The monitoring and control policies comprising policies for comprehensive monitoring and control on Commissioners, Directors, Senior Management and executing staff. They also include financial and non financial aspects, qualitative and/or quantitative, for each business unit, including support units (embedded internal control), Internal Audit, External Audit and Risk Management.

Implementation of Monitoring and Internal Control

The Board of Commissioners is responsible to coordinate and implement the monitoring and control function. In accordance with the Articles of Association, the Board of Commissioners is the highest responsible authority for implementing the monitoring and control function assisted by the Audit Committee. In day-to-day implementation, the Internal Audit Unit/Satuan Pengawasan Intern (SPI) takes an active role in supporting the objective of the Company by conducting an evaluation and giving a suggestion on the risk management, internal control and governance process through a systematic and tested work approach. SPI is also administratively responsible to the President Director and functionally to the Audit Committee. The Internal Audit has an objective to provide independent and unbiased consultation and evaluation services through the analysis, assessment and recommendation on internal controls and also manage the associated risks to improve the effectiveness and efficiency of the Company.

The scope of the internal audit activities covers a review on the Internal Control, Governance and Risk Management, including periodic audits, handling of public complaints, special audits, assessments on compliance with the law, quality improvement and the performance of the internal audit unit as well as synergies with the external audit and the audit committee.

An internal audit must be carried out independently on activities that are being audited. Independent assessment can be achieved via an organization in the company and internal monitoring that is directly responsible to the President Director and the Audit Committee. The relationship between the Audit Committee and Internal Audit is stipulated in the Audit Committee Charter and the Internal Audit Charter. If an assignment is considered to have a conflict of interest or the independence of the Leaders of the Internal Audit is disrupted, the Audit Committee can appoint a third party or an independent party to carry out an audit. The Company also has monitoring and embedded internal control functions, including:

• A monitoring and control function that is related with the use or realization of funds in accordance with the stipulated budget.

• A monitoring and control function that is embedded in each business unit including its supporting units is a function in the implementation level that is responsible to a Director who supervises the related business unit. The characteristic of the monitoring and control that is carried out by the monitoring and control function is a preventive control, meant to ensure compliance and fulfillment of requirements that have been set before an activity can be carried out.

• A monitoring and control function that is related with an aviation operational activity, which is formed based on the stipulation of the Civil Aviation Safety Regulation (CASR), International Civil Aviation Organization (ICAO) and other stipulations that are carried out by the Corporate Safety Committee.

• A monitoring and control function concerning the use and realization of funds in accordance with set budgets is carried out by the Corporate Control function.

Activities of the Internal Audit Unit (SPI)

The Internal Audit Unit has the authority to access documents, notes, personnel and physical properties of the Company in all work units of the Company to obtain data and information that are relevant with its audit task implementation. Each member of the Internal Audit has to sign a statement of compliance on the Audit Internal Program and Statement on Conflict of Interest periodically. The Audit Committee Charter and the Audit Internal Charter must be reevaluated and adjusted with the dynamics of the Company. The Internal Audit Unit is not directly involved in the operational activity of a work unit as it is part of the implementation of its audit task. Thereby in the implementation of its audit task, the internal auditor must be in a position to make decisions impartially, objectively, fairly and is confident that the work outcome can be trusted and free from influence of any outside party.

• To meet its responsibility, the Internal Audit Unit performs the following:

• An analysis, assessment and recommendation on activities that are reviewed in accordance with the Audit Standards and Code of Ethics.

• Coordinating other work units in assisting the implementation of an audit by an External Auditor.

• Monitoring follow-up on audit result recommendations.

• Being directly responsible to the President Director.

The Internal Audit Unit is responsible for planning and conducting both programmed and non programmed audits. The programmed audits are pre-planned every year with a focus on an activity that has a financial risk, an operational risk or legal risk and will cover audits on commercial, operational, technical, financial, IT and SBU activities. A non programmed audit is normally focused on current Company issues and developments.

The following programmed audits were conducted in 2008:

1.BSP Indonesia
2.CRS Costs
3.Fixed Assets
4.Repair & Maintenance Engine and Airframe
5.Corporate Accounts
6.IT Infrastructure
7.On Time Performance (OTP)
8.Accounts Receivable
9.Aircraft Reliability
10.SBU Cargo, GSM and GITC
11.Garuda Frequent Flyer (GFF)
12.Route Evaluation (Network Plan)
13.Aircraft Lease Utilization
14.Domestic and International Branch Offices

Non programmed audits covered:

1.Official Travel
2.Sales Responsibility
3.Idul Fitri Peak Season
4.Other Revenue

Up to the end of 2008, the Internal Audit Unit completed 44 examinations consisting of 40 programmed audits and 4 non programmed audits. The programmed audits and non programmed audits produced 208 recommendations and 193 of these have been followed-up, and the remaining 15 recommendations are still in a finalization process. Currently the Internal Audit Unit is led by Sri Mulyati, VP Internal Audit.

The ethics and norms for monitoring and control

Prerequisites of ethics and norms for monitoring and control:

• In implementing monitoring and control tasks, the internal audit unit always adheres to the Standard for the Professional Practice of Internal Auditing and Code of Ethics that is published by The Institute of Internal Auditors (IIA), Norms of Examination and the Audit International Charter and other regulations that are related with the internal audit. The ethics and norms for Internal Audit are described in the Internal Audit Charter, which is an integrated part of Company Policy Guidelines.

• In implementing the monitoring and control function the following principles must be strictly adhered to:

  • Interdependent principle, the Internal Audit’s sole focus must be safeguarding of Company interests in accordance with the corporate vision, mission, objectives and strategy.

  • The principle of objectivity, the Internal Audit must have no connection or relation with the activity being audited and is free from any potential conflicts of interest and the person assigned or conducting the audit is not a subordinate from a party whose activity is being audited.

  • The confidentiality and discretion principle

  • The monitoring and control function must be carried out by persons who have a combination of suitable knowledge, skills and experience to carry out an audit, and must always follow the Company ethical standards, general policy on risk management and all other applicable stipulations.

A decision on the violation of the principles that are contained in the code of ethics from The Institute of Internal Auditor (IIA) is stipulated by the Board of Commissioners and the Board of Directors, and implementation is carried out through or is coordinated by the Human Capital Management function.