Corporate Governance

The Board recognises the importance of sound corporate governance and is committed to conducting the Company’s operations in accordance with the best principles of corporate governance in so far as appropriate for a company of Inspicio’s size quoted on the Alternative Investment Market (“AIM”). This report sets out the ways in which the principles of good governance and code of best practice identified in the Combined Code on Corporate Governance are applied by the Company.

Directors
The Board currently comprises the non-executive Chairman, two executive Directors and three non-executive Directors. Two of the non-executive Directors, Chris Slack and Lesley James are considered to be independent.

The composition of the Board is reviewed regularly. Appropriate training, briefings, and induction are available to all directors on appointment and subsequently as necessary, taking into account existing qualifications and experience.

In accordance with the Company’s Articles of Association one third of the Directors are required to retire by rotation each year and may seek re-election at the forthcoming Annual General Meeting, and therefore each Director must stand for re-election at least once every three years. Accordingly Mark Silver and Keith Tozzi will retire by rotation and, being eligible, will seek re-election at the Annual General Meeting. Richard McBride was appointed as a Director on 27 June 2006, and in accordance with the Articles of Association is required to retire and seek election by shareholders at the Annual General Meeting. Lesley James was appointed as a non-executive Director on 1 November 2006, and in accordance with the Articles of Association is required to retire and seek election by shareholders at the Annual General Meeting.

During 2006, the Board met ten times. At these meetings the Board reviewed and approved the Group’s strategy and financial plans for the coming year. Each Director is provided with sufficient information to enable them to consider matters in good time for meetings and enable them to discharge their duties properly. The Board has adopted a formal schedule of matters reserved to it for decision.

The Directors have access to the advice and services of the Company Secretary and they are able to seek independent and other professional advice, the cost of which would be met by the Company.

Board committees
The Company has established an audit committee and a remuneration committee to assist it in fulfilling its responsibilities, each having formally delegated duties and responsibilities.

Audit committee
The audit committee comprises Chris Slack (Chairman) and Lesley James, both of whom are non-executive Directors, and Keith Tozzi, who is non-executive Chairman of the Company, and meets at least twice a year. No-one other than the audit committee’s Chairman and members is entitled to be present at a meeting of the audit committee but the Company’s external auditors together with the Chief Executive Officer and the Group Finance Director are regularly invited to attend the meetings. The audit committee has formal terms of reference approved by the Board.

The audit committee considers the adequacy and effectiveness of the risk management and control system of the Group. It reviews the scope and results of the external audit, its cost effectiveness and the objectivity of the auditors. It also reviews, prior to publication, the interim results, preliminary announcement, the annual financial statements and the other information included in the full Annual Report.

Nominations committee
Due to the size of the Board, the Directors do not consider there to be any need for a nominations committee. Issues that would normally be dealt with

by a nominations committee are handled by the full Board. The Board will review the need for a nominations committee on a regular basis.

Internal controls
The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness whilst the role of management is to implement Board policies on risk management and control. It should be recognised that the Group’s system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the Group’s business objectives and can only provide reasonable, and not absolute, assurance against material misstatement or loss.

There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place during the year.  This process has been reviewed by the Directors and accords with the internal control guidance prepared for directors by the Turnbull Committee.

The Group is further developing the risk management process, to embed it in normal management, and the governance process. As part of the annual strategic planning and budgeting process, each business unit identifies its significant risks, the probability of those risks occurring, their potential impact and the plans for managing and mitigating each of those risks. The budget plans will be reviewed by the Board as part of the strategic planning process. The plans are discussed, updated and reviewed during the course of the year, or when any control issues are identified, including matters arising from the external audit. As a part of a regular process, risks are highlighted and reported to the Board.

The Group operates a series of controls to meet its needs. These controls include, but are not limited to, the annual strategic planning and budgeting process, a clearly defined organisational structure with authorisation limits, reviews by senior management of monthly financial and operating information including comparisons with budgets, monthly treasury and cash flow reports and forecasts to the main Board and rules preventing speculation in derivatives.

The audit committee receives reports from management and the external auditors concerning the system of internal control and any material control weaknesses. Significant risk issues are referred to the Board for consideration.

When acquisitions are made, the Group’s controls are implemented during the first full year of ownership.

The Board obtains assurance directly from the Directors and appropriate senior management concerning compliance with the Group’s risk management and control policies and procedures, before making this statement. The Board also considers issues included in reports received during the year, how the risks have changed during the year and reviews reports on internal controls from management and any issues identified by external auditors. The Directors conduct an annual review of the effectiveness of the Company’s system of internal controls and risk management.

The Board does not believe it is currently appropriate to establish a separate, independent internal audit function given the size of the Group.