Internal Audit System

The Transneft internal audit policy is stipulated in the Regulations on Internal Audit. As per the given document, internal audit is the activity performed in order to assist managing bodies of the Company and its subsidiaries in raising the efficiency of governance of the Transneft system, the Company and Transneft subsidiaries, to improve their financial and operational activities through consistent and systemic approach to analysis and assessment of the risk management system, internal control system and the corporate governance of the Transneft system, the Company and its subsidiaries.

Internal audit within the Company and its subsidiaries is performed by the Department of Internal Audit and Analysis of Core Business Activities

In 2018, Transneft’s Department of Internal Audit and Analysis of Core Business Activities operated in accordance with Transneft’s General Guidelines (Plan) for Internal Audit for 2018 approved by the Board of Directors of the Company on 20 December 2017. In pursuance of this plan, 132 audits were conducted in relation to the Company and its subsidiaries in the following spheres:

  • Execution of certain provisions of the Long-Term Development Programme
  • Organisation and conduct of procurement and contract execution procedures
  • Capital investments in fixed assets
  • Fixed assets and inventories
  • Operations with crude oil and petroleum products
  • Financial management and budgeting
  • Forming the financial results and the use of revenue
  • Information systems
  • Comprehensive assessment of the internal control and risk management systems

Such audits result in recommendations on improvement of the business processes, elimination of the existing shortcomings and remarks, followed by checking whether the recommendations are executed.

The Audit Committee under the Board of Directors of the Company annually assesses the efficiency of the internal audit function, considers the matters of essential limitations and threats to the independence in performing internal audit. The Company’s Board of Directors annually approves a report on the performance results of the internal Audit Unit.

Based on the 2018 performance, the Audit Committee under the Company’s Board of Directors recognised:

  • The internal audit function as efficiently executed at the Company and its subsidiaries
  • Absence of substantial restrictions and threats to independence of internal audit, as well as to the credibility of the internal auditors at the Company and at Transneft subsidiaries in 2018

The Company’s Board of Directors approved the report on the internal audit unit’s performance results for 2018.

List of internal documents governing the internal audit functions, the RMS and internal control issues:

  • The Regulations on Internal AuditApproved by the resolution of the Board of Directors of Transneft on 16 November 2015, Minutes No. 28;
  • The Regulations on Transneft’s Department of Internal Audit and Analysis of Core Business ActivitiesNo. 08-03/001 dated 8 December 2015;
  • The Internal Auditors’ Code of EthicsApproved by the Transneft order No. 87 dated 21 April 2016;
  • The Internal Audit Quality Assessment and Improvement ProgrammeApproved by the Transneft order No. 136 dated 14 July 2016;
  • The Regulations on Planning Internal Audits and Analysing the Core Business Activities of Transneft and its subsidiaries Approved by the Transneft President on 24 November 2016.
Key Spheres of Internal Audit
Sphere Measures
Internal Control System Efficiency Assessment
  • Analysing conformity of aims of business processes, projects, business units in the Company and its subsidiaries to the goals of Transneft Group, the Company and its subsidiaries; checking the efficiency, reliability and integrity of business processes (operations) and information systems, including the reliability of procedures for countering illegal actions, abuse and corruption
  • Checking the accuracy of accounting (financial), statistical, managerial and other reports; determining to what extent the results of business processes and activities of the Company’s business units and subsidiaries achieve the set goals
  • Determining the adequacy of criteria established for analysing the degree of achievement of the set goals
  • Detecting flaws of the internal control system which barred the Transneft system, the Company and its subsidiaries from reaching the set targets
  • Assessing the results of implementing the measures tailored to eliminate violations and flaws while improving the internal control system taken by the Company and its subsidiaries on all corporate governance levels
  • Checking the efficiency and expediency of using resources of the Company and its subsidiaries
  • Checking the safety of assets owned by the Company and its subsidiaries
  • Checking compliance with the law, the Articles of Association and other regulatory documents of the Company and its subsidiaries
Assessing the RMS Efficiency
  • Checking the sufficiency and maturity of the Risk Management System’s elements possessed by the Transneft system, the Company and its subsidiaries for efficient risk management, such as goals and objectives, infrastructure, including corporate structure, automation tools and such, arrangement of processes, regulatory and methodological framework, interaction of business units within the risk management system and reporting
  • Checking whether the risks are fully exposed and correctly assessed by the management of the Company and its subsidiaries on all corporate governance levels
  • Checking the efficiency of monitoring procedures and other risk management measures, including the efficiency of use of the resources allocated for these purposes
  • Analysing information about the materialised risks (including faults detected during inspections, underperformance to target, lawsuits and other cases)
Assessing Corporate Governance
  • Checking adherence to business ethic principles and corporate values of the Transneft system, the Company and its subsidiaries
  • Checking the order of goal-setting by the Transneft system, the Company and its subsidiaries, as well as monitoring their implementation
  • Checking the level of regulatory support and information exchange procedures (including regarding risk management and internal control) at all corporate governance levels of the Transneft system, the Company and its subsidiaries, including engagement with stakeholders
  • Checking whether the shareholders’ rights are respected, including subsidiaries’ shareholders, as well as whether interaction with stakeholders is efficient
  • Checking the procedures of disclosing information about the activities of the Transneft system, the Company and its subsidiaries