Internal Control Mechanism

To support the Board in the discharge of its functions, primarily on internal controls, material RPTs, and other key corporate governance matters, it is the policy of the Globe Group to constitute and maintain a competent and working ARC in fulfilling their oversight responsibility to the shareholders relating to: 

• Financial statements and disclosures, financial reporting principles, process, policies, and systems;
• Internal Controls;
• External/independent auditors;
• Internal Audit (IA) function; and
• Compliance with relevant legal, regulatory, and corporate governance requirements

Management, however, has primary responsibility for financial statements and disclosures, financial reporting process, internal controls, legal and regulatory compliance, and risk management.

The ARC Charter approved by the Board defines clearly the roles and responsibilities of the ARC.

The ARC is composed of four (4) directors, three (3) are independent and non-executive, including the Chairman. The Board appoints all members of the Committee.

The ARC meets at least four (4) times during the year and invites the President and Chief Executive Officer (CEO), Chief Finance Officer (CFO) and concurrently the Treasurer and Chief Risk Officer (CRO), external auditors, internal auditors, and other members of management, as needed, based on the meeting agenda.

During these meetings:

• The Committee reviews the financial statements and all related disclosures and reports prepared and presented by the CFO and released to the public and/or submitted to the SEC for compliance with both the internal financial management handbook and pertinent accounting standards, including regulatory requirements. The Committee, after its review of the quarterly unaudited and annual audited consolidated financial statements of the Globe Group, including key audit matters, endorses these to the Board for approval. The Board of Directors, in turn, reviews, approves, and affirms the true and fair representation of the annual audited consolidated financial statements and presents the same in the Annual Stockholders’ Meeting (ASM).
• The Committee approves the work plan of Globe Internal Audit (IA), as well as the overall scope and work plan of the external auditors. The Committee meets with the internal auditors and external auditors to discuss the results of their audits, ensuring that management is taking appropriate corrective actions on internal control issues and areas for improvement in a timely manner.
• The Committee ensures tenders for external audit services are conducted every five (5) years, or when the need arises, as decided by the ARC. The Committee recommends the appointment, retention, or discharge of the external auditors, reviews audit fees or the remuneration of the external auditors, and endorses to the full Board. The Board, in turn, submits the appointment of the external auditors and audit fees for approval of the stockholders at the ASM. The amount of audit fees is disclosed in this Integrated Report.
• The Committee reviews the external auditor’s performance and assesses the external auditor’s qualifications, skills, resources, effectiveness, and independence. To limit the possible risk of impairment of independence, the Committee also reviews and approves in advance, audit vs. non-audit services performed by the external auditors, and the corresponding fees paid, in relation to the SEC regulation on “permitted” vs. “not permitted” services and the significance of the fees to the external audit firm’s total service revenues and Globe’s total consultancy expenses, respectively.
• The Committee assesses the adequacy and effectiveness of the internal audit function by reviewing and approving Globe IA’s scope of work, authority, independence, compliance to professional standards, reporting relationships, key responsibilities, and changes in their work plan.
• The Committee reviews the results of management’s annual risk assessments based on reports provided by CRO covering information on risk exposures and risk management activities, and as supported by the results of internal audit reviews.
• The Committee reviews and discusses with management, the internal and external auditors; and reports annually to the Board of Directors, the adequacy and effectiveness of the company’s internal controls in all material respects.
• The Committee assesses, reviews, approves and discloses all covered and material RPT defined in Globe’s RPT Policy, including write-off of exposures, policies on conflicts of interest (COI) or potential COI to the Board of Directors and ensures appropriate disclosure. Likewise, the Committee oversees the implementation of the system for identifying, monitoring, measuring, controlling, and reporting RPTs, and periodically reviews RPT policies and procedures. All relevant RPTs were reported to, reviewed, and approved by the ARC last February 7, 2022. All RPTs are done at arm’s length and in accordance with the RPT policy. For a disclosure of the RPTs, please refer to the 2021 Audited Consolidated Financial Statements.

The overall responsibility over our risk management oversight rests with the Board of Directors. Various Board committees have been designated with oversight for specific risk areas. The Executive Committee has oversight on corporate strategic risks, technology, and operational risk management, putting in place the infrastructure for risk management systems that assess risks on an integrated cross-functional approach; reviews and assesses the adequacy of our strategic, technology, and operational risk management processes, jointly with Management. The Finance Committee oversees our financial risk management, including risks related to capital structure, acquisitions, and divestments, treasury activities, tax strategy, and compliance. The ARC provides oversight of the financial reporting and operational risks specifically on financial statements and reporting, internal controls, legal and regulatory compliance, corporate governance, fraud risks, and related party transactions. The Board Risk Oversight Committee (BROC) assists the Board in fulfilling its oversight responsibilities in relation to Risk Governance in Globe. The CRO provides the BROC with periodic reports on risk exposures and risk management activities by management, while Globe IA provides reasonable assurance on the effectiveness of internal controls and compliance systems and processes.

The ARC reports regularly to the Board of Directors on our internal controls, material RPTs, compliance, and other key corporate governance matters.

With guidance provided by the Board, management remains primarily responsible for the development and implementation of risk management strategies, policies, and systems.

The ARC reports after each meeting and provides a copy of the minutes of its meetings to the Board. To ensure compliance with regulatory requirements and assess the appropriateness of the existing Charter for enabling good corporate governance, the ARC also reviews and assesses the adequacy of its Charter annually, seeking Board approval for any amendments. The most recent Charter review and assessment was done on November 8, 2021 and the ARC approved the retention of the existing Charter (approved by the Board on November 11, 2021).

To ensure the ARC effectively fulfills its responsibilities according to global best practices and expectations set out in the approved Charter, Globe’s Manual of Corporate Governance, SEC Memo Circular No. 4 (Series of 2012), ACGS and SEC Memo Circular 19 (Series of 2016) or Code of Corporate Governance for Publicly-Listed Companies, the Committee conducts an assessment of its performance and undergoes training, at least annually. The results of the assessment and any ensuing action plans are reported to the Board. On an annual basis, the President and CEO, CFO, and Chief Audit Executive (CAE) provide a written certification to the ARC confirming the reliability of financial statements for the year; full compliance with financial, legal, and regulatory requirements and reporting; attestation on Globe’s sound internal controls and compliance system; and confirmation that the CAE reports functionally to the ARC and administratively to the CEO allowing IA to independently fulfill its responsibilities.

The establishment of an IA function is a fundamental part of Globe’s corporate governance practices and policies. An IA Charter, approved by the ARC/Board, establishes the mission, scope of work, authority, independence, compliance to professional standards, reporting relationships, and key responsibilities of the internal audit function.

IA is a service, providing an independent and objective assurance and consulting function within Globe that shares our common goal of creating and enhancing shareholder value and improving the Globe Group’s operations. This is done through a systematic, disciplined, and risk-based approach to evaluating and improving the effectiveness of risk management, control, and governance processes. Globe IA provides reasonable assurance to the Board, management, and stockholders, on the adequacy and effectiveness of controls encompassing the organization’s governance, operations, and information systems to include reliability and integrity of financial and operational information, effectiveness and efficiency of operations, safeguarding of assets, and compliance with laws, rules, regulations, and contracts.

To perform its auditing functions effectively, Globe IA maintains its independence from management and controlling shareholders by reporting functionally to the Board, through the ARC, and administratively, to the President and CEO. The ARC, having appointed the CAE, also concurs in his/her replacement, reassignment, or dismissal.

Working closely with the ARC, the CAE maintains an effective internal audit function by managing the entire operations and strongly supports the attainment of corporate objectives through coverage of the most critical processes in the conduct of risk-based assurance reviews. The CAE reports the results of audit reviews and other activities in a manner that helps management take appropriate action on identified risks/issues within a reasonable period of time. Management remains primarily responsible for resolving the risks/ issues. The CAE continuously improves the internal audit operating process and standards and ensures strict compliance with International Standards for the Professional Practice of Internal Auditing (the Standards) of the Institute of Internal Auditors (IIA) and ensures alignment with global best practices. Among other responsibilities, the CAE strengthens the leadership and talent bench, uplifts performance management, and manages internal costs. 

Globe IA maintains, reviews, and assesses the adequacy of its Charter annually to ensure conformance with the Standards and SEC regulations. The result of the periodic assessment and any arising revisions are reviewed and approved by the ARC, with concurrence by the Board. The latest Charter review and assessment was done on November 8, 2021 and the ARC approved the retention of the existing Charter (approved by the Board on November 11, 2021).

Globe IA governs its internal audit activities in conformance with the IIA’s Code of Ethics and Globe’s Code of Conduct. The CAE is responsible for overall conformance with the Standards. To assess whether the purpose, authority, and responsibility of internal audit, as defined in the IA Charter, continue to be adequate and effective in enabling the internal audit function, the CAE develops, maintains, and communicates an appropriate and effective quality assurance and improvement program (QAIP) that covers all aspects of internal audit reviews and activities. The ARC also receives periodic reports on the status of internal audit activities, achievement of key performance indicators, and QAIP. Globe IA periodically undergoes an independent external Quality Assurance Review (QAR) to ensure consistent conformance with the Standards. The last external QAR was done in 2018, where Globe IA obtained “Generally Conforms,” the highest rating that can be given in an external QAR process. The Standards require an external assessment at least once every five (5) years.

Globe IA adopts a risk-based audit approach in developing its annual work plan ensuring that risks, mapped to eTOM (enhanced telecommunications operations map) based processes, with integrated risk assessments for processes across the enterprise, are captured in the audit universe. Globe IA’s annual work plan is reassessed periodically and adjusted accordingly based on the Globe Group’s risk profile and audit universe, including new or emerging risks, business trends, changes, and initiatives, thereby allowing maximum and timely coverage of key/critical risk areas. The ARC reviews and approves the annual work plan and all deviations. The ARC also ensures that audit resources are allocated adequately and focused on the areas of highest risks.

To promote excellence, Globe IA provides for continuing professional and personal development for all internal auditors to equip them in the conduct of reviews, with a focus on acquiring expertise on Globe’s business processes, network and IT systems, internal controls, new accounting and auditing standards, data analytics and regulatory updates. The audit team is composed of professionally certified accountants, internal auditors, IT and information security auditors, licensed engineers, data experts, and controls self-assessor, among others. In addition, Globe IA has been actively participating in Ayala Group and Singtel Internal Audit Networks and learning from international knowledge and thought experts to benchmark and adopt leading-edge global best practices on methodology, process improvement, and audit tools for digitalization to develop a team of world-class, multiskilled, internal audit professionals.

To keep up with the dynamic risk environment and rapidly changing regulatory and industry requirements, Globe IA has also adopted technology-driven audit processes such as Continuous Auditing, Robotics Process Automation and Simple, Digital, and Agile auditing, among others, to improve overall audit efficiency and enhance organizational value.

Globe IA also continuously facilitates self-assessment activities among various business groups to aid management and to foster increasing control awareness and maturity at Globe. 

The ARC regards IA as a vital support in the effective discharge of the Committee’s oversight role and responsibilities. 

Amidst the COVID-19 situation, IA continues to maximize the use of relevant technology to fully deliver its work plan and carry out its mandate through work-from-home arrangements, identification and assessment of the Globe Group’s emerging risks, high-level analysis of business impact and corresponding management initiatives and responses to provide reasonable assurance to the Board, stockholders, and other stakeholders that such risks are effectively addressed by Management.

The ARC ensures that Globe has set appropriate policies and processes that strengthen the external auditor’s independence and improve its audit quality. The external auditors are directly responsible to the ARC in helping ensure the integrity of the company’s financial statements and reporting process.

The last tender bid process for the external auditor’s annual statutory audit was conducted in Q2 2019. The ARC Charter requires bid tenders every five (5) years or as the need arises, as decided by the ARC. Annually, the company conducts an external auditors’ performance appraisal. From the results, the ARC evaluates and proposes to the Board for endorsement and approval of the stockholders, and the appointment of the external auditors. The endorsement is presented to the stockholders for approval at the ASM. Representatives of the external auditors are expected to be present at the ASM to have the opportunity to make a statement on the company’s financial statements and results of operations and be available to respond to appropriate questions during the meeting.

In line with Globe Telecom’s Manual of Corporate Governance, the ARC has an existing policy to review and pre-approve the audit and non-audit services rendered by Globe Group’s external auditors. It does not allow the Globe Group to engage the external auditors for non-audit services prohibited expressly by SEC regulations to be performed by external auditors for its audit clients. This is to ensure that the external auditors maintain the highest level of independence from the Globe Group, both in fact and in appearance.

In its annual stockholders meeting last 25 April 2023, the shareholders appointed the accounting firm of IL/PwC, the Philippine member firm of the PwC global network, as the Independent Auditors of Globe Group for the calendar year 2023.

Fees approved in connection with the audit and audit-related services rendered by IL/PwC pursuant to the regulatory and statutory requirements for the years ended 31 December 2023 and 2022, amount to ₱19.87 million and ₱20.58 million, exclusive of 3% out-of-pocket expenses (OPE), respectively. In addition to performing the audit of Globe Group’s financial statements and audit-related services, IL/PwC was also contracted to provide non-audit services in accordance with established procurement policies. The aggregate fees billed by IL/PwC in 2023 are shown below with comparative figures for 2022:

¹Excludes 2023 and 2022 audit fees rendered by external auditors other than IL/PwC:
GT SG, ₱396K (₱405K in 2022) performed by Ardent Associates LLP
GT EU, ₱221K (₱186K in 2022) performed by Wellden and Turnbull LLP

• Audit Fees
  Audit Fees represent the audit of Globe Group’s annual financial statements and review of quarterly financial statements in connection with statutory and regulatory filings or engagements for the years ended 2023 and 2022. 
   
• Audit-Related Fees
  Audit-related Fees represent the services rendered related to Globe Group’s IT Solutions Companies’ restructuring and issuance of comfort letters and agreed-upon procedures on the offering circular and the company's application of increase in authorized capital stock. Audit-related fees in 2022 represent the issuance of the arrangement and comfort letter in relation to Globe's Stock Rights Offering. 
   
• Non-Audit Fees
  Non-audit fees represent the valuation services performed and the fixed fee for Globe’s whistleblowing reporting programs for the years ended 2023 and 2022.

 IL/PwC has confirmed to the Committee that the 2023 non-audit services rendered by them are allowed to be provided to an audit client under existing SEC regulations and the Code of Ethics of Professional Accountants in the Philippines and do not conflict with their role as Independent Auditors of the Globe Group.