offered to the Board members.
Finally, during the Board’s regular meetings, presentations are made to the directors on various aspects of the Caisse’s operations. Over the past year, these presentations con- cerned global imbalances and their impact on asset man- agement, investment analysis and optimization, and hedge fund management.
Report of the Audit
Committee
The Act to amend the Act respecting the Caisse de dépôt et
placement du Québec provides for the creation of an Audit
Committee. This committee, formed on May 18, 2005, replaces the previous Audit Committee.
Composition of the Committee
The Audit Committee consists of three independent members: Chairman: Claude Garcia
Members: Claudette Carbonneau and A. Michel Lavigne The Committee also has two guest members, Duc Vu and Pierre Prémont. The guest members attend the meetings of the Audit Committee and take part in the discussions, but may not constitute a quorum or vote.
In accordance with the rules of good governance, the Chairman of the Audit Committee does not sit on any other committee of the Caisse’s Board of Directors.
Number of meetings and attendance
The Audit Committee met six times in 2005, including four times after May 18. The members’ rate of attendance at the Committee meetings was 86%.
Director Meetings attended/total meetings
Claude Garcia 4 / 4
Claudette Carbonneau 4 / 6 A. Michel Lavigne 4 / 4 Pierre Prémont 4 / 4
Duc Vu 4 / 6
Accounting or financial expertise
The members of the Audit Committee all have the requisite experience and knowledge to understand the Committee’s mandate and to properly fulfill their role.
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They have the financial skills to understand the accounting principles used by the Caisse for its financial statements and to evaluate the general application of those principles. They also have relevant experience and the ability to read and understand financial statements presenting a degree of com- plexity generally comparable to that of the Caisse’s financial statements. The Committee members have the necessary skills to ensure that the internal control mechanisms are put in place and that they are sufficient and effective.
The Audit Committee has two accounting and financial experts, Claude Garcia and A. Michel Lavigne.
Mr. Garcia has completed the course requirements for a doctorate from the London School of Economics and Political Science. He is a Fellow of the Canadian Institute of Actuaries and the Society of Actuaries. He has extensive finance and business experience.
Mr. Lavigne is a member and a Fellow of the Ordre des comptables agréés du Québec. He has extensive account- ing and business experience.
Committee mandate
The Audit Committee has a mandate to assure the Board of Directors that the annual financial statements accurately reflect the Caisse’s financial situation, that the internal con- trols are sufficient and effective, and that the quality and functioning of the systems or processes implemented ensure resources are acquired and utilized with appropriate emphasis on economy, efficiency and effectiveness. The Committee sees that internal control mechanisms are put in place and that they are sufficient and effective. It also ensures that a risk management process is put in place for the Caisse’s operations and that resources are managed in an optimal manner. The Committee reviews any activity that is likely to be detrimental to the Caisse’s financial health. The Audit Committee appoints the Internal Auditor and ensures that the organizational structure in place gives him the requisite independence in respect of Caisse senior man- agement to fulfill his role effectively. The Committee
The Audit Committee reviews the Caisse’s annual financial statements with the Auditor General of Québec, submits them to the Board of Directors and recommends their approval. It must notify the Board of Directors in writing on finding operations or management practices that are unsound or not in compliance with laws, regulations or the policies of the Caisse.
Report of the Audit Committee on the performance of its mandate
The Audit Committee carried out the following activities during the past year:
• During the year, the Committee reviewed the quarterly financial statements and the budgetary monitoring of operating expenses.
• The Committee oversaw an independent valuation of the private equity investments made by the Caisse. It approved the private equity valuation policy for 2005. It also approved the 2005 list of valuation committee members. During the year, the Committee ensured that the valuation process functioned smoothly.
• The Committee reviewed the annual financial statements with the Auditor General and recommended that the Board of Directors approve them.
• The Committee discussed with the Auditor General his audit plan regarding the Caisse’s financial statements. It also had the opportunity to meet with the Auditor General without members of senior management being present. • The Committee met with the members of the internal audit team. It discussed the team’s structural organiza- tion, its experience in the area, the matter of staffing and all aspects of its mandate.
• The Committee reviewed and approved the internal audit plan. It discussed with the Internal Auditor application of the internal control mechanisms and the risk management process as well as preparation and implementation of a resource optimization plan. It regularly familiarized itself with the Internal Auditor’s main findings and recommen- dations as well as follow-up on these recommendations.
Committee
• In line with its mandate to ensure that the Caisse has frameworks for internal control, risk management and resource optimization, the Audit Committee reviewed a management framework and recommended that the Board of Directors implement it and adopt documenta- tion principles. It also endorsed the creation of a new business unit, reporting to the Executive Vice-President, Finance, Treasury and Strategic Initiatives, to co-ordinate implementation of the proposed management frame- work. This framework will foster co-ordination, docu- mentation, control and evaluation of all operations with a view to achieving the Caisse’s objectives.
• The Committee reviewed a financial certification policy and recommended that the Board of Directors approve it. This policy governs the process enabling the President and Chief Executive Officer and the Executive Vice-President, Finance, Treasury and Strategic Initiatives, to publicly cer- tify the reliability of the annual filings and the financial statements, implementation and application of controls and procedures for information disclosure, as well as internal controls. It also adopted a financial certification schedule for the 2005 results.
• The Committee reviewed an information disclosure pol- icy and recommended that the Board of Directors approve it. This policy covers all information disclosed by the Caisse to the media and the public, regardless of its nature or the means of disclosure.
• At each meeting of the Board of Directors, the Audit Committee took note of the report of the Risk Manage- ment Committee.
• Each quarter, the Audit Committee received reports on compliance with the investment limits specified by the
Act respecting the Caisse. It also monitored the policy
applicable to investments negotiated by the Private Equity unit involving holdings that exceed 30% of the common shares of a company.
• The Committee received copies of the certificates of compliance with the depositors’ investment policies and the investment policies of the Caisse’s specialized port- folios, which were submitted to the Risk Management Committee.
• After each of its meetings, the Committee reported on its activities to the Board of Directors.
• The Committee worked with the Governance and Ethics Committee to ensure its mandate statement complied with the new provisions of the Act respecting the Caisse. • No activity likely to affect the Caisse’s sound financial sit-
uation was brought to the Committee’s attention by the Internal Auditor or an officer in 2005.