CAHYA MATA SARAWAK ANNUAL REPORT 2016

www.cmsb .com.my Section 06 Governance Cahya Mata Sarawak Berhad 66 Internal Audit Department The Company has an established Internal Audit Department which is led by the Group Internal Auditor who reports directly to the Group AC. Its role is to provide an independent and objective review of the effectiveness of the Group’s governance, risk management and control procedures that Management has put into place. The Group AC met with the Group Internal Auditor twice in 2016 without the presence of Management to discuss the issues and/or any other observations that he may have during the internal audit and the extent of cooperation provided by the Group and its officers. The Group Internal Auditor’s findings and recommendations are communicated to the Board via the Group AC. A statement on the Internal Audit Function is presented on pages 70 to 71 of this Annual Report. Internal Control and Risk Management The Board has the overall responsibility for maintaining a system of internal control that provide reasonable assurance for effective and efficient operations, compliance with laws and regulations, as well as adherence with internal procedures and guidelines. The Board has established a framework to formulate and review risk management policies and risk strategies. The Directors’ Statement on Risk Management and Internal Control which provides an overview of the state of internal control within the Group is outlined on pages 72 to 77 of this Annual Report. SUSTAINABILITY REPORTING The Group’s businesses and initiatives have always been driven by sustainability goals that drive our activities across the Group. The Board, having noted the recent amendments in the MMLR, is committed to make every effort to document its on-going sustainability journey and review the Group’s strategies to foster and promote sustainability. In 2016, the Board approved the CMS Sustainability Initiative to be rolled out across the Group effective 1 January 2016. The main focuses are towards the implementation of Sustainability KPIs, introduction of sustainability-related office guidelines and issuance of a stand-alone Sustainability Report. The Board is pleased to report that CMSB was included in the FTSE4Good Bursa Malaysia (“F4GBM”) Index with effective from 19 December 2016. The F4GBM Index is globally recognised and measures and recognises companies which demonstrates strong Environmental, Social and Governance (“ESG”) practices across the world. CMSB’s confirmation as a F4GBM constituent is a significant achievement as it recognises the Group’s ESG practices based on a sustainable business model via an internationally recognised index. The Group’s second Sustainability Report titled ’Strengthening Our Sustainability Momentum’ has been issued as a separate statement to the 2016 Annual Report and is available on the Company’s website at www.cmsb. com.my. CONDUCT Related Party Transactions The Group AC, with the assistance of the Internal Audit Department carries out a review of the nature of related party transactions within the Group annually to ascertain any conflict of interest situations that may arise including any transaction, procedure or course of conduct that raises questions of management integrity. The Internal Audit Department carries out a review of significant new recurrent related party transactions to ensure full compliance with the established procedures. The results of this annual review are tabled to the Group ACmeetings and thereafter reported to the Board. Details of the related party transactions are disclosed in the Notes to the Financial Statements on pages 177 to 179 of this Annual Report. Disclosure of Interests The Directors have a duty to make an immediate declaration to the Board if they have any interest in direct or indirect transactions with the Group. The interested Directors would serve notice to the Board and thereupon abstain from deliberation and decisions of the Board on the transactions in question. Where Directors are interested in a corporate proposal undertaken by the Company requiring the approval of the shareholders, the interested Directors will abstain from voting in respect of their direct and/or indirect shareholdings in the Company, on the resolutions pertaining to the corporate proposal. They will further undertake to ensure that persons connected to them also abstain from voting on the resolutions. STAKEHOLDER ENGAGEMENT Timely and Quality Disclosure The Board is committed to ensuring that communications to the investing public regarding the business, operations and financial performance of the Group are accurate, timely, factual, informative, consistent, broadly disseminated and where necessary, filed with regulators in accordance with applicable legal and regulatory requirements. Statement on Corporate Governance