Supervisory Board
of the National Holding Board and
Hungarian State Holding Company

Audit Policy of
Hungarian State Holding Company

Approved in the Supervisory Board Meeting of 11 March 2008

 

 

(signed)
Dr. Attila Borbély
Chairman of the Supervisory Board

 

 

Audit Policy of the Hungarian State Holding Company

Chapter I
Preamble

1.        Based on its procedures adopted in the Resolution of the Supervisory Board No. EB 1/2007. (XI. 29.) and approved by the Exerciser of the Shareholder Rights (ESR) on 12 December 2007, the Supervisory Board approves the Audit Policy set out below in order to ensure the practical applicability of the provisions set out in Article 13 (3) of Act CVI of 2007 on state assets (State Assets Act, SAA), with particular regard to the method of and deadline for providing information requested in the course of audit activities performed on the basis of this Policy, as well as the validity of the authorisation set out in point 2.

2.        Having regard to the provisions of Articles 12 (1) and 13 (3) of the SAA, the Chairman of the Supervisory Board gives general and ad hoc authorisations as needed to the members of the Supervisory Board, the Head and the employees of the Audit Directorate, for the purpose of pursuing audit activities set out in detail this Policy.

Title 1
Scope of the Policy

3.        This Policy contains the audit rules applicable to the Audit Directorate operating within the Organisation of Framework of Magyar Nemzeti Vagyonkezelő Zártkörűen működő Részvénytársaság (Hungarian State Holding Company, hereinafter by the Hungarian abbreviation MNV Zrt.), professional direction, for which is provided by the National Holding Board and the Supervisory Board of MNV Zrt. (Supervisory Board). The Policy sets out the tasks associated with the Management of State Assets, continuous control over the administration of privatisation transactions, as well as the ongoing audit of the operation and utilisation of MNV Zrt’s own assets and other asset components entrusted to MNV Zrt. based on the SAA or other legislation.

4.        The personal scope of this Policy covers members of the Asset Management Council, of the Supervisory Board, as well as all of MNV Zrt’s organisation units and employees, based on the ESR’s approval set out in point 1.

5.        The scope of this Policy shall cover auditing all activities related to both MNV Zrt’s own assets and the state assets entrusted to it. The contents of audits shall be determined by the SAA, Act No. IV of 2006 on business companies (Companies Act) and other related legislation.

6         All of MNV Zrt’s organisational units and employees must assist audit activities of the bodies and authorities that perform external audits over MNV Zrt. within their roles and responsibilities.

Title 2
The general goal, system and organisational forms of audits

7.      The general goal of audit is to continuously assess and evaluate the proficiency and regularity of the activities of the National Holding Board (Council) and MNV Zrt in order to promote lawful and efficient operation.

Audits shall include in general:

a)                           compliance with legislation and internal requirements applicable to the audited activity,

b)                          the documentary discipline in operation,

c)                           the regulated, organised and reasonable nature of operation,

d)                          commenting on all reports to be submitted by the Council to the ESR,

e)                        analyses of decisions made within MNV Zrt’s organisation for economical purposes.

8.      MNV Zrt.’s complex audit system includes:

a)                        the audit activities by the management,

b)                       the audit built into the process of activities, and

c)                         audits conducted by the organisation units performing audits.

9.     In accordance with the Rules of Organisation and Operation (ROO) approved in ESR Resolution No. 4/2007. (XI.28.), there are three independent audit organisations working within MNV Zrt’s organisation:

a)                    the Audit Directorate, operating with professional direction provided by the Supervisory Board, which performs comprehensive audit tasks of the Council and MNV Zrt.,

b)                   the Internal Audit Office, with professional direction from the Chief Executive Officer, which performs shareholder audit tasks for managing state assets allocated to MNV Zrt. and internal management audit tasks,

c)                    the Supervisory Board of the National Land Fund, which audits the Company’s activities associated with the National Land Fund.

10.   For the purposes of cooperation between the three audit bodies identified in point 9, the provisions of this Policy, drafted on the basis of the procedures approved by the ESR, and of the Shareholder Audit Policy approved by the Council shall govern.

Title 3
Audit in the activities of the Council and of MNV Zrt.

11.   The operation of and management of state assets by the Council and MNV Zrt. are audited by the Supervisory Board. The Audit Directive promotes the successful performance of the Supervisory Board’s tasks set out in Article 35 (2), (3) and (4) of the Company’s Act and Articles 12 and 13 of the SAA, and the efficient operation of the audit system.

12.   In line with the provisions of MNV Zrt’s ROO, the Audit Directorate is managed and supervised by the Chairman of the Supervisory Board; the detailed rules in this respect are set out in the Supervisory Board’s procedures.

Chapter II
Title 1

The goal of audit activities of the Supervisory Board and the Audit Directorate operating with professional direction from the Supervisory Board

13.    The purpose of audit is to continuously monitor:

a)                    the operation of the Council and of MNV Zrt., compliance with the SAA and Government Decree No. 254/2007. (X.4.) issued on the implementation of the SAA as well as legislation in force,

b)                   whether the decisions made are lawful, economical and reasonable,

c)                    the development of internal regulations and procedures required for MNV Zrt’s operation, in line with legislation,

d)                   MNV Zrt.’s operation for the purposes of compliance with the requirements of internal regulations,

e)                    whether MNV Zrt.’s internal accounting and information system is capable of recording and reflecting actual financial transactions,

f)                    MNV Zrt.’s audit system and its functioning for the purposes of evaluating whether it ensures the enforcement of requirements set out in the SAA and other legislation as well as this Policy.

Title 2
Rights and obligations of the Audit Directorate

14.    The rights of the Audit Directorate are in particular:

a)                    in order to compile work plans and to perform the obligation of continuously providing information, it is entitled to continuously be informed about the proposals and decisions submitted to the Council, the Management Meeting and other decision-making fora.

b)                   based on the work plan approved by the Supervisory Board, the Supervisory Board’s resolutions and the authorisation granted in point 2, it is entitled to conduct investigations associated with activities related to own assets and the management or utilization of allocated assets. In the framework of this – as set out in the Supervisory Board’s procedures – it is entitled to request information from MNV Zrt’s employees, look into the Company’s books, documents, official documents, inspect or if necessary, have experts inspect such documentation. Furthermore, it is entitled to propose on-site audits at the audited company with the participation of the Chairman of the Council and/or Chief Executive Officer of MNV Zrt.

c)                    it is entitled to organise and conduct the meetings, discussions, etc. required for completing audits.

d)                   it is entitled to attend meetings associated with the issues audited by the Supervisory Board – which, however, are not closely related to the audit – based on prior permission from the Chairman of the Council and/or the CEO.

e)                    it is entitled to request statements of completeness of the documents delivered from members of the Council as well as executive officers of MNV Zrt. and the heads of the audited units.

f)                    it is entitled to conduct follow-up audits to investigate the measures taken to eliminate the deficiencies exposed during audits.

g)                   it is entitled to review and comment on the Company’s internal regulations, procedures for giving instructions and general procedures

 

15.    The obligations of the Audit Directorate are in particular:

a)             safeguarding state secrets, service secrets, business secrets and information concerning moral rights obtained in the course of audits,

b)            to notify the Chairman of the Council and/or the Chief Executive Officer by way of the Chairman of the Supervisory Board about the commencement of the audit – depending on the nature and target of the audit – in due time,

c)             to conduct the audits specified in the resolutions of the Supervisory Board based on the Supervisory Board’s work plan, to verify the content and reality of the data and documents that serve as the basis of findings, and to record the facts exposed as they actually are,

d)            to inform the relevant audited parties about the audit materials and findings prepared.

Title 3
Duties of the Audit Directorate

16.   The Audit Directorate performs its activities under the directions of the Supervisory Board member(s) appointed in the Supervisory Board’s work plan, in the framework of which it has the tasks of:

a)         auditing the activities of the Council and MNV Zrt., the implementation of legislation and resolutions based on the legislation, founder’s resolutions, council and Supervisory Board resolutions that provide for audits and the procedures of the Supervisory Board,

b)         auditing the annual report, balance sheet, asset statement adopted by the Council, as well as all proposals and reports prepared and adopted by the Council, which are subject to the ESR’s exclusive powers,

c)         auditing and commenting on the Company’s internal regulations and their harmonisation with effective legislation applicable to MNV Zrt.

d)         promoting the state audit office’s audit activities required under the SAA,

e)         performing the audit tasks associated with the Supervisory Board’s work plan,

f)          ensuring that the Supervisory Board is continuously provided with information, in the framework of which, of arrangements for making available the reports and information containing external and internal information on MNV Zrt’s activities,

g)         liaising with external audit bodies, in particular the State Audit Office and MNV Zrt’s Auditor,

h)         investigating the complaints and reports of public interest received by the Supervisory Board and the Audit Directorate if the Supervisory Board orders such an investigation by a resolution,

i)          performing the actions related to preparing and conducting audits, preparing a course, elaborating the necessary proposals for actions, determining liability, closing the audit and registering audits,

j)          performing the coordination and administrative tasks associated with the Supervisory Board’s activities, as well as the secretarial tasks for the Supervisory Board.

 

Chapter III
Procedures of the Audit Directorate

17.   The Head of the Audit Directorate ensures that all audits ordered by the Supervisory Board in a resolution are conducted in a proficient and lawful manner, in accordance with this Policy. If, based on the Supervisory Board’s decision, external experts are involved in the audit process, the Head of the Audit Directorate will prepared draft assignment agreement.

18.      The following need to be taken into account in the course of preparing audits:

a)         the target and program of any specific audit is developed in the stage of preparing for the audit based on the Supervisory Board’s resolution ordering the audit, with direction from the Supervisory Board member performing the audit.

b)         the major areas to be audited shall be specified by means of information and analysis during preparation.

c)         audits may be comprehensive, topical, target and follow-up audits. 

d)         the documents, official documents and statements required for audits must be requested for the audit from Council members and/or executive officers of MNV Zrt., by setting an appropriate deadline. In case of using an external expert, having regard to the valid internal regulations – the draft assignment agreement shall be prepared, which shall detail the tasks of the expert. The Chairman of the Supervisory Board must send this Draft Assignment Agreement to the Chief Executive Officer for signature.

 

19.   Audits must be conducted based on the official documents, documents and accounting documents made available as specified above, and it must be verified whether the contents of such documents are true and fair.

20.   The Chairman of the Council and the Chief Executive Officer must ensure the conditions for the audit, in the framework of which they must appoint a Contact Officer within the audited organisational unit.

21.    The Head of the Audit Directorate or the Audit Directorate member authorised to do so shall be entitled to:

a)         request information or statements related to the audit from the organisational units and/or persons designated in accordance with point 20 in connection with the audit, to hear the relevant person of necessary, and to look into the audited organisational unit’s documents associated with their audited transactions (in compliance with confidentiality rules);

b)         prepare copies or abstracts of documentation,

c)         to remove a copy of any original document certified by the party delivering the document and the Head of the Audit Directorate together, if necessary for the audit, in particular if there is reason to believe that the document may be falsified or destroyed.

22.   The person conducting the audit must determine his findings always having reward to effective legislation, as well as internal regulations and instructions made in compliance with legislation.

23.   The findings, the experience gained during the audit and proposals for eliminating deficiencies must be set out in writing in the form of a report.

24.   The audit report is the basic document of audits. The audit report may set out only findings that the person conducting the audit is able to properly substantiate by documents and statements. The audit report is deemed to be a draft until it is discussed by the Supervisory Board, which ordered the audit in a resolution, and approves it in a separate resolution.

25.   The draft audit report must be signed by the Supervisory Board member(s) leading the audit, the Audit Manager conducting the audit and the Head of the Audit Directorate. The draft audit report prepared shall be submitted to the Supervisory Board meeting for decision-making by the Supervisory Board member assigned to lead the audit according to the work plan. The Supervisory Board decides on the approval and further fate of the audit report in a resolution.

26.      The audit report includes:

a)         the facts emphasised for the purpose of evaluating the issues audited; the findings must be grouped in a sequence by importance in a way so that the facts are explained one after the other to provide a comprehensive evaluation of the activities of the audited organisational unit or the subject matter of the audit,

b)         the error(s) found and their consequences as well as the general conclusions that may be drawn,

c)         if the audit finds any regularity that caused financial damage, in addition to determining the amount of the damage, the possibility of holding specific persons accountable must also be investigated,

d)         proposals for eliminating errors and possible accountability; in addition to the substantial deficiencies, the major components that act in favour of development, correct initiatives and all significant external circumstances and affected the occurrence of errors must be recorded.

 

27.     The experience gained during the audit – by setting out only the substantial findings – must be summarised in a way so that:

a)         the report explains – in addition to the errors and deficiencies reported – the nature of omissions, their causes inherent in the system and the circumstances prompting the omissions are apparent;

b)         positive facts and solutions to be encouraged should also be properly emphasised;

c)         the summary should offer a full and fair picture of the audited organisational unit’s work done in the audited area or the given topic including changes compared to the period last audited;

d)         the facts established in the audit report should be true and fair, and financial documents may be attached to report to ensure this if necessary.

 

28.     In the event that personal accountability arises:

a)         the relevant part of the report discussed and approved in a resolution by the Supervisory Board must be sent to the person(s) indicated as accountable persons in the report together with the liability clause. (Annex).

b)         the addressee of the clause must return the close after signing to the Audit Directorate within eight workdays of receipt.

c)         by signing the clause, the person concerned testifies that he is aware the contents of the report and makes a statements on whether he recognises his accountability. At the same time, he may make comments and submit evidence. If the person concerned fails to receive the document or to sign the clause, this must be recorded on the document.

d)         the signed liability clause and any comments on it made by the person conducting the audit must be attached to the report approved earlier by the Supervisory Board in a resolution.

e)         this supplemented report must be submitted to the Supervisory Board again for a final position. If the need for determining liability under civil law, labour law or criminal law of the person concerned arises, the Supervisory Board shall decide on further actions to be taken in a separate resolution, and will send this resolution to the parties concerned as set out in its procedures.

 

29.   Based on the findings and proposals set out in the audit, measures shall be proposed and taken as follows:

a)         the Head of the Supervisory Board sends the audit report discussed and approved in a resolution by the Supervisory Board to the Chairman of the Council and the Chief Executive Officer of MNV Zrt. – by way of the Audit Directorate – for written comments.

b)         within the deadline specified by the Chairman of the Supervisory Board in writing for the audit report distributed according to paragraph a), the Chairman of the Council and/or the Chief Executive Officer may make written comments to the Chairman of the Supervisory Board and the Supervisory Board. The comments shall include any different technical position concerning the audit, as well as any other comments and proposals.

c)         if justified by the contents of the audit report – in particular if a more severe case of personal accountability arises, and also if the organisation unit concerned by the audit contests the findings – the Supervisory Board member(s) responsible for the audit shall propose a reconciliation meeting. The Supervisory Board member responsible for the audit, the Head of the Audit Directorate, the Chairman of the Council and/or the representative of the organisational unit concerned by the audit designated by the Chief Executive Officer, and parties directly concerned by the audit attend the reconciliation meeting. Other persons may be involved in reconciliation as necessary.

d)         a memorandum must be prepared about the reconciliation meeting, which shall contain the different positions of those in attendance concerning the audit, as well as the agreed final position concerning the findings and proposals set out in the audit report. The Supervisory Board member leading the audit again submits the report together with the memorandum to the Supervisory Board for a resolution.

 

30.    The audit report may be deemed to be finalised if:

a)         the commenting procedure described in point 29 a) took place by the relevant deadline and the rules no need to hold a reconciliation meeting,

b)         no comments were made within the deadline set,

c)         if a reconciliation meeting took place, the report has been supplemented based on the memorandum taken about the reconciliation meeting, in a resolution of the Supervisory Board.

 

31. The Chairman of the Supervisory Board sends the finalised audit report to the Exerciser of Shareholder Rights and the Chairman of the State Audit Office for information. The finalised audit report must also be sent to the Chairman of the Council and the Chief Executive Officer for information or for further action if necessary.

32. Based on a proposal from the Audit Directorate, the Supervisory Board approves the rescheduling of audit tasks included in the semi-annual or annual work plan in a resolution.

Chapter IV
Rights and obligations of the organisational units involved in audits

33.  The head of the organisational unit involved in the audit and/or the person(s) in connection with whom the issue of accountability arises are entitled to be informed about the findings set out in audit reports and to make comments on such findings according to the provisions of points 15 d), 28 and 29.

34.  The heads and staff of organisation units involved in audits must promote the unimpeded processing of audit by providing the necessary documents and information in full – within the areas in their powers – in accordance with the instructions of the Chairman of the Council and the Chief Executive Officer.

Chapter V
Cooperation between audit organisations

35.  Cooperation between the audit organisations operating independently within MNV Zrt’s organisations performing different functions – shall be governed by the agreed position of the Chairman of the National Holding Board and of the Supervisory Board of the Hungarian State Holding Company, the Chairman of the Supervisory Board of the National Land Fund and the Chief Executive Officer of MNV Zrt.

 

Chapter VI
Coming into force

The Supervisory Board has discussed this Audit Policy in its Meeting held on 11 March 2008 and adopted it in Resolution No. 12 /2008. (III.11.).

(signed)
Dr. Attila Borbély
Chairman of the Supervisory Board

 

I approve the procedure of the Supervisory Board on 12 December 2007 based on which I acknowledge the Audit Policy of Hungarian State Holding Company.

Budapest, 7 April 2008.

(signed)
(round seal: Minister of Finance)
Exerciser of Shareholder Rights

 

Annex

 

Accountability clause:

(name, title)

I, the undersigned ………………………………….. hereby declare that I am aware of the findings included in the report on the audit of ……………………………………… concerning my personal accountability. My comments on this: I recognise/ I do not recognise my liability.

I understand that I may make written comments – and ma specify and submit any written documentation and other evidence available to me – within 8 working days from the date written below.

Budapest, …………................. 2008

…………………………………..
                      signature