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System of the Company’s Internal Control

The System of Internal Control (the -“SIC”) of the Company - is an element of the Company’s corporate governance which includes the full range of procedures, methods and controls created and used by the Board of Directors, Revision Commission, executive bodies, management and all employees of the Company in order to ensure reasonable guarantees as to the achievement of goals in the following areas:

  • efficiency and effectiveness of activity arrangement;
  • compliance with the laws applicable to the Company’s activities as well as with the requirements of the Company’s local regulations;
  • prevention of misconduct of the Company’s employees and third parties with respect to the Company’s assets;
  • ensuring of reliability and timeliness of accounting (financial) and other types of statements.

System of Internal Control and Risk Management

System of Internal Control and Risk Management

In order to implement the SIC Development and Improvement Strategy of PJSC Rosseti and its S&A approved by the Decision of the Board of Directors of PJSC Rosseti of February 10, 2014 (Minutes No. 143), the Policy of Internal Control of OJSC Kubanenergo approved by the amended Decision of the Board of Directors was applied in the Company in 2015 (Minutes No. 196-2014 of September 12, 2014). The Policy of Internal Control determines goals, principles of functioning and the Company’s SIC elements, main functions and responsibility of SIC participants, procedure for assessment of SIC efficiency.

Besides, the Company has Regulations on the Control Environment and Risks of the following business processes that were put into force by Order of the Company No. 541 of June 25, 2012:

  • Commercial accounting and sale of electricity transmission services;
  • Sales of Technological Connection Services;
  • Procurement Management;
  • Operational activity.

Members of the Internal Control System

Members of the Internal Control System

Powers and Responsibilities of Main SIC Members


Member’s name

Main functions in the field of SIC

Revision Commission

  • controls the Company’s financial and economic activities following the results of which it prepares proposals/recommendations to improve the SIC;
  • performs independent assessment of reliability of the data containing in the Company’s annual report and annual accounting statements.

Board of Directors

  • determines principles and approaches to the SIC organization, as well as the Company’s SIC development and improvement strategy;
  • controls and organizes internal audit activity;
  • implements control the work of the Company’s executive bodies by main (priority) business areas.

Audit Committee of the Board of Directors

  • implements a preliminary review prior to approval of in-house documents by the Board of Directors, defining arrangement and strategy for the SIC development and improvement;
  • implements a preliminary review prior to the Board of Director’s approval of the results of assessment of the SIC efficiency according to the data of internal auditor’s report on the SIC efficiency as well as reports on the results of external independent assessment of the SIC, prepares proposals/recommendations on the SIC improvement;
  • implements a preliminary review prior to the Board of Director’s consideration of issues on organization and results of internal audit activities;
  • implements supervision over the SIC functioning reliability and efficiency in terms of considering issues related to the supervision over the Company’s accounting (financial) statements reliability, selection of external auditor and carrying out of external audit, compliance with the regulatory legal requirements, as well as in terms of considering issues related to analysis and assessment of the Internal Control Policy observance.

Other Committees of the Board of Directors

  • exercise supervision of performance of the established financial and operational indices, observance of the applicable laws, rules and procedures established by local regulations, as well as reliability and timeliness of statements prepared by the Company (within their competences established by the Board of Directors).

Director General, Management Board

  • ensure establishing and daily functioning of the efficient and reliable SIC in the Company

Heads of Units And Divisions

  • organize an effective control environment for supervised processes (activities), take responsibility for the effective achievement of operational goals in supervised processes (activities), risk management in supervised processes (activities) and execution of control procedures

Employees of Company’s Divisions Performing Control Procedures as Part of Their Official Duties

  • perform control procedures as part of the SIC functioning in accordance with job descriptions and established regulatory documents;
  • ensure timely notification of direct supervisors if the performance of control procedures and risk management measures is rendered impossible for some reason and/or requires a change in the design of control procedures/risk management measures due to changes in internal and/or external conditions of functioning of the Company, including to ensure the development and submission to supervisors of proposals on introduction of control procedures and risk management measures in their respective fields of activity.

Specialized Control Units:

- Economic Security Department 

  • counteracts to the facts of unfair competition;
  • carries out investigations on the facts (prerequisites) of causing damage to interests of economic security of the Company;
  • organizes protection from theft of electric power, financial and real assets, intellectual property, prevention of other crimes against the Company’s property;
  •           participates in joint checks of financial and economic activity of Company’s divisions for the purpose of preparation of own opinion on the facts of violations and formation of evidential base in the interests of the Company

- Office of Document Support and Instructions Execution Control

  • ensures the unified record keeping system in the Company’s branches and executive office;
  • organizes control of document execution;
  • organizes control of document execution with regard to activities of Deputy Director General.

- Department of Production Safety and Production Control

  • ensures production control of safe operation of hazardous production facilities (industrial control) and reliability during operation of the electric supply equipment, timely executes measures planned by instructions of the government and corporate supervisory authorities;
  • ensures safe working conditions for the Company’s employees, observance of requirements of labor protection and sanitation, prevention of injury and occupational diseases of Company’s employees, data collection, planning and control of costs performance of labor protection;
  • increases of fire-prevention stability of the Company’s facilities

Office of Internal Control and Risks

  • provides the owners of business processes of the  SIC establishment and improvement with methodology;
  • coordinates activities for maintenance and monitoring of the SIC target status;
  • prepares information about the SIC status for interested parties.

Office of Internal Audit

  • following the results of internal audit, develops recommendations on improvement of control procedures, certain components (elements) of the internal control and the SIC;
  • carries out internal independent assessment of the SIC efficiency and provides recommendations on increase of the SIC efficiency and performance.

In order to ensure the SIC efficiency and its compliance with the objectively changing requirements and conditions, the Company varries out assessment of the SIC effectiveness. The Internal Control System Development and Improvement Strategy of OJSC Rosseti and its S&A determines 6 levels of the SIC maturity (from 1 (“zero”) to 6 (“high”)).

The Internal Control System Development and Improvement Strategy of OJSC Rosseti and its S&A approved by the Decision of the Board of Directors of PJSC Rosseti of February 10, 2014 (Minutes No. 143) (the “SIC Development Strategy”) determines 6 levels of the SIC maturity (from 1 (“zero”) to 6 (“high”)).

In the reporting year, the Company implemented the following key measures aimed at the SIC improvement:

  • the Company’s Articles of Association were amended with regard to referring under the competence of the Board of Directors (taking into account requirements of the Corporate Governance Code recommended by the Bank of Russia in Letter No. 06-52/2463 of April 10, 2014):
    •
  • definition of basic principles and approaches to the Risk Management and Internal Control System in the Company;
  • assessment of key operational risks (both financial and non-financial risks), as well as establishment of the acceptable size of risks for the Company;
  • organization the annual analysis and assessment of functioning of the Risk Management and Internal Control System at least once a year;
  • annual consideration of issues related to organization, functioning and efficiency of the Risk Management and Internal Control System in the Company;
  • control and organization of Internal Audit Division activity, including approval of internal audit activity plan, report on fulfillment of internal audit activity plan and internal audit division budget, approval of decisions on appointment, dismissal, as well as determination of remuneration to the Head of Internal Audit Division;
    •
  • the documents aimed at the development of the system of internal control of business processes and activities were introduced and updated,- the orders approving (updating) provisions, regulations, instructions aimed at the organization and control of business processes and activities were issued;
  • reports on the risk management for all levels of corporate governance were prepared;
  • the corporate structure of the Company was updated and the Order of the Company on distribution of duties between the Deputy Director General and other managers subordinated to the Director General of the Company was approved;
  • supplements are made to Regulations on Structural Divisions of the Company with regard to functionality on risk management;
  • Methods for Calculating and Assessing Efficiency Key Indicators Performance of the Company’s Director General was approved by the Board of Directors of the Company (Minutes No. 204/2015 of March 6, 2015);
  • Regulation on the Revision Commission of PJSC Kubanenergo was approved by the Annual General Meeting of Shareholders (Minutes No. 36 of June 10, 2015);
  • HR and Social Policy of OJSC Kubanenergo (Minutes No. 201/2014 of October 29, 2014, enacted by Order No. 59 of February 2, 2015), Integrated Safety Policy of OJSC Kubanenergo (Minutes No. 202/2015 of January 29, 2015), Regulation on the Audit Committee of the Board of Directors of OJSC Kubanenergo as amended (Minutes No. 207/2015 of April 17, 2015) is approved by the Company’s Board of Directors;
  • startup of internal audit activity automation;
  • business processes were optimized following the results of audits using violations classifier;
  • professional development of internal audit employees was carried out;
  • training of the Company’s top management on fundamentals of internal control and risk management was organized.

Implementation of the specified measures made it possible to increase the SIC maturity level from “satisfactory” to intermediate between “satisfactory” and “moderate” with a positive dynamics of the development.

The internal independent assessment of the SIC efficiency was carried out by the internal auditor of the Company. No external independent assessment was carried out.

Following the results of 2015, the problem of the SIC efficiency was considered at the meeting of the Board of Directors (Minutes No. 237/2016 of April 28, 2016) with preliminary discussion of the specified problem by the Audit Committee of the Board of Directors Minutes No. 36/2016 of March 17, 2016) - the Committee determined the level of the SIC & RM maturity as being at an intermediate level of a maturity between “satisfactory” and “moderate” with a positive dynamics.

For the purpose of further implementation of the SIC Development Strategy for 2016, the following measures aimed at the SIC improvement were scheduled:

  • implementation of a complex of measures aimed at optimization of business processes and introduction of control procedures in them (formalization of the control environment of the business processes), including improvement of the system of internal control of accounting, tax bookkeeping and reporting of PJSC Kubanenergo;
  • updating of the regulatory documents regulating implementation of the internal control and risk management systems, internal audit (Internal Control Policy, Risk Management Policy, Internal Audit Policy, Regulation on the Audit Committee of the Board of Directors, etc.);
  • approval of the SIC & SRM efficiency assessment methods;
  • development of internal audit automation;
  • other measures.