DRAFT FOR DISCUSSION PURPOSES ONLY

Lynda Astell

Vice Principal (Finance, Estates & Information Services)

Coleg Gwent Pontypool Campus

Blaendare Road, Pontypool NP4 5YE17

June 2014

Dear Sirs

We are pleased to set out for your approval the arrangements under which Deloitte LLP (“Deloitte”) will
provide Coleg Gwent (the “Client”) with outsourced internal audit services (the “Services”). These
arrangements are set out in this letter together with the enclosed Terms of Business.

So that we are able to assist you effectively, please ensure that you have considered fully all of the
terms and conditions set out in this letter and its enclosures and that you are satisfied that the
description of our services below meets your needs.

Internal audit work is primarily designed to evaluate the design of controls and to identify breakdowns
in those controls which arise out of the accidental or negligent mistakes of your employees. However,
our procedures are unlikely to detect fraudulent or dishonest acts, misappropriation, forgery or other
acts designed to harm the organisation, its property or employees (which we shall term “fraud”) as such
acts are often accompanied by acts designed to conceal their existence.

We cannot therefore assure you that our procedures will detect fraud, although in planning our work we
shall have regard to the possibility of such actions. If we do detect fraud we will promptly inform the
appropriate level of management. However, the prevention and detection of fraud is your responsibility
and you agree to require your staff through written procedures to notify us if they have discovered or
suspect fraud.

Whilst we will not normally ask for a formal letter of representation, in signing this letter you undertake
to provide us with full access to all records, documentation and information necessary to fulfil our role.
We are entitled to assume and take all documents provided to us as genuine.

FEES

Our fees are computed on the basis of the time spent on your affairs by the partners and our staff and
on the levels of skill and responsibility involved. The audit fee can also be a fixed fee agreed before
commencement of audit. Unless otherwise agreed, our fees will be billed at appropriate intervals during
the course of the audit and will be due on presentation.

Audit plan generally present details of how the audit is going to be conducted. It identifies present and
describes the manner in which an organization conduct business, with the objective of pointing out
improvement that will increase its efficiency and effectiveness. It also lays down the audit objectives for
management’s assertion identified, together with the corresponding audit procedures. The audit plan is
written output after the audit planning stage.
The audit planning gives in sufficient details the understanding of the auditors in the operational process
and control of the business. It is the phase in the audit process where a decision as to the auditability of
the subject matter is made.

In this case, the audit plan may be executed further to test the assertion of the management about the
operation, which primarily is their responsibility. These audits primary objective is to add-value to the
business and find opportunities for improvement.

The following are the objectives of the auditors in relation to the proposed audit planning:

To be able to:

• Determine the current practice and process in the services they offer through observations and
interviews.

• Identify the scarcity of the business as to weighing their operations with the standard by
comparing the observations using the standards used.

• Suggest actions that would help them achieve the standards.

We, as auditors practice a high level of confidentiality and so we ensure to the privacy of information
gathered from your company. In case of violation of this principle, we shall face whatever the
consequences. The result of the audit planning is written in audit plan. A significant information
obtained during the audit planning stage through inquiry, interviews and observation should remain
confidential.

We, the auditors, shall conform with the definition of Internal auditing which is an independent,
objective assurance and consulting activity designed to add value and improve an organization's
operations, as well as apply the principles of the Code of Ethics of Internal auditors namely (1) integrity
(2) objectivity (3) confidentiality (4) objectivity and shall encompass all the mandatory elements of the
IPPF Standards.