60 HKUST Annual Report 2020-2021 APPENDIX V SUMMARY OF INTERNAL CONTROL AND MEASURES The University continues to adopt a system of internal control based on a framework issued by the Committee of Sponsoring Organizations of Treadway Commission (COSO). The five components of COSO Framework, namely Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring, are adopted by the University in ensuring the effectiveness of University governance. In order to provide assurance about the effectiveness of internal controls to the Council and Senior Management of the University, the following arrangements are in place: (a) Whistleblowing Policy is in place and operating to provide a safe and protective means by which staff, students and other stakeholders of the University are enabled to raise concerns with the appropriate University authorities against any malpractice within the University. (b) Internal Audit Office is responsible to prepare the annual risk-based audit plans and perform independent reviews to assess adequacy of the design and operating effectiveness of the internal controls as well as providing recommendations to streamline processes for efficiency enhancement. Co-sourced external service provider is engaged on a need basis to supplement in areas requiring deep industry expert knowledge, for example, cybersecurity. (c) In addition to the statutory annual audit of the University’s financial statements, the external auditor also carries out an independent assurance engagement on the University’s compl iance with the guidelines, terms and conditions imposed by the Government’s University Grants Committee and performs review on HKUST’s tax exemption status under Section 88 of the Inland Revenue Ordnance. (d) The Audit Committee of the University Council approves the annual audit plan, supervises the scope of work performed by the Internal Audit Office and reviews internal audit reports and concerns on internal controls raised by the internal and/or external auditors. Furthermore, the Audit Committee has an oversight role on the appointment and performance of both internal and external audit teams to ensure independence of the reporting line for the auditors and objectivity of the work performed by the auditors. HKUST Strategic Risk Management The University’s risk management process (the “Process”) is managed in accordance with the Strategic Risk Management Policy approved by the University Council in June 2019. The Process incorporated the recommendation on identification and management of major institutional risk suggested in the Report on Governance in UGC-funded Higher Education Institutions in Hong Kong published in 2016. On-going consultation and monitoring activities will continue to be conducted to update and refresh on the strategic risks identified at the university level and the mitigating activities addressing these strategic risks. Strategic risk assessment results will be presented to the Council in Fall 2021. The following is the summary of the risk assessment results. Overall Conclusion The University identifies a number of strategic risks that are classified as reputational, operational and financial risks. These strategic risks are managed by appropriate risk mitigation actions with responsible risk owners assigned and sources of assurances identified in assessing the effectiveness of these mitigation actions. In the past year, although the University continues to be challenged by the rapid changing external environment amplified by the prolonged impact from the unprecedented COVID-19 pandemic, the University faculty, staff and students join hands in optimizing teaching arrangement, strengthening student experience in the changing learning environment, and innovating operational practices in coping with the new era. Management believes that upholding the University’s core principles and values in openness, diversity and mutual respect has now led the University to emerge strongly from current challenges. Going forward, Management, with the support of the Internal Audit Office, will continue monitoring the internal and external environment and risk profile – reputational, financial and operational risks – facing the University, and seek Council’s steer and guidance for reviewing the Strategic Risk Register to identify and assess existing and emerging risks that could affect the University’s ability to achieve its objectives and provide assurance on risk mitigation. Management will follow up on the status of the risk mitigating activities at least annually. Reputational Risk Management reaffirms the University’s continuous commitment in inclusiveness, diversity and respect in mitigating the risks arising from public concern and the changing external environment. Management continues upholding and promoting a cross-campus culture under the Unified HKUSTComplementary Campuses framework that embraces diversity in culture, gender and personal interests among others, and maintaining open and direct stakeholder communication to cultivate a collaborative and sustainable environment that contributes to talent development, new knowledge and societal advancement. Considering the global grand challenge on sustainability and our sense of responsibility to advance research, policy solutions, and educational expertise, the new Sustainability/Net-Zero Office has been established to develop a roadmap for the University to meet the goal of becoming a net-zero carbon campus before 2050. Towards the final year of countdown for the opening of the new Guangzhou campus targeted in late 2022, faculty and staff involved are dedicated in full in the preparation for a quality synergistic and complementary campus that orchestrates with the Clear Water Bay campus to enhance our overall competitiveness and international reputation in academic excellence, student experience, innovation, knowledge transfer and entrepreneurship. The new Guangzhou campus does not only offer enlarged physical infrastructure but also an exceptional opportunity and experience for faculty, staff and students to foster collaboration and innovation between the two campuses in the Greater Bay Area. In addition, in line with the University’s vision to be a world-class university in all targeted fields of pursuit, there is a robust internal and external framework to govern the academic, research and administrative related processes. The framework is essential to ensure full compliance with the regulatory requirements and to uphold the academic reputation and standards expected of a publicly funded institution. The University undergoes periodic internal and external quality assurances exercises such as Planning Exercise Proposal (PEP), University Accountability Agreement (UAA), Research Assessment Exercise (RAE) and Quality Assurance Council (QAC) audits by the UGC, and the internal multi-level quality assurance framework at HKUST to ascertain and uphold the standard of academic excellence in teaching and learning, and research and innovation. Financial Risks Being a public-funded university, it is important to achieve and maintain financial sustainability to support the University’s operations, capital expenditures and strategic initiatives in the longer term. On top of the major source of funding from the HKSAR Government, there are other non-government sources of funding such as donation and self-financed activities. Due to the impact of COVID-19 pandemic through 2021 on business environment and international travel restriction, the outlook for nongovernment sources of funding remains uncertain. As such, Management continues exercising caution in assessing sustainability of non-government funded activities, financial planning and budgetary controls to maintain a sound and healthy financial status for the University. Yet, the University stays bold in providing financial support on strategic development and initiatives including proactive faculty recruitment, digital transformation, investment in infrastructures and new strategies, initiatives and measures on health, safety and sustainability. In addition, a team of professional external investment consultants and managers are engaged to assist the University on managing investment portfolio to safeguard the University’s interest as well as to generate investment return to maintain financial strength and support strategic focuses where required. Risks arising from investment activities in the volatile financial markets are mitigated by a diversified investment portfolio governed by the investment strategy with acceptable risk and return objectives approved by the Council and continuous monitoring of performance of investment portfolio by the Finance Committee of the University Council, Management as well as the professional consultant. Please refer to the University’s financial statements for details. Operational Risks Management cont inues upholding and promot ing the Universi ty’s commitment on providing a safe and sustainable campus that is also inclusive, caring and inspirational for the University community to work, study and live. In the midst of COVID-19 pandemic, it is achieved through implementing sound and effective campus-wide health and safety measures including the latest vaccination / testing reporting system launched at the start of the academic year 2021/22 to protect the University community. Under the Unified HKUST-Complementary Campuses umbrella, Management has continuously prioritized resources and efforts to attract quality faculty and students through various initiatives across Clear Water Bay campus and Guangzhou campus. In the longer term planning, Management is implementing a number of risk mitigating activities to allocate resources in recruiting the high caliber academic and administrative leaders and prospective students of diverse background, digital transformation, development and renewal of campus infrastructures, enhancement of IT systems and network, reinforcement of cybersecurity measures as well as the commitment in health, safety and sustainability and compliance to applicable law and regulations. The commitment includes the implementation of proper safeguards to keep the campus environment safe and the University community healthy to resume face-to-face communication and collaboration in Fall 2021. There are also continuous efforts to attract and retain the best administrative talents as well as to implement the next-generation business processes, information technologies and systems through initiatives in digital transformation, streamlined management, and a people/user-centric focus. APPENDICES
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