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DANONE
REGISTRATION DOCUMENT 2015
Corporate Governance
6.4 Internal control and risk management
290
6.4 INTERNAL CONTROL AND RISK MANAGEMENT
In accordance with Article L. 225-37 paragraph 6 of the French
commercial code, section 6.4
Internal control and risk management
represents the report of the Chairman of the Board of Directors on
the internal control and risk management procedures implemented
by Danone.
The Audit Committee examined this report of the Chairman of
the Board of Directors, which was then reviewed and approved by
Danone's Board of Directors on February 22, 2016, in accordance
with the law of July 3, 2008.
General organization of internal control
Internal control objectives and framework used
Internal control is a process put in place by Danone's General
Management, managers and operational teams. It is designed to
provide reasonable assurance, albeit not absolute certainty, that
the following main objectives are met:
•
reliability of financial information;
•
compliance with applicable laws, rules and internal policies;
•
effectiveness and efficiency of internal processes, including those
related to the protection of the Company's assets.
Danone's internal control framework: DANgo
Danone's internal control system is adapted to its strategic policies
and consistent with its international development. The internal
control framework developed and used by Danone, DANgo (Danone
Governing and Operating Processes), is based on the reference
framework proposed in 2007 by the French Financial Markets
Authority, together with its application guide, and updated in 2010.
This reference framework relates to risk management and internal
control procedures and describes the monitoring processes and
the preparation of accounting and financial information. This ref-
erence framework is consistent with the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) guidelines.
It was created in its present form in 2003 and greatly enhanced in
2005 and 2006 when Danone, a publicly traded corporation in the
United States at the time, was subject to the Sarbanes-Oxley Act.
It includes process mapping, Standard Operating Models, Danone
Operating Models and Danone Internal Control Evaluations. It is
reviewed annually (see section
Control environment
hereafter).
In addition, this DANgo framework is supported by a software
application of the same name accessible to everyone worldwide.
Scope of internal control
Danone's internal control system applies to all its fully consolidated
subsidiaries and to some associates. In the specific case of very small
or newly-acquired subsidiaries, a simplified framework focused
on the DANgo “fundamentals” has been created to facilitate their
integration and development and to ensure appropriate control of
their financial and accounting processes.
During fiscal year 2015, 176 entities located in approximately 60
different countries and representing more than 99% of Danone's
consolidated net sales were evaluated under its internal control
system, including 44 entities using the framework focused on
“fundamentals” controls.
Internal control participants
General Management
General Management is responsible for Danone's internal control
system, while the Audit Committee is responsible for monitoring the
effectiveness of Danone's control and risk management systems
(see section 6.1
Governance bodies
). To this end, General Management
relies on the Finance Department and the operational reporting
lines (Divisions, regions, business lines, subsidiaries).
Company Finance Department
The Company Finance Department is responsible for the Finance
function within the entire Group, both directly through centralized
functions (Financial Control, Consolidation, Reporting and Standards,
Treasury and Financing, Tax, Strategy, Financial Communication,
Acquisitions, Corporate Legal) and, through functional ties, with
the finance directors of the various Divisions.
The Finance Department is also responsible for risk management,
internal control and internal audit, which enables a focus on cor-
porate governance and compliance-related topics.
The Chief Financial Officer, who reports to the Chief Executive
Officer, is a member of the Executive Committee. The main heads
of the Finance functions and Divisions are members of an Executive
Finance Committee, which meets monthly.
Risk management
Since 2013, Danone has organized its risk identification and risk
management system around two complementary processes:
•
identification and management of operational risks, under the
responsibility andmonitoring of the Internal Control Department;
•
identification andmanagement of strategic risks, under the respon-
sibility and monitoring of the Financial Controlling Department.
The process of identifying andmanaging Danone's risks is described
hereafter in section
Risk identification and assessment
.
Financial Controlling department
Part of the Company Finance Department, the Financial Controlling
Department is responsible for identifying and monitoring strategic
risks. In particular, it oversees Danone's strategic risk identification
and monitoring process. It is supported by several other teams,
particularly Danone's operational teams, through various internal
committees, including the Risks Executive Committee, and for the
Finance business line, through the finance directors of the Divisions
and regions (see section
Organization of the finance function
hereafter).
Internal Control Department
Part of the Financial Controlling Department, the Internal Control
Department is composed of a five-member central team, which is
supported by (i) an Asia-Pacific regional manager, and (ii) a large
network of local internal controllers who generally report to the
finance directors of the subsidiaries. These internal controllers
ensure that the procedures defined by the Group are properly applied
at their entities and organizations.
The Internal Control Department'smain responsibilities are as follows:
•
preparing and implementing DANgo, the Danone's internal
control framework;
•
defining (i) priorities related to internal control, and (ii) the
methodology to be used for self-assessment, its testing and
documentation;