5.4. Information Concerning the Structure and Jurisdiction of Bodies Exercising Control of the Issuer’s Financial and Economic Activities and Concerning the Organization of the Risk Management and Internal Control System
Full description of the structure of bodies exercising control of the issuer’s financial and economic activities and their authority as specified in the Articles of Association (constitutive documents) and internal documents of the issuer:
In accordance with Article 16 of the Articles of Association of the Company, the General Meeting of Shareholders elects the Internal Audit Commission of the Company to exercise control of the Company’s financial and economic activities.
The Company’s Internal Audit Commission shall be elected annually by the General Meeting of Shareholders of the Company and shall consist of five (5) members.
The Company’s Internal Audit Commission shall act within the limits of the powers specified in the Federal Law “On Joint-Stock Companies,” the Articles of Association of the Company and the Regulations for the Internal Audit Commission of PJSC ROSSETI approved by the decision of the Annual General Meeting of Shareholders on June 30, 2015.
Audits (inspections) of the financial and economic activities of the Company shall be carried out after the end of the Company’s annual performance, and at any time on the initiative of the Company’s Internal Audit Commission, pursuant to a decision adopted by the General Meeting of Shareholders or the Company’s Board of Directors, or at the request of the Company’s shareholder(s) holding an aggregate of at least ten (10) percent of the Company’s voting shares.
At the request of the Company’s Internal Audit Commission, officers of the Company’s management bodies shall provide documents about the Company’s financial and economic activities. The Company’s Internal Audit Commission shall be entitled to request the convocation of the Extraordinary General Meeting of Shareholders.
The main objectives of the Internal Audit Commission of the Company are as follows:
a) conduct audits of the financial and economic activities of the Company;
b) make an independent assessment of information contained in the Company’s annual report and the Company’s annual accounting statements;
c) provide information about noncompliance with the accounting and financial reporting procedure set forth in the laws and regulations of the Russian Federation and about noncompliance with the laws and regulations of the Russian Federation in the course of financial and economic activities;
d) prepare proposals/recommendations to improve the effectiveness of managing the Company’s assets and improve the risk management and internal control system;
e) monitor the correction of deficiencies and the implementation of recommendations contained in reports on the previous audits (inspections);
f) ensure supervision of the compliance of the Company’s financial and economic transactions with the laws of the Russian Federation and the Articles of Association of the Company.
Members of the Company’s Internal Audit Commission may not be members of the Company’s Board of Directors or hold other positions in the Company’s management bodies at the same time. Shares held by members of the Company’s Board of Directors or officers of the Company’s management bodies may not participate in voting on the election of members of the Company’s Internal Audit Commission.
Pursuant to a decision adopted by the General Meeting of Shareholders, remuneration and/or reimbursement for expenses associated with the performance of their duties may be paid to members of the Company’s Internal Audit Commission during their office. The size of such remuneration and reimbursement shall be determined in accordance with the Regulations for Remuneration and Compensation for Members of the Internal Audit Commission of the Company approved by the General Meeting of Shareholders on June 30, 2015.
The Company’s Auditor (auditing organization) shall audit the Company’s financial and economic activities in accordance with the laws and regulations of the Russian Federation under a contract with the Auditor.
The Auditor of the Company shall be recommended to the General Meeting of Shareholders by the Board of Directors of the Company according to the results of a competitive selection of the auditing organization for the mandatory audit of the Company, which selection is conducted in accordance with the procedure prescribed in the Board of Directors of the Company.
The General Meeting of Shareholders shall approve the Auditor (auditing organization) of the Company. The size of the Auditor’s fee shall be defined by the Company’s Board of Directors.
Information about the Auditor of PJSC ROSSETI is contained in paragraph 1.2 of this Quarterly Report.
The Company has the Audit Committee of the Board of Directors
Principal functions of the Audit Committee:
The Audit Committee of the Board of Directors was established in accordance with the Regulations for the Board of Directors of PJSC ROSSETI approved by the decision adopted by the Annual General Meeting of Shareholders of the Company on June 30, 2015, for the purposes of rendering assistance to the Board of Directors of the Company in the accomplishment of its objectives.
The activities of the Committee shall be governed by legal regulations of the Russian Federation, the Articles of Association of the Company, local regulatory documents of the Company, decisions of the Board of Directors of the Company, and the Regulations for the Audit Committee of the Board of Directors of PJSC ROSSETI approved by the decision adopted by the Board of Directors of PJSC ROSSETI on December 25, 2015 (Minutes of the Meeting No. 217).
The competence of the Audit Committee shall include the consideration of issues related to supervision over the reliability of the Company’s accounting (financial) statements; control over the reliability and effectiveness of the internal control, risk management, and corporate governance systems; supervision over ensuring compliance with legal requirements and informing executive bodies about nonconformities; and the coordination of interaction between the external and internal auditors and other issues as instructed by the Board of Directors. Within its competence, the Audit Committee shall perform the following functions:
1. In the area of supervising the preparation of the Company’s accounting (financial) statements:
1.1. exercise control over ensuring the completeness, accuracy, and reliability of the Company’s accounting (financial) statements;
1.2. analyze the material aspects of the Company’s accounting policy;
1.3. take part in considering material issues and judgements in relation to the Company’s accounting (financial) statements.
2. In the area of controlling the operating reliability and effectiveness of the internal control, risk management, and corporate governance systems:
2.1. review the Company’s internal documents defining the organization and strategy of developing and improving the Company’s internal control and risk management systems and internal control and risk management policies and initiate amendments thereto;
2.2. evaluate the effectiveness of the internal control, risk management, and corporate governance systems and prepare proposals for their improvement, including evaluating the effectiveness of the Company’s risk management and internal control procedures and corporate governance practices, including:
- reviewing reports of the Company’s executive bodies on the organization, functioning, and effectiveness of the internal control and risk management systems;
- analyzing the list and structure of the Company’s risks;
- discussing material risks and their key indicators with the Company’s executive bodies;
- analyzing measures to manage material risks and improve the internal control, risk management, and corporate governance systems;
2.3. consider and issue opinions concerning the preferred risk level (risk appetite);
2.4. analyze and assess the implementation of the internal control and risk management policies;
2.5. control the procedures ensuring that the Company complies with legal requirements, ethical standards, the Company’s rules and procedures, and the requirements established by exchanges;
2.6. analyze and assess the implementation of the conflict of interest management policy.
3. In the area of ensuring the independence and objectivity of the internal audit function:
3.1. review the internal audit policy;
3.2. initiate amendments to the Company’s internal audit policy;
3.3. consider issues related to the reorganization and closing of the internal audit division;
3.4. consider issues related to giving consent to the appointment and dismissal of the chief internal audit executive and determining his or her remuneration;
3.5. review the internal audit action plan and the budget of the internal audit division;
3.6. examine substantial constraints on the powers or the budget of the internal audit function that can adversely affect the effective performance of the internal audit function;
3.7. approve annual performance reports of internal audit (including reports that contain information on the results of specific audits; identified material risks; deficiencies; the results and effectiveness of measures taken to correct discovered deficiencies; the results of implementing the internal audit action plan; the results of evaluating the actual condition, reliability, and effectiveness of the internal control, risk management, and corporate governance systems);
3.8. organize the evaluation of internal audit function effectiveness, including the independent evaluation of internal audit function quality at least every five years (giving approval to the terms of reference, the material terms and conditions of a contract, and nominees for evaluators);
3.9. consider the results of internal and external evaluations of internal audit quality;
3.10. perform other functions of the Committee in the area of ensuring the independence and objectivity of the internal audit function as specified in paragraph 9.3 of these Regulations.
4. In the area of supervising external audit and the selection of the external auditor:
4.1. assess the independence, objectivity, and absence of conflicts of interest of the Company’s external auditors, including assessing nominees for the Company’s auditors and preparing proposals for the nomination, reelection, and dismissal of the Company’s external auditors, for payment for their services, and for the terms and conditions of their engagement;
4.2. evaluate the quality of conducted audits and audit opinions;
4.3. ensure effective interaction between the Company’s internal audit division and external auditors.
5. In the area of controlling the operating effectiveness of the system of combating misconduct on the part of the Company’s employees and third parties:
5.1. control the operating effectiveness of the warning system dealing with potential misconduct on the part of the Company’s employees and third parties and with other nonconformities within the Company;
5.2. supervise special investigations into potential fraud and the misuse of insider or confidential information;
5.3. monitor the implementation of measures prescribed by the Company’s executive managers with respect to providing information on potential misconduct on the part of employees and other nonconformities.
6. Other functions aimed at achieving the goals and objectives specified in the Regulations for the Audit Committee of the Board of Directors.
Members of the audit committee of the board of directors
Full Name
|
Chairman
|
Stanislav Olegovich Ashirov
|
No
|
Vasily Mikhailovich Belov
|
Yes
|
Alexander Sergeyevich Kalinin
|
No
|
Alexei Aleksandrovich Makarov
|
No
|
Information concerning the existence of the issuer’s special risk management and internal control division(s) (a function (division) different from the internal audit commission (internal auditor) and responsible for the internal control of the issuer’s financial and economic activities):
With the aim of implementing the provisions of Articles 11, 13, and 14 of the Articles of Association of PJSC ROSSETI (hereinafter, the “Company”) with respect to reducing the Company’s losses resulting from the impact of risks on its activities, the Company organized and carries out risk management measures.
The Board of Directors of the Company approved a restated version of the Risk Management Policy of PJSC ROSSETI (hereinafter, the “Risk Management Policy”). The document defines the general principles of building up the risk management system (RMS), its goals and objectives, general approaches to its organization, the distribution of responsibilities among its participants, and the pattern of their interaction.
Pursuant to the approved Risk Management Policy and in accordance with job descriptions and existing regulatory documents, the direct implementation of risk management procedures and the organization of the effective control environment of supervised processes (areas of activities) are entrusted to process owners, namely the managers of the Company’s units and divisions.
The general coordination of risk management processes, including actions of all RMS participants, falls within the purview of the risk management division, the Strategic Development Department, which is not a division responsible for risk management as part of its operations and is separated from the operations conducted by the controlling and internal inspection division and the internal audit division.
Pursuant to the Internal Control Policy of PJSC ROSSETI approved by the decision adopted by the Board of Directors of the Company on November 16, 2015, (Minutes of the Meeting No. 208) and in accordance with job descriptions and existing regulatory documents, the direct implementation of control procedures and the organization of the effective control environment of supervised processes (areas of activities) are entrusted to process owners, namely the managers of the Company’s units and divisions. The Company has the Controlling and Internal Inspection Department, which is entrusted under the Internal Control Policy and the Regulations for the Controlling and Internal Inspection Department with the functions of coordinating the activities related to developing and introducing into the Company and PJSC ROSSETI’s subsidiaries and dependent companies unified approaches to building up and improving the internal control system.
Information concerning the existence of the issuer’s special internal audit division (function) and concerning its objectives and functions:
The Company has a special division, the Directorate for Internal Audit (established on January 19, 2015, and fully staffed on March 1, 2015). The Annual General Meeting of Shareholders of PJSC ROSSETI resolved to approve a restated version of the Articles of Association of Public Joint Stock Company ROSSETI whereby the competence of the Board of Directors includes the following issues:
- approve the Internal Audit Action Plan and the budget of the internal audit division;
- give consent to the appointment and dismissal of the chief internal audit executive and determine his or her remuneration;
- examine substantial constraints on the powers of the internal audit division or any other constraints that can adversely affect internal audit.
The Directorate for Internal Audit is functionally subordinate to the Board of Directors of the Company and administratively subordinate to the Director General of the Company.
In order to comply with the Strategy for Development of the Electric Grid Sector of the Russian Federation approved by Ordinance of the Government of the Russian Federation No. 511-r of April 3, 2013, and in order to implement the provisions of the Strategy for Developing and Improving the Internal Control and Risk Management System of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI approved by the decision adopted by the Board of Directors of PJSC ROSSETI on October 2, 2014, (Minutes of the Meeting No. 143), the Company formulated the Internal Audit Policy approved by the decision adopted by the Board of Directors of the Company on April 28, 2014, (Minutes of the Meeting No. 151).
The decision adopted by the Board of Directors of the Company on March 10, 2015, (Minutes of the Meeting No. 179, Item 9) approved the Action Plan (Road Map) to Introduce the Corporate Governance Code into the Company’s activities. The Action Plan provides for formulating and submitting for approval by the Board of Directors a restated version of the Internal Audit Policy.
The necessity of updating the Company’s Internal Audit Policy is also specified in Directive of the Government of the Russian Federation No. 3984p-P13 of June 24, 2015, and the decision adopted by the Board of Directors of PJSC ROSSETI on August 5, 2015, (Minutes of the Meeting No. 199) whereby the Company should, before November 11, 2015, prepare and bring into effect internal regulatory documents (including a restated version of the Company’s Internal Audit Policy) pursuant to Instructions of the President of the Russian Federation No. Pr-3013 of December 27, 2014.
The Board of Directors of PJSC ROSSETI resolved on November 16, 2015, (Minutes of the Meeting No. 208) to approve a restated version of the Internal Audit Policy PJSC ROSSETI (hereinafter, the “Policy”), which is posted on the Company’s corporate website in the section “Articles of Association and internal documents”). Under the Policy, the Company implements the internal audit function through the internal audit division (a special division).
The Policy defines the following functions of internal audit:
1. As related to implementing and applying unified approaches to building up, managing, and coordinating the internal audit function in the Company and SDCs:
1.1. Prepare proposals for the optimal form of implementing the internal audit function in the Company and SDCs;
1.2. Coordinate measures taken by the Company and SDCs to introduce the uniform principles of building up and managing the internal audit function and evaluating the implementation of the internal audit function;
1.3. Provide methodological support for internal audit in SDCs, including the preparation and updating of model regulations governing internal audit activities (policies, regulations, schedules, techniques, instructions, and other documents);
1.4. Organize and carry out measures to automate internal audit activities of the Company and SDCs.
2. As related to conducting internal audits and participating in other inspections in the Company and SDCs:
2.1. Plan, organize, and conduct internal audits of business processes (areas of activities), business functions, projects/plans/programs, business units and separate divisions, and other auditees within the Company in order to ensure:
- compliance with legal requirements, the industry’s regulations, internal procedures, standards, and other internal documents (except for any technical regulations, standards, and rules governing the operation of electric grid facilities) and contractual obligations;
- implementation of the instructions issued by Russian governmental authorities in relation to the functioning and development of the electric grid sector;
- implementation of management bodies’ decisions/directives (instructions) and the requirements contained in regulations, orders, and other internal documents;
- efficiency, cost effectiveness, and productivity of operations;
- reliability, accuracy, completeness, and timeliness of financial reporting and management reporting;
- safeguarding of assets.
2.2. Introduce the practice of carrying out focused audits conducted by all electric grid SDCs on a specific subject under the uniform audit program;
2.3. Conduct inspections and carry out other assignments as instructed by the Board of Directors (Audit Committee) and/or executive bodies of the Company with respect to the issues falling within the competence of internal audit;
2.4. Involve staff members of the Company’s internal audit division as elected members of SDCs’ internal audit commissions or as invited experts in the activities of SDCs’ internal audit commissions;
2.5. Participate in special (internal) investigations into irregularities (fraud), damage caused to the Company and SDCs, and improper or inefficient use of resources and into other unscrupulous/illegal acts on the part of employees and third parties;
2.6. Inform the Board of Directors (Audit Committee), the sole executive body/Management Board about the results of audits, provide recommendations to correct nonconformities and deficiencies found by audits, and put forward proposals to improve the efficiency and effectiveness of the internal control, risk management, and corporate governance systems and enhance activities of the Company and the ROSSETI Group;
2.7. Monitor the implementation of corrective actions aimed at correcting nonconformities and deficiencies found by audits and implementing recommendations and proposals to enhance activities of the Company;
2.8. Organize and conduct post-audits of business processes (areas of activities), business functions, projects/plans/programs, business units and separate divisions, and other auditees.
3. As related to providing independent and objective assurances regarding the effectiveness of internal control, risk management and corporate governance and assisting the Company’s executive bodies and employees in developing and monitoring the implementation of procedures and measures to improve the Company’s internal control, risk management, and corporate governance:
3.1. Evaluate the effectiveness of the internal control system, including as follows:
- evaluate the state of the Company’s internal (control) environment (including assessing such elements of the control environment as the philosophy of internal control, integrity and ethical values, the organizational structure, the distribution of authority and responsibilities, and personnel management);
- evaluate the effectiveness of internal control policy implementation;
- evaluate the Company’s process of setting goals, including determining the adequacy of the criteria for analyzing the degree of accomplishing (achieving) goals;
- identify the internal control system’s shortcomings that have not allowed (do not allow) the Company and SDCs to achieve their goals;
- evaluate the risk management process;
- evaluate issues related to organizing, building up, and implementing internal controls (control procedures) embedded in processes;
- evaluate issues related to organizing communication (information exchange) within the Company;
- evaluate the process of organizing the Company’s monitoring, including monitoring the results of the introduction (implementation) of measures to correct violations and shortcomings and monitoring the results of improving the internal control system;
3.2. Evaluate the effectiveness of the risk management system, including as follows:
- verify the adequacy and maturity of the Company’s risk management system elements to ensure effective risk management, including with respect to organizing processes, setting goals and objectives, implementing the risk management policy, automating processes, providing regulatory and methodological support, ensuring interaction among divisions within the risk management system, reporting, building up infrastructure, including the organizational structure, etc.;
- verify the completeness of identifying and the correctness of assessing risks at all levels of the Company;
- verify the effectiveness of the Company’s control procedures and other risk management measures, including the effectiveness of using the resources allocated for this purpose;
- analyze information on risks that occur in the Company (including nonconformities, unachieved goals, litigation, etc. found by inspections);
3.3. Evaluate corporate governance, including as follows:
- verify compliance with the Company’s ethical principles and corporate values;
- verify the Company’s procedure for setting goals and monitoring/supervising their achievement;
- verify the level of regulatory support and procedures of information exchange (including with respect to risk management and internal control) at all management levels of the Company, including stakeholder relations;
- verify the protection of shareholder rights, including controlled companies’ rights, and the effectiveness of stakeholder relations;
- verify procedures for disclosing information about the Company;
3.4. Advise the Company’s executive bodies on internal control, risk management, and corporate governance (provided that internal audit remains independent and objective).
4. Functions of internal audit as related to organizing the Company’s effective interaction with the external auditor of the Company, the Internal Audit Commission of the Company, and persons advising on risk management, internal control, and corporate governance (described in the section “Interaction between the Internal Audit and Stakeholders” of the Policy).
5. Functions of internal audit as related to preparing and submitting to the Audit Committee and executive bodies of the Company (sole executive body/Management Board) performance reports of internal audit (described in the section “Interaction between the Internal Audit and Stakeholders” of the Policy).
6. Other functions of internal audit aimed at achieving the goals and objectives specified in the Policy.
Risk management and internal control policy of the issuer:
Risk management policy of the issuer
The basic principles of the risk management system are as follows:
- protect the Company’s values and creation the conditions for the Company’s development;
- integrate the risk management process into the Company’s overall management system. Risk management is part of the obligations of management and is incorporated into all organizational processes and into project and change management processes, including the Company’s strategic development planning;
- ensure the unity of risk management and decision making;
- ensure that processes are systematic, structured, and timely;
- ensure the continuity of information flows and the availability and completeness information;
- ensure the adaptability of the system and its continuous development with due consideration to the necessity of meeting the new challenges arising from changes in the internal and external conditions of the Company’s operations;
- ensure the transparency of activities and protect the interests of stakeholders;
- ensure that processes are dynamic, iterative (recurrent), and prompt (immediate response to changes in the situation);
- ensure the adaptiveness of the system, enabling risk management to be improved at the same time as improving other management processes in the Company;
- cause all participants to be responsible for risk management;
- optimize the structure of the system, ensuring that decision making related to risk response is based on the comprehensive consideration of factors;
- ensure the unity of the methodological framework for all of the Company’s divisions, using unified approaches and standards developed and approved for the ROSSETI Group.
In order to evaluate the effectiveness of risk management and continue the improvement of risk management, the Company interacts with governmental supervisory authorities, external auditors, and other external stakeholders with respect to risk management in accordance with the procedure provided for in the laws of the Russian Federation and the applicable internal documents of the Company.
The Company periodically evaluates the current status of the risk management system: self-assessment; internal independent evaluation; external independent evaluation.
The self-assessment of risk management effectiveness is performed by risk owners and the Strategic Development Department.
The internal independent evaluation of risk management effectiveness is made and recommendations to improve the efficiency and effectiveness of risk management are provided by the Directorate for Internal Audit on an annual basis, informing the Company’s executive bodies and the Audit Committee of the Board of Directors about the status of the risk management system.
The external independent evaluation of risk management effectiveness is made by an external independent consultant at least every three years, depending on assumed risks, changes in organizational activities, and the overall level of the risk management system’s maturity, reliability, and effectiveness. Reports on the results of external independent evaluations are submitted to the risk management division and the internal audit division.
The risk management division ensures that the results of the external independent evaluation of risk management effectiveness are submitted for consideration by the Management Board and the Board of Directors of the Company (to be preliminarily reviewed by the Audit Committee of the Company’s Board of Directors).
The further improvement of the risk management system is closely connected with the development of the internal control system and is part of implementing the Strategy for Developing and Improving the Internal Control System of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI. For this purpose, the Company developed a schedule (road map).
Adhering to the principles of building up and operating the risk management system, similar risk management policies were approved by the boards of directors of PJSC ROSSETI’s SDCs. Risk management measures are carried out in accordance with the Technique for Evaluating Operational Risks, which makes it possible to ensure the unity of approaches to their structuring, including their classification, risk assessment, and reporting on performance results.
Due to the approval of a restated version of the Risk Management Policy of PJSC ROSSETI, which meets the requirements set forth in the guidelines of the Federal Agency for State Property Management of the Russian Federation for the preparation of the regulations for the risk management system as approved by Instructions of the Government of the Russian Federation No. ISh-P13-4148 of June 24, 2015, the Company organized work on clarifying the regulatory documents governing the procedure for interaction among the Company’s divisions in the course of risk management and on organizing risk management activities in PJSC ROSSETI’s SDCs.
Internal control policy of the issuer
The effectiveness of the Company’s internal control system relies on the interrelationship of the following constituent management processes:
– Organization of effective internal control over business processes.
– Risk management.
– Internal audit and independent evaluation.
– Auditorial control.
To provide reasonable assurances that the goals and objectives of developing the electric grid sector will be achieved, the Board of Directors approved the Strategy for Developing and Improving the Internal Control System of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI (as resolved on February 10, 2014; Minutes of the Meeting No. 143) (hereinafter, the “ICS Development and Improvement Strategy”), which contains the current and intended state of the internal control and risk management system of PJSC ROSSETI and its subsidiaries.
For the purpose of implementing the ICS Development and Improvement Strategy, the Company developed a schedule (road map), which was approved by the Director General of PJSC ROSSETI on March 31, 2014. On May 12, 2015, the Management Board of PJSC ROSSETI approved an updated version of the schedule (road map) for implementing the Strategy for Developing and Improving the Internal Control System of JSC ROSSETI and Subsidiaries and Dependent Companies of JSC ROSSETI (Minutes of the Meeting No. 341pr).
The measures contained in the schedule (road map) are aimed at developing the internal control and risk management system at all levels (PJSC ROSSETI and PJSC ROSSETI’s subsidiaries) and in all processes (areas of activities). The measures contained in the road map will be carried out in 2014–2018, aiming to achieve by 2018 the maximum maturity level of internal control and risk management as specified in the ICS Development and Improvement Strategy.
The decision adopted by the Board of Directors on November 16, 2015, (Minutes of the Meeting No. 208) approved a restated version of the Internal Control Policy of PJSC ROSSETI. The Policy defines the goals and objectives of internal control, the components and principles of internal control, participants in the internal control and their functions, interaction within the internal control system, the main stages of the internal control process, and the requirements applicable to evaluating the effectiveness of the internal control system.
The following principles underlie the Company’s internal control policy:
− The Company acts in good faith and adheres to ethical values.
− The Board of Directors of the Company is independent of management and supervises the development and operation of the internal control system.
− Management determines the Company’s structure, subordination lines, and the relevant powers, duties, and responsibilities in the course of pursuing the goals.
− The Company strives to recruit, develop, and retain competent employees in accordance with its goals.
− The Company establishes the responsibility of management bodies and employees for the performance of their internal control functions in the course of pursuing the goals.
− The Company defines clear goals in order to be able to identify and assess risks preventing their attainment.
− The Company identifies risks preventing the attainment of a range of its goals and analyzes risks on order to find approaches to risk management.
− The Company takes into account the possibility of fraud in the assessment of risks preventing the attainment of its goals.
− The Company identifies and assesses changes that may have a substantial impact on the internal control system.
− The Company selects and develops control procedures that make it possible to reduce risks preventing the attainment of its goals to an acceptable level.
− The Company selects and develops general control procedures for corporate and technological automated systems in order to attain its goals.
− The Company implements control procedures by developing regulatory documents that define the expected results and the procedures for meeting the requirements of regulatory documents.
− The Company receives or generates and uses significant and qualitative information in order to maintain the operation of internal control.
− The Company conducts internal exchange of information, including information on the goals and duties in the area of internal control, which is essential for the operation of internal control.
− The Company shares information with external parties with respect to issues affecting the operation of internal control.
− The Company organizes and makes continuous and/or periodic assessments of components (elements) of internal controls in order to make sure that they are available and operable.
− The Company evaluates internal control deficiencies and promptly provides information on them to the parties responsible for corrective actions, including executive bodies and the Board of Directors.
The Company’s internal control system operates in accordance with the “three lines of defense” model, which means that the Company implements internal control at three levels:
− at the level of the Company’s management bodies, units, and divisions carrying out control procedures by virtue of their functions and duties – the first line of defense;
− at the level of the Company’s control divisions – the second line of defense;
− at the level of the internal audit division – the third line of defense.
The main internal control procedures are as follows:
− building up the control environment of processes; developing and introducing control procedures;
− carrying out control procedures;
− evaluating the effectiveness of control procedures and the internal control system for processes as a whole;
− responding (analyzing the nature and causes of discovered deficiencies, setting priorities and making a plan to correct discovered deficiencies, monitoring the completeness and timeliness of correcting eliminate discovered deficiencies, and improving control procedures).
In order to ensure that the internal control system is effective and meets the objectively changing requirements and conditions, the Company periodically evaluates the effectiveness of the internal control system for being consistent with the intended state and maturity level.
The Company’s internal documents governing the operation of bodies that control the financial and economic activities of PJSC ROSSETI are publicly available on the Company’s website at
http://www.rosseti.ru/about/documents/
http://www.e-disclosure.ru/portal/company.aspx?id=13806
The issuer approved (adopted) the internal document specifying the rules for preventing the misuse of confidential and insider information.
Information concerning the availability of an internal document that lays down the rules for preventing the misuse of confidential and insider information:
The Board of Directors of the Company approved a restated version of the Regulations for Insider Information of PJSC ROSSETI (Minutes of the Meeting No. 162) on August 25, 2014, complying with the basic provisions of Federal Law No. 224-FZ of July 27, 2010, “On Combating Insider Information Misuse and Market Manipulation and on Amendments to Certain Legislative Acts of the Russian Federation,” Federal Law No. 251-FZ of July 23, 2013, “On Amendments to Specific Legislative Acts of the Russian Federation in Connection with the Transfer of the Authority to Regulate, Control, and Supervise Financial Markets to the Central Bank of the Russian Federation,” Federal Law No. 149-FZ of July 27, 2006, “On Information, Information Technology, and Information Protection”, regulatory documents of the Bank of Russia, Federal Law No. 39-FZ of April 22, 1996, “On the Securities Market,” Federal Law No. 208-FZ of December 26, 1995, “On Joint-Stock Companies,” and Directive 2003/6/EC of the European Parliament and of the Council on insider dealing and market manipulation (market abuse) as incorporated into English law and applicable to the Company in connection with admitting the global depositary receipts issued for the Company’s shares to trading in the regulated market of the London Stock Exchange.
Information for PJSC ROSSETI insiders is available on the Company’s website at http://www.rosseti.ru/investors/info/insider/.
Starting from 2013, the Issuer uses a uniform strategic document, namely the Anti-Corruption Policy of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI (approved by the Board of Directors (Minutes of the Meeting No. 142 of December 30, 2013) as amended by Minutes of the Meeting No. 171 on November 28, 2014) (hereinafter, the “Anti-Corruption Policy”), which defines a unified approach to compliance with the requirements set forth in Article 13.3 of Federal Law 273-FZ of December 25, 2008, “On Combating Corruption” (hereinafter, the “Anti-Corruption Law”) with respect to the Issuer’s obligation to develop and take measures to prevent and combat corruption: establishing and subsequently eliminating the causes of corruption (avoiding corruption); identifying, preventing, and curbing corruption offenses and other offenses; minimizing and/or remedying the consequences of corruption offenses and other offenses, including those specified in Article 19.28 of the Code of Administrative Offences of the Russian Federation (liability for illegal gratification on behalf of a corporate entity).
The Anti-Corruption Policy is the basic document of PJSC ROSSETI and PJSC ROSSETI’s SDCs in combating corruption and contains a set of interrelated principles, procedures, and measures provided for in an official document, namely the Recommended Guidelines of the Ministry of Labor and Social Protection of the Russian Federation approved on November 8, 2013.
Main areas of the Anti-Corruption Policy:
- appoint divisions responsible for avoiding corruption offenses and combating corruption;
- assess corruption risks;
- identify and resolve conflicts of interest;
- develop and implement standards and procedures aimed at ensuring good faith work;
- study and act on information about possible corruption;
- provide advice and training for an organization’s employees;
- conduct internal control and audit procedures;
- carry out measures to combat and avoid corruption in cooperation with counterparties;
- interact with governmental supervisory authorities;
- cooperate with law enforcement agencies in combating corruption;
- take part in collective initiatives to combat and avoid corruption.
The Issuer developed and approved the List of Anti-Corruption Measures of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI, providing for the implementation of measures and practices and defining the procedure for carrying them out.
All this imposes special obligations on the Issuer in building a uniform, vertically integrated system for the implementation of the Anti-Corruption Policy in the ROSSETI Group, whose controlling shareholder is the government.
In this connection, the Issuer not only independently implements measures to prevent and combat corruption, but also takes part in collective anti-corruption initiatives:
- on September 23, 2014, PJSC ROSSETI acceded to the Anti-Corruption Charter of the Russian Business (Certificate No. 496 of September 23, 2014);
- uses standard contractual clauses on anti-corruption;
- is included on the Register of Reliable Partners (Certificate No. 01009-000 of May 4, 2015);
- interacts with such associations as the Chamber of Commerce and Industry of the Russian Federation and the Russian Union of Industrialists and Entrepreneurs.
The Issuer extensively cooperates with governmental authorities and ensures the publicity of its anti-corruption efforts. PJSC ROSSETI actively participates in the interdepartmental working group under the General Prosecutor’s Office, dealing with legal issues related to ensuring the transparency of financial and economic activities and removing administrative barriers to the development of the electric grid sector; in the expert group under the Federal Service for Financial Monitoring on combating illegal financial transactions in order to determine the mechanism for identifying beneficiaries as related to verifying the reliability of information about corporate entities and individuals; in the Expert Group of the Joint Committee of the Chamber of Commerce and Industry of the Russian Federation in order to effectively implement the provisions of the Anti-Corruption Charter of the Russian Business.
PJSC ROSSETI took part in the meeting of the Expert Group on combating corruption, discussing the issue “Ratio between antimonopoly and anti-corruption legislation in dealing with third parties.”
Pursuing the Anti-Corruption Policy, PJSC ROSSETI gives much attention to forming the standards of transparent business. The Company created an automated analysis and collection system for information on beneficiaries. The system makes it possible to accumulate data from multiple sources into a unified information space, verifying information about corporate entities and individuals and detecting affiliation, conflicts of interest, pre-conflicts of interest, and other abuses.
In order to comply with the anti-corruption laws of the Russian Federation and improve PJSC ROSSETI’s and PJSC ROSSETI’s SDC’s anti-corruption measures, the Company approved the Anti-Corruption Clause, which is incorporated into all of the Company’s contracts. By signing the clause, a counterparty confirms that it has read the Anti-Corruption Charter of the Russian Business and the Anti-Corruption Policy of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI, certifying that it accepts all provisions of the Anti-Corruption Policy and agrees to ensure compliance with its requirements.
The Company’s function responsible for avoiding and combating corruption performs the following functional duties:
- carry out measures aimed at implementing the principles and requirements of the Anti-Corruption Policy;
- formulate anti-corruption programs for the implementation of the areas of the Anti-Corruption Policy;
- conduct monitoring activities aimed at identifying corruption offenses and other offenses;
- organize the assessment of corruption risks;
- consider reports on enticing employees into corruption offenses and other offenses in the interests or on behalf of any other organization and on possible corruption offenses and other offenses committed by employees and counterparties of PJSC ROSSETI and PJSC ROSSETI’s SDCs or other persons;
- organize the completion and consideration of conflict of interest declarations;
- organize training sessions on avoiding and combating corruption and individual advice for employees;
- assist the authorized representatives of supervisory and law enforcement agencies in their inspections of activities of PJSC ROSSETI and PJSC ROSSETI’s SDCs with respect to preventing and combating corruption;
- assist the authorized representatives of law enforcement agencies in their activities in relation to curbing or investigating corruption crimes, including investigative measures;
- evaluate the results of anti-corruption work and prepare reports thereon for an organization’s management;
- carry out measures to prevent and combat corruption offenses and other offenses and conflicts of interest;
- develop anti-corruption standards and provide guidance on the implementation of measures to combat and avoid corruption and provide legal education for employees;
- coordinate the activities of divisions in the implementation of the Anti-Corruption Policy;
- participate in Russian- and international-level summits, workshops, seminars, and conferences on combating and avoiding corruption;
- ensure that, pursuing an anti-corruption policy that contains the provisions of the Anti-Corruption Charter of the Russian Business, PJSC ROSSETI and PJSC ROSSETI’s SDCs provide publicity for their anti-corruption measures, participate in international anti-corruption events, forums, and meetings and workshops organized by the Institute of Legislation and Comparative Law under the Government of the Russian Federation, the Center for Scientific and Methodological Support for Combating Corruption of the Russian Presidential Academy of National Economy and Public Administration, and other research and educational establishments;
Representatives of PJSC ROSSETI participated in a roundtable discussion at the Chamber of Commerce and Industry of the Russian Federation on “Affiliation audit and identification of conflicts of interest in anti-corruption audits of third parties.”
- organize and carry out the monitoring of Russian, applicable foreign, and international anti-corruption legislation and track changes thereto, as well as the relevant court practices;
- conduct scheduled and unscheduled inspections of compliance with the principles of the Anti-Corruption Policy and prepare reports on the results of such inspections;
- develop documents on combating and avoiding corruption and initiate the updating of documents due to changes to Russian anti-corruption legislation.
Specifically, the Issuer approved the Procedure for Receiving, Considering, and Acting on Reports from Whistleblowers (Employees and Counterparties of PJSC ROSSETI and Subsidiaries and Dependent Companies of PJSC ROSSETI and Other Individuals and Corporate Entities) with Allegations of Corruption, the Order “On Measures to Prevent Corruption and Avoid and Settle Conflicts of Interest in PJSC ROSSETI,” and the Regulations for the Disclosure by PJSC ROSSETI’s Employees of Information on Gifts Received in Connection with Their Official Capacity or Their Performance of Functions, the Transfer and Valuation of Gifts, the Sale (Purchase) of Gifts, and the Crediting of the Proceeds from Their Sale and updated the Regulations for the Central Commission on Corporate Ethics Compliance and Conflict of Interest Resolution of PJSC ROSSETI and the Regulations for Conflict of Interest Resolution of PJSC ROSSETI, including the Model Regulations for Conflict of Interest Resolution of Subsidiaries and Dependent Companies of PJSC ROSSETI and the Model Regulations for the Commission on Corporate Ethics Compliance and Conflict of Interest Resolution of Subsidiaries and Dependent Companies of PJSC ROSSETI. The Issuer issued an ordinance that all necessary measures be taken to prevent any transactions with persons affiliated or otherwise connected with employees of PJSC ROSSETI’s SDCs and avoid conflicts of interest and that the Commission on Corporate Ethics Compliance and Conflict of Interest Resolution or the boards of directors of PJSC ROSSETI’s SDCs be notified of such circumstances in accordance with the prescribed procedure.
The ROSSETI Group organized work on causing its employees to declare their conflicts of interest for 2015; the declaration results will be studied by the Central Commission on Corporate Ethics Compliance and Conflict of Interest Resolution of PJSC ROSSETI and the commissions of PJSC ROSSETI’s SDCs.
The Issuer works to prevent corruption, provide legal education, and inculcate law-abiding behavior into the electric grid sector’s employees, implements many other anti-corruption procedures, and launched an online whistleblower reporting channel via its corporate website and a whistleblower hotline for allegations of corruption.
The Company wrote the anti-corruption handbook for PJSC ROSSETI’s employees; the handbook is posted on the corporate website and all of the Company’s employees are caused to read it.
Information concerning PJSC ROSSETI’s activities in the area of avoiding and combating corruption is available on the Company’s website at http://www.rosseti.ru/about/anticorruptionpolicy/policy/index.php.
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