Internal audit

Organization
The internal audit organization is based on three fundamental principles:

• The strategy, requirement level and operating rules for the internal audit are set by the Management Board and approved by the Audit Committee of Dexia SA;
• The internal audit work is performed by a network of internal audit departments which carry out their work under the supervision of the Group General Auditor, who reports directly to the CEO, Chairman of the Management Board. The Group Auditor has direct access to the Audit Committee to which he/she regularly reports on the internal audit operations within the Group ;
• Each audit department in the subsidiaries is responsible for the performance of its mission to the Chairman of the Management Board of the entity in question and also reports functionally to the Group Auditor.

Assignments in 2006
As is the case every year, a portion of the audit plan of Dexia SA and the entities was conducted in the form of “horizontal mission“, i.e. missions conducted simultaneously at Dexia SA and in the Group’s principal entities: Dexia Crédit Local, Dexia Bank Belgium and Dexia Banque Internationale à Luxembourg.

A major component of those missions was dedicated to various issues related to the Basel II project.

Other horizontal missions looked at the organization, risk management and control mechanisms that frame the activity lines of the principal businesses. The support functions are also regularly audited within the context of the multi-year audit plan. Dexia’s audit department conducted ‘joint’ missions with the audit departments of certain subsidiaries, including Financial Security Assurance, RBC Dexia Investor Services and Dexia Bank Nederland.

The audits completed in 2006 gave rise to the establishment of various plans to correct weaknesses detected in the internal control system. Each action plan was approved by the Management Board of the entity concerned and is monitored on a regular basis in order to ensure that the recommendations developed are effectively implemented.

Methods
The global approach to risk, the common audit methodology, the carrying out of ‘horizontal’ missions and of ‘joint’ missions as well as the reporting and follow-up procedures established at the level of the parent company, all reviewed and completed in 2004, contribute to Dexia's effective internal control system.