Internal control at TMK is a system of procedures implemented by the Board of Directors, executive and supervisory bodies, officers and employees of the company pursuing the efficiency of operations and investments across TMK, the reliability of all types of reporting, compliance with laws and internal regulations.
Control over financial and economic activities is exercised by the Board of Directors, Audit Committee, Revision Committee, Internal Audit Department, and the independent auditor of the company.
The Board of Directors defines the principles and approaches to building a risk management and internal control system and exercises control over the financial and economic activities at various management levels: by introducing and exercising the required operations control procedures at the operational level and by leading a function coordinating the company’s activities within the risk management and internal control system at the organisational level.
Audit Committee assesses the efficiency of internal controls and risk management system and provides recommendations on its improving.
Revision Committee controls the financial and economic activities of the company on behalf of shareholders and reports to the General Meeting of Shareholders on the reliability of the reporting data and identified weaknesses or violations.
External auditor checks and confirms that the company’s financial statements are in line with the applicable accounting rules and national and international financial reporting standards (RAS and IRFS) and expresses its opinion about the reliability of the financial statements following an audit in accordance with international auditing standards.
On 25 June 2013, TMK’s Annual General Meeting of Shareholders resolved to appoint Ernst & Young, a member of the Audit Chamber of Russia Non-Profit Partnership, as the company’s Auditor for 2013.
In selecting an auditor and assessing its performance, we adhere to the Policy on Selection of the TMK Group External Auditor of the Consolidated Financial Statements (http://www.tmk-group.com/files/external_auditor_policy_en.pdf), as approved by the Board of Directors.
In order to reduce the effects of long-term relationships on the external auditor’s independence, members of audit teams and the lead partner responsible for the audit are rotated.
In 2013, the auditor’s remuneration for auditing the annual financial statements and reviewing interim financials (including audit of separate financials at some TMK entities) was USD 3.28m, for other auditrelated services – USD 0.02m, and for non-audit services – USD 0.67m.
The company seeks to ensure that all of its operations are adequately controlled to mitigate risks. Controls have been implemented at all management levels. Operational management at TMK ensures efficient functioning of internal control systems.
To minimise any risks in the activities of the company’s entities and units, risk-focused internal control continued to be rolled out in 2013.
Key elements of risk-focused internal control system in TMK
Internal audit serves to assess the adequacy and efficiency of risk controls pertaining to corporate governance, operations at TMK entities and units and their information systems.
The Internal Audit Department (IAD) operates on the basis of IAD Regulation approved by the Board of Directors (http://www.tmk-group.ru/files/pol_sva.pdf). The independence and impartiality of its activities are ensured by IAD reporting directly to the CEO and functionally to the Board of Directors via the Audit Committee. The IAD’s annual audit plan is based on priority business processes and risks ranking (by probability and potential impact), discussed at the Audit Committee’s meetings, approved by the Board of Directors and CEO of TMK. The IAD also controls compliance by the governing bodies, officers and employees of the company with insider information laws and regulations and regularly reports to the Audit Committee.
TMK has a two-tier centralised internal audit function – at the holding company and regionally – using a single planning and reporting system. Regional coverage of IAD’s units ensures a prompt response to any changes in business processes and operations at TMK entities.
TMK management provides a timely response to any issues identified during the internal audit process. Based on audit findings, the management makes appropriate changes to the internal control system to manage the identified risks which helps to streamline the corporate governance processes and quality.
Internal audit system at TMK
In 2013, we continued with further integration of the compliance function into the overall system of risk management and internal control as well as of corporate governance and corporate security. This process is coordinated by the CEO’s Committee on Regulating Compliance Risks established in 2011 and its regional subcommittees at TMK plants.
TMK operates a hotline as a public control instrument using a full range of communications channels such as telephone lines, fax, e-mail and mailboxes that can be used by the company’s employees, investors, clients and other stakeholders to report any known abuse or violations.
Internal Control over Financial Reporting
TMK's management is responsible for implementing and maintaining adequate internal control over financial reporting to provide reasonable assurance as regards the reliability of financial reporting and its conformity with RAS and IFRS.
The company’s internal control over financial reporting includes policies and procedures governing the maintenance of records that reflect transactions and available assets accurately, fairly and in reasonable detail; provide reasonable assurance that transactions are properly recorded to permit the preparation of financial statements in accordance with RAS and IFRS and that income and expenses are made only with the authorisation of the company’s management; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposal of the company’s assets that could have a material effect on our financial statements.
Throughout 2013 and to date, the company has had an operational system of internal control in place which provides reasonable assurance as regards the efficiency of operations covering all controls, including financial and operational controls, as well as compliance with laws and regulations.