MONITORING AND AUDIT
The internal control system of MTS PJSC represents a combination of internal-control processes implemented by ICS entities based on the existing organizational structure, internal policies and regulations, internal-control and risk-management procedures and methods applied within the Company at all management levels and as part of all functional areas.
The establishment and efficient operation of the internal control system are designed to ensure reasonable confidence in the achievement of objectives set by the Company and to ensure proper control over the financial and economic activities of the Company, as well as its efficiency.
The internal control system of MTS PJSC represents a combination of interrelated components, the structure of which meets the general accepted methodology COSO Internal Control — Integrated Framework 2013. In accordance with COSO model, a control environment is established, the risk assessment system is applied, control procedures are implemented and their performance is monitored, and changes in organizational structure and business processes are monitored.
Under the internal control system, a range of anticorruption measures mitigating reputational risks and risks of sanctions for bribery of officials against MTS PJSC. For the purposes of counteraction to abuses, authorization of transactions and operations, distinction of powers and rotation of duties, control over the actual availability and condition of facilities is implemented.
MTS PJSC approved the Policy for complying with anti-corruption legislation defining measures aimed at establishing elements of the corporate culture, organizational structure, rules and procedures assuring non-admission of corruption.
For a comprehensive, independent evaluation of the reliability and efficiency of the risk-management and internal-control system and of the corporate governance practice of MTS PJSC, the Internal Audit Block of MTS PJSC uses the results of the completed audits to generate a report on the level of maturity within the Company as a whole. The Internal Audit Block is an individual structural division of MTS PJSC functionally reporting to the Board of Directors and administratively — directly to the President of MTS PJSC.
e Audit Committee at the Board of Directors of MTS PJSC biannually reviews reports on the operation of the Internal Audit Block, Internal Control Systems Department, Ethics & Compliance Department and Risk Management Unit and generates conclusions on the efficiency of the internal control and audit function, risk management, compliance and internal control of MTS PJSC.
The Audit Committee positively evaluates the work of the Internal Audit Block in terms of evaluation of internal control, risk management, compliance and corporate governance system efficiency, and believes that the objectives of the Unit were met in full compliance with the expected results and recognizes the function as efficient.
The Audit Committee positively evaluates the work of the Internal Control Systems Department with regard to the creation, implementation and development of an effective system of internal control over the reliability of generation of financial statements for the MTS Group, including in new businesses, for 2020.
The Audit Committee positively assesses performance of the Risk Management Function as effective and fit for its purposes at the moment.
The Audit Committee positively assesses the work of the Ethics and Compliance Department and believes that the tasks of the division have been completed in full compliance with the expected results.
On a quarterly basis, the Audit Committee reviews the reports of external auditor Deloitte and Touche CIS JSC approving their performance.
The Board of Directors of MTS PJSC defines the policy in respect to internal control and audit and twice per year considers the report of the Audit Committee following the results of performance of the internal audit, risk management, compliance and internal control functions of MTS PJSC with analysis of the existing control system and identified violations.
|Audit Committee of the Board of Directors
The Audit Committee is a collective deliberative body under the Board of Directors. The committee was established for the purposes of assisting in efficient implementation of functions of the Board of Directors in terms of control over financial and economic activities of the Company. For detailed information about the Audit Committee’s work results in the reporting year see the section “Committees of the Board of Directors”.Results of evaluation by the Audit Committee of the external and internal audit process efficiency: are specified in the section “Report on the work of the Audit Committee”.
On June 24, 2020, the followings persons were elected as members of the Auditing Commission at the annual General Shareholder Meeting of MTS PJSC:
Report on the operation of the Auditing Commission
In April 2020, based on the results of the performed audit, the Auditing Commission did not record any material facts of violation of accounting activities or in the submission of financial statements while carrying out the financial and economic activities of the Company. The Auditing Commission confirmed that the financial statements of the Company for 2019 and the Annual report on the Company’s activities for 2019, in terms of the Company’s financial statements, are authentic.
In April 2021, the Auditing Commission carried out an audit of the financial and economic activities of the Company for 2020. The opinion report of the Auditing Commission will be submitted for the approval of the Annual General Shareholder Meeting of MTS in June 2021.
| Internal Audit
The Internal Audit Block (IAB) is a standalone structural division of MTS PJSC and consists of the Corporate Interaction Department, the Special Audit Department, the Process Audit Department. The Block is headed by the Director for Internal Audit who is functionally subordinated to the Chairman of the Audit Committee under the Board of Directors of MTS PJSC, and is administratively subordinated directly to the President of MTS PJSC.
The Internal Audit Block performs the following functions:
The IAB maintains a program to ensure and improve the quality of internal control and audit designed to assess the conformity of IAB with international professional standards of internal audit and the use by the IAB staff of the Institute of Internal Auditors Code of Ethics (The IIA)
Report on operation of the Internal Audit Block
During 2020, the Internal Audit Block operated in accordance with the set objectives, tasks and performed functions.
In December 2020, a restated version of the Regulations of the Process RP-319-12 “Processing of Complaints Received to the Unified Hotline of MTS Group” was developed and approved; it takes into account the recommendations of an independent compliance consultant, leading practices in the field of handling complaints from applicants and the experience of MTS.
The results of the Internal Audit Block’s operation for the first six months and in general for 2020 were inspected and approved by the Audit Committee. The Audit Committee positively assessed operations of the Internal Audit Block, and believes it is efficient. In December 2020, the Audit Committee approved the work plan, the strategy and budget of the Internal Audit Block for 2021.
|Internal Control Systems Department
The Internal Control Systems Department is a structural division to be a part of the Finance Block and consists of the ICS development department for the key business, the ICS development department for integrator business, the ICS development department for financial technologies and commerce, the Functional Group for Certification and General ICS Methodology. The Department of Internal Control Systems is headed by the director of the department, who is directly subordinated to the Member of the Management Board and Vice President for Finance of MTS PJSC and reports to the Audit Committee under the Board of Directors of MTS PJSC.
The Department of Internal Control Systems performs the following main functions:
Report on operation of the Department of Internal Control Systems (ICSD)
In 2020, within the framework of development of the internal control system for proving the accuracy of preparation of financial statements of MTS Group of Companies, including creation and implementation of internal control in new business types, as well as taking into account the results of management testing and external audit for 2019, changes in the organizational structure and business processes, works were performed to update and formalize control procedures aimed at coverage of essential risks, documented for SOX purposes.
Since 2018, ICSD has changed the strategy for implementing and developing ICS in new subsidiaries — management of the ICS function in subsidiaries is carried out from the CC level. This approach was retained in 2020 as applicable to all subsidiaries included in the SOX scope of work. The strategy has proven to be effective in terms of efficient and flexible allocation of resources and optimizing the time to support the ICS in subsidiaries.
In 2020, 159 business processes, 272 ELC/GCC processes across the MTS Group were updated. Testing of 1200 control procedures for the MTS Group was carried out taking into account the reduction in the term for disclosure of financial statements by eight day. Based on the results of assessing the effectiveness of ICS, no significant or material shortcomings were identified in relation to accuracy of preparation of financial statements in 2020. The total number of shortcomings that do not have a significant or material impact on the MTS Group also decreased compared to 2019 indicators.
In accordance with the approved methodology for managing the separation of powers in SOX-essential information systems, efforts are underway to identify and reduce conflicts of roles and powers (SOD):
The MTS Group internal control system is tested and certified in accordance with the article 404 of the Sarbanes and Oxley Act.
Based on the results of the internal evaluation and external audit opinion, the internal control system for proving the accuracy of preparation of financial statements of the MTS Group as of December 31, 2020 was found to be efficient and to have no material and significant deficiencies.
On June 24, 2020, at the annual General Meeting of Shareholders of MTS PJSC, Deloitte and Touche CIS Joint Stock Company was approved as the Company’s auditor (location: 125047, Russian Federation, Moscow, Lesnaya St., 5), OGRN 1027700425444, certificate of membership in the Self-Regulatory Organization of Auditors of the Association “Sodruzhestvo” (Association) dated January 31, 2020, ORNZ 12006020384.
Deloitte & Touche CIS AO is one of the leading audit and consulting firms providing audit, management and financial consulting, risk management, tax and related services. It is a member of the international association of firms “Deloitte Touche Tohmatsu Limited”, which is one of the world leaders in the provision of professional services and has more than 330 thousand employees in more than 150 countries.
In the reporting year, the auditor carried out:
In March and April 2021, the Audit Committee approved the results of the external auditor based on the results of audits conducted for 2020, including conclusions on the effectiveness of the internal control system over the formation of financial statements in the MTS Group
Based on the results of the audits, the auditor of MTS PJSC expressed opinions on the reliability of the financial statements of MTS PJSC for 2020, prepared in accordance with Russian accounting standards, and the consolidated financial statements of MTS PJSC and its subsidiaries for 2020, prepared in compliance with IFRS.
The procedure for selecting the auditor of the issuer
The tender for the selection of the external auditor of MTS PJSC is held at least once every five years. To conduct a tender, MTS PJSC forms a tender commission. Based on the results of the tender, the tender commission forms recommendations on the selection of an external auditor, which are sent for approval to the members of the Audit Committee of the Board of Directors of MTS PJSC.
If the candidacy of the auditor is approved by the Audit Committee, the Board of Directors and the General Meeting of Shareholders of the Company, an agreement is signed with the audit company for the provision of services for the audit of financial statements
The amount of the auditor’s remuneration for the audit of the statements of MTS PJSC and its subsidiaries for 2020 is approved by the Board of Directors of MTS PJSC and at the end of 2020 amounted to 162,675 thousand rubles, excluding VAT and overhead costs, including the audit of the statements of MTS PJSC In the amount of 14,000 thousand rubles.
SETTLEMENT OF POSSIBLE CONFLICTS OF INTEREST OF MANAGEMENT BODIES AT MTS PJSC
For the purposes of non-admission of conflicts of interests, the Company holds an annual knowledge testing and certification of compliance with norms of the Code of Business Conduct and Ethics for executives and top management, the result of which are reviewed at the Auditing Committee at the Board of Directors of MTS PJSC.
Members of the Management Board and employees are not entitled to participate in the approval, agreement, or other decision-making in respect of transactions concluded by the Company if they are or may be under the influence of the conflict of interests.
During managing a conflict of interests the Company is guided by the principles of lawfulness, confidentiality, impartiality, objectiveness and reasonable sufficiency, obligatory immediate disclosure of information by Company’s employees about an actual or potential conflict of interests or likelihood of such a conflict.
Procedures preventing a possible conflict of interests of directors are also established at our Company. Members of the Board of Directors must refrain from actions which may result in appearance of a conflict of interests and, if such a situation exists or arises, disclose information about it to the Board of Directors and not participate in voting on conflict agenda items.
Members of the Board of Directors, who have interest in agenda items of the Board of Directors, do not take part in discussion and voting on the specified agenda items.
During 2020, no conflict of interests of members of the Management Board of MTS PJSC was found.