Corporate governance
3.3.3

Internal control

Internal control is an integral component of Company’s governing system. Internal control covers all lines of Company’s operations, all processes are regularly controlled at all management levels to ensure reasonable guarantees that the goals below are achieved:

  • Company’s efficiency and performance, soundness of assets;
  • Company’s compliance with applicable laws and Company’s enactments, incl. Company’s operations and accounting;
  • Provision of integrity and timeliness of financial and other reporting.

Internal control is improved on all management levels with regard to the following aspects of control:

Build-up of process control environment, incl.:checking whether control procedures to preventor minimize risk implications and toachieve business process goalsи are adequate as well as generation and implementation of control procedures Implementation of built-in control procedures toachieve businessprocess goals Internal audit,inspection of reportingintegrity, soundnessof assets,compliance control,external audit, self-evaluation Precheck In-process inspection Follow-up control

With the aim of implementing the ICS Development and Improvement Strategy of Rosseti and Rosseti’s SACs (83) the Company’s Board of Directors adopted the Amended and Restated Internal Control Policy of IDGC of Urals (OAO) on 14.03.2016 (84). The Policy stipulates goals, principles and elements of the Company’s internal control system, primary functions and liabilities of ICS participants as well as ICS efficacy evaluation procedures.

Internal Control System (ICS) Participants

Board of Directors Audit Committeeother Committees Board of Internal Auditors Internal Audit Department(3rd line of defense) Head and employees of structural units Security DepartmentLegal Department (2nd line of defense) Section ofInternal Control andRisk Management Executivesbodies

The functions of the ICS participants

Board of Internal Auditors
  • Oversight of Company’s financial and economic operations, followed up by recommendations/proposals with regard to ICS improvement;
  • Independent evaluation of integrity of data presented by the Company’s annual report and annual financial statements.
Board of Directors
  • Outlining of principles and approaches with regard to the Company's ICS rollout, including but not limited to, adoption of Company’s bylaws stipulating ICS rollout, its development and improvement strategy, adoption of the Company’s Internal Control Policy;
  • Oversight of the Company's executive bodies in key aspects of activities;
  • Examination of the Executive Board’s report with regard to arrangement and functioning of the Company’s internal control system;
  • Examination of internal auditor’s1 reports regarding internal control system efficacy on an annual basis;
  • Examination of external independent evaluation of the ICS efficacy.
Board of Directors’ Audit Committee
  • Preliminary examination, prior to the adoption by the Board of Directors, of Company’s bylaws stipulating ICS rollout, its development and improvement strategy, Internal Control Policy and their subsequent modifications;
  • Preliminary examination, prior to examination by the Board of Directors, of ICS efficacy cited in internal auditor’2 s reports regarding internal control system efficacy as well as of information on external independent evaluation of the ICS efficacy, generation of proposals/recommendations how to improve the Company’s internal control system;
  • Oversight of the internal control system regarding examination of items related to oversight of integrity of data presented by the Company’s accounting (financial) statements, of election of the external auditor and external audit, of compliance with regulatory requirements, regarding examination of the Executive Board’s report with regard to arrangement and functioning of the Company’s internal control system and regarding examination of items related to analysis and evaluation of execution of the internal control policy.
Board of Directors’ Strategy and Development Committee
  • Oversight of the progress of adopted programs and projects;
  • Evaluation of the Company’s performance efficacy.
Board of Directors’ Reliability Committee
  • Analysis of production activities regarding evaluation of internal technical control system rollout.
Board of Directors’ Personnel and Remunerations Committee
  • Regular analysis of performance of the General Director and members of the Executive Board.
Board of Directors’ Technological Connection Committee
  • Preparation of proposals to improve Company’s regulations and standards regarding provision of non-discriminatory access to connection services;
  • Generation of principles and criteria for efficiency evaluation of Company’s connection services;
  • Evaluation of efficiency of Company’s connection services.
Executive Board
  • Provision of ICS rollout and efficient functioning;
  • Enforcement of Board of Directors’ resolutions regarding ICS rollout;
  • Identification of ICS aspects to be developed and improved and planning of relevant activities;
  • Preparation of statements on Company’s performance, Company’s ICS rollout and functioning;
  • Examination of external independent evaluation of ICS efficacy, generation of measures to develop and improve the ICS.
Sole executive body
  • Provision of ICS rollout and efficient functioning;
  • Enforcement of Board of Directors’ resolutions regarding ICS rollout;
  • Adoption of regulating and methodological documents of the Company regarding ICS rollout and functioning, except for documents to be adopted by the Board of Directors;
  • Enforcement of Company’s performance targets required to reach set objectives;
  • Arrangement of accounting, generation of accounting (financial) statements and other reports;
  • Filing with the Board of Directors of statements on Company’s performance, Company’s ICS rollout and functioning.
Heads of divisions and departments
  • Preparation, recording, implementation, monitoring and development of the internal control system in the Company’s functional areas, liability for arrangement and coordination/performance of which is assigned to them by Company’s bylaws/ department regulations, namely:
  • Enforcement of internal control tenets;
  • Facilitation in forming up of efficient processes (lines of operations), including but not limited to generation and implementation, in light of exposed risks, of new control procedures and revision of existing ones;
  • Promotion of regulation of processes (lines of operations) under supervision;
  • Enforcement of control procedures;
  • Evaluation (monitoring) of control procedure progress;
  • Evaluation of processes (lines of operations) under supervision concerning required optimization to enhance efficiency and comply with modifiable external and internal environment, enforcement of proposals to improve control procedures;
  • Elimination of exposed weaknesses of control procedures and processes (lines of operations).
Employees, liable for control due to their job positions
  • Performance of control procedures;
  • Reporting to direct supervisors on cases when control procedures cannot be performed due to certain barriers and/or require redesigning, caused by changes of internal and/or external environment of Company’s operations,
  • Filing with the supervisors of proposals to implement control procedures into relevant spheres of operations.
Specialized control bodies
Security Department
  • Oversight whether all employees comply with the Anti-Corruption Policy and relevant bylaws, adopted for its development and enforcement, minimizing corruption risks.
Legal Department
  • Oversight whether the Company complies with the laws by conducting legal expertise and approval procedures in a manner, established by Company’s administrative and regulatory documents, of drafts of contracts and agreements, administrative and regulatory documents, resolutions of Company’s governing bodies, representation of interests proxies, applications, letters, claims, filed by the Company to legislative and executive bodies, courts, law enforcement agencies.
Internal Control and Risk Management Section
  • Generation and enforcement of guidelines related to build-up and improvement of internal control;
  • Facilitation to the management in build-up of control environment, generation of recommendations how to describe and implement control procedures into the processes (lines of operations) and assignment of responsibilities to executives;
  • Coordination of maintenance and monitoring of ICS target state;
  • Preparation of information on the internal control system for stakeholders;
  • Collaboration with state watchdogs in the sphere of internal control.
Internal Audit Department
  • Development of recommendations how to improve control procedures, separate components (elements) of internal control procedures and system after internal audit procedures;
  • Internal independent evaluation of efficacy of the internal control system and provision of recommendations how to enhance efficiency and performance of the internal control system.

To ensure that the internal control system is efficient and meets ever-changing requirements and conditions, the Company evaluates its efficiency whether it complies with target status and maturity level. The Strategy (83) stipulates 6 maturity levels of the internal control system (from 1 «null» to 6 «high»). To perform the assignments of the Board of Directors the Company has prepared a package of measures to improve the internal control system to be implemented during the reported period. The list of key measures focused on ICS improvement, implemented by the Company during the reported period:

  1. Preparation, update and communication to all stakeholders of the regulatory and methodological framework on internal control. The Company has 426 bylaws, classified into 29 business process categories.
  2. Development of typical process models and matrices of control procedures for three processes: “Investment Planning”, “Reconstruction and Greenfield Development of Grid Facilities” (outsource/in-house type) and “Controlling of Financial and Economic Performance with Regard to Oversight and Analysis of Investment Program Execution”.
  3. Conduct of trainings and individual counseling on the internal control system for the employees to enhance their engagement and quality of engagement in building up, keeping up to the mark and developing their business processes to comply with changing external and internal environment of the internal control system.
  4. Alignment of the Company’s goals and key operating risks as well as risks of core and supportive business processes of the Company.
Evaluation of the internal control system, performed in 2016, showed that the maturity level of the internal control system is between “Moderate” and “Optimal” values. Internal independent evaluation of the ICS efficiency was done by the Company’s internal auditor, no external independent evaluation being performed.

The Internal Audit Department is a unit, liable for internal audit. The Internal Audit Department is responsible to the Company’s Board of Directors. This means that the Board of Directors oversees and administers the unit (namely, adoption of the unit’s action plan, progress report, its budget as well as assignment, dismissal and remuneration of the unit head). Goals and objectives, principles of IA rollout and functioning, functions and authorities of the internal audit are stipulated by the Internal Audit Policy (85). There are also several bylaws regulating internal audit (86-90).

The goal of internal audit is to assist the Board of Directors and executive bodies of the Company in enhancing efficacy of governance and improving its financial and economic performance, by enforcing systematic and coherent approach to analysis and evaluation of the systems of risk management, internal control and corporate governance as instruments of reasonable assurance in Company’s goal achievement. The Company had 5 employees in charge of the internal audit in 2016. The internal auditor has conducted 11 inspections during the year.

Outcomes of the control procedures performed by the internal audit during 2016.

2016 IA control procedures prescribed 65 remedial actions to eliminate and prevent violations and problems, exposed by the internal audit. 30 remedial actions out of 32 actions, subject to execution during the reported period, were conducted, 2 remedial actions were cancelled.

Remedial actions

The Audit Committee oversees the execution of remedial actions. It continuously examines executives’ progress reports with regard to elimination of problems, exposed by the Board of Internal Auditors, internal auditor and watchdogs.

ЦЕНТР ЗАГРУЗКИ
Здесь вы можете скачать полный отчет 2016, отдельные главы в формате PDF и наиболее важные таблицы в формате Excel.
1About company
1.1Mission and strategic goals
1.2Market share
1.3Key 2016 events
2Board of directors’ progress report
2.1Letter to stockholders
2.2Production capital formation
2.2.1Network exploitation
2.2.2Electricity transmission
2.2.3Technological connection
2.2.4Development of telecommunications and IT systems
2.2.5Investments
2.2.6Innovations
2.2.7Efficacy enhancement
2.3Financial capital formation
2.3.1Analysis of revenues and expenses
2.3.2Analysis of financial standing
2.3.3Analysis of receivables and payables
2.3.4Analysis of credit portfolio
2.3.5Description of tariff policy
3Corporate governance
3.1Corporate governance practices
3.2Corporate governance system
3.2.1General meeting of stockholders
3.2.2Board of Directors
3.2.3Board of directors’ committees
3.2.4General director and executive board
3.2.5Remuneration and compensation policy
3.3Oversight system
3.3.1Board of internal auditors
3.3.2Independent auditor
3.3.3Internal control
3.3.4Risk management
3.3.5Security and anti-corruption
3.4Investor and stockholder relations
3.4.1Shareholder capital structure
3.4.2 Shareholder rights
3.4.3The company and stock market
3.4.4Communications with market participants
3.4.5FAQ
3.4.6Allocation of profit
4Stakeholder
4.1Human resources management
4.2Customer support
4.3Supplier relationship management
4.4Public and goverment relations
4.5Environment protection
5Appendices
5.1Prepared under Russian accounting standards
5.2Prepared under international financial reporting standards
5.3Related-party transaction report
5.4Corporate governance code compliance report
5.5References
5.6Abbreviations and acronyms