Co-Sourcing and Outsourcing of the Internal Audit Function Roundtable Discussion of Strategic Alternatives October 23, 2008

Today’s Discussion Emerging role of Internal Audit Success factors and reason to source Internal Audit sourcing alternatives Business Cases About Jefferson Wells Q & A

Emerging Role of Internal Audit

Emerging Role of Internal Audit Governance structure, functional committee set up, policy setting management of business risk and Participate of strategic planning Information Protection, accounting and operations control

Success Factors and Reasons to Source

Success Factors “Sourcing” Internal Audit works well when the following conditions exist: The mission is clearly articulated and objectives are mutually agreed upon Internal Audit is considered important Budget constraints drive need for flexibility Rapid changes in the business Turnover limits in-house resources Specialized skills are necessary Technology enhancements drive efficiency Geographically disbursed operations The investment is reasonable Teaming approach

Why Leading Organizations Are Sourcing Allows management to focus on core competencies To acquire needed skills Subject matter or Systems expertise Geographic needs Innovative approaches Need for flexibility regarding cost structure – variable vs. fixed cost Lower net cost, i.e., “value for money” Access to technology/knowledge repositories Talent Attraction / Retention / Total Life Cycle Hiring Costs

Internal Audit Sourcing Alternatives

Sourcing Continuum – Sourcing Alternatives

Full In-House Model Benefits Concerns Highest degree of control over Internal Audit function High sense of organization connectivity Knowledge of the company, processes and people Traditional structure for Board and management In-house talent training ground New hires bring new expertise Concerns Internal Audit not a core competency Static resource model Requires high level of management time and attention Inability to own specialized resources Increasing stakeholder expectations Investments necessary to redirect the function Continuous recruiting, training, methodology and technology investments Highest “fixed cost” model

Co-Sourcing Model Benefits Concerns Functional control remains in-house Rapid response to needs and issues Allows management to focus on core competencies Access to specialized resources Eliminates certain recruiting, training and employment costs Cost flexibility via “as needed” resources (variable vs. fixed cost) Access to service provider’s best practices and technologies Geographic coverage with reduced travel costs Overcomes scarcity of qualified resources in the market Ability to terminate the relationship Concerns Provider’s organization and industry knowledge Possible poor cultural fit Shift from managing a department to managing a relationship Dependent upon strong Chief Internal Audit Executive Staff continuity Certain overhead and support costs remain

Full Outsourcing Model Benefits Highly cost-effective option Allows management to focus on core competencies Provider “owns” human resources Provider is responsible for day-to-day administration of the function and execution Client controls risk assessment and audit plan Cost and skill set flexibility Highly specialized skill sets on as- needed basis Global resource pool State of the art technology/ knowledge sharing Concerns Comfort level of Board of Directors Knowledge of organization and industry Possible poor cultural fit Management must “own” all strategic decisions Internal Audit may have less in-house linkage Model may need to be adjusted to provide a source of executive talent Difficulty in re-establishing in-house function

Business Cases

We provided & the Results Our Success Stories Client background Needs We provided & the Results A NASDAQ listed company specializing in the production of precision metal with annual turnover of US$421 million. The client required a co-sourcing audit arrangement to execute their Asia-Pacific Audit Program. They were experiencing high levels of staff turn-over and high costs associated with the recruitment, retention and training of IA staff. Co-sourcing IA structure where Jefferson Wells assists in planning and supports the execution of Asia-pacific audit program. We provided experienced auditors to supplement the audit team to perform both IA and SOX audits. This allowed the company to better retain the current audit staffing levels while minimizing on-going audit costs. A NYSE listed company specializing in filtration, separations and purifications technology with annual turnover of US$2.6 billion The group outsource its SOX testing to Jefferson Wells on a global basis. In Asia, Hong Kong Office is responsible for the SOX testing in Japan. The Hong Kong Office team up with the colleagues of our Japan Office and we conduct the testing in a timely and professional manner. With the participation of our native Japanese speaking team member, the language barrier between the local client and audit team is avoided.

We provided & the Results Our Success Stories Client background Needs We provided & the Results An innovate Fortune 500 specialty chemical company with manufacturing facilities in 20 countries and annual turnover of US$4 billion Following an acquisition, the client found it lacked the right kind of internal audit resources to meet the needs of its newly expanded organization, specifically, the professional with sufficient domestic and international knowledge and expertise to employ a risk- based internal audit approach and methodology across the organization. We developed and implemented a risk- based internal audit strategy, which provided assurance to the company’s Audit Committee and Board of Directors on the adequacy of internal controls in existing and new business units. With the implementation of new risk- based internal control strategy and methodology, the client’s internal audit department now has a balanced approach to SOX compliance and a proven process for performing internal audits in a period of significant growth.

About Jefferson Wells

About Jefferson Wells Founded in 1995 as Audit Force, to be credible alternative to Big 6 firms for Internal Audit Services Name changed to Jefferson Wells in 1999. Initial concept expanded to include Finance and Accounting, Technology Risk Management, and Tax Company acquired by Manpower in 2001, to be run as a wholly owned subsidiary At present, 2500+ professionals based out of 54 offices located in 9 countries around the world. Average experience level is almost 18 years; minimum experience level is 5 years To date, we have served more than 4700 clients (including 50% of Fortune500) and performed work in 30+ countries

About Jefferson Wells Asia Hong Kong office was set up in 2007 as regional hub Current client engagements include locations in Hong Kong, China, South Korea and Japan Regional industry experience include banking, insurance, high-tech, professional services, automotive, manufacturing, consumer products Main focus in Finance Operations and Internal Audit & Controls Solutions Existing capabilities include, but not limited to, the following: Internal Audit Outsource/Co-source Contract compliance & cost recovery audits SOX compliance Regulatory compliance Policies & procedures development Financial process improvement Shared services center Interim professional Investment accounting Project management Accounts reconciliation

Jefferson Wells Model No attestation work – avoids conflicts of interest Hire only Experienced Professionals – no trainees Salaried Professionals with deep industry and/or public accounting backgrounds Extensive skill sets and cross-functional abilities High Value Proposition Flat, local, team based business model with no partnership overhead Highly competitive rates representing superior “value for money” Enterprise wide sharing of knowledge/best practices Focus on client needs – and client success Results-Driven Executing on our business model leads to positive references and additional business opportunities

Questions/Discussion