Internal control and audit
Russian Railways has an internal control system in place to provide reasonable assurance that it will achieve its goals.
Russian Railways’ internal control system leverages the most up-to-date organisational and methodological framework and best international and national professional practices, operating in full compliance with the ethical standards applied by the internal audit and control functions in the Russian and global business communities.
The main objectives of the internal control system are:
- to ensure the efficiency and robustness of business operations;
- to safeguard assets and use resources in a cost effective manner;
- to identify and manage risks;
- to ensure the accuracy and completeness of financial (accounting) and other types of statements;
- to ensure compliance with the laws and regulations of the Russian Federation and by-laws of Russian Railways.
The main structures in charge of the internal control function and their responsibilities are as follows:
- governance bodies such as the Board of Directors and its Audit and Risk Committee, the Chief Executive Officer – Chairman of the Management Board of Russian Railways, relevant deputies of the Chief Executive Officer, and the Director for Internal Control and Audit are responsible for putting internal controls in place at the corporate level;
- heads of branches, departments, divisions and units are responsible for putting internal controls in place and ensuring their smooth running at the operational level;
- employees are responsible for the timely and efficient execution of existing internal control procedures;
- in addition to implementing internal controls and ensuring their smooth running in relevant business units, certain departments and divisions are also responsible for exercising functional internal control within the given terms of reference in relation to end-to-end processes;
- special internal control structures responsible for select functions The Zheldorkontrol Internal Control Centre is in charge of follow-up internal control to identify violations and materialised risks. The Zheldoraudit Internal Audit Centre is responsible for assessing the organisation and functioning of the internal control system.
Russian Railways’ Board of Directors and its Audit and Risk Committee determine the overall concept of the internal control system, review its performance assessment results, and analyse its actual state subject to the nature, scale and conditions of Russian Railways’ operations.
Deputy Chief Executive Officer – Director for Internal Control and Audit of Russian Railways supervises the internal control and internal audit operations, with the Zheldorkontrol Internal Control Centre and the Zheldoraudit Internal Audit Centre reporting directly to the Director.
The Zheldorkontrol Internal Control Centre is a structural unit of Russian Railways responsible for organising and conducting follow-up internal control of financial and business operations of the Company, its subsidiaries and other companies of the Group when required.
Internal audit serves:
- to identify violations, gaps and risks in the operations of the Company’s business units, subsidiaries and other companies of the Group;
- to identify financial and internal reserves and prepare recommendations on their use to improve financial position of Russian Railways and prevent financial and tax risks and losses;
- to ensure timely and complete elimination of identified violations and gaps.
Internal audit is conducted by the Zheldoraudit Internal Audit Centre, a structural unit of Russian Railways, which is supervised by Deputy Chief Executive Officer – Director for Internal Control and Audit of Russian Railways and functionally reporting to the Audit and Risk Committee of the Board of Directors.
The latter approves annual action plans and budgets of Zheldoraudit, reviews internal audit reports, including the assessment of the internal control and risk management systems, monitoring internal control systems of the Company’s subsidiaries and other matters.
In 2019, the internal audit focused on compliance with the requirements established for a risk management and internal control system (RMICS), and involved a selective assessment of the efficiency of specific risk management initiatives and control procedures.
The Company’s auditor for 2019 was selected following an open tender to conduct a statutory audit of Russian Railways’ financial (accounting) statements and the consolidated IFRS financial statements for 2019. The tender was held in accordance with the Federal Law No. 44-FZ On the Contract System in the Federal and Municipal Procurement of Goods, Works and Services for State and Municipal Needs dated 5 April 2013.
As per Order No. 1393-r of the Russian Government dated 29 June 2019, Ernst & Young was approved as Russian Railways’ auditor for 2019.
The external auditor disclosed and submitted to the Audit and Risk Committee of the Board of Directors information on all relations and matters to be assessed for compliance with independence criteria. In performing its duties, the auditor had no conflict of interest.
Ernst & Young’s remuneration for conducting the statutory audit of the Russian Railways’ financial (accounting) statements and consolidated IFRS financial statements is RUB 138 m, including VAT of RUB 23 m.