditing activities carried out in 2013 are summarized below.

  • Audits were performed at 74 branches;
  • A total of 8 audits were performed in various units at the headquarters;
  • 3 audits involving information systems were performed; and
  • The Management Declaration work was performed.

As of 31 December 2013, the staff of the Board of Auditors consisted of 36 people. During 2013, members of the Board of Auditors took part in a total of 4,655 hours of professional training programs, congresses, seminars, and conferences. Board of Auditors personnel individually received an average of 129 hours of training last year.

Internal Control Department

The Internal Control Department is responsible for overseeing all aspects of Türkiye Finans’s organization and activities so as to ensure that the bank’s business is conducted effectively, productively, and in a manner consistent with the requirements of laws and regulations, the bank’s policies and rules, and ordinary banking practices and also for ensuring the reliability, integrity, and timely accessibility of the accounting and financial reporting systems and of the information contained therein. The Internal Control Department reports directly to the Board of Directors and provides information to the bank’s senior management. Another function of the Internal Control Department is to develop early warning systems capable of identifying risks in advance and taking measures accordingly.

As of 31 December 2013, the staff of the Internal Control Department consisted of 35 people.

Centralized control is carried out regularly by means of headquarters-based sub-units employing risk control matrices which are formulated according to individual units’ transactions and processes. During 2013, critical control points of the bank’s banking and information systems and processes, including but not limited to basic banking functions, were subjected to testing by means of centrally-managed programs. Querying made it possible for errors to be identified and for personnel to be made aware of them.

As a result of the Internal Control Department’s activities in 2013, the operations of 232 branches were subjected to internal controls 319 times.

Any errors of omission or commission identified as a result of internal control functions are reported to the Audit Committee at three-month intervals. The Internal Control Department is also responsible for overseeing the correction and resolution of any errors which are so identified.

During 2013, personnel of the Internal Control Department took part in a total of 4.193 hours of professional training programs, congresses, seminars, and conferences. Internal Control Department personnel individually received an average of 118 hours of training last year.

Risk Management

Türkiye Finans’s risk management structure consists of the Board of Directors, the Audit Committee, and the Risk Management Center.

As of 31 December 2013, the staff of the Risk Management Center consisted of fourteen people including a head of risk and two vice presidents.

Risk management activities carried out a Türkiye Finans in 2013 are summarized below.

Risk Identification

All changes in work flows as well as revisions in programs and new product designs were reviewed. Those concerned were advised of any risks which might be entailed by any of these and risk assessment reports were issued accordingly. Outsourced services were also reviewed and assessed from the standpoint of their associated risks.

Risk Quantification

The Internal Capital Adequacy Assessment Process (ICAAP) was set up at the Bank within the framework of the “Regulation on the Internal Systems of Banks”. In this process, both primary and secondary risks are quantified and the cumulative impacts of all included risks on the Bank’s standard capital adequacy ratio are calculated.

Within the framework of ICAAP, the Bank not only quantified the estimated the risks related to the current period, but also possible risks that the Bank may be subject to in the future; and held all measured risk values subject to stress tests under certain defined scenarios.

Details of risk quantification activities grouped by risk category are provided under the heading “Information about Risk Management Policies by Type of Risk”.

Risk Monitoring

The Risk Management Center monitors economic data in order to detect in advance any changes and/or trends in the economic environment or market conditions that might have an impact on the bank’s business.
Risk monitoring activities are carried out as necessary based on such considerations as the potential consequences and dimensions of all pertinent types of risk. Details of risk monitoring activities grouped by risk category are provided elsewhere under the heading “Information About Risk Management Policies By Type Of Risk”.

Risk Reporting

The Risk Management Center reports the results of its risk measurements and analyses to the units and committees concerned, to bank senior management, and to the Audit Committee. The center also submits risk management activity reports to BRSA.
Details of risk reporting activities grouped by risk category are provided elsewhere under the heading “Information About Risk Management Policies By Type Of Risk”.

Risk Documentation

All documentation pertaining to risk management policies, procedures, and limits are reviewed at least once a year at year-end and revisions are made in them as necessary.

Audit Committee

                                       

Brian Keith BELCHER
Member of the Audit Committee		 Oğuz KAYHAN
Member of the Audit Committee