Auditor’s Report on the Société générale de financement
Montréal, June 8, 2004 - The Société générale de financement du Québec (SGF) has received the report of the Québec Auditor General, that was tabled pursuant to the mandate that was entrusted with her in January 2004. The SGF took note of the findings contained in the report, and will take interest in its recommendations expressed in it.
"The SGF undertook a new mandate in May 2003 that entailed a restructuring of the organization, a rigorous assessment of the investment portfolio, a review of the investment plan, as well as the modification of several administrative policies and practices" said Mr. Roy, Chairman of the Board and CEO, "the report and recommendations of the Québec Auditor General will help us complete the reform of our management procedures."
In order to better control their resources, in July 2003, they created and staffed a new position as Manager of Internal Auditing, and several reports have been completed in accordance with the topics analysed in the Auditor General’s report.
The 2004 operating plan of the SGF, as approved by the Québec government, provides for the pursued rationalization of the SGF, internal financing, as well as drafting and tabling a new five-year plan in November 2004.
As for the specific recommendations of the Québec Auditor General’s report, the SGF intends to analyse them and follow up on them in the following context.
Expenses Undertaken in Studying Capital Investment Projects
The SGF agrees with the recommendations expressed in the report and has implemented several measures during the past year in view of tightening controls on expenses incurred in studying capital investment projects.
Since June 2003, the amount of expenses incurred in studying investment projects has been controlled more rigorously and considerably reduced.
The SGF has undertaken a retrospective review of investments jointly with an outside expert, and the financial analysis process has been reinforced and is now under the authority of the Investment Control and Evaluation Department.
The Project Management Department gets involved, right from the launching of any construction project related to an SGF investment. Also, a budget control process has been implemented under the responsibility of the Vice-President of Regional Planning and Development.
The SGF intends to review more extensively its expenditure allocation and management policy as regards investment project studies.
Allotment and Realization of Professional Services Contracts
The SGF intends to follow up on the Auditor General’s recommendations regarding the allotment and realization of professional services contracts.
Since August 2003, the SGF policy has been tightened and applies to all subsidiaries. The implementation of the process is being rigorously followed, and the number of mandates has been extensively reduced.
The SGF will complete its procedure and control review, in order to guarantee total compliance for its contract allotment policy.
Compensation of Senior Executives
The SGF takes notes of the Auditor General’s recommendations regarding its compensation policy, and intends to follow up on it as regards its policy review that will be completed in 2004.
The new SGF compensation policy will fully meet the company’s needs, while being fair to the employees.
A new variable compensation program with goals revolving rather on performance and the quality of investments has been approved in 2003 by the Board of Directors. Modifications to the profit-sharing plan were gradually implemented pursuant to the activity rationalization and reorganization process.
The new SGF compensation policy will specify that the calculation of bonuses will be strictly based on relevant investments.
Given the financial performance of the business in 2003, the Board of Directors has decided that no annual bonuses will be paid to senior executives of the company. These premiums will be payable if the SGF reaches the break-even point in 2004.
The SGF emphasizes that the variable compensation identified as being paid to executive employees of the SGF in 2003 represents in fact amounts due since December 2002, following the abolition of the senior executive integrated incentive earnings plan as well as other sums payable to employees who have left the company.
Entertainment and Travelling Expenses
The SGF is favourable to implementing the Auditor General’s recommendations concerning its entertainment and travelling expenses policy.
The new entertainment and travelling expense policy implemented in June 2004 will provide for integrating the recommendations, and its rigorous application has been placed under the responsibility of the Vice-President of Finance of the SGF. Furthermore, a complete action plan has been created to provide better monitoring of expenses related to capital investment projects, contract allotment and the compensation of executives.
For further information on the SGF audit report, do not hesitate to read the text available on the web site of the Québec Auditor General (www.vgq.gouv.qc.ca).
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Director, Communications and Public Relations
Société générale de financement du Québec