Exhibit 99.4
CHARTER AND OPERATING GUIDELINES
Audit and Finance Committee (Audit Capacity)
The ServiceMaster Company
(July 19, 2002)
The Board of Directors of the Company has developed and approved this Charter
and Operating Guidelines to articulate its understanding of the important role
of the Committee in its capacity as an audit committee of the Board. Through it,
the Board has sought to develop a clear mission and to establish practices and
policies for the Committee.
The primary purpose of the Committee is to assist the Board in its oversight
responsibilities to the shareholders, to potential shareholders and to the
investment community regarding the quality and integrity of the financial
reports and the underlying control structure of the Company. The authority,
responsibilities and membership of the Committee are set forth in the bylaws of
the Company. It is the intent of this Charter to clarify the relationship of the
Committee to: the Board of Directors, management (including the Internal
Auditor), and the Company's Independent Auditor. These matters are presented in
the context of "Expectations" from and to each of these entities.
While the Committee has the responsibilities set forth in this Charter, it is
not the duty of the Committee to plan or conduct audits or to determine that the
Company's financial statements are complete and accurate and in accordance with
generally accepted accounting principles. This is the responsibility of
management and the Independent Auditor. Nor is it the duty of the Committee to
conduct investigations, resolve disagreements, if any, between management and
the Independent Auditor or to assure compliance with laws and regulations and
the Company's business guidelines.
I. BOARD EXPECTATIONS OF THE AUDIT COMMITTEE
A. General
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The Board delegates certain responsibilities and duties to the Committee to
assist the Board in fulfilling its oversight responsibilities. The Committee
will:
a. annually recommend to the Board the selection of the
Independent Auditor to audit the books, records and accounts
of the Company and its subsidiaries;
b. review with the Independent Auditor in advance the scope of
its annual audit;
c. periodically review with the Independent Auditor and
management the accounting principles, policies and practices
of the Company and the
Company's reporting policies and practices;
d. review with the Independent Auditor the results of its annual
audit;
e. periodically review with the Independent Auditor and the
Company's management the adequacy of the Company's accounting,
financial and operating controls;
f. review and discuss with the Independent Auditor and management
the annual audited financial statements before they are filed
with the Securities and Exchange Commission; on a quarterly
basis, this review and discussion will be completed with the
Audit Committee Chairman, who then will report to the
Committee on whether material modifications should be made to
the financial statements based on the Independent Auditor's
assessment;
g. review and discuss with the Independent Auditor or management
the matters required to be communicated to the Committee in
accordance with American Institute of Certified Public
Accountants (AICPA) Statements of Auditing Standards (SAS) 61;
h. receive the required written disclosures and a letter from the
Independent Auditor regarding the Independent Auditor's
independence; review and discuss the Independent Auditors
independence, including all significant consulting and other
relationships with the Company that could impair the
Independent Auditor's independence;
i. approve the fees and other significant compensation to be paid
to the Independent Auditor;
j. recommend to the Board, based on the reviews and discussions
of the annual audited financial statements, the matters
required to be communicated in accordance with AICPA SAS 61
and the Independent Auditor's independence, that the annual
audited financial statements be included in the Company's
Annual Report on Form 10-K;
k. prepare a report that discloses to shareholders certain
required actions taken by the Committee as required by the
Securities and Exchange Commission;
l. review the adequacy of this Charter on at least an annual
basis and submit this Charter to the Board for its approval
and, thereafter, include this Charter in the Company's proxy
statement as required by the rules of the Securities and
Exchange Commission; and
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m. carry out such other responsibilities as are assigned
to the Committee by the Board.
The Committee will serve as an independent and objective party to monitor that
the Company is effectively and responsibly reporting its financial results and
assure the adequacy of internal control systems. The Committee will review and
appraise the performance of the Independent Auditor and Internal Audit
Department.
The Committee will:
a. oversee management's process of identifying and measuring the
Company's business risks;
b. monitor and review the establishment and maintenance of the
Company's Code of Conduct and seek to ensure that management
has established a compliance system to enforce the Code of
Conduct;
c. review significant cases of conflict of interest, misconduct
or fraud;
d. monitor and review the work of the Environmental Stewardship
Department, the development and maintenance of environmental
stewardship standards and practices, the Company's compliance
systems and controls to enforce these standards, and
significant cases of variance from these standards;
e. monitor and review the organizational structure and
qualifications of the Internal Audit Department and seek to
ensure the effectiveness and independence of this department;
f. monitor and review, with the Company's General Counsel, legal
compliance matters, including securities trading practices and
policies;
g. regularly review any significant current or pending litigation
matters or problems with regulatory agencies that could have a
significant impact on the Company's financial statements; and
h. perform any other activities consistent with this Charter, the
Company's bylaws, and applicable laws as the Committee or the
Board deems necessary or appropriate.
B. Composition
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The members of the Committee will be appointed as provided in the bylaws. The
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Committee shall be comprised of at least three independent directors as
determined by the Board. An independent director is defined as one who has no
relationship to the Company that may interfere with the exercise of their
independence from management and the Company. Members of the Committee shall
have a basic understanding of finance and accounting, be able to read and
understand fundamental financial statements and at least one member of the
Committee shall have accounting or related financial management expertise. The
Committee shall be chaired by the person designated as Chairman of the Committee
(the "Chairman").
C. Meetings
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The Committee will meet at least three times annually, or more frequently as
circumstances may warrant. Generally, and as appropriate, the Committee will
meet with, and receive reports from management, the Internal Audit Department,
the Company's General Counsel and the Independent Auditor. The Chairman, in lieu
of the Committee, may review and discuss the quarterly financial statements with
the Independent Auditor. The Committee will hold executive sessions to discuss
any matters that the Committee or any of these groups believe should be
discussed privately.
II. AUDIT COMMITTEE EXPECTATIONS OF MANAGEMENT
The Committee may call upon the resources of the Independent Auditor and the
Company's management, including its Chairman of the Board and Chief Executive
Officer, President and Chief Operating Officer, Chief Financial Officer and
financial staff, Chief Information Officer, Internal Auditor, General Counsel,
environmental, compliance and quality management and others, as necessary, to
investigate and resolve practices or transactions which are, or have the
appearance of being questionable, illegal or improper should these activities
occur. The Committee may meet with any of these persons separately where it
believes discussion might otherwise be inhibited.
Management will apprise the Committee of the overall business environment and
risks, and the Company's systems for internal controls. Management will discuss
the Company's financial statements with the Committee. Specifically, management
will:
a. review and discuss with the Committee the annual audited
financial statements and related disclosures prior to filing
with the Securities and Exchange Commission;
b. review and discuss with the Chairman the quarterly financial
statements and related disclosures prior to filing with the
Securities and Exchange Commission;
c. make presentations concerning any changes in accounting
principles or financial reporting policies from the prior year,
the accounting treatment accorded significant and/or unusual
transactions, and any significant variations between budgeted
and actual numbers in a specific business unit;
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d. inform the Committee of material consultations made by
management with outside accountants (other than the Independent
Auditor) with respect to the financial and/or tax accounting
treatment of a particular event or completed transaction;
e. provide the Committee with management's response to assessments
provided by the Internal Auditor or the Independent Auditor;
f. inform the Committee of the emergence or elimination of high
risk areas;
g. provide the Committee with significant estimates or judgments
used in the preparation of financial statements;
h. review with the Committee the status and material activity
related to significant judgmental reserves and accruals;
i. inform the Committee of the effect of any significant external
environmental factors (economic, or otherwise) on financial
condition or reporting;
j. inform the Committee of significant issues related to tax
accounting, reporting or payment; and
k. inform the Committee of significant issues related to operation,
development and implementation of information systems.
The Committee will be provided, and have access to, any and all
corporate information, reports and data so as to enable it to carry out
its responsibilities. In any areas of sensitivity or privacy, the
Chairman will review the need for such information with the Chairman of
the Board and Chief Executive Officer.
III. AUDIT COMMITTEE EXPECTATIONS OF INDEPENDENT AUDITOR
The Board is the client of the Independent Auditor. The Independent Auditor,
through the Committee, is responsible to the Board. The Committee will evaluate
the performance of the Independent Auditor, annually recommend to the Board the
selection of the Independent Auditor and, if circumstances warrant, recommend to
the Board the discharge of the Independent Auditor. From time to time, formal
bids from national accounting firms (including the firm then serving as the
outside auditor) may be solicited. Formal presentations of capability, scope of
services and fees will be considered.
In general, the Independent Auditor is expected to perform an effective and
efficient audit, report to the Committee the results of its audit and report on
the Company's internal control structure and processes to understand and manage
business risks.
Specifically, the Committee expects the Independent Auditor to:
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a. Deliver the required written disclosures and a letter regarding
the independence of the Independent Auditor; review and discuss
the Independent Auditor's independence, including all
significant consulting and other relationships with the Company
that could impair such objectivity and independence;
b. Discuss the scope, approach, and results of the annual audit in
order to assist the Committee in overseeing the financial
reporting and disclosure process;
c. Review and discuss the Company's quarterly financial statements
before they are filed with the Securities and Exchange
Commission and, based on inquiries with management and various
analytical procedures, report to the Chairman on whether
material modifications should be made to the interim financial
statements
d. Discuss the Independent Auditor's judgment about the quality,
not just the acceptability, of the financial statements,
including the appropriateness and consistency of accounting
policies and their application, and the clarity and completeness
of the financial statements and disclosures;
e. Review the selection of new or changes to accounting policies,
review estimates, judgments and uncertainties inherent in the
financial statements, and review unusual transactions and
significant financial statement items; and
f. Review important risks and issues and give opinions as to how
these are being addressed by management.
Provide a forthright, qualitative appraisal of the overall control environment,
including risks and potential risks that could have a significant future impact
on the Company's financial statements, as well as an assessment as to how these
are being or will be handled by management;
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