Audit and control

In accordance with Federal Law No. 208-FZ “On JointStock Companies”, Unipro PJSC operates a system of control over the financial and business operations of the Company, which is a set of organisational structures, procedures, regulatory documents, methods and key participants:

• Audit Committee under Unipro PJSC Board of Directors (for details ref. to “Committees of the Board of Directors”);
• Internal Audit Department;
• External Auditor.

The main principles, goals, objectives, methods and processes of the control system are defined by the General Shareholders’ Meeting and the Board of Directors of Unipro PJSC in the documents

• Code of Corporate Governance;
• Code of Corporate Conduct;
• Regulation on the Audit Committee of the Board of Directors of Unipro PJSC;
• Regulation on the Internal Audit Department.

The Unipro Internal Control System (ICS) is a system of organisational measures, policies, instructions, as well as control procedures, corporate culture standards and actions taken by the Company’s management and employees, aimed at providing sufficient confidence in the achievement of its objectives in the following categories:

• business efficiency and effectiveness;
• reliability and timeliness of financial statements;
• compliance with applicable legal requirements and local regulations;
• ensuring safety of the assets;
• anti-fraud activities

The Company’s internal control system is organised based on a risk-oriented approach. It implies close integration of the internal control system with the risk management processes, which ensures timely and effective application of risk management methods using effective internal control mechanisms. Besides, the Company’s management and its employees focus their efforts on improving the internal control system, primarily in those areas of activity that are characterised by the highest level of risks (for details ref. to the section “Key Risks”).

Unipro assesses the efficiency of its internal control system, based on the internal control system methodology developed by the Committee of Sponsoring Organizations (“COSO”), entitled “Internal Control. Integrated Model”.

Unipro PJSC uses the applicable Regulation on the Internal Control System to ensure the effective operation of the internal control system that complies with generally recognised practices and standards of internal control and contributes to the achievement of the Company’s business objectives. The Regulation on the Internal Control System defines the objectives, principles of operation and elements of the Company’s internal control system, the main functions and responsibilities of the internal control system participants, and the procedure for assessment of the internal control system efficiency

The internal control system of Unipro operates according to “four lines of defence” model, which means that the internal control is implemented in the Company at four levels.

The functions of the internal control system participants are set in the Regulation on the Internal Control System of the Company, regulations on functions, and job descriptions.

Unipro conducts an annual assessment of the efficiency of control procedures and the internal control of processes.

The Company’s management shall sign the SignOff form, which is an integral part of Uniper Group’s annual financial statements and confirms the efficiency of the internal control system. This statement is based on the results of the internal control system self-assessment by the process and controls owners, who are responsible for updating their state and status.

The internal control system efficiency is assessed based on:

• updating of process control matrices by business process owners;
• confirmation by all business function owners of their responsibility for implementing and maintaining an effective and up-to-date internal control system;
• random control by external and internal audit forces.

The internal control system of Unipro PJSC is upto-date and efficient. In order to further improve the internal control system efficiency, the Company’s management strives to develop and strengthen it in accordance with the best practices in the market, recommendations and requirements of regulatory bodies.

In 2020 the key events related to the internal control system were:

• continuous analysis of the main activity processes and management processes for the effectiveness and sufficiency of control procedures used in them;
• approval of the measures for improvement of the internal control system efficiency for 2021;
• completion of the assessment of the involvement of the Company’s employees in the internal control system by means of a questionnaire;
• development of the Internal Control System Roadmap of Unipro PJSC for 2020 and 1H 2021;
• completion of the preliminary analysis of the organisation level of the internal control system according to the criteria set by the Federal Tax Service of the Russian Federation;
• establishment of a register of control procedures that should be/potentially can be automated in ERP D365 for each business process;
• approval of the Regulation “Control Procedures for Accounting and Tax Accounting, Preparation of Accounting (Financial) and Tax Statements”.

Plans of the internal control system improvement for 2021 include:

• updating of the Regulation on the Internal Control System and other local regulatory acts, as well as the job descriptions of the Company’s employees;
• improvement of the internal control system of the functional activities of Unipro PJSC: “Purchases”, “Sales”, “Fuel — from procurement to accounting”, “Treasury” and “Financial statements”;
• updating of business process control matrices for accounting, tax accounting and preparation of accounting (financial) statements;
• strengthening of controls in business processes during the transition to D365 and further replacement of manual controls with automated ones;
• further detailed analysis of the level of organisation of the internal control system according to the criteria set by the Federal Tax Service of the Russian Federation and drafting of a roadmap for transition to tax monitoring;
• increase of the awareness of key personnel.

The function of internal audit at Unipro PJSC is assigned to the Internal Audit Department and is carried out in accordance with the Regulation on the Internal Audit Department.

The Internal Audit Department helps to achieve the Company’s objectives in the most efficient and economically sound way, by using a systematic and consistent approach to assess and improve the effectiveness of risk management, internal control and corporate governance systems.

To ensure the principle of independence and objectivity, the Internal Audit Department reports to the Board of Directors of Unipro PJSC, and is administratively subordinated to the General Director.

In total, the Internal Audit Department has five employees: the Head, the Deputy Head of the Department and three chief specialists responsible for individual areas of work.

The main tasks of the Department are:

• preparing the annual plan of internal audits according to the risk-based approach for the Company’s core business processes;
• setting up and carrying out the internal audits according to the approved annual plan;
• setting up and carrying out the unscheduled internal audits, internal investigations, and fraud investigations.

The Head of the Internal Audit Department is functionally subordinate and reporting to the Company’s Board of Directors. The Head of the Internal Audit Department is appointed and dismissed by the Company’s General Director upon approval of the Board of Directors of Unipro PJSC.

On 04 April 2019, the Board of Directors of Unipro PJSC approved the appointment of Veronika Semenova to the position of the Head of the Internal Audit Department of Unipro PJSC (Minutes No. 272 dated 05 April 2019).

No conflicts of interest in the work of the Head of the Internal Audit Department were identified in 2020.

In its work the Internal Audit Department takes account of international professional standards for internal audit and the Code of Ethics for Internal Auditors, adopted by the Institute of Internal Auditors, and is guided by the Company’s internal audit regulations.

Audit procedures are based on the annual audit plan, which was prepared for 2020 using a riskbased approach to identify key areas for audit, taking account of the requests and recommendations of management and shareholders.

The audit plan for 2020 is fulfilled by 100 %. In total, the employees of the Internal Audit Department conducted 10 audits, namely:

• Organizational setup and corporate relations and communications management;
• Efficiency of the corporate security function in Unipro;
• spot check 5. Sale of metal scrap at Berezovskaya GRES branch;
• License management;
• spot check 6. The effectiveness of the actual coronavirus-related measures taken, as well as their impact on Berezovskaya GRES Power Unit 3 completion
• Fulfilment of contractual obligations and procedure for handling claims;
• construction of a boiler house in the Smolenskaya GRES branch;
• Asset modernization program of Unipro PJSC;
• Random audits of purchases;
• spot check 7. Checking the budget of additional costs for forests at the Berezovskaya GRES (random audits of Unipro Engineering LLC).

In addition to 10 audits, two additional internal investigations were conducted, which were initiated based on the requests received via Unipro hotline.

In one of the two investigations conducted in 2020 the information was partially confirmed.

During all conducted internal investigations observations were made regarding the effectiveness of the analysed business processes, and recommendations were given to improve such processes

Thus, a total of 12 audits were conducted by the Department’s employees in 2020.

The staff of the Internal Audit Department systematically monitor and control the implementation of measures to prevent, correct or eliminate shortcomings that are identified by audit work, based on recommendations made by the auditors.

In 2020 the staff of the Internal Audit Department pursued further professional development and training. The staff of the Department have been trained towards and continue to prepare for CIA (Certified Internal Auditor) and CFE (Certified Fraud Examiner) professional certifications.

The work plan for the Internal Audit Department of Unipro PJSC for 2021 includes the following areas:

• audit of supervisory control and data acquisition (SCADA);
• audit of the procurement process;
• re-audit of the license management process;
• audit of selected topics related to the project of Refurbishment of Berezovskaya GRES Power Unit 3;
• audit of the time tracking process;
• audit of the occupational health, safety and environment management system, including safeguarding of the health of personnel;
• re-audit of the boiler house construction at Smolenskaya GRES;
• audit of repair and maintenance processes at Surgutskaya GRES.

The Company has developed feedback channels for issues related to violations or inconsistencies in the preparation of financial statements or in operation of the internal control system. Any employee may refer these issues to the Internal Audit Department and the Audit Committee of the Board of Directors of Unipro PJSC.

Plan of Internal Audit Department for 2021 includes:

• conducting audits according to the plan, as well as unscheduled inspections (internal investigations);
• support of remote work;
• building relationships with the departments to increase the transparency of information disclosure, consulting, and promoting the Trusted Advisor approach;
• attracting employees of the Company’s functions to participate in the Guest Auditor program;
• development and implementation of a digital tool for automated analytical procedures based on the Qlik View platform;
• obtaining of international professional diplomas / certificates by the Department’s employees;
• participation in internal trainings, including “Key Indicators of Fraud”, «Improvement of Efficiency and Transparency of Procurement Procedures”, «Risk-oriented Approach of the Internal Audit Department”, etc.;
• public speaking of the Department’s employees at conferences, forums, seminars, trainings, round tables, etc.on the issues of internal audit, internal control, risk management, corporate governance in order to exchange professional experience and learn the best business practices.

Unipro PJSC annually conducts an independent external audit of the accounting (financial) statements in accordance with the Russian and international standards.

Following the results of the tender procedures, PricewaterhouseCoopers Audit Joint Stock Company (PvC Audit JSC, 10 Butyrsky Val str., 125047 Moscow), the candidacy of which had been approved by the decision of the Annual General Shareholders’ Meeting of Unipro PJSC dated 08 July 2020, was declared the winner.

PvC Audit JSC is a member of Sodruzhestvo SelfRegulatory Organisation of Auditors. Primary registration number of the entry in the register of auditors and audit companies: 12006020338.

PvC Audit JSC, the auditor, has not provided any other consulting services to the Company. Information on the independent auditor’s remuneration is provided in the section “Report on Remuneration of Management and Control Bodies”.

In 2020, the auditor completed the following works:

• audit of RAS financial statements of Unipro PJSC for the period from 01 January to 31 December 2019, inclusive;
• preparation of the auditor’s opinion on RAS financial statements of Unipro PJSC for 2019;
• audit of IFRS consolidated financial statements of the Company for the year ending on 31 December 2019;
• preparation of an audit report on the financial status of the Company as of 31 December 2019, and on is business results and cash flow for the reporting year in accordance with IFRS;
• audit of the Company’s special financial information for the reference period ending on 31 December 2019, prepared according to the instructions of Uniper SE Group and the accounting policy of Uniper SE Group for the preparation of financial statements;
• report on compliance with the instructions of Uniper SE Group and Uniper SE Group accounting policy in preparation of the Company’s special financial information;
• assessment review of Unipro PJSC interim IFRS financial statements prepared for 6 months ending on 30 June 2020;
• drawing up of the auditor’s opinion on the assessment review of Unipro PJSC interim IFRS financial statements prepared for 6 months ending on 30 June 2020;
• review of special financial information for 3, 6 and 9 months ending on 31 March, 30 June and 30 September 2020, respectively, prepared according to the instructions of Uniper SE and the accounting policy of Uniper SE for preparation of special financial information;
• preparation of an opinion based on the review of special financial information for 3, 6 and 9 months ending on 31 March, 30 June and 30 September 2020, respectively, prepared according to the instructions of Uniper SE and the accounting policy of Uniper SE for preparation of special financial information.