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Social responsibility and corporate sustainability report 2015
RU

Risk Management

The Company’s Approach to Risk Management

The internal control and risk management system of Federal Grid Company is an important component of the Company’s governance system. It includes a set of procedures, methods and tools aimed at obtaining reasonable assurance that the Company achieves its objectives in the following areas:

  • Effectiveness and efficiency of activity arrangements
  • Compliance with applicable legislation and internal regulations of the Company
  • Identification and mitigation of risks in key areas of activities
  • Prevention of fraud and other irregularities of the Company employees and third parties with respect to its assets
  • Accuracy, completeness and timeliness of all types of the Company reporting

The Company’s internal control is subject to the provisions of the Regulations on Internal Control System of Federal Grid Company approved by the Board of Directors in 2012.

The above Regulations set out objectives, tasks and principles of the Internal Control System (ICS) and its components.

Provisions of the existing Regulations on ICS include principles necessary for building a sound internal control system and are aimed at providing the Company with a reasonable assurance in achieving its objectives.

Authorities and Responsibilities of Key Participants of the ICS

Board of Directors   

Ensures the creation, monitoring of performance and setting the overall strategy of the ICS, initiates audits of the Company’s operations, reviews results of internal control, performs regular review of the ICS’s effectiveness and ensures constant improvement of the internal control procedures

Audit Commission

Confirms the reliability of data contained in the Company’s annual report, accounting balance sheet, and profit and loss statement; performs audits of the Company’s financial and business operations

Audit Committee

Carries out reviews of the Company’s Internal Control System, makes recommendations to the Board of Directors on its further improvement; plans the internal audit schedule and considers audit results; performs the Company’s financial statement analysis and the analysis of the external audit results; assesses candidates for the position of the Company’s auditor, makes recommendations to the Board of Directors regarding the appointment of external auditors, the conduct of annual independent audit and external auditors’ fees

Chairman of the Management Board

Provides organisational support and scheduling of internal controls, makes decisions based on the outcomes of the controls; makes proposals to the Board of Directors regarding the improvement of internal control procedures

Internal Control and Risk Management Department

Provides overall coordination of internal control and risk management processes in the Company, operational control over the implementation of policies in the area of internal control and risk management, as well as preparation of summary reports on internal control and risk management systems

Other units that perform control functions  

The Executive Office performs strategic, guidance and control functions subject to the Company’s HR Management Policy. Pursuant to the Order No. 353 dated 01 September 2015 “On the Division of Responsibilities between Officers of the Federal Grid’s Executive Office”, members of the Management Board and Deputy Chairmen of the Management Board perform activity-specific control functions with respect to the Federal Grid branches, subsidiaries and associates

Owners of control procedures

Organise and implement control procedures within business processes in accordance with job descriptions and provisions of the Company’s regulatory and administrative documents

Regulations on Risk Management System

Pursuant to the Directive of the RF Government No. 3984-P13 dated 24 June 2015 and the resolution of the Board of Directors dated 24 August 2015, the Regulations on Risk Management System were developed based on the Guidelines approved by the RF Government. The Board of Directors approved the above Regulations on 16 November 2015.

The risk management system is aimed at reducing uncertainties the Company face in delivering its objectives set at all levels of management, including in the Long- Term Development Programme and documents of tactical and operational planning (business plans, budgets, etc.). The risk management system is aimed at identifying events that may affect the Federal Grid’s operations and managing risks associated with the above events.

Objectives of Risk Management System:

  • to ensure reasonable assurance in achieving the Company’s goals;
  • to ensure efficiency of financial and business operations and rational use of the Company resources;
  • to identify risks of Federal Grid Company and manage such risks;
  • to protect the Company assets;
  • to ensure completeness and reliability of accounting (financial), statistical, management and other reports of Federal Grid;
  • to ensure compliance with the laws of the Russian Federation and the Company’s internal rules and regulations.

Risk Response Methods:

  • Risk avoidance
  • Acceptance of or increase in risk to implement favourable opportunities
  • Risk reduction or transfer

Authorities and Responsibilities of Key Participants of the Risk Management System

Board of Directors

  • Determines principles of and approaches to the risk management system
  • Approves approaches to setting a preferred risk, its values and frequency of their revision
  • Considers at least annually matters of the organisation, operation and effectiveness of the risk management system. If necessary, issues recommendations for its improvement, including upon review of reports of the Chairman and members of the Management Board on the risk management system operation and reports of the Internal Audit Department on the results of assessment of the actual status, reliability and efficiency of the risk management system

Audit Committee

  • Considers matter on the operation of the risk management system prior to their consideration by the Board of Directors

Chairman of the
Management Board
Management Board

  • Ensures the establishment and maintaining the operation of sound risk management system
  • Are responsible for the implementation of decisions of the Board of Directors regarding the risk management system
  • Provide submission of reports on the operation of the risk management system for review of the Board of Directors with preliminary review by the Audit Committee
  • Distribute powers, duties and responsibilities for certain risk management procedures among their subordinate heads of the Company’s structural units

Internal Control
and Risk Management
Department

  • Provides overall coordination of the risk management processes
  • Develops guidance materials in support of the risk management process
  • Organises training of employees on risk management issues
  • Reviews the Federal Grid’s risk portfolio and makes proposals regarding its risk response strategies and re-allocation of resources to manage the relevant risks
  • Makes consolidated reports on risks
  • Monitors the risk management processes performed by the Company’s units and controlled legal entities
  • Informs the Board of Directors and the Company’s executive bodies on the effectiveness of the risk management processes

Internal Audit Department

  • Regularly performs an independent review of the reliability and effectiveness of the risk management system

Risk Owners Management, structural units, working bodies

  • Develop, record, implement, monitor and improve the risk management system, including the identification and assessment of risks, development and application of risk response measures
  • Report on the risk management system operation to the Management Board and its Chairman through the Internal Control and Risk Management Department

Executors of risk management measures
Management,
structural units,
working bodies,
employees

  • Carry out risk management measures in coordination with risk owners and within the functional areas of the Company’s activities they oversee.

2015 Highlights

  • An internal assessment of the effectiveness of the internal control system was conducted with further identification of system weaknesses and risks.
  • An internal assessment of the risk management system was performed when preparing the reports:

— On key risks for 2014, following the consideration of which the Board of Directors made decisions aimed at improving the effectiveness of the Company’s risk management system;

— On key operational risks for H1 2015.

Plans for 2016

  • To finalise the updated Regulations on Internal Control System considering the upcoming directives of Rosimuschestvo and recommendations of the major shareholder, PJSC Rosseti, and submit them for review of the Board of Directors.
  • In order to ensure unified approaches to risk management planning and to processes related to risk classification, assessment and reporting, to develop a Procedure for operational risk assessment based on international standards and best practices in risk management.

Federal Grid’s risks rating based on their relevance in 2015

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