SCI Systems, Inc.
Internal Audit Charter
dated July 30, 2000
Introduction
This Charter sets forth the overall terms of reference for the Internal Audit
function at SCI Systems, Inc. This document will be reviewed and approved by the
Chief Executive Officer, Chief Financial Officer and Audit Committee of the
Board of Directors on an annual basis.
Mission
The mission of the Internal Audit function is to enhance shareholder value by:
o promoting efficient and effective processes and controls which
effectively mitigate business risks and improve performance for the
global SCI organization; and
o performing activities which assist management in the safeguarding of
Company assets.
Strategy
Internal Audit's strategy is comprised of the following factors which are
critical to the function's success:
o Internal Audit activities will perform annually a global risk
assessment that will be completed with input from management and the
Board of Directors which ensures that the Internal Audit plan is
focused on those areas of greatest risk and importance to achievement
of the Company's business goals and objectives.
o Internal Audit's working methods will be simple, flexible and
well-understood by the function's customers. Whenever prudent and
possible, audit procedures will be enabled by automated tools to
improve the efficiency and productivity of the function.
o Internal Audit will report the results of its activities to management
and to the Audit Committee in a manner that ensures optimal benefit and
delivery of value to the Company.
o Internal Audit will encourage high standards of professionalism,
teamwork and communication skills within the function. Internal Audit
resources will be experts in business processes, internal control
framework, risk management concepts, and in their knowledge of SCI.
o Internal audit will recruit, train and develop individuals with long
term potential to progress within the function and the Company. In
those instances when third parties are utilized to supplement in-house
resources, these parties will be selected based on the quality of
professionals available on a cost-effective basis.
Roles and Responsibilities
The primary role of the Internal Audit function is to independently assess the
efficiency and effectiveness of significant business processes and the related
internal control environment. Internal controls include those systems,
procedures, and activities which have been established by management to manage
the business while minimizing risks, safeguarding assets and complying with
relevant laws and regulations.
Internal Audit's responsibilities include:
o identifying significant business risks which may impair the achievement
of organizational goals and objectives;
o identifying related financial, operational and technological controls
relating to those risks;
o determining whether intended controls are functioning as designed;
o providing objective analyses, information, evaluation and
recommendations relating to process improvement opportunities and
identified control deficiencies;
o reviewing compliance with SCI policies and procedures and relevant laws
and regulations;
o assisting management in the safeguarding of Company assets;
o providing advice and guidance related to the development and
implementation of Information Technology (IT) initiatives;
o communicating industry and internal SCI best practices to management;
and
o completing special projects and assignments
(e.g. acquisition due diligence) as requested by executive management
and the Board of Directors.
Scope, Status and Authority
The scope of Internal Audit's activities includes all entities, business
processes, and functions which comprise the global SCI organization. In order to
fulfill its responsibilities, the Internal Audit function has the authority to
access, without prior notice, all Company records, assets, activities and
employees. Scope restrictions will be reported to the Audit Committee and/or
Chief Financial Officer as determined necessary by the Manager of Internal
Audit.
The Manager of Internal Audit reports to the Chief Financial Officer and has
direct access to the Audit Committee of the Board of Directors. The Internal
Audit function is independent from the activities and operations which it
audits, including those for which the Chief Financial Officer has
responsibility.
Management's Responsibilities
To ensure independence, Internal Audit cannot be responsible for any activity
that it audits or the design and implementation of business processes and
related internal controls. Internal Audit assists management in the effective
discharge of its responsibilities by providing objective information, analyses,
appraisals, recommendations and counsel concerning the activities reviewed.
Operating management has responsibility for the internal control environment in
their areas of operation.
Planning
Internal Audit's plan will be based on the results of a global business process
risk assessment, which will be co-developed with management and members of the
Board of Directors. This risk assessment will be updated at least once every two
years to reflect changes in the Company's risk universe. The risk assessment
process will result in the creation of a one to two year audit plan which will
be reviewed and agreed to by the Chief Executive Officer and Chief Financial
Officer and submitted to the Audit Committee for final approval.
Once an approved audit plan has been established, senior management will be
notified of those audits planned for the next twelve months. Local management
and identified process owners will be given written notification of scheduled
audits approximately four weeks prior to the initiation of each such audits via
an engagement letter which outlines the objectives and scope of the planned
audits. During the opening meeting of each audit, the objectives, scope and
timing of the planned engagement will be further clarified with auditee
management.
Reporting
During the course of each Internal Audit engagement, local management and
business process owners will be kept apprised of the status of the engagement as
well as audit findings which are expected to be included in draft report. A
closing meeting will be held on the last day of each engagement at which time
the draft report, including Internal Audit's findings and recommendations for
improvement, will be presented and discussed. Auditee management will be
allotted time to document agreed-upon action plans and action dates to respond
to the audit findings. Upon receipt of management's responses to the audit
findings, the final report will be prepared and distributed by Internal Audit.
The goal of Internal Audit will be to issue each final report to responsible
local, regional and executive management within fifteen business days of
engagement completion.
On a quarterly basis, a summary report which highlights those audit findings of
greatest significance will be prepared for review by executive management and
the Audit Committee. In addition, on a quarterly basis an update will be
submitted to executive management and the Audit Committee which summarizes
Internal Audit's completion of those engagements as included in the audit plan.
On a half-year basis, auditee management will report to Internal Audit regarding
the status of progress made in addressing the audit findings included in each
final audit report. The results of this status update process will then be
summarized and communicated to Executive Management and the Audit Committee for
their consideration.
Communications with External Parties
Internal Audit will coordinate its activities with the Company's external
auditor as well as additional third party entities as dictated by executive
management and/or the Audit Committee of the Board of Directors. This will
relieve neither Internal Audit nor the external parties of their
responsibilities to the Company, but rather avoid unnecessary duplication of
work. This is most likely to take the form of shared audit plans, working papers
and inclusion in report distribution, as deemed appropriate.
APPROVAL OF INTERNAL AUDIT CHARTER
The terms of reference documented within this Charter have been approved by the
undersigned parties:
Mr. A.E. Sapp, Jr.
Chief Executive Officer
Mr. James E. Moylan, Jr.
Chief Financial Officer
Mr. Robert Tod
Chairman of the Audit Committee
Mr. Howard Callaway
Audit Committee Member
Mr. William Fruhan
Audit Committee Member
