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.