ANNEX B

 

THE STUDENT LOAN CORPORATION

 

AUDIT COMMITTEE CHARTER

 

as of April 12, 2004

 

Mission

 

The Audit Committee of The Student Loan Corporation (“SLC”) is a standing committee of the Board of Directors (“Board”). The purpose of the Committee is to assist the Board in fulfilling its oversight responsibility relating to (i) the integrity of SLC’s financial statements and financial reporting process and SLC’s systems of internal accounting and financial controls; (ii) the performance of the internal audit function—Audit and Risk Review (ARR); (iii) the annual independent audit of SLC’s financial statements, the engagement of the independent auditors and the evaluation of the independent auditors’ qualifications, independence and performance; (iv) policy standards and guidelines for risk assessment and risk management; (v) the compliance by SLC with legal and regulatory requirements, including SLC’s disclosure controls and procedures; and (vi) the fulfillment of the other responsibilities set out herein. The Committee shall also prepare the report of the Committee required by the rules of the Securities and Exchange Commission to be included in SLC’s annual proxy statement.

 

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that SLC’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditors.

 

Membership

 

The Audit Committee shall be comprised of at least three members of the Board, and the members shall meet the independence, experience, and expertise requirements of the New York Stock Exchange and other applicable laws and regulations (including the Sarbanes-Oxley Act of 2002).

 

At least one member of the Audit Committee will be a financial expert as defined by the Securities and Exchange Commission.

 

The members of the Audit Committee and the Audit Committee Chair shall be appointed by the Board on the recommendation of the Chairman of the Board. Audit Committee members may be replaced by the Board with new members, provided such new members satisfy the membership requirements. The Committee Chair shall be rotated periodically, at the recommendation of the Chairman of the Board.

 

Authority

 

The Audit Committee shall have the sole authority to select, evaluate, appoint, and replace the independent auditors (subject to stockholder ratification) and shall approve in advance all audit engagement fees and terms and all audit-related, tax and other engagements with the independent auditors. The Audit Committee shall consult with management, but shall not delegate these responsibilities.

 

The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain special legal, accounting, or other consultants to advise the Committee. SLC shall provide funding, as determined by the Audit Committee, for payment of compensation to the independent auditors, any advisors employed by the Audit Committee and ordinary administrative expenses of the Committee.

 

B-1


Duties and Responsibilities

 

The Committee shall have the following duties and responsibilities:

 

Meetings and Access

 

 

 

Meet as often as it determines, but not less frequently than quarterly.

 

 

 

Meet separately, periodically, with management, internal auditors, and independent auditors.

 

 

 

Regularly report to the Board on the Committee’s activities.

 

 

 

Annually review and evaluate its own performance.

 

 

 

Review and assess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.

 

Financial Statement and Disclosure Matters

 

 

 

Review and discuss with management and the independent auditors the annual audited financial statements, including disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A),” and recommend to the Board whether the audited financial statements should be included in SLC’s Form 10-K.

 

 

 

Review and discuss with management and the independent auditors SLC’s quarterly financial statements, prior to the filing of its Form 10-Q, including disclosures made in MD&A and the results of the independent auditors’ reviews of the quarterly financial statements.

 

 

 

Discuss generally SLC’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. The Committee need not discuss in advance each earnings release or each instance in which SLC may provide earnings guidance.

 

 

 

Receive a disclosure from the Chief Executive Officer and Chief Financial Officer during their certification process for the 10-K and 10-Q’s about (1) any significant deficiencies in design or operation of internal controls or material weaknesses therein and (2) any fraud, whether or not material, involving management or other employees who have a significant role in SLC’s internal controls.

 

 

 

Receive and discuss reports from management on an annual and/or as needed basis.

 

 

 

Review and discuss periodically reports from the independent auditors on, among other things, certain:

 

 

(a)

 

Critical accounting policies and practices to be used;

 

 

(b)

 

Alternative treatments of financial information within generally accepted accounting principles;

 

 

(c)

 

Other material written communications between the independent auditors and management, such as any management letter and SLC’s response to such letter or schedule of unadjusted differences; and

 

 

(d)

 

Difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, any significant disagreements with management, and communications between the audit team and the audit firm’s national office with respect to difficult auditing or accounting issues presented by the engagement.

 

 

 

Review and discuss with management and the independent auditors, at least annually:

 

 

(a)

 

Developments and issues with respect to reserves.

 

 

(b)

 

Regulatory and accounting initiatives, as well as off-balance sheet structures, and their effect on SLC’s financial statements; and

 

B-2


 

(c)

 

Accounting policies used in the preparation of SLC’s financial statements (specifically those policies for which management is required to exercise discretion or judgment regarding the implementation thereof).

 

 

 

Review with management its evaluation of SLC’s internal control structure and procedures for financial reporting and review periodically, but in no event less frequently than quarterly, management’s conclusions about the efficacy of such internal controls and procedures, including any significant deficiencies in, or material non-compliance with such controls and procedures.

 

 

 

Annually review and discuss with management and the independent auditors (1) management’s assessment of the effectiveness of SLC’s internal control structure and procedures for financial reporting, and (2) the independent auditors’ attestation to, and report on, management’s control assessment, each as required under Section 404 of the Sarbanes-Oxley Act of 2002.

 

 

 

Discuss with management SLC’s major credit, market, liquidity and operational risk exposures and the steps management has taken to monitor and control such exposures, including SLC’s risk assessment and risk management policies.

 

 

 

Establish procedures for the receipt, retention, and treatment of complaints received by SLC regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of SLC of concerns regarding questionable accounting or auditing matters.

 

Oversight of SLC’s Relationship with the Independent Auditors

 

 

 

Receive and discuss a report from the independent auditors at least annually regarding:

 

 

(a)

 

The independent auditors’ internal quality-control procedures;

 

 

(b)

 

Any material issues raised by the most recent quality-control review, or peer review (if applicable), of the independent auditors, or by any inquiry or investigation by governmental professional authorities within the preceding five years respecting one or more independent audits carried out by the independent auditors;

 

 

(c)

 

Any steps taken to deal with any such issues;

 

 

(d)

 

All relationships between the independent auditors and SLC, in order to assess the independent auditors’ independence; and

 

 

(e)

 

Key staffing and lead audit partner rotation plans.

 

 

 

Approve guidelines for the retention of the independent auditors for any non-audit services and determine procedures for the approval of audit and non-audit services in advance. In accordance with such procedures, the Committee shall approve in advance any audit or non-audit services provided to SLC by the independent auditors, all as required by applicable law or listing standards. Preapproval authority may be delegated to one or more members of the Committee.

 

 

 

Review and discuss the scope and plan of the independent audit.

 

 

 

Evaluate the qualifications, performance and independence of the independent auditors, including whether the provision of non-audit services is compatible with maintaining the auditors’ independence, and taking into account the opinions of management and ARR. This shall include a review and discussion of the annual communication as to independence delivered by the independent auditors (Independence Standards Board Standard No. 1—“Independence Discussions with Audit Committees.”) The Committee shall present its conclusions to the Board, and if so determined by the Committee, recommend that the Board take additional action to satisfy itself of the qualifications, performance and independence of the auditors.

 

B-3


 

 

Recommend to the Board policies for SLC’s hiring of employees or former employees of the independent auditors.

 

Oversight of Audit and Risk Review (ARR)

 

 

 

Review and approve the appointment and replacement of the Chief Auditor who shall report directly to the Committee.

 

 

 

Review and discuss the ARR findings that have been reported to management, management’s responses, and the progress of the related corrective action plans.

 

 

 

Review and evaluate the adequacy of the work performed by the Chief Auditor and ARR, and ensure that ARR is independent and has adequate resources to fulfill its duties, including implementation of the annual audit plan.

 

Compliance Oversight Responsibilities

 

 

 

Review periodically with management, including the General Counsel, and the independent auditors any correspondence with, or other action by, regulators or governmental agencies, any material legal affairs of SLC and SLC’s compliance with applicable law and listing standards.

 

 

 

Review and discuss the report of the Chief Auditor regarding the expenses of, the perquisites paid to, and the conflicts of interest, if any, of members of SLC’s senior management.

 

 

 

Receive and discuss reports from management on an annual and/or as needed basis relating to: compliance at SLC (including anti-money laundering, regulatory and fiduciary compliance); significant reported ethics violations; compliance with FDICIA internal control and compliance reporting requirements; business resumption and contingency planning; tax developments and issues; fraud and operating losses; technology and information security; and SLC’s insurance.