Corporate Governance Suggested Check List for
Captives and Risk Retention Groups
John J. O’Brien JD, CLU, CPCU
A Professional Corporation
Attorney, Insurance Consulting, Expert Services
4862 Marshwood Drive
Hollywood, South Carolina 29449
843-571-0407
The purpose of this check list is to provide some informal guidance for corporate governance for board of director members who serve on audit committees of captives and risk retention groups. Audit Committees have been recommended for public companies since 1939 and pursuant to Sarbanes-Oxley since 2002, the operation and membership of audit committees of the board’s of public companies is carefully governed as the exclusive overseer of the retention and performance of the external auditor. It is suggested that with changes in corporate governance taking place in the regulation of risk retention groups and other discussions taking place amongst regulators concerning the independent status of captive managers who serve as board members of captives they manage that perhaps an audit committee of the board of these non-public groups is a good idea and certainly would stand the group in good stead in the eyes of the regulators. There is talk that the NAIC will soon adopt a corporate governance model regulation that will have many of the same characteristics of SOX. With or without an audit committee, this check list I believe could be useful to the board of a captive or risk retention group. Many of the following suggestions are contained in the Corporate Director’s “Guidebook” published by the American Bar Association and others are ones that I particularly like but that are not be found in other material.
The List
Select members of Audit Committee (carefully) – under SOX, each member must be independent and at least one member must be a financial expert. Look for members who are qualified but who also possesses the qualities of personal integrity and reputation, who exercise common-sense business judgment , and who are vigilant.
The Board and the Audit Committee should define their Core Values and communicate those Core Values. Unquestionable Ethics and Integrity.
Adopt a formal written audit committee charter covering:
the scope of responsibilities
how the committee will carry out these responsibilities
the outside auditor’s accountability to the audit committee
the audit committee’s responsibility to insure the independence of the
outside auditor
Select and retain the corporation’s external auditor and determine for each fiscal
year whether to continue or terminate that relationship.
Review and approve annually the external auditor’s compensation and the proposed terms of engagement, including the scope and plan of the annual audit.
Approve, prior to each engagement, any further audit-related or non-audit services to be provided by the audit firm, based on the committee’s judgment as to whether the firm is an appropriate choice to provide such services and whether the engagement, or the aggregate of such engagements, would interfere with the firm’s independence. Publicly traded companies under SOX might be prohibited from approving any non-audit services to be performed by the outside auditor.
Establish procedures to receive and respond to complaints or concerns regarding the corporation’s accounting, internal controls or auditing matters, including procedures for the confidential and anonymous submission by employees of any such complaints or concerns.
8. Serve as a channel of communication between the external auditor and the board
and between the senior internal auditing executive, if any, and the board.
Discuss the corporation’s procedures for issuing earnings reports to shareholders,
regulators, rating agencies or the financial press.
Review the corporations financial statements and management certifications with
management and the external auditor and discuss with them the quality of
management’s accounting judgments in preparing the financial statements.
11. Review and act upon any communications received from the external auditor.
12. Consider, in consultation with the external auditor, the adequacy of the
corporation’s internal financial controls, which among other things, must be
designed to provide reasonable assurance that the corporation’s books and
records are accurate, that its assets are safeguarded and that the reported
financial statements prepared by management are accurate.
13. Meet periodically with management to review the corporation’s major risk
exposures and consider with management, risk management programs, including
the reduction of present and future litigation risks, and procedures and policies
addressing legal compliance.
14. Review annually, all fronting and reinsurance arrangements to assure that
adequate coverage is being provided and that all contracts are in compliance and
accurately reflect exposures and responsibilities i.e. no side agreements.
15. Approves any related party transactions between the corporations and its officers
or directors, or their family members or enterprises they control
16. Establish or review policies and guidelines for expense reimbursements,
perquisites and other benefits provided to senior executives.
17. Do an annual self evaluation.
Latest revision : May 5, 2007
No comments:
Post a Comment