KMG EP website

INTERNAL CONTROL AND RISK MANAGEMENT

JSC «Exploration Production» KazMunayGas» operates a system of internal control over financial and economic activity. The system is based on firmly-established international practices, such as the COSO Internal Control Framework and COSO Enterprise Wide Risk Management, as well as on the requirements of the Listing Rules of the London Stock Exchange and the UK Combined Code of Corporate Governance. The main objective of the system of internal control is to ensure sustainable development of the Company by identifying, evaluating and managing significant risks to achieve its strategic objectives and to preserve and increase shareholder value.

The system of internal control of the JSC includes the Audit Commission, the Committee of the Audit Board, and Risk Management Committee under the Company’s management, independent auditor and internal audit service. The existing chain of authority and interaction between elements of the internal control system provides a level of independence necessary for its effective functioning, and in line with best international practice in this area. The Directors confirm that during 2011 the processes that identified, assessed and managed significant risks faced by the Company were in place. In addition, the Directors used an approach that takes into account the risks of creating a system of internal control and reviewing performance.

The key elements of the Company’s internal control include:

  • The internal company documents such as financial, operational, administrative policies, policies for managing the funds and other procedures.
  • Constant monitoring of the operating and financial activities and related work in compliance with the safety requirements of the Company.

The Internal Audit Service of the Company provides the Board of Directors with objective information about how effectively the system of internal control of the Company operates. In its work The Internal Audit Service uses a risk-oriented approach which allows identifying and focusing maximum attention on the critical areas of the Company, thereby helping to improve the Company’s overall performance and the quality of its corporate governance. The Internal Audit Service reports include recommendations for improving the forms and methods of operation of the system of internal control. The Internal Audit Service monitors the implementation of the recommendations by the Management and reports thereon to the Audit Committee and the Board of Directors.

In addition the financial risks information can be found in the Analysis of financial condition and results of financial and economic activities, beginning from page 22. General information on the risk profile of the Company can be found in the Risk Factors section on page 41.

With regard to risk management, the Board established a Committee on risk management and more detailed information on its activities is presented below.

Risk Management Commitee

In 2011, the Risk Management Committee conducted its activities under the chairmanship of General Director, Askar Balzhanov. The Committee consists of Head of Risk Management Department, Deputy General Director for Production - Head of Operations Management in Aktau, Deputy General Director for Economics and Finance, Deputy Director of Corporate Development and Asset Management, Managing Director - Financial Controller, Managing Director for Economics and Finance, Managing Director of Legal Affairs, Managing Director of Information Technology, Managing Director of Human Resources and Social Policy, Managing Director of Safety, Health and Environment and Corporate Secretary. Head of Internal Audit participates in meetings of the Committee as an observer.

The main purpose of the Committee is a prompt consideration of risk management issues in the Company. The Committee may make recommendations to the Board on risk management, and monitoring the effectiveness of risk management systems and make recommendations to structural units of the Company to improve the risk management system in order to make business processes more efficient and achieve the strategic goals of the Company.

During the 2011 Risk Management Committee held four meetings where it discussed and made decisions on the following issues:

  • Review and approval of the Risk Management Policies Project.
  • Overview on the current status and development plan for the risk management system.
  • The status of orders on matters considered at the meeting of the RMC.
  • Issue on the list of key positions of JSC KMG EP.
  • Status on the choice of an independent consultant for the Insurance Program of JSC “EP “KMG”.
  • An overview and current status of the risk management system and further plan of RMC meetings.