Internal control

Internal control is an essential part of management, and involves Kesko's Board of Directors, management and personnel. The objective is to ensure Kesko achieves its targets. Efficient internal control ensures that deviations from objectives can be prevented or detected as early as possible so that corrective measures can be taken. Internal control tools include policies and principles, working instructions, approval authorisations, authorisations for use, device and automatic controls, manual controls, balancing, monitoring reports and inspections and self-assessments. The objective of internal control in Kesko Group is to ensure the efficiency, productivity, continuity and freedom from disruptions of operations, compliance with laws and agreements and Kesko's values and operating principles, the reliability of financial and operational reporting both externally and internally, as well as the safeguarding of assets, information and expertise.

Risk assessment and control activities

The objective of Kesko’s control activities is to ensure, among other things, the efficiency, continuity and legality of operations, the reliability of financial reporting, and the safeguarding of assets and information. Internal control is efficient when it is continuous, integrated as part of operations, and ensures sufficiently that business targets are met. For internal control to remain efficient, it is important that management identifies the risks related to achieving targets and control measures are targeted based on risk.

The objective of control activities is to achieve an acceptable level for identified risks. Kesko’s risk assessment process is described in more detail in the section on risk management.

Kesko’s Board has approved Kesko’s internal control policy, which is based on good control principles widely accepted internationally (COSO) and Kesko’s document management model, which comprises policies, principles and instructions that must be complied with throughout Kesko Group.

Communication

Efficient communication supports the achievement of internal control objectives. Policies, principles and instructions have been made available to personnel, and regular training is arranged on internal control. Kesko Group’s internal audit reports on internal control results to the President and CEO and the Audit Committee of Kesko Corporation’s Board of Directors. Tight cooperation and good communication between different lines of internal control also support clear division of responsibilities with regard to control measures.

Monitoring

The Board of Directors and the President and CEO are responsible for organising internal control. The management of each division, company and unit is responsible for developing, implementing and maintaining an efficient and functional internal control system in their respective area of responsibility. The management is responsible for extending control also to outsourced services. The objective of monitoring is also to identify potential changes in the operating environment and processes, seen to impact the control measures required.

Kesko’s common operations guide and support the divisions, companies and units with Group-level policies, principles and instructions pertaining to their respective areas of responsibility. Kesko Group’s internal audit function assesses and verifies the effectiveness and efficiency of Kesko’s internal control, reports on it to the President and CEO and the Audit Committee of Kesko Corporations’ Board of Directors, and assists management and Kesko’s units in the development of the internal control system.

Reporting suspected breaches

Everyone working at Kesko is obliged to comply with the K Code of Conduct and Kesko’s policies, principles and workrelated instructions, and to report any issues they identify to their manager. People can also use the SpeakUp channel to report suspected breaches of law or internal misconduct. The head of Kesko Group’s Compliance & Ethics function and the Compliance & Ethics Officer working in the function review reports received via the SpeakUp channel when they are to be investigated by Kesko. Some investigations may necessitate the contribution of Group internal audit, other experts, or the authorities.