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Internal control system

The main internal documents of the Company that regulate the internal control and risks management system are as follows:

  • Risks management policy of IDGC of Center and Volga Region, PJSC (new version), approved by the resolution of the Company Board of Directors dd. 21.03.2016 (minutes # 217 dd. 24.03.2016);
  • Internal control policy of IDGC of Center and Volga Region, PJSC (new version), approved by the resolution of the Company Board of Directors dd. 11.03.2016 (minutes # 216 dd. 14.03.2016);
  • Internal audit policy of IDGC of Center and Volga Region, PJSC (new version), approved by the resolution of the Company Board of Directors dd. 11.03.2016 (minutes # 216 dd. 14.03.2016).

Risks management policy is an internal document of IDGC of Center and Volga Region, PJSC (hereinafter - Company), that determines its relation to risks, establishing the general principles of the risks management system construction (hereinafter - RMS), its goals and objectives, general approaches to organization, allocation of responsibility between the RMS participants and the nature of their cooperation.

Internal control policy is a document of IDGC of Center and Volga Region, PJSC, establishing the general principles of the internal control system construction (hereinafter - ICS), its goals and objectives, general approaches to organization, allocation of responsibility between the ICS participants and the nature of their cooperation.

Internal audit policy determines:

  • goals and objectives of internal audit;
  • form of organization of the internal audit function;
  • internal audit functions;
  • principles of realization of the internal audit function;
  • internal audit accountability;
  • powers of the internal audit;
  • principles, procedure and nature of cooperation of the internal audit with parties concerned;
  • code of ethics and requirements to the internal auditors of the Group of Companies Rosseti;
  • responsibility of the internal audit;
  • approaches to provision of quality control and activity estimation of the internal audit;
  • other main approaches and principles applied by the Company when realizing the function of the internal audit.

The internal control system, ICS - totality of the organizational measures, methods and procedures created and used for the effective exercise of internal control.

Internal control – is a process that is implemented by the Company Board of Directors, Company Internal Audit Commission, collegial and sole executive bodies of the Company, heads and employees at all the levels of the Company management, aimed at reasonable guarantees providing of the Company goals achievement.

Internal control is continuous and cyclic process that forms part of the general system of the Company management, and is a constituent part of the Company risks management system.

The internal control system covers all the directions of the Company activities, the control procedures are to be fulfilled permanently in all the processes (trends of activities) of the Company at all the management levels.

Goals of the internal control system

Goal of the internal control system in the Company is reasonable surety provision in achievement of the goals set before the Company:

  • provision of efficiency and effectiveness of the Company activities, safe-keeping and integrity of the Company assets;
  • observance of the requirements of the laws and local statutory enactments of the Company that are applicable to the Company, including when committing the facts of economic activity and maintaining of bookkeeping;
  • provision of authenticity and timeliness of the accounting (financial) and other reports.

Strategic goals are not part of the internal control. Strategy establishment is a necessary condition for an internal control exercise.

The internal control system must provide for an objective, fair and evident insight into the Company current position, safe-keeping and integrity and transparency of the Company reports.

Goals of the internal control system

  • provision of reliable, good-quality and accessible power supply of consumers;
  • provision of the environmental integrity and safety of the personnel and the third parties when the activity is carried out by the Company;
  • provision of fulfillment of the Company financial and economic plans in the most efficient and cost-effective way (by way of construction of the effective processes (directions of activities);
  • provision of elaboration and introduction of the effective control procedures making it possible to reduce risks related with the Company activities, to the level not higher than a preferred risk (risk appetite);
  • provision of an effective prevention, detection and elimination of violations in the course of the activity carrying out by the Company and carrying out of financial and economic operations;
  • provision of safe-keeping and integrity of the Company assets, provision of the effective use of the Company resources, provision of protection of the Company interests, countermeasure to unfair acts of the Company employees and the third parties;
  • provision of prevention or detection of deviations of the established rules and procedures, as well as date misrepresentation of the bookkeeping, accounting (financial) and other reports;
  • provision of observance of the requirements of the laws that are applicable to the Company activities, observance of the internal policies, regulations and procedures of the Company;
  • provision of authenticity, completeness, reliability and timeliness of formation, bringing to notice / submission of the information and all the kinds of the Company reports, established by the applicable laws and regulatory enactments of the Company.

The following restrictions influence on the Company activities in the field of internal control and on the effectiveness of the ICS goals achievement:

  • Restrictions of the exterior medium. Internal control is effective at the different levels and is aimed at the different goals achieving. Some events and conditions that render a significant influence on the goals achievement are beyond the Company control.
  • Restrictions of the interior medium, including the corporate governance effectiveness, a degree of the goals appropriateness that are determined as the initial conditions for an internal control exercise, subjectiveness of judgments when taking decisions in relation to the choice of measures of control, the human factor function, limitation of resources and a necessity related therewith to take into account the expenses for the internal control and profits from the elaboration of the actions within the framework of any component of the internal control.

Main stages of the internal control

1) Construction of the control environment of the processes (directions of activities), elaboration and introduction of the control procedures;

2) Fulfillment of the control procedures;

3) Estimation (monitoring) of the control procedures effectiveness;

4) Response

Participants of the internal control system:

  • Company Internal Audit Commission;
  • Company Board of Directors;
  • Audit Committee of the Company Board of Directors;
  • other committees of the Company Board of Directors;
  • executive bodies (Company Management Board, Company Director General);
  • collegial working bodies that are created by the Company executive bodies for the concrete functions fulfillment (commissions, working groups etc.);
  • heads of the blocks and structural subdivisions of the Company;
  • employees of the Company structural subdivisions, fulfilling the control procedures by virtue of their position duties;
  • subdivision of the internal control;
  • internal audit subdivision.

Company Internal Audit Commission implements control of the Company financial and economic activity, based on the results of which it prepares offers/ recommendations for improvement of the internal control system, as well as implements an independent estimation of the data authenticity that are contained in the Company annual report and in the Company annual accounting reports.

Company Board of Directors:

- determines the principles and approaches to organization of the Company internal control system, including approves the Company internal documents, that determine organization and strategy of development and improvement of ICS, approves the policy of the Company internal control;

- exercises control of activity of the Company executive bodies on the main (priority) lines;

- considers a report of the Management Board on organization and function of the Company internal control system;

- considers annually the reports of an internal auditor of effectiveness of the internal control system;

- considers the results of an external independent estimation of effectiveness of the internal control system.

Audit Committee of the Board of Directors:

- implements a preliminary consideration, prior to approval on part of the Board of Directors, of the Company internal documents, that determine organization and strategy of development and improvement of the Company internal control system, Policy of the internal control and subsequent amendments thereto;

- implements a preliminary consideration, prior to consideration on part of the Board of Directors, of results of the effectiveness estimation of the internal control system according to the data of an internal auditor's report on effectiveness of the internal control system, as well as information on the results of carrying out the internal independent estimation of effectiveness of the internal control system, prepares offers/recommendations for improvement of the Company internal control system;

- exercises control of the internal control system as to the issues consideration related with control of authenticity of the Company accounting (financial) reports, of an external auditor selection and of carrying out an external audit, provision of observance of the regulatory and legal requirements, as to the report consideration of the Management Board on organization and function of the internal control system, as well as to the issues consideration related with an analysis and estimation of this Policy fulfillment.

Other committees of the Company Board of Directors within the framework of their competences, established by the Board of Directors, exercise control of the established financial and operating indicators fulfillment, supervision of observance of the applicable laws, rules and procedures established by the local statutory enactments, as well as supervision of authenticity and timeliness of the reports formed by the Company.

Executive bodies (Company Management Board, Company Director General):

Executive bodies of the Company fulfill the following functions in the field of the internal control:

- provide creation and effective function of ICS;

- are responsible for the decisions fulfillment of the Board of Directors in the field of ICS organization.

Company Management Board:

- forms directions and plans of development and improvement of ICS;

- implements the reports preparation on the financial and economic activities of the Company, on organization and function of the Company internal control system;

- considers the results of an external independent estimation of ICS effectiveness, works out measures to develop and improve ICS.

Company Director General:

- approves the regulating and methodological documents of the Company on the issues of organization and function of ICS, except for documents the approval of which relates to competence of the Company Board of Directors;

- provides the plans fulfillment of the Company activities, that are necessary to solve its objectives;

- organizes maintenance of bookkeeping and managerial accounting, preparation of the accounting (financial) and other reports;

- submits to consideration of the Company Board of Directors the reports on the financial and economic activities of the Company, on organization and function of the Company internal control system.

Collegial working bodies, created by the Company executive bodies for the concrete functions fulfillment (commissions, working groups etc.), within the framework of their powers implement the control procedures and/or work out recommendations for the control procedures improvement, separate components (elements) of the internal control and of the internal control system.

Heads of the blocks and structural subdivisions of the Company implement the functions for elaboration, paperwork management, introduction, monitoring and development of the internal control system in the functional areas of the Company activities, responsibility for organization and coordination / the implementation on them is imposed on them by the Company statutory enactments / provisions on the structural subdivisions, incl.:

- provide an implementation of the internal control principles;

- organize a construction of the effective processes (directions of activities), including an elaboration and introduction of new or change of the existing control procedures, with due regard to the revealed risks;

- provide a regulatory activity of the processes being supervised (directions of activities);

- organize the control procedures fulfillment;

- implement an estimation (monitoring) of the control procedures fulfillment;

- carry out an estimation of the supervised processes (directions of activities) for the subject of a necessity of their optimization for effectiveness increase and conformity to the changing conditions of the external and internal environment, organize an elaboration of the offers for the control procedures improvement;

- provide an elimination of the revealed drawbacks of the control procedures and processes (directions of activities).

Employees of the Company structural subdivisions fulfilling the control procedures by virtue of their position duties:

- fulfill the control procedures;

- provide timely informing of direct heads about cases when the control procedures fulfillment became impossible by virtue of some reasons and/or a design change of the control procedures is required due to the internal and/or external conditions change of the Company functioning;

- submit offers to consideration to a direct head for the control procedures introduction in the corresponding fields of activity.

Subdivision of the internal control implements:

- elaboration and provision of introduction of the main and methodological documents for construction and improvement of the internal control system;

- assistance to the management in constructing of the control environment, recommendations elaboration for description and introduction into the processes (lines of activities) of the control procedures and assignment of responsibilities to the officers;

- coordination of activities for support and monitoring of the target state of the internal control system;

- information preparation on the state of the internal control system for the persons concerned;

- interaction with the governmental regulatory and supervisory authorities on the issues of the internal control.

Internal audit subdivision implements:

- an elaboration based on the results of the internal audit carrying out, recommendations for improvement of the control procedures, separate components (elements) of the internal control and of the internal control system;

- internal independent estimation of efficiency of the internal control system and recommendations giving for the efficiency and effectiveness enhancement and enhancement of the internal control system.

All the ICS participants bear responsibility for a proper organization and control procedures fulfillment within the framework of their powers, assigned in the Company charter, in this Policy, local statutory enactments of the Company, in the provisions on the structural subdivisions and in the employment position instructions.

Risks management system - is a totality of the organizational measures, methods and procedures created and used for the effective implementation of the risks management.

Goals of the risk management system:

Goal of the risk management system in the Company is provision of the reasonable surety in the goals achievement set by the Company, determined by the Strategy of the electric grid complex development of the Russian Federation, program documents of development and by the Company charter, as well as provision of growth of the Company cost, with observing a balance of interests of all the persons concerned.

Goals of the risk management system include:

  • strategic goals - high level goals, associated with the Company mission;
  • operating goals - provision of effectiveness of the financial and economic activities and cost efficient use of resources, as well as provision of safe-keeping and integrity of the Company assets;
  • goals in the field of the reports preparation - provision of completeness and authenticity of the accounting (financial), statistical, managerial and other reports;
  • goals in the field the laws observance - observance of requirements of the laws and local statutory enactments of the Company that are applicable to the Company.

Goals of the risk management system are:

  • development of the risk-oriented corporate culture, distribution of knowledge and skills by the executive bodies and management of the Company in the field the risks management, as well as an opportunity use of the effective information exchange within the framework of the risk management system;
  • process improvement of the decisions taking and selection of a way of response to emerging risks for the sake of interests of the economic effectiveness provision of the arrangements for the risks management and economic expediency;
  • reduction of number of unforeseen events and losses in the economic activity by way of an opportunity expansion for would-be events detection and respective measures taking (response to a risk);
  • determination and management by the entire totality of the risks in the economic activity for the sake of interests of a more effective response to different impacts with use, among other things, of an integrated approach in relation to their aggregation.

Stages of the risks management process:

1) Goals definition;

2) Risks identification;

3) Risks estimation;

4) Response to risks;

5) Monitoring of risks.

Main functions and responsibility of participants of the risk management system

Main participants of the risk management system are

- Board of Directors;

- Authorized committee of the Board of Directors;

- Internal Audit Commission;

- executive bodies (Management Board, Director General);

- risk holders;

- risks management subdivision;

- executors of the risks management arrangements;

- internal audit subdivision.

Company Board of Directors:

- approves the Company internal documents, that define organization and function of the Company risks management system;

- approves the Policy of the Company risks management;

- considers annually the reports of the Company executive bodies on organization, function and effectiveness of the risk management system, as well as estimates functioning of this system and works out recommendations on how to improve it;

- considers annually the reports of the subdivision of the internal audit on effectiveness of the risk management system;

- considers results of the external independent effectiveness estimation of the risk management system should it be carried out.

Authorized committee of the Board of Directors implements:

- control of effectiveness of the risks management procedures;

- effectiveness estimation of the arrangements for risks management and RMS improvement;

- preliminary consideration of the reports of the executive bodies on organization and function of the risk management system prior to submit them to the Board of Directors;

- analysis of offers on improvement of the risk management system, including the issues of risks identification and an adjustment of the risk parameters;

- preliminary consideration, prior to approval by the Board of Directors, of the Company internal documents, that determine organization and function of the Company risks management system, Risks management policy and subsequent amendments thereto;

- preliminary consideration, prior to approval by the Board of Directors, and preparation of findings in relation to the text of section of the Company annual report, touching upon the risk management system.

Audit Committee of the Board of Directors implements a preliminary consideration of the estimation results of the risk management system effectiveness and provisions observance of this Policy according to the data of an internal auditor's report in respect of the above mentioned issues prior to their submission to the Board of Directors.

Based on the results of the audit the Company Internal Audit Commission prepares offers/recommendations for the risk management system improvement.

Executive bodies (Company Management Board, Director General) perform the following functions in the field of risks management:

Company executive bodies:

- provide creation and support of the effective RMS functioning on basis of the united approaches and standards, elaborated and approved for the Group of Companies Rosseti;

- are responsible for the decisions fulfillment of the Board of Directors in the field of organization and function of RMS.

Company Management Board / Director General:

- establishes requirements to a format and completeness of the information about the Company risks;

- forms trends and plans of the RMS development and improvement;

- carries out an analysis of the risks portfolio and works out measures for strategy of response and redistribution of resources in relation to the respective risks management;

- provides a preparation and considers, at least once a quarter, reports of the risks holders for risks management of the Company;

- submits, at least once half year, the information on the results of the Company risks management to consideration to an Authorized committee of the Board of Directors;

- submits, at least once a year, the information on the results of management by the Company risks to consideration of the Company Board of Directors (with a preliminary consideration on part of the Authorized committee of the Board of Directors);

- considers the results of the internal estimation of the RMS effectiveness, works out measures for the RMS development and improvement;

- provides the effective risks management within the framework of the current Company activities;

- approves the regulating and methodological documents of the Company on the issues of organization and function of RMS except for the documents the approval of which relates to the competence of the Company Board of Directors;

- prepares annually and submits to consideration to the Board of Directors the report on organization, function and effectiveness of the Company risks management system and offers for the RMS development and improvement.

Risks holders are responsible for:

- timely detection and estimation of risks;

- method selection of response to risks;

- timely elaboration and organization of fulfillment of the arrangements for risks management;

- regular monitoring of risks;

- provision of timely informing of the Company executive bodies on the work results for risks management;

- provision of the effective cooperation with the subdivision for the risks management as to the documents and reports formed within the framework of the risks management activity.

Executors of the risks management arrangements are responsible for:

- timely detection and/or minimization of risks according to the employment position instructions and established by the regulatory documents;

- arrangements fulfillment aimed at risks managing, timely and to the full extent.

Risks management subdivision fulfills the functions for:

- general coordination of the risk management processes, including cooperation of all the RMS participants;

- introduction of the methodological documents in the Company in the field of provision of the risks management process and RMS function;

- arrangement of the Company employees training in the field RMS;

- timely aggregation of the information on all the revealed risks and offers preparation for actualization of the risk register;

- provision of monitoring of the risks management process of the Company and entities under its control, according to the established procedure;

- timely and full provision of all the persons concerned (including the Company executive governance bodies) with information on the main trends, risks, challenges and threats in the Company activities.

Risks management subdivision is structurally bounded from the activities of the structural subdivisions that implement risks management within the framework of its operating activities, as well as from the activities of the internal control subdivision and internal audit subdivision.

Internal audit subdivision implements:

- an internal independent estimation of effectiveness of the risks management system and recommendations giving to the risks management subdivision aimed at efficiency and effectiveness enhancing of the risk management system;

- informing of the executive bodies and Company Board of Directors (an authorized committee under the Board of Directors) about the state of the risk management system.