The Company’s activities in the area of internal control and risk management are regulated by internal documents of the Company: Internal Control Policy approved by the Board of Directors on August 27, 2012 (Minutes No.109/7), Risk Management Policy approved by the Board of Directors on June 23, 2010 (Minutes No.60/15) and Methodical Guidelines on Risk Management.

The internal control system (ICS) is the whole range of procedures, methods and mechanisms of control created by the Board of Directors and management of the Company in order to ensure proper performance of financial and business operations. The internal control procedures are an integral part of the Company’s business processes. They are carried out both during the business process and immediately prior to and after completion of an assignment.

The ICS has functioned in the Company since December 2004. Its normative base is being constantly improved and it effectiveness is systematically assessed. Activities of the ICS are regulated by the Company’s internal documents.

Key goals of the ICS:

• Improvement of the corporate governance system of the Company and its subsidiaries and affiliates in order to provide reasonable assurance in observance of interests and rights of shareholders and investors of the Company and its subsidiaries and affiliates with regard to:
  
  • effective and productive use of resources of the Company and its subsidiaries and affiliates;
  • protection of assets of the Company and its subsidiaries and affiliates;
  • compliance with requirements of the Russian Federation, local legal acts of the Company and its subsidiaries and affiliates (compliance control);
  • accuracy and relevance of management reporting and accounting (financial) statements and reliability of the system of their preparation.
• Increasing efficiency and productivity of activities of the Company and its subsidiaries and affiliates by improving risk management processes and implementation of effective control procedures.
• Facilitation of timely adaptation of the Company to changes in the internal and external environment.

The risk management system (RMS) is a set of processes, methods and information systems aimed at achievement of risk management goals and objectives.

RMS is aimed at:

Providing a reasonable assurance of achievement of strategic goals:

• identification and assessment of materiality of events affecting achievement of strategic goals;
• taking preventive measures for minimization of possibility and negative effect of risks on the goals;
• strategic planning taking into account risks;
• timely reporting to Director General (Management Board) and stakeholders of threats and opportunities;
• monitoring of risk control measures.

Protection of assets and support of business effectiveness:

• identification, assessment and management of risks relating to business processes;
• provision of information on risks in making managerial decisions;
• creation of a risk control matrix;
• creation and management of a system of key risk indicators (KRIs);
• fraud prevention.

Assurance of uninterrupted electric power supply:

• creation of programs of responding to risk situations;
• regulation of localization of consequences of risk events;
• coordination, assurance and assessment of effectiveness of prompt responding to emergency situations.

Key ICS and RMS results of 2011-2012

• Key risks for main business processes were approved:
  
  • “Commercial Metering and Implementation of Power Transmission Services”;
  • “Implementation of Technological Connection Services”;
  • “Purchasing Management”;
  • “Operational Activities”.
• In the reporting period the management of internal audit and risk management prepared and performed self-assessment of the Company’s ICS and RMS in accordance with the best practices in the field of ICS organization.
• The management of internal audit and risk management issues, on a quarterly basis, a risk map and plans of actions for risk management for the reporting quarter based on risk passports provided.
• The Company began the creation of an integrated risk management and internal control system. Within the framework of this system it is planned to maintain an effective information exchange required for operating and strategic risk management between the Board of Directors, executive bodies and all functional divisions. In 2012 by order a working group for creation of integrated ICS and RMS was established, risk owners (responsible employees and divisions on the basis of a relationship between the division’s functions and the relative field) were identified.