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The Group has an internal audit function which is carried out by the Internal Audit Services (IAS). The IAS reports functionally to the Audit Committee and administratively to the Chief Executive. Its principal activity is to assist the Board in monitoring and managing risks by undertaking regular and systematic independent reviews of the system of controls so as to provide reasonable assurance that such system continues to operate satisfactorily and effectively in the Group.

The Audit Committee reviews and approves the internal audit plan of the Group. The high risk activities are given due attention on a more regular basis while the rest are prioritized accordingly to an assessment of the potential risk exposure and impact. During the fnancial year ended 31 December 2010, the IAS carried out its duties covering audit on operational controls such as cash, credit and procurement review as well as compliance with the established procedures, guidelines and statutory obligations. Areas where internal control improvements could be made were identifed during the fnancial year. Appropriate corrective actions have either been made or in the process of being implemented.

Investigations were also made at the request of the Committee and senior management on specifc areas of concern to follow up in relation to high risk areas identifed in the regular reports. These investigations provided additional assurance on the integrity and robustness of the internal control systems.

The Internal Audit Services within its terms and reference carried out the following activities for the period:-

• reviewed and appraised the adequacy and integrity of the

internal fnancial controls so as to ensure that it provides a reasonable but not absolute assurance that assets are properly safeguarded;

• ascertained the effectiveness of the Management in

identifying principal risks and to manage such risks through the Risk Management Framework set-up by the Group;

• ascertained the level of compl iance wi th Group’s

plans, policies, procedures and adherence to laws and regulations;

• appraised the effectiveness of administrative and fnancial

controls applied and the reliability and integrity of data that is produced within the Group;

• performed follow-up reviews of previous audit reports to

ensure appropriate actions are implemented to address control weaknesses highlighted; and

• prepared the Audit Committee Report for the Company’s

Annual Report 2010.

The internal audit function is performed in-house and at the end of the fnancial year, the department has ten (10) staff members. A total of 77 audits were carried out and presented to the Audit Committee with the recommended corrective actions acted upon.

The total costs incurred in maintaining the internal audit function for the fnancial year 31 December 2010 was about RM900,000. Training and courses are provided to the staff members in the areas of auditing and technical skills as well as personal development. They are also encouraged to become Certifed Internal Auditors.

1 Seminar on Promoting the Corporate 25 March 2010 Governance Agenda – Raising the Bar by Minority Shareholders’ Watchdog Group.

2 Transformational Leadership

– A Passionate Passage 13 May 2010

7 KPJ Healthcare Medical Conference 27 – 28 – Clinical Leadership in Promoting November 2010 a Culture for Patient’s Safety.