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Internal control

The Board of Directors systematically oversees the introduction of an effective risk management and internal control system at various levels of the Company’s organisational structure.

The internal control system enables the Company to respond to any risks that may arise and consists of a set of organisational measures, techniques, procedures, corporate culture standards and actions undertaken by the executives of Gazprom Neft and its controlled companies as a way to ensure the Company’s financial stability, achieve an optimal balance between growth in the Company’s value, profitability and risks, conduct business activities in a structured and effective manner, ensure the safeguarding of assets, identify, correct and prevent violations, prepare reliable financial statements in a timely manner and thus enhance the Company’s investment appeal.

The Company’s Board of Directors is responsible for determining the principles and approaches for establishing risk management and internal control system.

The Audit Committee under the Board of Directors regularly conducts evaluations to determine how effectively the risk management and internal control system is functioning and submits reports on the results of such evaluations to shareholders as part of materials for the annual General Meeting of Shareholders.

The Gazprom Neft Management Board and CEO ensure that the Company establishes and maintains an effective risk management and internal control system and enforce liability for the implementation of decisions made by the Board of Directors and the Audit Commission concerning the organisation of the risk management and internal control system.

A safe, confidential and accessible method to share information (hotline) about violations of the law or the internal procedures or the Corporate Governance Code of Gazprom Neft by any of the Company’s employees and/or member of a body that manages or oversees the Company’s financial and business operations has been established as part of the risk management and internal control system.

The Company has adopted the following documents: the Risk Management Policy, Integrated Risk Management System standard (hereinafter the IRMS standard), Risk Identification and Assessment Procedure, and Guidelines for the Risk Management Process, and has also developed measures to manage risks, monitor their implementation and prepare reporting on risk management.

A Financial Risk Management Committee has been established under the Management Board and its activities are governed by the Regulation on the Financial Risk Management Committee, which specifies the size and work sequence of the Committee, the functions, rights and responsibilities of Committee members, the procedure for holding meetings and documenting the Committee’s decisions and the procedure for monitoring the implementation of the Committee’s decisions.

The Financial Risk Management Committee determines the unified approach to financial risk management at the Company and its subsidiaries.

The Company’s Management Board annually reviews risk reporting, which includes a description of the key risks facing the Company, a risk matrix, risk assessment, a list of measures to counter such risks for the coming period, information about actual damage from such risks and the results of risk management measures taken in the current year.

The Audit Committee and Board of Directors receive information about existing risks and the measures taken to manage risks on a semi-annual basis. As part of these reports, the Board of Directors also considers matters concerning the effectiveness of the internal control system. At its meetings, the Board considers the management of individual risks, in particular issues concerning the management of corruption risks.

Audit Commission

The Audit Commission is a standing body that supervises the financial and business operations of Gazprom Neft. The Audit Commission acts on behalf of shareholders and is subordinate to the General Meeting of Shareholders in its activities.

The Audit Commission conducts audits of financial and business operations on the basis of the Charter and the Regulation on the Audit Commission and forms an independent opinion on the state of affairs at the Company. The Audit Commission’s conclusions are conveyed to shareholders at the General Meeting of Shareholders in the form of a report by the Company’s Audit Commission attached to the Gazprom Neft annual report.

Remuneration is paid to members of the Audit Commission based on the decision of the General Meeting of Shareholders. Annual remuneration for members of the Audit Commission that functioned in 2014 totalled RUB 4,520,000 in 2015.

Composition of the Audit Commission
The following members of the Audit Commission were elected at the annual General Meeting of Shareholders on 5 July 2015:
  • Delvig Galina Yuryevna;
  • Kovalev Vitaly Anatolyevich;
  • Kotlyar Anatoly Anatolyevich;
  • Mironova Margarita Ivanovna
  • Frolov Alexander Alexandrovich.

Internal Audit Department


DELVIG GALINA YURYEVNA

Delvig Galina Yuryevna

Head of the Internal Audit Department


Born in 1960.

Graduated from Plekhanov Moscow Institute of National Economy.

2008 — Head of the Internal Audit Department of PJSC Gazprom Neft.

Interest in charter capital (as of 31 December 2015) Does not own Company shares.

Department structure
Department structure

The Company conducts internal audits for a systematic and independent evaluation of the reliability and effectiveness of the risk management and internal control system as well as corporate governance practices.

Internal audits are performed by the Company’s Internal Audit Department whose director is appointed in coordination with the Board of Directors.

The Internal Audit Department is functionally subordinate to the Audit Committee of the Board of Directors and directly subordinate to the Company’s CEO.

The Internal Audit Department’s mission is to provide management with the necessary assistance by providing reasonable and substantiated guarantees and consultations that aim to achieve the Company’s goals.

As part of its activities, the Internal Audit Department evaluates and makes improvements to the corporate governance, risk management and internal control processes of Gazprom Neft and its subsidiaries using a systematic and sequential approach and also provides consultative support to the Company’s management based on the principles of independence and objectivity.

Main functions of the Internal Audit Department
  • Assessing the effectiveness of the internal control system for the Company’s business processes.
  • Assessing the effectiveness of procedures that ensure the safeguarding and legitimate use of the Company’s assets.
  • Assessing the effectiveness of the internal control system for the accuracy of the Company’s external and internal reporting.
  • Assessing the effectiveness of internal monitoring of compliance with the requirements of applicable existing legislation and regulatory organisations, internal organisational and administrative documents and regulations, and the decisions of the Company’s governing bodies.
  • Assessing the effectiveness of information systems, IT processes and automated process, and their compliance with the Company’s strategy.
  • Assessing the effectiveness of measures to prevent fraud and corruption at the Company. Participation in investigations of fraud and violations of the Corporate Conduct Code based on requests from the Company’s Audit Committee and CEO.
  • Organising a system to collect and process information about signs and instances of fraud and corruption — a hotline to prevent fraud, corruption and other violations of the Corporate Conduct Code.
  • Assisting the Company with establishing and monitoring the Integrated Risk Management System (hereinafter — IRMS).
  • Developing recommendations to improve the Company’s activities and eliminate shortcomings based on audits, special inspections, investigations and consultations and convey them to people who can ensure they are properly considered.
  • Monitoring the implementation of measures developed based on audits and investigations to improve the internal control system as well as corporate governance and risk management processes.
  • Interacting with the Company’s audit commissions and external auditors and taking part in inspections of the fulfilment of recommendations from the external auditor and audit commissions.

The Head of the Internal Audit Department reports to the Audit Committee and Board of Directors twice a year about the Department’s performance results for the reporting period and the state of the internal control and risk management systems at the Company.

Conflicts of interests

Regulation of potential conflicts of interests among governing bodies, executive bodies and employees of Gazprom Neft

The Company strives to maintain a balance of interests between shareholders and management with their cooperation characterised by a high level of trust, strong culture of business relations and ethical standards. The Company’s main shareholder has a sufficient number of votes to pass decisions on a significant number of issues that fall within the purview of the General Meeting of Shareholders and also to form the Board of Directors. Despite this, the Company seeks to utilise tools that feature a high concentration of equity to mitigate risks related to the specific nature of management.

The Company has a transparent ownership structure, the rights and duties of shareholders as well as the procedure for administering property rights are clearly defined in the Company’s Charter and internal documents and information about this is publicly available. The Company adheres to the principle of equal shareholder voting rights and has also established mechanisms to protect voting rights in its internal documents.

The main elements for preventing conflicts at the shareholder level are:

  • Compliance with the order and procedure for making decisions on the most significant issues.
  • Compliance with the voting procedure for related party transactions:
    • not participating in voting by non-arm’s length shareholders and members of the Board of Directors,
    • indicating a list of persons who are deemed to be interested in a transaction with a description of the grounds based on which such persons are deemed to be interested.
  • Hiring reputable and independent appraisers to value the assets in related party transactions.
  • Ensuring maximum transparency and information openness when preparing for and holding meetings of shareholders as well as the prompt disclosure of information about decisions adopted by the Board of Directors.
  • Disclosing information about related party transactions. According to the Company’s financial statement for 2015, related party transactions were concluded as part of regular business activities and had a clear economic rationale. The most common types of transactions are those involving the sale and purchase of oil, gas and petroleum products.
  • Hiring companies from the Big Four auditing firms as external auditors.
  • Establishing mechanisms to protect against the dilution of the Company’s value. The procedure for organising and selecting counterparties for the procurement of goods, work and services was carried out in accordance with the approved Company standards, which stipulate that open forms of competitive selection procedures for counterparties are preferable.

Gazprom Neft has approved internal documents (the Corporate Conduct Code and Code of Corporate Governance) which enshrine the values and principles that serve as the basis for the establishment and development of the Company’s corporate culture.

The Corporate Conduct Code regulates situations that could involve a conflict of interests, the acceptance of gifts, the use of the Company’s assets or resources, stakeholder engagement, social responsibility, the handling of confidential information, the activities of the Corporate Culture and Ethics Working Committee and the operation of the fraud and corruption prevention hotline, among other situations.

Gazprom Neft has established a Corporate Culture and Ethics Working Committee that monitors compliance with the provisions of the Code. The Corporate Culture and Ethics Working Committee includes members of the Management Board and is chaired by the Management Board Chairman.

The Company has approved the necessary internal documents to implement certain principles of the Code, for instance in matters concerning access to confidential information, non-disclosure, HR policy and the development of succession candidates.

The Code provides a mechanism to report corruption violations. Employees can report violations of the Code via the Company’s hotline or notify the Ethics Committee of the subsidiary where they are employed. Third parties who are not Company employees, in particular counterparties, may also file reports via the hotline.

Information may be submitted via email, special mailboxes installed at the offices of the Company and all subsidiaries or telephone.

The Board of Directors reviews the hotline results twice a year, including statistics on the (processed) reports received and violations that are ultimately identified. The Gazprom Neft Code of Corporate Governance stipulates that members of the Board of Directors must refrain from any actions that would lead or could lead to a conflict of interests and from voting on matters in the outcome of which they have a personal interest, and also must not disclose or use confidential and/or insider information about the Company for their personal interests or the interests of third parties.

The Corporate Conduct Code defines the concept of a conflict of interests and contains examples of situations in which a conflict of interests may arise. In particular, according to the Code, doing business with relatives or close friends constitutes a conflict of interests.

The Code contains a reference to the need for Company employees to inform management and the legal service about all instances of a conflict of interests.

There is a hotline for employees as well as email addresses and special mailboxes to report violations anonymously.

The Company’s internal documents require that officials provide information about all affiliates. The Company regularly checks information received from new members of the Board of Directors, in particular concerning the ownership of stakes in subsidiary organisations.

The Company verifies whether members of the Company’s Board of Directors and Management Board and their relatives have any conflicts of interests in employment at the Company. According to the Regulation on the Management Board, members of the Management Board are only permitted to serve concurrently on the governing bodies of other organisations with the consent of the Company’s Board of Directors.

The Company re-verifies information on a quarterly basis about members of the Company’s Management Board and Board of Directors serving at other companies.

There were no conflicts of interests among members of the Gazprom Neft Board of Directors and Management Board in 2015.

Anti-fraud and anti-corruption policies and procedures

In 2014, the Company adopted an Anti-Fraud and Anti-Corruption Policy that serves as the fundamental internal regulatory document of the Company and its subsidiaries in combatting corruption.

The Policy defines the concept of fraud and other anti-fraud terminology and stipulates that the Company’s senior management must institute unified ethical standards to reject corruption in all its forms and manifestations. The Policy specifies the methods and procedures employed by the Company to combat fraud and corruption, in particular the Company’s hotline, internal investigations and prosecution for instances when fraud is committed.

The Policy separately describes the risks of corruption that are typical for companies working in the oil production and refining industries.

The Policy contains a section that sets forth the fundamental principles for implementing the Company’s business processes that are most susceptible to fraud risks, specifically: interaction with officials, the receiving and giving of gifts, entertainment expenses, charitable and sponsorship activities and financial relations with third parties.

The Anti-Fraud and Anti-Corruption Policy requires the Company’s employees to be trained in the principles of rejecting fraud and the foundations of applicable law.

The Company’s Deputy CEO for Security and Head of the Internal Audit Department periodically report to Company management on anti-fraud and anti-corruption matters.