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
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
Powers and Responsibilities of Main SIC Members
Member’s name |
Main functions in the field of SIC |
Revision Commission |
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Board of Directors |
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Audit Committee of the Board of Directors |
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Other Committees of the Board of Directors |
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Director General, Management Board |
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Heads of Units And Divisions |
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Employees of Company’s Divisions Performing Control Procedures as Part of Their Official Duties |
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Specialized Control Units: |
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- Economic Security Department |
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- Office of Document Support and Instructions Execution Control |
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- Department of Production Safety and Production Control |
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Office of Internal Control and Risks |
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Office of Internal Audit |
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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.