Learn about the Audit Committee Charter the Blue KC Board of Directors has approved.
Blue Cross and Blue Shield of Kansas City (Blue KC)
Audit Committee Charter
Approved by the Board on September 11, 2002
Amended on November 13, 2002; on May 12, 2004; and on April 26, 2005
Reaffirmed by the Board on May 18, 2005
Amended by the Audit Committee on April 25, 2006
Reaffirmed by the Board on May 17, 2006
Amended by the Audit Committee on April 18, 2007
Amended and Reaffirmed by the Board on May 16, 2007
Reaffirmed by the Board on May 14, 2008
Amended and Reaffirmed by the Board on May 13, 2009
Amended and Reaffirmed by the Board on May 12, 2010
Purpose
The Audit Committee derives its authority from the Bylaws of the Corporation, which provide the primary responsibilities of the Audit Committee shall be to:
- Meet periodically with the Corporation's internal and external auditors to discuss the fiscal integrity of accounts and quality of financial administrative controls; and the financial and statutory reporting.
- Directly appoint, retain, compensate, oversee, evaluate and terminate any public accounting firm retained as the Corporation's auditor;
- Meet with inside auditors and compliance officer on a regular basis and assist with Board oversight of the Corporation's compliance with legal and regulatory requirements.
- The Audit Committee will be the venue to provide an open avenue of communication among the independent auditor, financial and senior management, the internal auditing department and the Board of Directors.
Authority
The Audit Committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to:
- Retain outside counsel, accountants, or others, without seeking Board approval, to advise and assist the Committee as it determines necessary to carry out its duties;
- Seek any information it requires from employees, all of whom are directed to cooperate with the Committee's requests or external parties; and
- Meet with the Corporation's officers, external auditors, or outside counsel, as necessary.
Composition
The Audit Committee will consist of at least three members of the Board of Directors and shall not include the President and Chief Executive Officer. The Chairman of the Board shall be an ex-officio member of the Audit Committee. Members of the Audit Committee, except for its Chairman, shall be appointed by the Chairman of the Board with ratification by the Board at the next regular or special meeting following the Annual Meeting. The Governance Committee shall nominate a member of the Board of Directors for election as Chairman of the Audit Committee but any director may also nominate a director for that office. Such nominations shall be submitted to the Corporate Secretary not later than two (2) weeks before the regular Board meeting immediately preceding the Annual Meeting of the Board. The Board of Directors shall make the final election of the Chairman of the Audit Committee. Each Audit Committee member must be Independent, as defined in the Blue KC Code of Corporate Governance, and financially literate. At least one member shall have accounting or related financial management expertise. The specific qualifications and standards for Audit Committee members are specified in Exhibit A.
Meetings
The Audit Committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. All Audit Committee members are expected to attend each meeting, in person. Occasional participation via tele- or video-conference is permitted; however, due to the complexity and potential sensitivity of issues discussed, in-person attendance is expected. The Audit Committee will invite members of management, auditors, or others to attend meetings and provide pertinent information, as necessary. It will hold executive sessions with external auditors and internal auditors. Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials. Minutes will be prepared.
Responsibilities
The Committee will carry out the following responsibilities:
1. Financial Statements and Critical Accounting Issues
a. Review significant accounting and reporting issues, including complex or unusual transactions and highly judgmental areas, and recent professional and regulatory pronouncements, and understand their impact on the financial statements.
b. Review with management and the external auditors: 1. Periodically the progress of the audit; and 2. Upon completion of the audit, the results of that audit, including any difficulties encountered.
c. Review with management and the external auditors the annual audited financial statements and consider whether they are complete, consistent with the knowledge of the Audit Committee and information given to the Audit Committee, and reflect appropriate accounting principles.
d. Review with management and the external auditors all matters required to be communicated to the Audit Committee, under Generally Accepted Auditing Standards.
e. Understand how management develops interim financial information, and the nature and extent of internal and external auditor involvement.
f. In discussions with management and the independent auditors, identify and assess the accounting policies of the Corporation which management, the independent auditors and the Audit Committee deem the most critical and which involve the most complex, subjective or ambiguous decisions or assessments, and in connection therewith: 1) Evaluate any significant change in the critical accounting policies, or proposals for change in those policies, that may have a significant impact on the financial statements; and 2) Evaluate the judgments and uncertainties affecting the application of the critical accounting policies, the impact of those policies on the financial statements, the effect changing conditions may have on the impact of those policies, and the likelihood that materially different financial results would be reported under different conditions or using different assumptions.
g. Discuss and review the appropriate release of financial information.
2. Internal Control
a. Consider the effectiveness of the Corporation’s internal control over annual and interim financial reporting, including information technology security and control.
b. Understand the scope of internal and external auditors' review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management's responses.
3. Internal Audit
a. There shall be a clear understanding that the internal auditors are ultimately accountable to the Audit Committee and the Board of Directors.
b. Review with management and the internal audit director the charter, plans, activities, staffing, and organizational structure of the internal audit function.
c. Ensure there are no unjustified restrictions or limitations, and review and concur in the appointment, replacement, or dismissal of the internal audit director.
d. Review the effectiveness of the internal audit function.
e. On a regular basis, meet separately with the director of internal audit to discuss any matters that the Committee or internal audit believes should be discussed privately.
f. Review Executive Summaries of material reports issued by the internal audit department and assess the adequacy of same.
4. External Audit
a. The Audit Committee shall be solely and directly responsible for the appointment, compensation, termination and oversight of the independent auditors. Audit Committee shall discharge its duties with respect to independent auditors in accordance with the following provisions and the guidelines set forth in Exhibit B.
b. There shall be a clear understanding with management and the independent auditors that the independent auditors report directly to and are ultimately accountable to the Audit Committee and the Board of Directors.
c. Review the external auditors' proposed audit scope and approach, including coordination of audit effort with internal audit.
d. Annually review the performance of the external auditors.
e. At least annually, obtain and review a report by the independent auditor describing: the firm's internal quality control procedures; any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more audits carried out by the firm, and any steps taken to deal with any such issues.
f. Review and confirm the independence of the external auditors by obtaining annual statements from the auditors on relationships between the auditors and the company, including non-audit services, and discussing the relationships with the auditors.
g. On a regular basis, meet separately with the external auditors to discuss any matters that the Committee or auditors believe should be discussed privately.
h. Review with external auditor any problems or difficulties the auditor may have encountered in the course of the audit, including any restrictions on the scope of activities and access to information or any disagreements with management, and management's response.
i. Approve the fees to be paid to the external auditors for audit services.
j. Approve the retention of the independent auditor for any non-audit services and the fee for such services.
5. Compliance
a. Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management's investigation and follow-up (including disciplinary action) of any instances of noncompliance.
b. Review the findings of any examinations by regulatory agencies, and any auditor observations.
c. Review the process for communicating the code of conduct to company personnel, and for monitoring compliance therewith.
d. Obtain regular updates from management, company legal counsel and the Company's compliance officer regarding compliance matters.
e. Management is directed to establish an internal "Hot Line" resource to the Audit Committee as an additional avenue of complaint disclosure, and to ensure the availability of this resource is suitably published to the employees.
f. Management is further directed and admonished to ensure the "no retaliation" requirements specified in certain "whistle blower" laws is strictly adhered to.
g. The Audit Committee is empowered to investigate and dispose of reported compliance matters, as it deems appropriate.
h. In matters of compliance, the Audit Committee members are specifically reminded of the duty to maintain anonymity of complaint source.
6. Enterprise Risk Management
a. Provide oversight for the establishment and ongoing development of Enterprise Risk Management processes to identify and manage key business risks across the Corporation.
b. Review reports from management regarding the Corporation's portfolio of key business risks and associated risk management activities.
7. Reporting Responsibilities
a. Regularly report to the Board of Directors about Audit Committee activities, issues, and related recommendations.
b. Provide an open avenue of communication between internal audit, the external auditors, and the Board of Directors.
c. Review any other reports the Corporation issues that relate to Audit Committee responsibilities.
8. Other Responsibilities
a. Perform other activities related to this charter as requested by the Board of Directors.
b. Through management and the external auditors, stay informed on emerging issues that may apply to the financial disclosures and to the critical accounting policies of the Corporation.
c. Review with management any correspondence with regulators of governmental agencies and any employee complaints or published reports which raise material issues regarding the Corporation’s financial statements or accounting policies.
d. Review with the Corporation’s General Counsel: 1. Legal matters that may have a material impact on the Corporation’s financial statements, accounting policies, compliance policies; and 2. Any material reports or inquiries received from regulators or governmental agencies.
e. Institute and oversee special investigations as needed.
f. Review and assess the adequacy of the Audit Committee charter annually, requesting Board approval for proposed changes.
g. Confirm annually that all responsibilities outlined in this charter have been carried out.
h. Evaluate the Audit Committee's performance on an annual basis.
i. Establish the Corporation’s hiring policies for employees or former employees of the independent auditors.
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Corporation’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor.
Audit Committee Charter
Exhibit A
Audit Committee Qualifications and Compensation Policy
Approved by the Board of Directors on May 12, 2004
Amended by the Board of Directors on May 16, 2007
The following qualifications and standards shall apply to members of the Blue Cross and Blue Shield of Kansas City ("Blue KC") Audit Committee:
1. Independence
All members of the Blue KC Audit Committee must be Independent Directors, as defined in the Blue KC Code of Corporate Governance. In addition, members of the Blue KC Audit Committee may not, other than in their capacity as a member of the Audit Committee, the Board of Directors, or any other board committee:
a. Accept any consulting, advisory, or other compensatory fee from Blue KC; or
b. Be an affiliated person of the Corporation or any subsidiary. (An “affiliated person” is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the Corporation.)
2. Financial Expertise
Each member of the Audit Committee must be financially literate; as such qualification is interpreted by the Board of Directors in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. In addition, at least one member of the Audit Committee must have accounting or related financial management expertise, as the Board of Directors interprets such qualification in its business judgment. In making such a determination, the Board shall consider whether a person has, through education and experience as a public accountant or auditor or a principal financial officer, comptroller or principal accounting officer, or from a position involving similar functions:
a. An understanding of generally accepted accounting principles and financial statements;
b. Experience in the preparation or auditing of financial statements of generally comparable companies; and, the application of such principles in connection with the accounting for estimates, accruals, and reserves;
c. Experience with internal accounting controls; and,
d. An understanding of audit committee functions.
3. Service on Other Committees
Because of the Audit Committee's demanding role and responsibilities, and the time commitment attendant to committee membership, each prospective Audit Committee member should evaluate carefully the existing demands on his or her time before accepting this important assignment.
If an Audit Committee member simultaneously serves on the audit committees of more than three non-charitable organizations, and the Corporation does not limit the number of audit committees on which its audit committee members serve, then in each case, the Board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the Audit Committee.
4. Compensation
Director's fees are the only compensation an Audit Committee member mayreceive from Blue KC.
An Audit Committee member may receive their director's fee in cash or other in-kind consideration ordinarily available to directors, as well as all of the regular benefits that other directors receive.
Disallowed compensation for an Audit Committee member includes fees paid directly or indirectly for services as a consultant or a legal or financial advisor, regardless of the amount. Disallowed compensation also includes compensation paid to such a director's firm for such consulting or advisory services even if the director is not the actual service provider. Disallowed compensation is not intended to include ordinary compensation paid in another customer or supplier or other business relationship that the Board has already determined to be immaterial for purposes of its basic director independence analysis.
Audit Committee Charter
Exhibit B
External Auditor Policy
Approved by the Board of Directors on May 12, 2004
Amended by the Board of Directors on May 16, 2007
The Audit Committee shall discharge its duties with regards to external auditors in accordance with the Audit Committee Charter and the following guidelines, as well as any others it may adopt from time to time.
1. Selection of Audit Firm:
The Audit Committee shall comply with the following additional criteria when selecting an audit firm as the independent auditor:
a. Registered Firms: The Audit Committee shall only retain firms that are r egistered with the Public Company Accounting Oversight Board.
b. Audit Partner Rotation: The Audit Committee shall not obtain audit services from a firm if the partner or other person responsible for rendering a report has acted in such capacity for Blue KC for more than five (5) consecutive years. Such an individual shall be disqualified from acting in that or a similar capacity for the Corporation for a period of five (5) years.
c. Former Firm Employees: The Audit Committee shall not obtain audit services from a firm if a Blue KC Director, chief executive officer, chief financial officer, controller, chief accounting officer, general counsel, director of internal audit, director of financial reporting (or any person serving in an equivalent position for the Corporation or ny person they organizationally report to) was employed by that accounting firm and participated in any capacity in the audit of the Corporation during the one-year period preceding the date of the initiation of the audit.
2. Audit Services:
Pre-approval of audit services: All auditing services (including letters in connection with statutory audits required for insurance companies for purposes of state law) and non-audit services must be pre-approved by the Audit Committee, except as specified below.
Exception: The Audit Committee may consider the pre-approval requirement to be waivable with respect to non-audit services, in the following circumstances:
a. The aggregate amount of all such non-audit services constitutes not more than five (5) percent of the total amount of revenues paid by the Corporation to its auditor during the fiscal year in which the non-audit services are provided;
b. Such services were not recognized by the Corporation at the time of the audit engagement to be non-audit services; and
c. Such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee to whom authority to grant such approvals has been delegated by the Audit Committee.
3. Non-Audit Services:
The following non-audit services may not be obtained from the Corporation's independent auditor:
a. Bookkeeping or other services related to the Corporation's accounting records or financial statements;
b. Financial information systems design and implementation;
c. Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
d. Actuarial services involving the determination of amounts recorded in the Corporation's financial statements. The audit firm may provide other actuarial services including, but not limited to: actuarial opinions, accounting conversion projects, financial modeling and measurement, risk exposure determinations, asset liability management, pricing and reserve analysis;
e. Internal audit outsourcing services;
f. Management functions or human resources services;
g. Broker or dealer, investment adviser, or investment banking services;
h. Legal services and expert services unrelated to the audit; and
i. Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-Approval of Non-Audit Services: The Corporation may engage its independent auditor to perform other non-audit services, including tax services, that are not described in (a) through (i) above, provided that the Audit Committee approves such service in advance. The Audit Committee Chairman is authorized to pre-approve non-audit services up to $50,000 and shall report such items in the next regularly scheduled Audit Committee meeting.
4. Required Reports:
Each public accounting firm that performs any audit shall timely report to the Audit Committee:
a. All critical accounting policies and practices to be used;
b. All alternative treatments of financial information within generally accepted (or statutory, as applicable) accounting principles that have been discussed with the Corporation's management, ramifications of the use of such alternative disclosure and treatments, and the treatment preferred by the registered public accounting firm; and
c. Other material written communications between the registered public accounting firm and the Corporation's management, such as any management letter, client representation letter, or schedule of unadjusted differences.
5. Periodic Review and Rotation of Audit Firm:
In addition to evaluating the current accounting firm at least annually, the Audit Committee shall also conduct a review of the audit firm in the following situations:
a. Periodic Thorough Evaluation: The Audit Committee shall perform a thorough evaluation and review of the audit firm at least every five (5) to seven (7) years. The Audit Committee may decide to consider other public accounting firms as part of this evaluation and review.
b. Audit Firm Rotation: The Audit Committee should also consider changing audit firms when there is a confluence of circumstances that could put into question the audit firm's independence. The Audit Committee should consider rotating audit firms in the following circumstances: (1) the audit firm has been employed by the Corporation for a substantial period of time; (2) one or more former partners or managers of the audit firm are employed by the Corporation; or, (3) significant non-audit services are provided to the Corporation - even if they have been approved by the Audit Committee.