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Snam Annual Report 2012 / Report on corporate governance and ownership structure127The internal control and risk management systemSnam has adopted an internal control and risk management system conforming to the prescriptions ofthe Code of Conduct for Listed Companies and in line with the current best practices. The purpose ofthe internal control and risk management system is to contribute to operating a company that pursuesthe corporate objectives defined by the Board of Directors, focusing on making informed decisions; thisensures the protection of corporate assets, the efficiency and effectiveness of corporate processes, thereliability of financial reporting, and compliance with the laws and regulations as well as the Bylawsand internal procedures.With the assistance of the Control and Risk Committee, the responsibility of the internal control andrisk management system requires that the Board of Directors directs and assesses the adequacy ofthe system and identifies within it one or more directors in charge of establishing and maintaining anefficient internal control and risk management system.Pursuant to the above, the Board of Directors of Snam has identified the Company’s Chief ExecutiveOfficer, the director who establishes and maintains an effective internal control and risk managementsystem, to carry out the activities required by the Code of Conduct.Applying the control system is the primary responsibility of the functional management insofar ascontrol activities are an integral part of management procedures. Management must therefore fosteran environment which encourages controls and in particular must manage “line controls”, consistingof all the control activities that individual operating units or companies perform over their ownprocedures.The Internal Audit department carries out an independent role and in particular is in charge of ensuringthat the internal control and risk management system is functioning and adequate.In compliance with the recommendations of the Code of Conduct, upon the proposal of the directorin charge of the internal control and risk management system with the agreement of the Chairmanand subject to the favourable opinion of the Control and Risk Committee acknowledged by theBoard of Statutory Auditors, the Board of Directors (i) appoints and revokes the Internal Auditor; (ii)ensures that they fulfil the requirements for carrying out their responsibilities; and (iii) defines theremuneration in line with corporate policies. The internal audit activities are carried out based on theguidelines approved by the Board of Directors, while ensuring that the necessary conditions regardingindependence, objectivity, skills and professional diligence are upheld.The Internal Auditor reports to the Chief Executive Officer, who is in charge of the internal control andrisk management system, and to the Board of Directors through the Control and Risk Committee andthe Board of Statutory Auditors.The Bylaws also provide for the Board of Directors to appoint the Chief Financial Officer, on theproposal of the Chief Executive Officer, by agreement with the Chairman and based on a favourableopinion from the Board of Statutory Auditors.In compliance with the professionalism requirements established by the Bylaws, upon the proposal ofthe Chief Executive Officer, by agreement with the Chairman and subject to the favourable opinionof the Board of Statutory Auditors, on 29 October 2007 the Board of Directors appointed Dr AntonioPaccioretti, the Planning, Administration, Finance and Control Manager of Snam, as Chief FinancialOfficer. The Board of Directors also verified the adequacy of the powers and resources at the disposalof the CFO to perform the duties assigned, as well as the observance of existing administrative andaccounting procedures.The internal control and risk management system is subject over time to verification and updating, inorder to continually ensure its suitability to protect the main risk areas of the Company’s activities,with respect to the characteristics of its operating sectors and its organisational configuration, and inkeeping with any new legislative or regulatory developments.Within this framework and in order to implement the provisions of the Code of Conduct, Snam hasSnam Annual Report 2012
128Snam Annual Report 2012 / Report on corporate governance and ownership structurebegun work aimed at establishing the Enterprise Risk Management System with rules, proceduresand organisational structures for the identification, measurement, management and monitoring ofthe main risks that could influence the achievement of the strategic objectives, with appropriatereference to the existing reference models and best practices. In 2013, the Board of Directors willformalise the guidelines for the internal control and risk management system so as to determinethe level of risks with respect to management of the Company according to the identified strategicobjectives.Principal characteristics of the risk management and internal control system in the financialreporting processThe internal control system on financial reporting aims to provide reasonable certainty of thereliability 54 of said financial reporting and of the capability of the financial statement preparationprocess to produce financial information in keeping with generally accepted accounting principles.Snam has adopted a body of rules that define the standards, methods, roles and responsibilities fordesigning, implementing and maintaining the system of internal controls over time on the financialreporting of Snam and its subsidiaries, and on the evaluation of its efficacy.The set of procedures for the financial reporting control system was defined in accordance with theprovisions of Article 154-bis of the TUF and takes into account the prescriptions of the U.S. Sarbanes-Oxley Act of 2002 (SOA), which apply to the former ultimate parent eni S.p.A. in its capacity as anissuer listed on the New York Stock Exchange (NYSE) and which had repercussions for Snam as asignificant subsidiary.With the transfer to Cassa Depositi e Prestiti of a portion of eni’s equity investment in Snam on 15October 2012, Snam exited eni’s scope of consolidation and is therefore no longer subject to therequirements requested by the SOA. Snam continues to be required to abide by the obligations setforth in Italian law for listed companies, pursuant to the aforementioned Article 154-bis of the TUF.The internal control model for financial reporting adopted by Snam is based on the COSO Report(“Internal Control – Integrated Framework” published by the Committee of Sponsoring Organisationsof the Treadway Commission).In addition to Snam, the control model is applied to its subsidiaries pursuant to international accountingstandards and based on their relevance in the preparation of financial information. Snam subsidiariesadopt the control model defined as a reference to design and institute their own control system andtailor it to their size and the complexity of the activities they undertake.The design, institution and maintenance of the control system are ensured by risk assessment,identification and evaluation of controls, and reporting.Controls are subject to evaluation in order to verify the quality of their design over time and theiroperational effectiveness; to this end, line monitoring has been entrusted to the managementresponsible for significant processes/activities, and independent monitoring has been entrusted to theinternal audit department.The results of the monitoring activities form the subject of periodic reporting on the status ofthe control system, which involves all levels of Snam’s organisational structure and its significantsubsidiaries, from business operation heads and department heads to administrative directors andChief Executive Officers.Evaluations of all the controls implemented within Snam and its subsidiaries are brought to theattention of the Chief Financial Officer, who, on the basis of this information, prepares a half-yearly54 Reliability (of the information): information characterised by accuracy and compliance with generally accepted accountingprinciples which meets the legal and regulatory requirements applied.Snam Annual Report 2012
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