4.3. External and internal control
RusHydro has an efficient system of financial and operating performance control, ensuring smooth interactions between the Company’s governing bodies and the integrated internal and external control system.
The main principles, tasks, methods and processes of the control system are determined in internal documents approved by PJSC RusHydro’s Board of Directors, namely the following:
- The Corporate Governance Code;
- The Internal Control and Risk Management Policy;
- The Internal Audit Policy;
- The Policy on the Audit Committee of the Board of Directors;
- The Policy on the Internal Audit Commission.
In 2015, the Department of Internal Audit, Control and Risk Management is divided into two business units: the Internal Audit Service and the Department of control and risk management.
4.3.1. The external independent auditor
PJSC RusHydro’s financial (accounting) statements are subjected to an independent external audit in accordance with Russian and international accounting standards. Selection of the external auditor performing the independent audit of the accounting (financial) statements of the PJSC RusHydro as per RAS (Russian Accounting Standards) and IFRS for the years 2015-2017 was conducted by open tender. Procurement organisation and procedure were defined in accordance with the Regulation on the goods procurement procedure for the needs of PJSC RusHydro, approved by the decision of the Board of Directors, based on the decision of the Central procurement committee of the PJSC RusHydro No. 470 as of 04.12.2014.
According to the results of the procurement procedure the Joint-Stock Company PricewaterhouseCoopers Audit (JSC PwC Audit) was selected as an auditor of accounting (financial) statements 2015-2017.
In 2015, JSC PwC audited the Company’s 2014 RUS and IFRS statements. The Audit Committee positively assessed the conclusion of the external auditor and recommended that the Board of Directors present the conclusion to the General Meeting of Shareholders. The conclusion was presented at the General Meeting of Shareholders in June 2015, along with other materials made available to shareholders. The actual amount of award to be given JSC “PwC Audit” at the end of 2014, is 121 577 600 rubles.
In 2013 and 2014 the JSC ” PwC Audit ” also carried out an audit of the financial (accounting) statements.
188.8.131.52. Cooperation of the external auditor and Audit Committee of the PJSC RusHydro
184.108.40.206.1. Audit Committee evaluations of the internal audit procedure efficiency
Audit Committee evaluates the work of the external auditor during the regular consideration and hearing of the auditor on the work performed, the main detected notes, deviations from the plan of activities previously approved and etc.
In 2015 the Reports of the CJSC PwC Audit (Auditor of the Joint-Stock Company) were considered:
- according to the results of the interim audit of the financial statements as per RAS for 9 months of the year 2014, for the 1st half year of the year 2015;
- according to conduct of audit of the consolidated financial statements of the RusHydro Group as per IFRS and accounting of the PJSC RusHydro as per RAS for the year 2014;
- according to the audit results of the Joint-Stock Company accounting for 6 months of the year 2014, for 9 months of the year 2014, for the year 2014, prepared in accordance with the Russian Accounting Standards;
- according to the inspection results of the consolidated interim condensed financial information of the RusHydro Group as per IFRS for 6 months, expired June 30, 2014 and 12 months expired December 31, 2014;
- open tender documentation is approved for the right to conclude the contract for rendering the services on conduct of an audit of the PJSC RusHydro accounting prepared in accordance with the Russian Accounting Standards (RAS), and audit (review) of the consolidated financial statements of the RusHydro Group prepared in accordance with the international financial reporting standard (IFRS) for 2015-2017.
220.127.116.11.2. Audit Committee evaluations of the audit opinions
The Audit Committee evaluates the audit opinions presented by the external auditor. According to the results of the evaluation the Committee takes into account the audit opinion and independent evaluation of the external auditor and recommends the Board of Directors of the PJSC RusHydro to submit the audit opinion at the annual General Meeting of the shareholders of the Joint-Stock Company.
The Audit Committee consists of the independent directors. All the AC members have an experience of work in executive positions.The Audit Committee Chairperson is S.N. Ivanov – Doctor of Economics.The committee includes:V.V. Pivovarov, having higher economic education and graduated from the American University in Paris with a specialisation in Applied Economics and Stanford Graduate Business School, МBA. M.S. Bystrov, having higher education in the field of the world economy.
4.3.2. INTERNAL AUDIT COMMISSION
The Internal Audit Commission operates in accordance with the norms of Russian law, the Articles of Association and the Policy on the Internal Commission. The five Commission members are elected by the General Meeting of Shareholders for a period of one year.
In 2015, the Internal Audit Commission checked the Company’s 2014 financial and performance results. The Commission’s opinion on the audit results were presented to the General Meeting of Shareholders (June 27, 2014). The audit confirmed that the data contained in the Company’s reports and financial documents is true and that the accounting practices and financial statements comply with current legal requirements and the Company’s internal regulations. In the opinion of the Commission, the Company’s financial and operating activities were performed in the interests of the Company and its shareholders.
Members of the Audit Committee*
|Composition exercising powers to 27/06/2014 on 06/26/2015||Composition exercising authority on 26.06.2015 to re-election at the AGM (27.06.2016)|
|Yudin A. I. (chairman)||Repin I. N. (chairman)|
|Repin I. N.||Annikova N. N.|
|Bogachev A .E.||Kant Mandal D. R.|
|Kant Mandal D. R.||Harin A. N.|
|Hvorov V. V.||Hvorov V. V.|
4.3.3. Internal Audit Service
The purpose of the internal audit of PJSC RusHydro is to assist the Board of Directors and executive bodies of the RusHydro Group in enhancement of efficiency of the RusHydro Group management, improvement of its activities.
In 2015 the Internal Audit Service was formed in the PJSC RusHydro, which is in reporting line of the Board of Directors represented by the Audit Committee.
The Internal Audit Service tasks and duties include:
- organisation and conduct of internal audits of the Joint-Stock Company and SDCs, processes and directions of the activity;
- evaluation of efficiency of the internal control system, risk management system, corporate governance of the Joint-Stock Company and SDCs;
- organisation of the methodological support and control over activities of the Joint-Stock Company representatives in the SDCs revision commissions;
- cooperation with the Audit Committee at the Board of Directors of the Joint-Stock Company.
Work priorities of the internal audit of the Joint-Stock Company in accordance with the purposes of the RusHydro Group, taking into account the available resources and risk-based approach to planning of the monitoring activities, are defined by the Scheduled plan for monitoring activities which is annually approved by the Audit Committee.
Audit Committee evaluations of the external audit procedure efficiency
The Audit Committee evaluates /approves quarterly reports of the Internal Audit Service on performed monitoring activities and their results. During audit the execution of the approved scheduled plan of the Internal Audit Service is also evaluated.
Within the year 2015 more than 25 planned monitoring activities were conducted, during which the audit evidence was collected and analysed in order to evaluate the internal control system efficiency, risk management and corporate governance, including:
- audits of branches and subsidiaries performing construction, operation, repair of the generation facilities, sales activities;
- focused audits, aimed at discovery of possibilities to improve business processes of the Joint-Stock Company and activities of the key subsidiaries;
- sample estimates of execution of the activities on the Joint-Stock Company critical risks management.
According to the results of conduct of the monitoring activities by the Joint-Stock Company and the SDCs management the corrective measures are developed and implemented which action is aimed at addressing identified issues, enhancement of the internal control system efficiency, avoiding repetition of the violations in advance.
The Audit Committee quarterly considers the report of the head of the Internal Audit Service on execution of the Scheduled plan for the monitoring activities, which contains a short description of the revealed significant violations, notes and deficiencies in the Joint-Stock Company and its SDCs activities, includes the information about the significant risks, control and corporate governance problems, as well as proposals for their remedy, enhancement of the internal control system efficiency.
General principles and approaches to the internal audit system of the Joint-Stock Company are fixed in the Internal Audit Policy35, which was significantly modified in 2015. The new version of the Policy takes into account the requirements of the Corporate Governance Code of the PJSC RusHydro, Methodological recommendations and instructions of Rosimushchestvo, provides higher degree of conformity of the Internal Audit Service of the PJSC RusHydro to the Internal professional standards of internal audit.
In 2015 the Internal Auditors Code of Ethics of the RusHydro Group was approved, which defines professional principles of the internal audit activity and establishes the rules of the internal auditors conduct. The Code purpose is maintenance and distribution of high ethic standards of the internal auditor profession in the RusHydro Group.
According to the results of evaluation (feedback) as per the results of conduct of the monitoring activities, high efficiency of the internal audit performance was noted in 2015 in terms of detection of defects, which correction will allow reduce/exclude negative effect on the Joint-Stock Company and SDCs efficient performance.
4.3.4. Risk Control and Management Department
Internal control and risk management system (IC&RMS) is created in accordance with the international standards, regulatory requirements and recommendations in the field of ICS&RM, which general principles and approaches are fixed in the Internal Control and Risk Management Policy.
In 2015 the version of the Internal Control and Risk Management Policy was updated36. The main purpose of the PJSC RusHydro Internal Control and Risk Management Policy is to define the main principles of organisation, operation and mutual integration of systems of internal control and risk management. It is obligatory for applying by all organisation units and branches of the Joint-Stock Company and in relations between organisations being art of the RusHydro Group.
The Policy is places on the Company web-site .
The functioning process of the Internal Control System (ICS) of the Joint-Stock Company is aimed at provision of the reasonable confidence in achieving the goals according to the directions:
- activity efficiency and performance;
- observance of the applicable regulatory acts and internal regulation documents;
- reliability of reporting;
- soundness of assets and fraud and illegal actions prevention.
The functions on construction and improvement of the internal control system are imposed on the Risk Control and Management Department. The main functions and tasks of the internal control units include:
- Arrangement of functioning of the effective corporate internal control system, corruption management system in the Joint-Stock Company;
- Development and monitoring of execution of the plans and programmes of the risk management and internal control corporate system improvement of the Joint-Stock Company and SDCs;
- Cooperation with territorial bodies of the executive authority of the Russian Federation, Accounting Chamber of the Russian Federation, Revision commission of the Joint-Stock Company and other monitoring bodies on the internal audit and control issues, and during their conduct of the Joint-Stock Company and SDCs audits.
Risk Management System is specified in item 2.2. Risk management (reference).
The Company has the control environment providing achievement of the strategic targets of the Group. In order to identify all possible risks and most effective methods of control and risk management in the Company, RusHydro improving the internal control and risk management system on an ongoing basis.
In accordance with the new version of the Internal Control and Risk Management Policy, approved by the Board of Directors in 2015, further improvement of the IC&RMS is performed in the Joint-Stock Company. Regulation on the internal control system management of the Joint-Stock Company and Guidelines for designing and implementation of the control procedures in business processes, their formalisation in the control matrices are approved.
In 2015 within the plan of works on the ICS improvement of six business processes in the Joint-Stock Company the active work continued in terms of the IC&RMS improvement in the key business processes, including the ones exposed to the risk of possible execution of illegal actions by the Joint-Stock Company employees.
The business processes owners in cooperation with the employees of the Risk Control and Management Department carried out the analysis of the key business processes of the Joint-Stock Company and appropriate risks in order to determine the key supervision points and control means, evaluation of their conformity. Also the evaluation of the organisation efficiency (“design”) of the existing control procedures was carried out. As a result of the business processes analysis the evaluation of the existing control procedures was carried out, the deficient control procedures were also revealed which absence can lead to occurrence of the risk events. Lists of the deficient control procedures were agreed upon with the business processes owners. Where necessary the ICS documentation updating took place (matrices updating of the “risks — control procedures”).
The Joint-Stock Company ICS provides the control over implementation of the LTDP, which programme activities include production programmes, investment programmes and innovative development programmes.
The additional control procedures have been developed in the Joint-Stock Company in terms of using the funds of the federal budget. In particular:
- separate financial accounts of budget cash flow are used;
- monthly reports from the subsidiaries to the PJSC RusHydro on the federal budget expenditure;
- banking support of all the transactions connected with expenditure of the federal budget funds, on the part of Sberbank, including the analysis and acceptance of all payments on the project related to the Far East development, financed from the federal budget funds.
Not only basic documents in the field of risk management are approved in the Joint-Stock Company, but the single documents on management of the individual risk groups, in particular, for example, conflict of interest management policy is approved, Code of Corporate Ethics is adopted. Also a number of other local normative acts in the field of control environment formation are adopted. Thus, the integrated programme of the anti-corruption efforts is implemented in the Joint-Stock Company, in particular, anti-corruption policy has been developed and “helpline” acts in the format of channels to inform about the cases of breach of the ethic requirements, common norms of behavior and different ethic problems.