RISK MANAGEMENT AND INTERNAL CONTROL
In determining strategic objectives, the Board of Directors has ensured its understanding of all the risks associated with the Company’s investment portfolio with a view to maximising sustainable profits and growth.
These risks are measured continuously against the risk appetite defined by the Board.
The risk management process is fundamentally based on the skill and calibre of individuals employed, their motivation and drive and the value systems they adhere to. In addition, the investment portfolio serves to spread investment risk.
The categories of risk identified can be broadly classified as follows:
- Performance risk, including strategic risk, opportunity risk, reputational
risk, liquidity risk, and also risks relating to corporate governance, social
and environmental responsibility and stakeholder relations.
- Investment risk inherent to existing investments. The Board has
delegated the responsibility for investment risk management to the Management
Committee.
These risks are furthermore managed at VenFin by ensuring that future investments are subject to rigorous due-diligence reviews. These reviews include, inter alia, verification of intellectual property rights, management com petency, business plans, market analyses, contractual rights and obligations, product feasibility, cash flow and liquidity requirements. Consideration is also given to ensure that the investment is optimally structured, using appropriate investment instruments.
Performance of operational management, measured against budgets and other measurement criteria, is regularly appraised for timely corrective action, when deemed appropriate.
- Operational risk which includes operational effectiveness and efficiency,
safeguarding of assets, compliance with relevant laws and regulations, reliability
and integrity of reporting, effective operational risk management, human resource
risk, technology risks, business continuity and risk funding.
Operational risks are managed mainly by means of internal control. This is a process designed to provide reasonable assurance regarding the achievement of organisational objectives and to reduce the possibility of loss or misstatement to within accepted levels. The effectiveness of risk management is measured by the level of reduction of the Company’s cost of risk.
Management structures have been established to focus on certain key risk activities, including safety, health, environment, security, tax and risk funding.
- Treasury risk. VenFin uses the treasury services of M&I and
V&R Management Services AG to manage interest rates, liquidity, compliance
and currency risks globally.
A treasury committee, in terms of a mandate from the Board, constituted of nominated executive directors and senior management, is responsible for determining policy and procedures as well as clearly defined levels of responsibility. Regular feedback is given to the Board.
The Board has documented and implemented a comprehensive risk management system, which incorporates continuous risk identification, assessment, evaluation, and internal control embedment.
The Board influences the control environment by setting ethical values and organisational culture while ensuring that management styles, delegated authorities, business plans and management competency are appropriate, effective and efficient.
The Board also monitors the effectiveness of governance structures implemented by the boards of those entities it invests in.
Risk funding is focused strategically on a self-insurance methodology aimed at reducing the group’s cost of risk, save for those risks which cannot be cost beneficially controlled or have potential catastrophic exposures.