Professional Documents
Culture Documents
[Year:2008]
Corporate Office:
A-11, Sector 24, NOIDA-201301
Registered Office:
Scope Complex, Core-3
7, Institutional Area, Lodhi Road, New Delhi-110003
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PREFACE
(NEERU ABROL)
Director (Finance)
Dated: 11.08.2008
CHAPTER
1
PARA
CONTENTS
PAGE #
1.1
1.2
1.1
1.3
Objectives
1.2
1.4
Scope
1.2
1.5
Responsibilities
1.3
1.6
1.4
1.7
1.6
2.1
2.2
2.3
2.3
2.6
3.1
3.1
Types of Audits
3.1
3.3.1
Operational Audits
3.2
3.3.2
Management Audits
3.2
3.3.3
Audit of Sanctions
3.2
3.3.4
Proprietary Audit
3.3
3.3.5
Audit of Expenditure
3.3
3.3.6
Departmental Audits
3.4
3.3.7
Financial Audits
3.4
3.3.8
Contract Audits
3.4
3.3.9
3.5
3.3.10
Follow-up Audits
3.5
3.4
General
3.5
4.1
4.1.2
4.7
4.2
4.8
4.2.1
Gasification
4.8
4.3
4.11
5.1
MANAGEMENT AUDIT
5.1
General Principles
CHAPTER
PARA
CONTENTS
5.2
5.2
5.3
Controls
5.4
5.4
5.4
5.5
5.5
5.5.1
Purchase Management
5.6
5.5.2
Inventory Management
5.7
5.5.3
Production Management
5.8
5.5.4
Marketing Management
5.8
5.5.5
Personnel Management
5.10
5.11
6.1
6.2
Objective of planning
6.1
6.3
Scope of planning
6.2
6.4
6.3
6.5
6.4
6.6
Progress review
6.5
6.7
6.5
6.8
6.9
7.1
7.2
7.1
7.3
7.2
7.4
7.2
7.5
7.3
7.6
7.5
7.7
Follow-up
7.7
7.8
7.8
ENVIRONMENTAL AUDIT
8.1
Introduction Environmental Perspective
8.1
8.2
8.2
8.3
8.3
9.1
9.2
9.2
General
9.2
9.3
5.5.6
6
PAGE #
9.6
Bank Reconciliation
9.7
9.7
9.8
9.8
ii
CHAPTER
PARA
CONTENTS
PAGE #
9.8
9.9
9.9
9.10
9.10
9.11
9.12
9.13
9.13
9.13
H
9.3
9.4
A
B
Invoicing
9.14
9.15
9.15
Security deposits
9.16
9.16
Excise duty
9.17
9.17
9.18
I
J
Warehouses
9.18
9.19
General
9.20
9.21
9.22
Receipts
9.22
Issues
9.22
9.23
9.23
Miscellaneous
9.24
9.24
9.6
9.26
9.7
9.28
Insurance Policies
9.28
Insurance claims
9.30
9.31
Discount on premium
9.34
9.34
9.35
9.35
9.35
9.35
Periodical returns
9.36
9.36
9.41
9.5
9.8
iii
CHAPTER
PARA
CONTENTS
PAGE #
9.45
9.46
9.47
9.57
Contingent liability
9.61
9.9
9.63
9.10
9.65
Award of work
9.66
Recordings of measurements
9.67
9.68
Payment to contractors
9.68
9.68
Final bills
9.70
9.71
9.71
Abandonment of work
9.71
Other items
9.71
Accounting
9.73
Capitalisation of expenditure
9.73
Service contracts
9.74
9.76
Pay Bills
9.77
Overtime payment
9.78
9.79
LTC
9.80
Reimbursement of LTE
9.80
Encashment of leave
9.80
9.80
9.81
9.81
9.81
9.84
9.11
advance
H
9.12
10
Provident Fund
9.84
9.86
CAPITAL EXPENDITURE
10.1
Introduction
10.1
10.2
10.1
10.3
10.3
10.4
10.4
10.4.1
10.4
10.4.2
Review of contracts
10.5
iv
CHAPTER
11
12
13
PARA
CONTENTS
PAGE #
10.4.3
10.7
10.4.4
Escalation
10.8
10.4.5
10.8
10.4.6
Acceptance
10.9
10.4.7
10.9
10.5
10.10
11.1
11.2
11.1
11.3
11.2
11.4
11.4
11.5
11.4
11.6
11.5
12.1
12.2
12.1
12.3
Periodicity
12.2
13.1
13.2
13.1
13.3
13.2
13.4
13.5
13.5
13.5
13.6
14.1
14.2
14.1
14.3
14.4
MARKETING DEPARTMENT
15.1
Introduction
15.1
15.2
Appointment of dealers
15.2
15.3
Credit administration
15.2
15.4
15.3
15.5
15.5
15.6
Terms of sale
15.6
15.7
15.7
15.8
15.8
16.1
16.2
16.1
guidelines / checklists
13.6
14
15
16
CHAPTER
17
18
19
20
PARA
CONTENTS
PAGE #
16.3
16.4
16.4
16.5
16.5
16.5
16.6
16.6
16.7
16.7
16.8
Horticulture Checklist
16.8
16.9
16.10
17.1
17.2
Hospitals Checklist
17.2
17.2.1
17.2
17.2.2
17.2
17.2.3
17.3
17.2.4
17.4
17.2.5
17.4
17.2.6
17.5
17.3
17.5
18.1
18.2
18.1
19.1
19.2
19.2
19.3
Mechanical Maintenance
19.3
19.4
Instrumentation Maintenance
19.6
19.5
Electrical Maintenance
19.7
19.6
Civil Maintenance
19.9
20.1
20.2
20.2
20.3
ICT controls
20.3
20.3.1
Control objectives
20.3
20.3.2
20.4
20.4
20.4
20.5
20.7
20.6
Maintenance
20.8
20.7
20.8
20.8
Telecommunications
20.10
20.9
20.10
20.10
Records management
20.10
20.11
20.11
20.12
20.11
vi
CHAPTER
21
22
23
PARA
CONTENTS
20.13
20.21
21.1
21.2
21.1
21.3
21.2
21.4
21.6
21.5
21.9
22.1
22.2
22.1
22.2.1
22.1
22.2.2
22.2
Secretarial functions
22.2
Organisation structure
22.3
22.3
Financial management
22.4
Claims
22.4
Loans
22.5
Liabilities
22.5
Taxation
22.6
Forex transactions
22.6
22.7
22.7
22.3
Manufacturing units
22.8
23.1
23.2
23.2
Statutory provisions
23.2
23.3
23.3
Terms of reference
23.3
Purpose
23.4
Composition
23.4
23.5
Powers
23.5
23.5
23.7
Government auditors
23.8
23.4
Statutory auditors
23.10
23.5
23.10
23.6
23.11
23.3
PAGE #
vii
CHAPTER
24
25
26
PARA
CONTENTS
PAGE #
CONFLICTS OF INTEREST
24.1
Introduction
24.1
24.2
24.1
DISPUTE RESOLUTION
25.1
Dispute between Audit Staff and & Management
25.1
25.2
25.1
25.3
25.2
25.4
25.2
25.5
Scope Limitations
25.2
26.1
26.2
26.2
A.1
A.7
A.9
Handbook on insurance
A.10
A.41
A.46
A.68
A.69
A.70
A.72
Appendix
viii
CHAPTER 1
1.1
1.2
1.1
(c) In addition, internal audit where it is entrusted with such responsibility also
provides an independent and objective consultancy service specifically to
help line management improve the organizations risk management, control
and governance. The service applies the professional skills of internal audit
through a systematic and disciplined evaluation of the policies, procedures
and operations that management put in place to ensure the achievement of
the organizations objectives, and through recommendations for
improvement. Such consultancy work contributes to the opinion which
internal audit provides on risk management, control and governance.
Risk management, control and governance comprise the policies, procedures
and operations established to ensure the achievement of objectives, the
appropriate assessment of risk, the reliability of internal and external
reporting and accountability processes, compliance with applicable laws and
regulations, and compliance with the behavioural and ethical standards set
for the organization.
1.3
OBJECTIVES
To assist management at all levels in the effective discharge of their functions
and responsibility by furnishing it with objective analyses, appraisals,
recommendations and pertinent observations concerning the activity, reviews
and suggest cost effective remedial actions for managing risks effectively.
1.4
SCOPE
Verify the existence of Company assets and ensure that proper safeguards
are maintained to protect them from loss
1.2
1.5
Reviewing and appraising the economy and efficiency with which resources
are employed.
Provide assistance and a coordinated audit effort with the CAG and Statutory
Auditors.
RESPONSIBILITIES
Internal Audit department shall be responsible for:
Coordinating the internal audit activities with the statutory auditors of the
Company. While compliance with the laid down systems and procedures,
exercise of internal check and internal control is the responsibility of the line
managers in all departments of the Company, the appraisal of sufficiency of
these systems and the efficiency of their operations is a major function of
internal audit.
1.3
1.6
1.6.1
Mission Statement
The mission of Internal Management Audit is to support and assist the
management in the effective discharge of their oversight, management and
operating responsibilities through independent appraisal of the Companys
financial, operational and control activities.
Internal Audit will report on the adequacy of internal controls, the accuracy and
propriety of transactions, the efficiency, effectiveness and economy of
operations, the extent to which assets are accounted for and safeguarded, and
the level of compliance with corporate policies and government laws and
regulations. Additionally, it will provide analyses, recommendations, counsel, and
information concerning the activities reviewed.
1.6.2
1.4
reviewed. Therefore, the internal audit review and appraisal process does not in
any way relieve other persons in the organization of the responsibilities assigned
to them.
(iii) Scope: Internal Audit is authorized to have full, free and unrestricted access
to information including records, computer files, property, and personnel of the
Company in accordance with the authority granted by the Audit Committees
approval of this charter and applicable regulatory and government requirements.
Except where limited by law or Corporate policy, the work of Internal Audit is
unrestricted. Internal Audit is free to review and evaluate all policies, procedures
and practices of any activity, program, or function that has been approved as per
the internal audit programmes drawn up yearly and any amendments made
thereto. The audit programmes in terms of the charter shall, inter alia, focus on
the following objectives:
All operational and related activities are performed efficiently and effectively.
1.5
The audit activities are undertaken as per the Annual Audit Plan developed
by Corporate Audit based on the risk profile of business processes/subprocesses of various functions and comments of the Units/auditee. The Audit
Plan is approved by the Audit Committee who regularly review compliance to
the Plan
1.7
1.7.1
CODE OF ETHICS
There are four main principles that Internal auditors are expected to apply and
uphold:
1.
2.
INTEGRITY
OBJECTIVITY
1.6
3.
4.
COMPETENCY
CONFIDENTIALITY
INTEGRITY
All members of the internal audit team should demonstrate integrity in all aspects
of their work. The relationship with fellow colleagues and external contacts
should be one of honesty and fairness. This establishes an environment of trust,
which provides the basis for reliance on all activities carried out by the internal
audit team. Following from the above, Internal auditors;
Shall perform their work with honesty, diligence, and responsibility.
Shall observe the law and make disclosures expected by the law and the
profession.
Shall not knowingly be a party to any illegal activity, or engage in acts that are
discreditable to the profession of internal auditing or to the organization.
Shall respect and contribute to the legitimate and ethical objectives of the
organization.
OBJECTIVITY
Objectivity is a state of mind that has regard to all considerations relevant to the
activity or process being examined without being unduly influenced by personal
interest or the views of others. Members of the internal audit team should display
appropriate professional objectivity when providing their opinions, assessments
and recommendations. Following from the above, internal auditors:
Must not participate in any activity or relationship that may impair or be
presumed to impair their unbiased assessment. This participation includes
those activities or relationships that may be in conflict with the interests of the
organization.
Must not accept anything that may impair or be presumed to impair their
professional judgment.
Must disclose all material facts known to them that, if not disclosed, may
distort the reporting of activities under review.
COMPETENCY
Members of the internal audit team should apply the knowledge, skills and
experience needed in the performance of their duties. They should carry out their
1.7
work to the standards set out in the ensuing part of this chapter. They should not
accept or perform work that they are not competent to undertake unless they
receive adequate advice and support to competently carry out the work.
Following from the above, Internal auditors:
Shall engage only in those services for which they have the necessary
knowledge, skills, and experience.
Shall perform internal auditing services in accordance with the Standards for
the Professional Practice of Internal Auditing laid down by the Institute of
Chartered Accountants of India.
Shall continually improve their proficiency and the effectiveness and quality of
their services.
CONFIDENTIALITY
Members of the internal audit team should safeguard the information they receive
in carrying out their duties and be prudent in the use and protection of
information acquired in the course of their duties. There should not be any
unauthorised disclosure of information unless there is a legal or professional
requirement to do so. Confidential information gained in the course of audit
duties should not be used to effect personal gain or in any manner that would be
contrary to the law or detrimental to the legitimate and ethical objectives of the
organization.
1.7.2
1.8
1.7.2.1
INDEPENDENCE
The principles of independence - Internal audit should be sufficiently independent
of the activities, which it audits to enable auditors to perform their duties in a
manner, which facilitate impartial and effective professional judgements and
recommendations. They should have no executive responsibilities. The following
standards will be adhered to;
1.
Independence and Objectivity - The internal audit activity must be
independent, and internal auditors must be objective in performing their work.
2.
Organizational Independence -The chief audit executive must report to
a level within the organization that allows the internal audit activity to fulfil its
responsibilities.
3.
The internal audit activity must be free from interference in determining
the scope of internal auditing, performing work, and communicating results.
4.
Independence of individual auditors - Individual auditors should have an
impartial, unbiased attitude, characterised by integrity and an objective approach
to work, and should avoid conflicts of interest. They should not allow external
factors to compromise their professional judgement.
Objectivity is presumed to be impaired when individual auditors review any
activity in which they have previously had executive responsibility. Auditors
should not be assigned to assurance work in business areas where they have
had an executive or other involvement, and where the Head of Internal Audit
deems that this may impair their objectivity, until a suitable period has elapsed (a
period of one year may be considered). The Head of Internal Audit should
develop appropriate guidelines for determining the duration of such periods.
5.
Long-term responsibility for the audit of a particular aspect of an
organisation can also affect independence; assignment of ongoing audit
responsibilities should be rotated from time to time.
6.
Internal auditors may provide consulting services relating to operations for
which they had previous responsibilities.
1.9
7.
Independence of outside consultants - Objectivity could be impaired if an
audit consultant also provides other services to the organisation. Steps should be
taken to avoid or manage such conflicts of interest.
8.
Declaration of conflict of interest - Individual auditors should declare any
conflicts of interest arising from audit work assigned to them by the Head of
Internal Audit. Such potential conflicts of interest include previous executive or
consultancy responsibilities and personal relationships with staff with current
executive responsibilities.
1.7.2.2
1.10
1.7.2.3
PERFORMANCE STANDARDS
1.
Managing the Internal Audit Activity: Corporate Office should
effectively manage the internal audit activity to ensure it adds value to the
organization.
2.
Planning: Audit Committee should establish risk-based plans to
determine the priorities of the internal audit activity, consistent with the
organizations goals.
The internal audit activitys plan of engagements should be based on a risk
assessment, undertaken at least annually. The input of senior management and
the board should be considered in this process.
3.
Communication and Approval: The chief audit executive must
communicate the internal audit activitys plans and resource requirements,
including significant interim changes, to senior management and the Audit
Committee for review and approval.
4.
Resource Management : Audit Committee / Management should ensure
that internal audit resources are appropriate, sufficient, and effectively deployed
to achieve the approved plan.
5.
Coordination : The chief audit executive should share information and
coordinate activities with other internal and external providers of relevant
assurance and consulting services to ensure proper coverage minimize
duplication of efforts and transportation of best practices.
6.
Reporting :
i.
All internal audit assignments will be the subject of formal
reports
All internal audit assignments will be the subject of formal reports. Draft reports
will be sent to the manager(s) responsible for the area under review for
agreement to the factual accuracy of findings and the implementation of
recommendations made to address weaknesses in internal controls. After
agreement, the reports will be issued to the relevant HOD with a copy to Head of
Internal Audit H.O.
ii.
The chief audit executive, internal audit should report periodically to Audit
Committee and senior management on the internal audit activitys purpose,
authority, responsibility, and performance relative to its plan. Reporting should
also include significant risk exposures and control issues, corporate governance
1.11
issues, and other matters needed or requested by the Audit Committee and
senior management. Significant control issues and potential for improving risk
management and internal control processes should be highlighted.
7.
Risk Management : The internal audit activity should assist the
organization by identifying and evaluating significant exposures to risk and
contributing to the improvement of risk management and control systems.
Appropriate risk responses are selected that align risks with the
organizations risk appetite.
Based on the results of the risk assessment, the internal audit activity
should evaluate the adequacy and effectiveness of controls
encompassing the organizations governance, operations, and
information systems. This should include:
8.
Governance : The internal audit activity should assess and make
appropriate recommendations for improving the governance process in its
accomplishment of the following objectives:
1.12
9.
1.7.2.4
AUDIT COMMITTEES
This Standard only encompasses internal audit issues and does not define the
full role or constitution of an Audit Committee, which has been defined in another
chapter of this manual.
Internal Audit issues on which Audit Committees advice should be sought
Internal Audit through the executive nominated in this behalf should ask the Audit
Committee to advise them on:
a. the skill, experience and competency requirements for the post of Head
Internal Audit, where such post falls vacant and has to be filled.
of
b. the terms of reference for internal audit, where such audit is required at the
behest of the Audit Committee.
c. the effectiveness of the internal audit strategy and periodic plan in addressing
the organisations risks
d. the resourcing of internal audit
e. the periodic (annual) work plans of internal audit, and material changes to
these plans the Head of Internal Audits annual and interim audit report(s)
and any implications arising from their findings and opinion
f.
1.13
1.7.2.5
II.
III.
3.
Relationships with other internal auditors: Where unit internal auditors
need to work with internal auditors of another organization/unit (for example, in
1.14
1.15
CHAPTER 2
2.1
2.1
Organizational set-up
2.2
Organizational set-up
2.2
2.3
Organizational set-up
2.4
Organizational set-up
DIRECTOR [FINANCE]
CHIEF MGR.
[IA]
BATHINDA UNIT
DGM
AM
[Tech]
AM
[Non-T]
CHIEF MGR.
[IA]
PANIPAT UNIT
CM
Sup [SG]
[Non-T]
Senior
AM
AM
[Non-T]
VIJAIPUR UNIT
CM
Accounts
Officer
Foreman
[Tech]
Sr. AM
[Non-T]
NANGAL UNIT
DGM
Accounts
Officer
2.5
Organizational set-up
Exec. SG
[Non-T]
Sr. AM
[Non-T]
Foreman
2.3
2.6
Organizational set-up
CHAPTER 3
3.1
3.2
3.3
TYPES OF AUDIT
In preparing the Annual Internal Audit Plan, the Head of IA department at the unit
may determine the type of audit to be performed for each auditee. The following
General Principles
3. 1
is a summary of the various types of audits within the generic definition of internal
audit, which will generally be conducted:
3.3.1
Operational Audits
Operational audits are designed to evaluate procedures and controls, which
impact the attainment of the companys organizational goals and objectives.
Operational audit is an impartial service to operational management, which gives
assurance when appropriate that operational objectives are valid; that
operational control information is reliable; and the operational activities are
effective and efficient. It is also an agent for change by identifying and analyzing
managerial problems and offering practical suggestions for improving operational
effectiveness, efficiency and economy.
3.3.2
3.3.3
Audit of Sanctions
The purpose is to ensure through test checks by drawing samples using a
suitable basis, that items of expenditure are covered by the sanctions of the
competent authority. The audit should also seek assurance that the authority
sanctioning the expenditure is competent to do so by powers vested in it and
the sanction is specific.
If the sanctioning authority is vested with powers, which are to be exercised
subject to certain criteria/limits, audit should check whether the sanctioning
authority has abided by them.
If the sanctioning authority is vested with full powers in respect of certain
class of expenditure, sanction accorded under these powers may be
questioned by audit under standards of financial propriety and reliability of
data.
For the purpose of financial sanctions, audit should check whether a
contract/work has not been split up to circumvent sanction of proper authority.
Audit should also check that any alterations/amendments to a sanction have
been approved by an authority not below the level of the authority who
originally sanctioned it.
General Principles
3. 2
3.3.4
Propriety Audit
It is an essential function of audit to bring to light not only cases of clear
irregularity but also every matter which, in the judgment of the auditors, appears
to involve infructuous expenditure or wrong use of company's property even
though the accounts themselves may be in order and no system/financial
irregularity has occurred. It is of equal importance that the broad principles of
finance are borne in mind not only by disbursing authorities but also by
sanctioning authorities.
No precise rules can be laid down for propriety audit as such. Its objective is to
support a reasonably high standard of public financial morality of sound financial
administration, transparency and devotion to the financial interests of the
company.
Internal audit executives in the performance of their duties shall apply the
following general principles:
3.3.5
The expenditure should not prima-facie be more than what the job demands.
No authority should exercise its power in such a way as will be to its own
advantage directly or indirectly.
Company's money should not be utilised for the benefit of a particular person
or a section of employees unless: (i) it is in pursuance of company's
recognised policy/custom, or (ii) the claim can be enforced in a court of law.
Audit of Expenditure
The main objectives of audit of expenditure are to ensure that:
The expenditure is in accordance with the sanction of the competent
authority.
The expenditure incurred is for bona fide purposes of the company and the
minimum necessary for the purpose.
The prescribed procedures have been observed, such as framing of proper
estimate, approval of competent authority etc.
The expenditure sanctioned for a specific period is not admitted beyond that
period without further sanction.
General Principles
3. 3
Departmental Audits
Departmental audits (e.g. Repairs and Maintenance) are designed to review and
evaluate the activities and operations of a particular function, activity,
department, or unit under review. Departmental audits will evaluate accounting,
operational, financial controls (where applicable), monitoring controls, and ensure
compliance with companys policies and procedures, applicable laws and
regulations, and validate the records and accounts of the auditee. Departmental
audits will utilize a complete battery of audit tests and procedures, including, but
not limited to, functional tests, transaction reviews, substantive tests, and
analytical reviews.
3.3.7
Financial Audits
Financial audits are designed to validate the accuracy and completeness of
records and account balances. Financial audits will utilize substantive tests,
analytical reviews, and other validation procedures, which may or may not
include functional tests or transaction reviews.
Financial audits determine whether the financial information of the company
function, activity, department, or unit under audit fairly represents the financial
position, results of operations, and cash flows or changes in financial position of
the auditee in accordance with Generally Accepted Accounting Principles,
keeping in mind various accounting standards and other pronouncements issued
by the Institute of Chartered Accountants of India
3.3.8
General Principles
3. 4
unit of the company and shall include all types of contracts; e.g., construction
contracts, service contracts including professional service contracts etc.
3.3.9
GENERAL
In order that the internal audits have a proper direction and purpose and cause
minimal disruption to the auditee, it is recommended that internal auditors adhere
to following:
Establish responsibilities and outputs for each phase of the internal audit
process; and
The Internal Auditor will develop the initial audit objectives with consideration
for any concerns expressed by the Audit Committee, BOD, Senior and other
relevant members of management.
Internal audit must not start an audit without a conference first with the
manager concerned - The Internal Auditor will prepare an audit notification
letter; the foregoing will be completed far enough in advance to ensure that
the notification letter is issued to the auditee at least one to two weeks before
the Initial/Opening Conference for scheduled audits. The audit notification
General Principles
3. 5
The planning phase will develop the initial audit objectives and an audit plan
and the requisite audit methodology to satisfy those objectives based on the
risk profile of the auditee. Some flexibility, however, will be in order for the
plans to be modified as the findings develop.
Act as facilitators to the line managers for improving the performance of the
departments/functions under the responsibility rather than critics.
Should interact with the key officer/s of the department, study policies,
procedures, manuals and prepare a flow chart for analytical recording of
controls and systems information.
Should discuss with the line managers to ensure accuracy and validity of their
findings.
Should establish personal contact with the line managers and try to avoid
usual form of correspondence which has tendency to delay matters or dilute
the issues involved.
General Principles
3. 6
CHAPTER 4
TECHNICAL ASPECTS OF FERTILIZER PRODUCTION
4.1
4.1.1
AMMONIA PLANT
Ammonia is product from mixture of Hydrogen (H2) & Nitrogen(N2), where the
ratio of H2 to N2 shall be approximately 3:1. Besides these two components, the
mixture shall contain inert gases, such as argon (Air) & methane (CH4), to a
limited degree. Basic principle for production of ammonia is as follows:
NATURAL GAS
RAW WATER
ATMOSPHERIC AIR
ELECTRIC POWER
AMMONIA
PLANT
AMMONIA
CARBON DIOXIDE
The source of H2 is water and the hydrocarbons of the natural gas and the
source of N2 is the atmospheric air.
Process steps necessary are as follows:
(1)
DESULPHURIZATION:
Natural gas feedstock, which may contain maximum of 50ppm (by vol.) sulphur
compounds, is desulphurised. Reaction takes place in two stages (i) Hydrogenation
4.1
ABSORPTION
From the HDS-reactor, the hydrogenated natural gas is led to the two ZnO
absorbers connected in series. Each vessel has one catalyst bed with a height of
2800mm and containing 13.8m3 of Zinc Oxide catalyst and its normal operating
temperature is between 350 - 4000C. The following reactions take place:
(3)
ZnO + H2S
ZnS + H2O
ZnO + COS
ZnS + CO2
REFORMING SECTION
CnH2n+2 + 2H2O
ii)
CH4 + 2H2O
iii)
CO2 + H2
CO + H2O - HEAT
Reaction (i) describes the mechanism of reforming the higher HC, which are
reformed in stages lower and lower HC, finally resulting in methane, which is
reformed according to reaction (ii). The shift reaction requires only little heat,
whereas the heat required for (i) & (ii) quite dominate the picture.
Reaction takes place in the two steps in the two reformers. In the first reformer,
the necessary heat of reaction is supplied as indirect heat by firing and in second
reformer the heat is supplied as direct heat of combustion of the gas mixture with
air. Introduction of air provides N2 for ammonia synthesis. Since the H2/N2 ratio in
the purified synthesis gas must be maintained at a value close to 3.0, the amount
of air is fixed accordingly. An operating pressure of approximately 35 kg/cm2g in
the reforming section gives a reasonable economic compromise.
4.2
PRIMARY REFORMER
The first step of the steam reforming takes place in the primary reformer, where
HC and steam mixture, which is preheated to 505 - 5200C is passed downwards
through vertical tube containing catalyst. Primary reformer is a fired heater where
the sensible heat and the heat of reaction are transferred by radiation from a
number of wall burners to the catalyst tubes.
The HC in the gas, which leaves primary reformer, has methane content of
approximately 10 mole %(on dry basis). The exist temperature is 8000, which is
also the inlet temp to the second step of the reforming.
SECONDARY REFORMER
In this, process gas is mixed with air. The partial combustion takes place in the
top part and causes considerable increase in temperature. From this, gas passes
down through catalyst bed, where last part of the reforming is carried out. The
temp of process gas is about 9900C at the exist and the methane concentration is
approximately 0.30 mole% (on dry basis). The exit gas contains about 13 mole%
CO and 7.3 mole% CO2. The cooling of the process gas is carried out in waste
heat boiler, where the exchanged heat is used for producing main part of the
HPS (HIGH PRESSURE STEAM) in the ammonia plant. The combustion of
process gas with, air gives temp of 1100-12000C in the upper part, reforming
reaction of methane absorbs heat, so outlet temp of reformer is 990C.
4)
CO-CONVERSION SECTION
Process gas leaving reformer contains approximately 13.0 Vol % CO2 which is
converted into carbon dioxide and hydrogen by shift reaction:
CO + H2O
CO2 + H2 + heat
Optimum temperature for the shift reaction depends upon the activity of the
catalyst and the quantity of the gas handled. The shift reaction takes place in
three converters, with process gas cooling after each converter.
The following conditions prevail during normal operation:
R-1204
R-1205
R-1206
Temp in, 0C
360-380
260
190
Temp out, 0C
430-450
280
192
HT CO-CONVERSION (R-1204)
It contains a total of 92 M3 of chromium oxide promoted iron oxide catalyst in two
beds, each 2350mm high.
4.3
MT CO-CONVERSION (R-1205)
It has been provided with tow-catalyst bed each 2850 mm high. Both beds
contain a total of 112 M3 of chromium and zinc based catalyst, which can be
operated in the tem range of 2000C to 3500C
LT CO-CONVERSION (R-1206)
It has been provided with two catalyst beds each 2240 mm high and containing a
total of 88M3 copper zinc an alumina based catalyst, operating in the tem range
of 1700C-2500C.
(5)
Process gas leaving shift section has a content of CO2 of about 17-18%. CO2 is
removed by absorption in an eq. Hot Potassium Carbonate solution, containing
25-30. Wt.% potassium carbonate partly converted into bicarbonate (HCO3).
The following reactions take place:
K2CO3 + CO2 + H2
2KHCO3
This reaction takes place in the CO2 absorber and outlet process gas now
contains approximately 0.10 vol% carbon dioxide.
CO2 ABSORPTION
It is provided with four beds. The two upper beds are 7010mm high and consist
of 1.5 stainless steel slotted rings (41.1 M3). Two lower beds are 8540mm high
and consist of 2 stainless steel slotted rings (104.1 M3). CO2 rich gas is
introduced at the bottom absorber, it flows upwards against a flow of HPC
solution, which is introduced at two levels. About 20% of solution (split stream) is
introduced at top and balance in the middle. The inlet temp of HPC solution are
600C and 1140C respectively, outlet temp of CO2 enriched solution is 1160C.
CO2 REGENERATION
Rich HPC solution coming from the bottom of CO2 absorber is depressurized
from 27 kg / cm2g to 8 kf/cm2 in an expansion turbine and then introduced at the
top of the CO2 regenerator. Regenerator is provided with three identical 9145mm
high beds, containing stainless steel 2 slotted rings (172.5M3).
As the solution flows downwards, CO2 is stripped off by means of steam. The
reaction of regeneration is opposite to that for the absorption. Operating pressure
is just above atmospheric pressure at the top of regenerator and it increases
4.4
METHANATION
In this, carbon oxides which are poisons for the synthesis catalyst are converted
into methane, which acts like an inert gas in ammonia synthesis.
The following reactions take place:
CO + 3H2
CO2 + 4H2
2 NH3 + heat
The ammonia synthesis loop has been designed for a maximum pressure of 245
kg/cm2 and the normal operating pressure is 210-220 kg/cm2g. Normal operating
temp will be in range of 360 to 5250 C for the first bed and 370 to 4600C for the
second bed. The basket consists of two catalyst beds and an inter bed heat
exchanger, placed in the center of the upper catalyst beds. The catalyst beds
contain a total of 108M3 of Promoted iron catalyst containing small amounts of
Non-reducible oxides. Heat liberated by synthesis reaction is utilized for highpressure steam production in synthesis loop boiler and pre-heat of high pressure
boiler feed water.
About 30% of the reactants (H2 and N2) at the converter inlet synthesis gas is
recycled back to synthesis loop after recovery of ammonia. Re-circulation is
carried out by means of the re-circulator, an integral part of the synthesis gas
compressor.
Converter effluent gas is cooled stepwise, first in loop waste heat boiler, from
4.5
4570C to 350oC and then to 275oC in the boiler feed water pre-heater, and then in
the hot heat exchanger to 650C by preheating of converter feed gas. Synthesis
gas is then cooled 390C in the water cooler and 30-310C in the cold heat
exchanger wherein converter feed gas is preheated. Final cooling to 120C takes
place in the ammonia chillers. Condensed ammonia is separated in separator.
From the top of separator the recycle gas is re-circulated to the converter through
cold heat exchanger, re-circulation and hot heat exchanger.
Make-up synthesis gas is introduced between the two ammonia chillers to
remove water and CO2 in condensed ammonia to avoid catalyst poisoning.
Condensed ammonia from separator is sent to let down vessel where liquid
Ammonia separated from recycle gas is sent to Urea Plant as product at 24
kg/cm2 g pressure.
In the event of ammonia to be sent to Ammonia Storage tank, liquid from let
down vessel is flashed in Flash vessel. Vapours from top are sent to refrigeration
compressor for compression followed by water-cooling in ammonia condenser.
Liquid ammonia from Flash vessel is pumped to Ammonia Storage Tank at
3kg/cm2 g pressure and 320C temp. Refrigeration is supplied to the synthesis
loop by three stage ammonia chiller levels.
AMMONIA PROCESS FOR VIJAIPUR II
The basic process for Ammonia II remains same as Ammonia I, except that in
Ammonia-II, naphtha (maximum 50% on energy basis) mixed with natural gas
can be used as feed. The major additions in the process include Separate HDS
reactors for removal of sulphur form NG and Naphtha. NG HDS reactor contains
Ni-MO catalyst while naphtha HDS reactor contains Co-Mo catalyst. Hydrogen
required for the hydrogenation is supplied as synthesis gas from the synthesis
gas compressor and added to the natural gas downstream preheater.
The outlet streams from HDS reactors are mixed and fed to 2 Nos. ZnO
absorbers to remove H2S and then sent to the reforming section.
Reforming
Reaction takes place in the two steps (Primary and Secondary
reforming) when NG is used as feedstock and in three steps (Adiabatic prereforming, Primary and Secondary Reforming) with Mixed Feed stock. In case of
mixed feed (Naphtha with NG), the desulphurised gas is sent to an adiabatic pre
reformer where all higher hydrocarbons are virtually decomposed into methane
by steam reforming. The outlet gas from pre reformer is sent to Primary reformer
and then to secondary reformer.
The reformed gas is fed to CO shift conversion after heat recovery, followed by
CO2 absorption, methanation and synthesis as explained for Ammonia I above.
4.6
4.1.2
UREA PROCESS
2 STREAM 1310 TONS/DAY EACH
Raw materials required are ammonia and carbon dioxide. Ammonia is in liquid
form while carbon dioxide is in gaseous form. Normal pressure & temperature for
ammonia is 23 ata and 12oC, while for carbon dioxide normal and maximum
pressure are 1.58 ata/1.68 Ata while temperature is 400C.
PROCESS DESCRIPTION:
Urea production process takes place through the following four main operations.
(1)
NH2COONH4
NH2COONH4
NH2CONH2 + H2O
NH2COONH2 + H2O
4.7
(2)
(3)
(4)
UREA PRILLING
Melted urea (99.8%) leaving second vacuum separator is sent to Prilling bucket.
Urea coming out of bucket in the form of drops falls along the prilling tower and
encounters a cold airflow, which causes its solidification.
The solid prills falling to the bottom of prilling tower are sent to belt conveyor.
From there, they are sent to screeners to retain lump only, and then to belt
conveyor, which carries the product to automatic weighing machine and to the
urea storage section.
4.2
4.2.1
4.8
4.9
becomes necessary to carry the reaction forward. Finally the gas leaves the CO
Converter at about 4000C and with CO content of 3.5%. The gas is cooled and
dehumidified and sent to ARU where it is utilized as source of heat in Ammonia
Deaerator. The gas is then led to a low-pressure boiler and shift converter
effluent economizer for recovery of heat and is finally cooled by Cooling Water.
The gas is then sent for CO2 removal.
Rectisol-II (Decarbonation by Lurgi's Rectisole Process)
The gas is again cooled to sub zero temp. and led to CO2 absorber where the
rising gas is washed with falling methanol at 70oC. The laiden methanol from the
bottom of CO2 absorber is depressurized in 3 stages and is finally stripped of
CO2 with pure nitrogen in CO2 Regenerator.
CO2 gas is released in the 2nd and 3rd flash stage (1.8 Kg. And 0.8Kg pressure) is
of sufficient purity to be utilized in Urea plant for making of urea. The
decarbonated gas from CO2 absorption tower contains less than 5ppm CO2 and
is then fed to Nitrogen Wash unit for removal of residual impurities (CH4, CO etc.)
The low temp. of the two Rectisol sections are maintained by utilizing liquid
ammonia in 1.
2.
3.
4.
5.
4.10
Synthesis
Decomposition
Crystallization
Dying & Prilling
Recovery Section
4.11
4.3.1
Synthesis
In this process, CO2 from Ammonia Plant is compressed by a booster
compressor to 30Kg./cm2, washed with water for removal of traces of methanol &
is compressed further to a pressure of 250Kg/cm2 in a high pressure compressor
(Kobe Compressor). NH3, the other reactant is pumped by Ammonia boost up
pump and subsequently by liquid ammonia feed pump heated to 2500C in liquid
ammonia Pre-heaters and led to urea Synthesis reactor. Recycled Carbonate
from high-pressure absorber cooler is also pumped by recycle solution boost up
pump and recycles solution feed pump to the reactor. Operating Conditions in
this titanium-lined reactor is maintained at 250Kg/cm2 & 2000C.
Reaction products consisting of a mixture of urea, unconverted ammonia
Carbonate, excess ammonia and water are let down through a let down valve at
the top of the reactor into high pressure decomposer
4.3.2
17 Kg 2.5 Kg 0.3 Kg -
H.P. Decomposer
H.P. Decomposer
Gas separator
Urea solution is gradually concentrated, while excess ammonia & C02 are
recovered in HP absorber in the form of Carbonate solution, which is recycled
back to the reactor as mentioned above.
Urea solution of 71% concentrated from the last of three decomposes is sent to
upper part of Crystalizer operating under vacuum. As the solution flows down,
the crystals are formed and the water is evaporated out. The slurry from the
crystalizer is fed to centrifuge. Urea Crystals separated in the centrifuge are dried
in the fluidizing dryer and transported to Melter on the top of prilling tower for
making prills. Mother Liquor from centrifuge would be sent back to Crystalizer.
4.3.3
4.12
4.3.4
Recovery section
In this section, the overhead gases from three stages of decomposition would be
absorbed in their respective absorbers. Overhead gases from the top of H.P.
absorber is pure ammonia, it will be condensed in Ammonia condenser and sent
to recovery Ammonia Reservoir. Inert gases purged from Ammonia Condenser
would be scrubbed with water in Ammonia Recovery Absorber. Aqua Ammonia
thus formed will be pumped to the top of HP absorber for scrubbing Ammonia
Vapours.
4.13
CHAPTER 5
MANAGEMENT AUDIT
5.1
GENERAL PRINCIPLES
Management audit requires an interdisciplinary approach since it involves a
review of all aspects of the management function. It should be conducted by a
team of experts because the variety of skills required cannot be mustered by
anyone individual. This team may consist of accountant, operations research
specialist, industrial engineer, and social scientist. Each member of the team
should have an analytical mind and an ability to look at a management function
from the point of view of the organisation as a whole.
The members of the management audit team should have proper training. They
should have an expert knowledge of the science of management. They should
also be acquainted with salient features of various functional areas. Experience
of actual work situations would be useful.
To conduct its work properly, the management audit team should have a clearly
defined authority from the management. Management audit cannot be effective
unless it is fully supported by the top management.
In the process of conducting a review of the various activities in an organisation,
a management auditor can adapt and use a number of techniques of verificatory
audit. However, a management auditor may not be concerned much with
techniques like recomputations, retracing book-keeping procedures, external
confirmation of balances, and comparison of records with supporting documents.
This is because the objectives of a management audit are much different from
the objectives of a verificatory audit. The management auditor is primarily
concerned with the appraisal of performances in the various areas of
management. Hence, he does not look for evidence to support definite
accounting figures. Instead, fie attempts to evaluate the processes and functions
of management. In doing so, he can use the following techniques effectively.
Management Audit
5. 1
Inquiry
A management auditor may collect most of the evidence required by him by
asking relevant questions and obtaining pertinent answers to these questions.
Proper framing of questionnaires is one of the first steps in conducting
management audit. The main value of a questionnaire lies in the fact that a good
question is often a key to uncover a hidden problem. Some of the questions that
the management auditor can ask in different areas are given by way of a
questionnaire. It must be emphasised that these questions just illustrate the
process of management audit. Raising a proper question is often a matter of
personal judgement in a specific situation.
Examination
In many cases, the management auditor may have to conduct an examination of
documents and records. This may be necessary in case his inquiries reveal
certain information that needs corroboration or that suffers from internal
contradictions.
Confirmation
A management auditor may also obtain written or oral statements from various
persons in order to confirm the information obtained by him.
Observation of Pertinent Activities and Conditions
In many cases, the management auditor may have to rely upon his own
observation of pertinent activities and conditions in the organisation. A
management auditor may prepare organisational charts and flow charts as a
result of his observation of pertinent activities and conditions.
Correlation of Information
The information collected through the various techniques has to be correlated so
that proper conclusions can be drawn. The management auditor has to compare
the actual performances with the standards laid down or with the performances
in the previous years. A good deal of skill is required in correlating the relevant
information so as to reach meaningful conclusions.
5.2
Does the organisation have a system of long range and short range
planning? Is the system formalised?
(2)
Management Audit
5. 2
(4)
(5)
(6)
(7)
(8)
(9)
(10)
How far are the functional managers committed to the targets set up in
the budgets?
Organisation
(1)
(2)
What are the various levels in the organisational hierarchy? Are the lines
of authority and areas of responsibility clear? Are there any positions
where a person reports to two or more authorities?
(3)
(4)
What is the managerial philosophy in the organisation? Is the decisionmaking centralised or is it spread over the various levels of the
organisation?
(5)
(6)
(7)
(8)
Management Audit
5. 3
5.3
5.4
(9)
(10)
Does the work distribution take into account the modem theories of
organisation? Is there too much of specialisation?
CONTROLS
(1)
(2)
Is there a list of active and identifiable controls? Are the controls physical
or monetary or both?
(3)
(4)
What are the main parameters of control? Are these defined precisely for
each responsibility area?
(5)
(6)
(7)
(8)
Has the cost of each control been worked out? Is it ensured that the cost
does not exceed the benefits?
(9)
(10)
(2)
Are there proper descriptions, flow charts, and manuals showing various
systems?
Management Audit
5. 4
5.5
(3)
(4)
While recommending a new system, are all the relevant factors taken into
account? Are the new systems properly explained to the persons
concerned before they are put into operation? What other steps are taken
to meet the usual resistance to a new system?
(5)
(6)
What are the various forms in use? Are they designed to give proper
information with minimum effort?
(7)
(8)
(9)
Are the filing and storage procedures for various documents properly laid
down? Is there a well defined system of automatic disposal of
documents?
(10)
(11)
Management Audit
5. 5
5.5.1
Purchase Management
The main objective of purchase management is to procure raw materials,
supplies, and stores of the requisite quality at a reasonable cost and at the right
time. The following questions can be asked to evaluate whether or not these
objectives are being achieved.
(1)
(2)
What is the purchase policy? Does it take into account the uncertainties in
availability of materials consequent to the changes in market conditions?
(3)
(4)
Has the organisation developed links with suppliers to ensure regular and
dependable supplies?
(5)
(6)
How are the suppliers selected? Is there a list of suppliers with whom
running contracts have been executed?
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Management Audit
5. 6
5.5.2
Inventory Management
Inventory management aims at keeping an adequate stock of raw materials and
other items at the minimum carrying cost. The following questions may be asked
to bring out how far this objective is being achieved.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Management Audit
5. 7
5.5.3
Production Management
The main objective of production management is to turn out finished goods of
requisite quality by making an optimum use of men, machines, materials and
services. The management auditor can evaluate this function by asking the
following questions.
5.5.4
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Marketing Management
The main objective of this function is to create and develop customers and retain
the position of the organisation in the market. The following questions would be
of help in evaluating the marketing management.
Management Audit
5. 8
(1)
(2)
(3)
How does the growth in sales during the last five years or so compare
with the growth in the sales of the industry as a whole?
(4)
What are the steps taken to increase the market share of the
organisation?
(5)
(6)
Are sales budgets realistic? Do they show detailed physical targets for
each sales office?
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Has the credit policy been framed after considering factors like growth in
sales, availability of finance and the nature of customers? Is it reviewed
periodically?
(15)
(16)
Management Audit
5. 9
5.5.5
(17)
(18)
Personnel Management
The main objective of this function is to create such conditions in the
organisation that the employees can give their best performance. The personnel
manager has to assess manpower requirements, select, recruit, train and
develop staff, ensure industrial peace, redress grievances of the workers,
maintain discipline, keep various personnel records, and negotiate wage
settlements. The performance of the personnel function may broadly be
reviewed by asking the following questions.
(1)
(2)
(3)
(4)
What is the recruitment policy? Are qualifications for each job specified
clearly? Is the recruitment procedure well-designed?
(5)
What is the internal promotion policy? Are the employees given a chance
to grow in the organisation itself through an objective assessment of their
qualifications and performance?
(6)
How does the organisation scout for talent at both the managerial and
other levels? Does it regularly keep in touch with institutions, which
develop technical, managerial and other skills?
(7)
Management Audit
5. 10
5.5.6
(8)
Are the training methods modern and scientific? Are they suited to the
needs of the organisation?
(9)
(10)
What is the procedure for dealing with the grievances of the employees?
Are they encouraged to speak to the personnel manager?
(11)
How is discipline maintained? How are the erring workers dealt with? Is
there a uniform and consistent policy of dealing with indiscipline and
misconduct on the part of all the employees?
(12)
(13)
(14)
(15)
What is the extent of man-hours lost due to strikes and lockouts? How do
these losses compare with man-hours lost by similar organisations in the
area?
(2)
(3)
(4)
Management Audit
5. 11
(6)
(7)
(8)
Have standard costs been determined? Are they developed on the basis
of time, motion and work studies?
(9)
Are cost statements prepared in time? Are they geared to meet the
requirements of the management? Are they reviewed periodically?
(10)
(11)
(12)
Are costs classified by their nature? Does the cost department use the
technique of marginal costing for profit planning?
(13)
(14)
Is the capital structure designed keeping cost and risk factors in mind?
(15)
What is the cost of capital? How does it compare with that of other similar
units?
(16)
(17)
(18)
Are the policies regarding credit, stocks, cash, etc., reviewed periodically
to keep working capital at the optimum level?
(19)
Management Audit
5. 12
(20)
(21)
(22)
How does the return on investment of the organisation compare with that
of other similar organisations?
(23)
Management Audit
5. 13
CHAPTER 6
6.1
OVERVIEW
Proper planning helps to ensure that auditors and management share the same
agenda and that each engagement adds value to the organization. Adequate
planning ensures that appropriate attention is devoted to significant areas of
audit, potential problems are identified, and that the skills and time of the staff are
appropriately utilised. Planning also ensures that the work is carried out in
accordance with the applicable pronouncements of the Institute of Chartered
Accountants of India.
To be effective, internal audit function is to be properly planned and its coverage
controlled. Planning is a continuous exercise. A plan once prepared should be
continuously reviewed by the internal auditor to identify any modifications to the
plan required to bring the same in line with the changes, if any, in the audit
environment. However, any such modifications to the internal audit plan, if major,
should be done with the approval of the Audit Committee.
6.2
OBJECTIVE OF PLANNING
The overall objectives of an internal audit:
The internal audit plan should be comprehensive enough to ensure that it helps
in achieving the above overall objectives of an internal audit. The internal audit
plan should also be consistent with the goals and objectives of the internal audit
function as listed out in the internal audit charter as well as the goals and
objectives of the organisation. In case the entire internal audit or a particular
internal audit engagement has been outsourced, the internal auditor should also
ensure that the plan is consistent with the terms of the engagement.
6. 1
6.3
SCOPE OF PLANNING
1.
The internal audit plan should also identify the benchmarks against
which the actual results of the activities, the actual time spent, the
cost incurred would be measured.
6. 2
6.4
Audit coverage is appropriate and adequate, given the business risks facing
NFL
This includes a detailed description of the controls and associated risks that will
be covered/are proposed for coverage in the audit during the financial year
having regard to the awareness and analysis of risk by the internal audit at the
Units/Offices.
The extent of coverage by Internal Audit, among other things also depends on
the skills set of the auditors. Further, balancing of work areas between auditors
allowing them a mix of familiar areas to build expertise and also new areas to
develop knowledge and skills is required. Accordingly scheduling of audit
personnel should address these requirements where this is practicable and
feasible e.g. at some plants due to staff resource constraints there may be a
single technical internal auditor as well as a single non-technical auditor in which
case scheduling may not be possible.
After giving due consideration to the above the internal audit plan will be drawn
up annually well before the close of the financial year for the next financial year,
broadly covering the areas short-listed for the year and the tentative timing of
fieldwork.
The Internal Audit plan highlighting areas/functions to be taken up for audit will
be divided into quarterly programmes for the quarters ending June, September,
6. 3
December and March of the coming financial year at the Corporate Office (based
on feedback and inputs received form the plants/units/offices) for approval first by
the functional head of IA (Director Finance) and then by the Audit Committee.
The annual plan/program will outline the broad scope of audit covering financial
as well as operational/technical areas on the basis of feed back received from
the head of Internal Audit Cell of different Units/Offices of the Company. At this
phase the initial audit objectives and the requisite audit methodology to satisfy
those objectives should also be developed with consideration for any concerns
expressed by the Audit Committee of the Board, the CMD/Director Finance and
other relevant members of management.
After obtaining the approval of the above audit/plan/program by the Audit
Committee, the same shall be forwarded to the Units in the 1st week of April for
compliance during the year.
In addition to the above Internal Audit program, any special audit as and when
entrusted by CMD/Audit Committee/ Director (Finance)/Head of Unit shall also be
taken up by the Internal Audit cells located in the Units/Corporate Office.
6.5
6. 4
The extent and coverage of audit shall depend upon the level of soundness of
systems and procedures (as well as internal checks and controls built into them),
prevalent in the auditee department. However, the Head of Internal Audit should
discuss this aspect with the audit team during preparation for audit.
The organization chart of the department/section to be audited should also be
studied to ascertain the authority and responsibilities of the various executives in
the department. The audit team should also familiarize themselves with the
current procedures followed in the department. This will help in refining/updating
the programme of audit of the department including the extent of various checks
to be carried out and identifying the areas, which are comparatively weak from an
internal control standpoint and hence require more intensive checking.
6.6
PROGRESS REVIEW
The Head of Internal Audit of respective plant/unit shall submit a monthly
progress report and consolidated quarterly report to the Head of Internal Audit
(IA) / CO indicating the progress achieved on fulfilment of the audit programme in
the previous quarter. These report shall be submitted by 10th of the following
month and shall indicate:
(a)
(b)
(c)
(d)
(e)
(f)
This report should highlight the reasons for not taking up the planned audits and
future action plan for conducting the same. The status of issuing the reports in
respect of completed audits should also be brought out.
The Corporate Internal Audit (apart from the audit work at Corporate Office)
should monitor the activities of the plant/unit level Internal Audit Groups. During
the course of their review, the Corporate Internal Audit would also take stock of
compliance with the approved annual plan/programme and discuss deviations, if
any, with the Head of Internal Audit of the Unit.
6.7
6. 5
conclusions and opinions of the auditors while drafting the audit report besides
being helpful in;
(2) Competency
Work papers will include only high quality information and evidence. Accordingly,
the Internal Auditor will take all necessary steps to help ensure that the
information contained therein is reliable.
6. 6
(3) Relevance
The information contained in the work papers will be restricted to matters that are
materially important and relevant to the audit objectives.
(4) Usefulness
The evidence retained in the work papers must be useful in helping the company
meet its goals.
(5) Clarity and Understandability
Work papers will be understandable without detailed supplementary oral
explanations. Work papers will also be complete and concise.
(6) Principles of Documentation
Work papers will substantiate everything included in the Final Audit Report.
A work paper or series of work papers will be prepared for each step in the
audit program.
Every work paper will be properly identified. The work paper heading will include
the name of the auditee, a description of the information presented, and the
period covered or applicable date.
A separate work paper will be used for each audit program step.
The source of the data presented on each work paper will be clearly stated so as
to leave no doubt as to the source of the information.
6. 7
The nature of verification work performed by the Internal Auditor will be indicated
on each work paper. A review of paid invoices, for example, might be
supplemented by the testing of related purchase orders to substantiate the
authenticity of the invoices examined; a description of this verification procedure
will be included in the work papers.
The extent and scope of sampling will be clearly stated at every phase of the
audit to which it is applied; accordingly, the work papers will disclose the
character and extent of all sampling methods utilized.
IV. Audit Evidence
In performing internal audits the Internal Auditor generally gathers evidence from
internal sources, which may require verification from external sources. Some of
the internal sources of audit evidence include books of account, ledgers (primary
and subsidiary/sub), memoranda records, minutes of meetings, documents that
support transactions e.g. Material Receiving and Inspection Notes, and
management letters. When considered necessary, information gathered from
these sources may be verified from external sources that include confirmations of
bank balances, accounts receivable, investment balances, assets held by third
parties, long-term debt, and other assets and liabilities.
All of the information gathered to support the internal audit effort, and the
conclusions drawn there from, should be considered audit evidence, which may
be categorized as analytical, documentary, physical, or testimonial. These terms
are described below;
(1) Analytical Evidence
Analytical evidence includes computations, comparisons, reasoning, and the
separation of information into components.
(2) Documentary Evidence
Documentary evidence consists of letters, contracts, accounting records,
purchase orders, invoices, etc.
(3) Physical Evidence
Physical evidence is obtained by direct inspection or observation of (1) activities,
(2) property, or (3) events. It may take the form of memoranda, photographs,
charts, or other summary documentation, which recapitulates the subject matter
of the inspection.
(4) Testimonial Evidence
Testimonial evidence is obtained from others through statements received in
response to inquiries or through interviews. The statements critical to the audit
will be corroborated through independent verification when feasible.
6. 8
6.8
6. 9
6. 10
smaller sample sizes, an almost infinite degree of stratification and the greatly
increased likelihood of finding large but infrequent errors.
(6) The Sample Size
Sample sizes can be determined judgmentally or statistically. The decision will be
made based on the audit objectives. In many audit situations a large audit
sample or a statistically determined sample size is unnecessary. Where the
Internal Auditor has determined the system of internal control to be strong, it may
be appropriate to sample only a few handpicked items to determine that the
system is actually functioning properly.
Assuming the system functions as planned, it can then be declared that the
system does indeed have the purported control points, and they are in fact
working. If a particular system is found satisfactory from an internal control
standpoint further sampling may not be necessary or appropriate.
6. 11
CHAPTER 7
7.1
REPORTING OVERVIEW
An internal audit report covers the findings of the auditor along with the
conclusions, implications and recommendations arrived at during the course of
audit. A significant element in an internal audit report is its capacity to motivate
and encourage management action to remove shortcomings/weaknesses,
improve systems and procedures and find viable solutions to achieve favourable
outcomes and improvement in performance.
The internal auditors report should contain a clear written expression of
significant observations, suggestions / recommendations and managements
response based on the policies, processes, risks, controls and transaction
processing taken as a whole. It should avoid faultfinding and should offer
constructive and credible and persuasive suggestions/recommendations for
solving problems or for reducing cost/wastages or for improving productivity and
profitability.
A good internal audit report should fulfil the following attributes;
7.2
for
corrective
action
7. 1
to
7.3
Observations where auditee has accepted and taken action (which are not
material in nature) like wrong code of accounts, non-recovery from
employees etc.
The head of internal audit will have the discretion to consider whether to include
any non-reportable findings in the final audit report or not.
Processing of Findings - As deficiencies are identified during the audit, they will
be discussed with the auditee to verify the facts before any audit reports are
drafted. If these discussions confirm that a deficiency exists, the Internal Auditor
will draft preliminary findings. All findings will be considered preliminary unless
(and until) they are included in the Final Audit Report.
7.4
7. 2
financial transactions with the concerned Head of the Department before finally
drafting the report. The Internal Audit report should contain only those significant
points on which the head of the Internal Audit Cell is either not convinced with the
reply given and or where there is no documentary evidence in support of the
reply so given.
The audit point will also include cases, which are not in accordance with the
guidelines/practice issued/prevailing in the Company. The Internal Audit report
shall be forwarded to Internal Audit Department at Corporate Office, which in turn
after examining the report so received from the Units/Offices, shall forward the
same to the concerned Head of the Unit with a copy to Head of Finance &
Accounts Department. The Head of the Finance & Accounts Department of the
Unit/Office shall forward their replies to Internal Audit Department, Corporate
Office with a copy to its Internal Audit Cell. The Head of the Internal Audit Cell of
the Unit / Office shall examine the reply to such report and issue supplementary
queries where more information is needed with a view to ensure that all points
included in the report are taken to its logical end. The Internal Audit Department.
C.O. shall pick out important/significant points out of these reports after
considering supplementary queries and their reply received, if any for submission
to Director (Finance) / CMD/ AC for their information and necessary action
wherever required.
Technical Reports - Technical reports regarding plant operations, maintenance
activities and consumption of input materials shall be submitted to Head of
Technical Department/Plant/ Section as per audit program circulated at the
beginning of the financial year. Head of the Technical Department shall submit
replies including remedial action plan wherever required within one month of draft
report. The final report shall be sent to Corporate Office for information of Dir
(Tech)/ CMD/ Audit Committee and other units (wherever necessary).
During the course of audit if head of the Audit Cell of the Unit/Office finds any
case of suspicion of fraud or defalcation, the matter may be discussed personally
with the Unit Head, so that immediate remedial action is taken. Points involving
high financial implication will be pursued at personal level by the head of the
Internal Audit Cell of the Unit/office concerned under advice to Corporate Internal
Audit Department.
The head of the Internal Audit Cell at Unit/Office may also send a monthly report
to Internal Audit Dept at CO in respect of reports pending for reply by the local
Management.
7.5
7. 3
Executive summary, (The executive summary should highlight the key material
issues, observations, control weaknesses and exceptions arising from the audit
along with conclusions).
Addressee
Audit Scope
Sampling method used (in situations where sampling is employed e.g. discovery
sampling method based on a confidence level of 95% and a margin of error of
10%.was used and the population consisted of xx Purchase Orders exceeding a
value of Rs. xx approved between dmy and dmy), Based on these paramaters a
sample size of xx P.Os was selected.
Audit Results or Findings Audit findings shall be laid out in the following
manner:
Audit Programme Area: " ---------------"
a.
Observation/Finding
Where warranted the individual observation should contain adequate
Background / Contextual information elucidating the problem; the overall aim
being to include only what is necessary and to communicate the observation
in unequivocal terms in easy to understand language. Background /
Contextual information shall inter alia contain a history / background of the
7. 4
non-compliances
with
g. Summary of total observations made in the report as per the following details:
Sl.
No.
a)
b)
c)
7.6
Particulars
No.
Quantification of benefits
Value /Rs
Observations made
Observations accepted
Observations implemented
Final Audit Report should be issued after incorporating the comments of the
auditee and any further comments of internal audit. Findings,
recommendations, and opinions will be expressed objectively.
7. 5
The report should be succinct, specific, to the point and based on accurate
facts and figures. The report should not contain suggestions based on mere
theoretical concepts without regard to the practical work situation under audit.
Rushed or hasty conclusions should be avoided and the facts and figures
should speak for themselves.
Positive points should be highlighted so that the auditee department feels that
their achievements are appreciated. The observations should be worded
carefully so that the auditee department feels motivated enough to take
necessary steps to improve.
The Final Audit Report will prominently identify the most significant conditions
requiring managements attention.
The first observation to the Final Audit Report must relate to Review of the
earlier Audit Reports.
7. 6
FOLLOW-UP
In case the comments of the auditee department are not received within the
stipulated period of one month or such exented time as may have been agreed
to, the internal audit should follow up with the Head of the auditee department
through written as well as oral communication. The Head of Internal Audit shall
take up the matter with the concerned authorities personally or through his senior
in case of an abnormal delay.
To bring about effectiveness in internal audit activities, the Internal Audit at CO
shall conduct a quarterly review of the internal audit reports and shall take up
with senior levels of the auditee departments wherever the internal audit
observations have not been attended to. A quarterly review of Internal Audit
observations and the action taken thereon by the various departments shall be
held at the level of Chief Officer of the plant/unit where the Head of the Internal
Audit shall highlight the important points for a fruitful discussion and follow-up
action. Directives of the Chief Officer shall be recorded and circulated to all
concerned.
With a view to keep the top management at the Corporate Office informed of
major audit observations involving considerable financial implications and having
impact across the company, a quarterly review of such observations shall be
submitted by unit head of Internal Audit to the corporate internal audit. This report
should reach the corporate office by 15th of the subsequent month.
7. 7
Corporate internal audit shall scrutinise the important audit observations and call
for further information wherever necessary. Thereafter, the important
observations shall be put up to top management/audit committee with suggested
course of action for its disposal.
7.8
7. 8
CHAPTER 8
ENVIRONMENTAL AUDIT
8.1
INTRODUCTION
Environmental Perspective
The natural environment is a requirement and a resource for human life. Humans
act upon their surrounding natural environment, not only by using its resources,
but also simultaneously by changing it and adopting it to meet their economic
and other needs.
In the context of the increasing emphasis on protection of environment,
Environmental Accounting & Auditing have assumed special importance in recent
years. Environmental Accounting aims at measuring the impact of activities of an
organisation on the environment. The end product is the environmental
statement containing, inter alia, the following:
1. A description of the activities of the organisation along with an assessment of the
significant environmental issues arising out of these activities.
2. A description of the organisations environmental policy, programme and
management systems.
3. A summary of the figures of pollutant emissions (air, water), waste generation,
consumption of raw material / energy & water, noise and other significant
environmental aspects, along with a comparison with legal norms.
4. A summary of cost incurred to protect the environment, classified into capital
costs and expenses.
Human activities are now affecting some of the most basic climatic and biological
cycles of the planet. Ozone layer depletion, global climate change, transboundary shipment of hazardous materials, soil loss, desertification,
deforestation, and destruction of wetlands are some of the practical
manifestations of the impact of human activity on the environment.
In the context of the above there is even greater responsibility for the company to
ensure that the best environment management systems are in place and that
Environmental Audit
8.1
best practices are followed for the preservation and management of our
environment.
8.2
Environmental Audit
8.2
Benefits to NFL
In general the following benefits accrue to the company.
8.3
Determining how well the process systems and pollution control systems are
performing, and identifying the operations of poor performance,
Identifying the potential cost savings which can accrue through reduction in
raw material consumption by way of waste minimisation, and adoption of
recycle / recovery/ reduction in pollution load.
Unravels surprise and hidden liabilities due to which regulatory risk exposure
to litigation can be reduced.
Audit should check that liquid effluents and stack emissions meet
MINAS/State Pollution Control Board norms.
2.
3.
4.
Environmental Audit
8.3
5.
6.
7.
8.
Check that ambient air monitors installed in different plants are monitored
and corrective action taken
9.
10.
11.
Check that prior action is taken keeping in view expected changes in the
Environment policy of the Govt.
12.
13.
Ensure
14.
15.
16.
17.
18.
19.
Environmental Audit
that
noise
level
is
monitored
and
controlled.
8.4
CHAPTER 9
9.1
INTRODUCTION
The Finance & Accounts Department in NFL is primarily responsible for:
Utilising the company's finances optimally and in the best interests of the
company through budgetary control, cost control, laying down proper systems
and methods for speedy and correct decision-making etc.
Compliance with direct and indirect tax laws and other statutory legislations.
Introduction of internal check and control systems for various activities of the
organization and monitoring of such systems.
Coordination of the audit functions including the Govt. Audit and COPUs
(Committee on Public Undertakings) examination.
9. 1
9.2
9.2.1
Introduction
Almost all the activities of a business are directly or indirectly connected with the
receipt or payment of cash.
Implementing effective internal controls is important in the area of cash
management because of the diverse nature of the processes involved, i.e.,
billings, collections, deposits, and disbursement processes, the fragmented
oversight responsibilities generally associated with these processes as well as
the inherent risk of loss created by the nature of cash transactions.
Internal auditors would ascertain and verify that effective and adequate
arrangements exist for recording each transaction and that adequate safeguards
and controls are in place for protecting the Company against fraud and
defalcation.
The Cash Accounts Section is responsible for receiving payments, depositing
cheques, drafts and postal orders into the Company's Accounts with the Bank as
well as to retire documents through banks on receipt of instructions/intimation,
keep a track of collection under ECS (Electronic Clearing Scheme) . The Section
is also responsible for timely payments to employees, suppliers, contractors
outside agencies etc.
9.2.2
A.
GENERAL
1.
2.
Verify that insurance cover for cash in safe has been obtained and the amount
kept in the safe has not exceeded the insurance limit. It should also be
examined that insurance cover against cash in transit has been obtained and the
amount carried from the bank to the cash office or vice-versa has not exceeded
the insurance cover limit.
9. 2
3.
The employees working in the Cash Office and those authorized to operate on
the Company's account have been covered under the Fidelity Insurance Cover.
4.
The Cash balance is physically verified by the concerned Officer daily and
suitable record of such verification under his signature is kept on the cashbook.
Also surprise verification of cash by an officer other than In-charge (Cash) is
done under the orders of the Head of the Finance and Accounts Dept. and the
results of such verification are put up to him and in case of discrepancies,
adequate and prompt action is taken.
5.
Verify that the number of soiled and mutilated notes kept in the Cash office is not
large and they are exchanged from the bank from time to time.
6.
The Denomination register is being maintained and the cash with its full
denomination is recorded daily in this register.
7.
8.
The internal auditors will also ensure that the following requirements of a good
control system are in place.
(a) The time-value-of-money is being recognized as a part of each cash
management decision.
(b) Cash related transactions are fully documented so that an undisputable audit
trail exists.
(c) Cash related transactions occur only after the approval of an individual with
delegated authority to make approvals.
(d) Documents used in cash related transactions are safeguarded against reuse, tampering, or unauthorized disposal.
(e) Segregation of duties - Cash related duties, such as maintenance of
accounts receivable, cashiering, accounting, disbursing, and collecting funds
are segregated.
(f) Cash derived from collections and cash used for disbursements is not
commingled.
B.
1.
Check that Cash Books are prepared daily and signed by the Cashier / Junior
Executive (Accounts) and countersigned by the In-charge (Cash).
9. 3
2.
Ascertain that there are no unauthorized corrections in the cash and bank books
and corrections have been attested wherever required.
3.
Tally the counterfoils of the receipts with the corresponding entries in the
cash/bank books to make sure that all the receipts have been correctly
accounted for and have been countersigned by the authorized officer. It may also
be seen that the counterfoils of receipts/cheques are being properly stored.
4.
Check that only machine numbered printed receipts are used and that all unused
new blank receipt books are kept in the custody of the authorized officer. The
existence of unused books may be verified physically with reference to the stock
register. Ensure that the original copies of all the cancelled receipts are kept
attached with the counter-foils invariably. Similar check may also be exercised in
respect of cheques.
5.
Verify that all receipts are deposited promptly into the bank on the same day or
the next working day.
6.
Verify that the cheques / bank drafts / postal orders in hand with the Cashier are
in order and whether the transmission to the Bank has been delayed for more
than a day. Ascertain the reasons for delay, if any, in depositing the
cheques/drafts/postal orders. It may also be ensured that the Postal Orders are
being received promptly from the various other Departments such as Personnel,
Material, Civil Engg. etc.
7.
Check the payments as per the main cashbook, bank book and petty cash with
the relevant vouchers and verify that proper identification/acknowledgement of
the payee has been obtained for all payments.
8.
9.
The cash payments/receipts do not exceed the limit as provided under Income
Tax Act 1961. As a matter of practice all payments to suppliers, contractors
should be made through "Accounts Payee" cheques only or through Electronic
Clearing Systems.
10.
11.
9. 4
a)
b)
There is no delay in making out cheques for payments and where there is
a delay the reasons stated are valid.
c)
d)
12.
Verify that the account for stamps purchased, issued and stock in hand has
properly been maintained.
13.
Check whether surplus funds have been invested in securities or fixed deposits,
etc. and if so whether it is in accordance with the policy guidelines issued by the
Management (At CO only).
14.
15.
Dishonour of Cheques - Verify that in case any cheque is dishonoured the fact
of dishonour is documented and that a cheque dishonour notice to the defaulting
party is issued and that immediate steps for necessary action are initiated.
Note: Under section 138 of the Negotiable Instruments Act (covering penalties in
case of dishonour of certain cheques for insufficiency of funds in the accounts)
where any cheque drawn by a person on an account maintained by him with a
banker for payment of any amount of money to another person from out of that
account for the discharge, in whole or in part, of any debt or other liability, is
returned by the bank unpaid, either because of the amount of money standing to
the credit of that account is insufficient to honour the cheque or that it exceeds
the amount arranged to be paid from that account by an agreement made with
that bank, such person shall be deemed to have committed an offence and shall,
without prejudice to any other provisions of this Act, be punished with
imprisonment for a term which may extend to two years, or with fine which may
extend to twice the amount of the cheque, or with both:
Nothing contained in section 138 shall apply unless
9. 5
(a) the cheque has been presented to the bank within a period of six months from
the date on which it is drawn or within the period of its validity, whichever is
earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes
a demand for the payment of the said amount of money by giving a notice, in
writing, to the drawer of the cheque, within thirty days of the receipt of
information by him from the bank regarding the return of the cheque as unpaid;
and
(c) the drawer of such cheque fails to make the payment of the said amount of
money to the payee or, as the case may be, to the holder in due course of the
cheque, within fifteen days of the receipt of the said notice.
C.
ii.
Per transaction control limits shall be set at reasonable levels (e.g. Rs. 1
lac). Limits established shall be properly documented and intimated to the
bank. Any revision in the limits shall also be intimated to the bank in
writing.
iii.
9. 6
iv.
Agreements with the banks for electronic funds transfers shall be kept on
record.
v.
vi.
vii.
Till such time the units achieve a technically strong, ICT security
environment, Electronic Funds Transfers shall preferably be made from a
stand-alone computer.
viii.
ix.
x.
D.
BANK RECONCILIATION
1.
Verify that bank reconciliation is carried out promptly and correctly and there is
no delay in adjustment of debits/credits in the Bankbook. Ensure that the bank
reconciliation statements are prepared on a monthly basis by 7th of the following
month.
2.
Check that necessary adjustment entries are made in the case of stale cheques
as well as cancelled cheques.
3.
E.
1.
Ensure that the register of unpaid wages has been prepared correctly from salary
bills/payment vouchers, etc.
9. 7
2.
Ensure that proper and timely action is taken in respect of unpaid cash vouchers
lying in the Cash Office by transferring the entries to concerned section from time
to time.
F.
1.
Check that a register of valuables for record of cheques/drafts received and their
disposal is maintained and that chequebooks are kept in the safe custody of a
responsible official nominated in this behalf.
2.
Verify that collateral securities such as bank guarantees, fixed deposit receipts,
bonds, etc. are kept in safe custody and also recorded in a register to be
maintained for such purposes. Physical verification of these securities may also
be conducted once in a year.
3.
G.
H.
a)
b)
Other items
Once in a year
9. 8
9.3
9.3.1
Introduction
Purchase Accounts Section is concerned with the payment to suppliers on
account of supply of raw-materials, packing materials and other items of capital
nature and accounting thereof.
9.3.2
A.
1.
Check that the particulars on the Purchase Invoice agree with the purchase
order, with reference to the rates, specifications, date of supply, mode of
transport, quantity ordered and where there are deviations these are supported
by proper amendments. The bill is supported by the Material / Stores Receipt
Voucher and Inspection Report duly signed by Competent Authority.
2.
Check the invoices for the purchase of imported material with reference to bank
advices, bill of entry, clearing agents' bills, bill of port trust charges, in addition to
the documents mentioned in para 1 above. Also verify that bank charges for
opening of Letters of Credit (LCs), amendments thereto and for making payment
against LCs and on retirement of documents are properly verified and checked
before booking of the same. The correctness of payment of customs duty,
demurrages, if any, paid should be verified to ascertain whether proper analysis
has been made, and the payment of demurrage if any, regularized with the
approval of the Competent Authority.
3.
Check the bills of clearing agents to ensure that they have been passed as per
the terms of contract with them and necessary recoveries in respect of
demurrage etc. have been duly made.
4.
Examine whether LCs issued are kept open only to cover the period of supply as
per agreement. In case of extension of LC, ascertain whether extension of time
stipulated in agreement for supply is granted by the Competent Authority.
5.
Verify that after payment is made bills are cancelled/voided by marking 'Paid' on
them and that endorsement in respect of payments are also made on copies of
the respective Purchase Order and SRV to avoid any double payment.
9. 9
6.
Check that items like packing and forwarding charges, excise duties, sales
tax/VAT, etc. for which rates are not shown in the purchase order have been
billed correctly and concessional rate of sales tax is availed of wherever
applicable.
7.
Check that discount offered by the suppliers has been availed of.
8.
Verify that the penal clause in the purchase order has been duly invoked or the
Competent Authority allows extension of time.
9.
Scrutinize the Purchase Bill Register and ascertain the reasons for bills lying unpassed or unadjusted for over 15 days.
10.
Ascertain whether supplies were received within the stipulated dates of delivery.
In case of delays it may be examined whether the extension of time of delivery is
given after due consideration at the appropriate level and with financial
concurrence and whether non-enforcement of claims for liquidated damages was
as per the exigencies of the work.
B.
1.
Check that the advances to the suppliers are allowed strictly in accordance with
the terms stipulated in the purchase order and that advances are adjusted before
suppliers bill/s for payment are passed. Any advance, whether to a foreign
vendor or local supplier should not be given without obtaining bank guarantee as
a sound internal control system. Internal auditor should point out this aspect if it
is not followed.
2.
Check the Suppliers Advance Ledger and scrutinize cases of old outstanding
advances to suppliers lying unadjusted.
3.
Confirm that the total advances to suppliers as per the Advance Ledger are
reconciled with the Control Accounts maintained in the general ledger. The
above reconciliation should be made by the Purchase Accounts Section when
the periodic print outs of ledgers are taken or earlier if necessary.
C.
1.
Examine the sales tax registration certificate / VAT registration certificate granted
by the authority giving exemption and / or concessional rate in respect of
materials purchased for the direct manufacturing process. Do the certificate
covers all the materials purchased for direct use in the process of manufacture?
2.
9. 10
3.
To check the schedule of security deposits / earnest money deposit and refund
thereof.
4.
To review the bank guarantees submitted by the suppliers and its follow-up.
5.
6.
D.
CONFIRMATION OF BALANCES
RECONCILIATION THEREOF
IN
CREDITORS
ACCOUNTS
AND
For confirming creditors balances, internal audit will verify that the following
procedures are in place.
1.
Whether steps are taken to obtain confirmation of credit balances in various party
accounts such as sundry creditors, etc. on the following basis.
(i)
(ii)
(iii)
(iv)
(v)
9. 11
the certificate covers all the materials purchased for direct use in the
process of manufacture?
E.
b)
c)
d)
Others
Once in a half-year
9. 12
9.4
9.4.1
Introduction
The Sales Account Section deals with raising of invoices in respect of dispatch of
fertilizers, industrial products to Institutional buyers, private dealers and
maintenance of accounts relating to sundry debtors, advances received from
customers against sales, security deposit, sales tax and excise duty etc.
The following checks should be considered and be exercised while conducting
the internal audit of Sales Accounts (Units) and of D&C Cells of the Units,
Area/Zonal Offices/CMO.
9.4.2
A.
1.
See that the terms and conditions of sales are as per the Sales Policy of the
Company and are in keeping with the Sale of Goods Act, Fertilizer control order,
Essential Commodities Act and other statutory laws and rules.
2.
See that all terms of sales communicated to the Units are duly concurred by F&A
Dept. and approved by the Competent Authority.
B.
INVOICING
1.
Verify that the invoices for road and rail dispatches have been raised correctly at
prevailing prices for the quantity mentioned in the Delivery Challan and RRs /
GRs.
2.
Verify that control procedures are effective and ensure that all the required invoices
are correctly raised using the appropriate prices and discounts, and that they are
recorded, despatched, and accounted for within the accounting system in a timely
manner.
3.
Check that the invoices in respect of industrial products in the Units have been
prepared on the basis of Cash Sale Advices received from D&C cell and
weighment / loading statement received from the plants/store indicating the
actual quantities issued. Also see that the prescribed procedure with regard to
sale of industrial products is being strictly adhered to.
4.
9. 13
5.
Verify that rebates and secondary freight have been allowed as admissible and
shown correctly in the invoices.
6.
Verify that VAT/Sales Tax has been charged in the invoices, wherever
applicable.
7.
Check that the invoicing/stock transfer note of the material dispatched has been
made promptly and as per the prescribed procedure.
8.
Ensure that the rake disposal statements are received by Unit concerned from
Area Offices within prescribed period.
9.
Check that the delivery orders for sales from godowns and platforms are
received from Area Offices by CMO/Zonal Offices within prescribed period
keeping in view the date of revised rates and the date of DOs issued to avoid
incorrect billing and invoices thereof are promptly prepared and issued to the
dealers by Finance & Accounts Department and fed into the computer
immediately for preparation of Sales Day Book and Dealers Ledgers.
10.
Verify that the Cash Receipt Voucher No. is mentioned on the Delivery Order by
the Area Offices in respect of cash sales from warehouses.
11.
Verify that the Delivery Order for platform sales is issued by the Area Officer to
the dealer who has made the payment in advance / as per approved terms terms
for the quantity of fertilizers required.
12.
Test Check the arithmetical accuracy of the invoices and also see that invoices
are issued/approved by the authorized official.
C.
1.
Check whether the terms and conditions of sales to institutional buyers are
comprehensive and in accordance with the sales policy in force and approved by
the Management.
2.
Verify that the sales on credit to Institutional buyers/dealers are approved by the
competent authority and/are in accordance with the approved credit policy of the
Company. It should also be verified that credit is not allowed for a period more
than what has been agreed to.
3.
Check that interest on delayed payments have been debited/accounted for and
the amounts recovered or alternatively approval of the competent authority has
been obtained for waiving the interest due on delayed payments.
9. 14
D.
1.
Confirm and verify that the total dispatches made as per loading statement
received from the Transportation Dept. in a month are reconciled with the
quantity shown in the Sales Day Book.
2.
Check that the total sales made as per the godowns statement, rake statement
and delivery orders received from Area Offices by CMO/Zonal Offices are
reconciled with the quantity shown in the Sales Day Book maintained by
CMO/Zonal Offices for sales made from Field godowns and buffer godowns.
3.
Verify that all invoices for sales are made on the basis of quantity actually
delivered to the parties and shortages, if any, has been dealt in as per company
policy.
4.
E.
1.
2.
Verify that there is a system of periodical review of the sundry debtors and
advances accounts of the dealers as per audit programme.
3.
Check that the age-wise analysis of the Sundry Debtors is prepared on a monthly
basis and prompt action taken for the recovery of overdue outstanding. Also
verify whether there is a regular and effective system of reconciling these
accounts with the dealers.
4.
Cases of outstanding for more than six months should be scrutinized and
reasons thereof should be ascertained from the CMO/Zonal Offices. Also check
that statement of debtors outstanding for more than one year is submitted to
competent authority for taking appropriate action.
5.
Check that the advances received are correctly accounted for and adjusted.
6.
Verify that confirmation of balance is obtained and reconciled with the balance in
the books periodically as per the frequency and the time schedule decided from
time to time.
9. 15
F.
SECURITY DEPOSITS
1.
Check that all the dealer as well as sub-dealers have furnished the security
deposits of the prescribed amount and proper records thereof are kept.
2.
Review the status and scrutinize the bank guarantees and follow up thereof.
G.
1.
Check whether all sales tax payments are reconciled with the recoveries as
reflected in the Sales Day Book of unit/ Area offices.
2.
Check the correctness and timely deposit of Sales Tax amount and submission
of the sales tax return. In case any excess payment of sales tax has been made,
see that refund/claim has been preferred with the sales tax authority within the
prescribed period.
3.
Verify that 'C'/D forms respectively are collected from the dealers and linked up
with the sales for which concessional rates or exemption from Sales tax have
been allowed in the invoices.
4.
Check that follow up action with the parties for the pending 'C'/D' forms has been
taken.
5.
Highlight in the internal audit report all cases of C / D form remaining pending
for more than three months.
6.
Check that VAT is deposited after setting off the input tax with output tax, as
applicable.
7.
Check that VAT is charged as per appropriate rate prescribed in all the sales
invoices.
8.
Check that VAT Returns are timely filed after correctly computing taxable
turnover.
9.
Verify that proper records are being maintained as required under the Act.
10.
Review whether the collection of sales tax / VAT and payment to government are
in accordance with the relevant laws and rules.
11.
Is there a reconciliation between sales tax / VAT paid / payable amount shown in
the return and the amount as recorded in the respective Control Account in
General Ledger?
9. 16
12.
Examine the sales tax registration certificate / VAT registration certificate granted
by the authority giving exemption and / or concessional rate in respect of
materials purchased for the direct manufacturing process. Do the certificate
covers all the materials purchased for direct use in the process of manufacture?
13.
In case of the failure of the customer in submitting the VAT declaration form,
examine whether there is a procedure to raise supplementary invoice / debit note
to recover the concessional or exemption tax already allowed in the sales
invoices.
14.
Review how the VAT declaration forms are kept in safe custody and whether
receipt of said forms promptly recorded in the VAT register.
15.
Review the assessment orders for the completed assessment years and
ascertain the reasons for any disallowable items / amounts.
H.
EXCISE DUTY
1.
Verify that the excise duty, wherever applicable, is paid correctly as per the laws,
rules and regulations and the proper records thereof are being maintained as
required under the Act.
2.
Scrutinize that the excise duty is being paid as becoming due and also see that
the large balances are not kept in this account for unduly long periods. Also see
that refund claims have been preferred wherever required and are being followed
up regularly.
I.
1.
Check and review the award of contract pertaining to internal handling and
transportation of urea at units as per procedure.
2.
3.
Check that where fertilizer has moved by Rail, for shortages in transit noticed by
the Field Officers at the destination station, claims have been lodged with the
Railways and the shortages in transit have been accounted for as per Companys
policy. Also verify that claims, which have been rejected by the Railways have
been adjusted in accounts with the approval of competent authority.
9. 17
4.
Verify that for shortages noticed at the warehouses for dispatches by road, the
necessary recoveries have been made by the unit concerned from the
Transporters, at the retention price of the product.
5.
Examine cases of demurrage and wharfage paid to the Railways and see that
the same have been adjusted with the approval of competent authority.
J.
WAREHOUSES
1.
Confirm that the spaces reserved in the warehouses with the approval of the
competent authority have not been under utilized.
2.
Verify that rent for various godowns is being paid in accordance with the
approved agreement.
3.
Check that private godowns are not normally hired and wherever hired are as per
the laid down policy of the company and with the approval of the competent
authority. Fertilizers stored in the godowns are insured adequately and
despatched/sold on a FIFO basis as quickly as possible. Ensure that CWC/SWC
where our fertilizer has been stored has taken proper insurance cover.
4.
5.
See that the fertilizer received and sold from the godowns in a month is
reconciled by CMO/ZO periodically with the debit advices received from the Units
for transfer of fertilizers to a particular godown and the delivery orders received
from the Area Offices.
K.
1.
Verify that the DDs received from the dealers/CSS are promptly deposited in the
collection accounts with the banks and credit given to the correct dealer and
proper record in this regard is maintained at Area Office.
2.
Verify that the bank statement from bank in respect of collection account is
received regularly and bank reconciliation is completed latest by 15th of the
following month. Reasons for Cheques / DDs stated to have been presented to
the bank but not credited in our account should be enquired into diligently. Also
verify that bank charges levied by the bank are as per the terms agreed with
them.
9. 18
3.
Confirm and verify that all the amounts credited through Collection Accounts are
transferred to Centralized Collection Account of CMO with State Bank of India,
New Delhi on the close of every day or as instructed by Corporate Office.
4.
Check if the value dating statements are being sent on monthly basis by
Area/Regional / Zonal offices to CMO so that timely claim for recovery of interest
on account of delayed credit by more than prescribed time in central collection
account is lodged with SBI, New Delhi.
5.
Check whether electronic funds transfer and direct deposit facilities are used
where feasible and advantageous.
6.
Ensure that cash derived from collections and cash used for disbursements is not
commingled.
7.
8.
Check that credit entries in the bank statement are reconciled on daily basis as
the bank statement can be generated on daily basis by making use of netbanking facility where available.
L.
1.
2.
Examine if the CSS dealer has met his contractual obligation during the
preceding six months and has deposited the specified security amount according
to the category of the dealer.
3.
Check if CSS dealer has got adequate storage space as defined in the stocking
process.
4.
Examine if storage arrangements have not been violated in any way and godown
space as determined earlier is available for NFL material.
5.
Check on a random basis if the CSS dealer is adhering to the FIFO method for
despatching goods.
6.
Check if committed rebate was being allowed to CSS dealer only when the
dealer was meeting the required obligations.
9. 19
7.
Confirm and verify that statutory taxes and levies are deducted from
remuneration payable to central scheme stockists.
8.
Verify that Mktg. Division has taken requisite insurance cover of stocks of
material kept with the CSS dealer and the quantity stored and its actual value
was being intimated to CMO for monitoring insurance policy.
M.
GENERAL
1.
Check that the publicity expenditure on wall painting advertising and hoarding
etc. have been incurred with the approval of competent authority after following
the prescribed procedure and Memoranda record is maintained to identify their
location etc.
2.
Check that Office-cum-residential buildings for Area / Regional Offices have been
hired with the approval of the competent authority as per scale laid down after
following the prescribed procedure and memoranda record with proper deposit is
maintained for proper checking and control.
3.
Verify that DIs in respect of road despatches and cash sale advices in respect of
industrial products have been issued after having received the sale proceeds in
advance and the CRV No. and DD No. have been mentioned on the DIs/Cash
Sale Advices. Despatch against credit, if any, need to be examined/verified with
reference to companys policy/ approved sales terms.
4.
Verify that the imprest register is maintained as per prescribed procedure and
imprest expenditure statements are sent to CMO/Zonal Offices for recoupment in
time as per instructions in this respect.
5.
Check that proper records of Capital Items/Asset Register are being maintained
(Item Identification No., date of purchase, Bill No. Amount, location etc.) and
there is an effective procedure to check items physically at the end of each year.
6.
The internal auditor is to keep himself updated with the guidelines, policies,
instructions and clarifications given by the Government / FICC with regard to
subsidy applicable to NFL.
7.
8.
Examine whether claim for subsidy has been correctly raised and timely
submitted to the appropriate authority with full documentary evidence.
9.
Review whether all the terms and conditions and guidelines of FICC for claim for
subsidy have been fulfilled.
9. 20
10.
Examine whether payment against claim is timely received and for that vigorous
follow up is being made.
11.
Examine whether subsidy has been accounted for as per accounting policy
followed by the company and in full compliance to the provisions of Accounting
Standard (AS 12) issued by ICAI.
N.
Invoices
b)
Reconciliation of Dispatches
c)
Half yearly
d)
e)
f)
g)
Other items
h)
i)
100%
9. 21
9.5
9.5.1
A.
RECEIPTS
1.
2.
Check whether pricing of Stores Receipt Vouchers is done correctly and posted
chronologically in the Register "Provisional Liability for Stores".
3.
Whether there are abnormal differences between the actual liability as per
supplier's bills and the provisional liability created by Stores Accounts Section?
Ascertain that differences are promptly reconciled and adjusted.
4.
5.
6.
Inter Unit receipt of materials - Check that inter unit receipt of material is first
entered in the books by the Stores Department and issued to depts. only after
preparation of the SRV.
B.
ISSUES
1.
Verify that the Issue Notes are signed by officials authorized in this regard.
2.
3.
Review the Issue Note Summary to see if any issue note is left out/omitted.
Inquire into the reasons thereof.
4.
Check pricing of Issue Notes done by the Computer Center to ensure that the
Computer Program is working satisfactorily.
9. 22
5.
Ascertain whether Stores are issued to Contractors and other outside parties
only with the sanction of the competent authority and that recoveries are
promptly effected.
6.
In case of issue of materials on loan verify that proper records are maintained to
ensure timely return/recovery. Also ensure that materials given on loan have the
approval of competent authority and the same has been issued against adequate
security. Report old outstanding cases where amounts involved are material.
7.
Inter Unit Issue of Materials Check that material issued to other units is against
approved issue voucher from Stores wing of Material Department and ensure
verification of corresponding debit advice.
8.
Segregation of capital items and capitalization thereof Capital items are not
charged to revenue or vice versa.
C.
1.
Verify that reference of Issue Notes under which the material was issued
originally is indicated in Material Returned Notes.
2.
3.
Verify that used materials having useful life and returned to stores are valued as
per certificate of the engineer and technical valuation has been approved by the
competent authority.
D.
1.
Review the priced stores ledger and scrutinize on a test check basis irregular
balances appearing therein viz. (a) whether there are any negative balances
either in quantity or value; (b) whether any account shows value without quantity
or quantity without value.
2.
Review the Stores Inventory to identify non-moving, slow moving and surplus
items. Whether such items are reported timely to the Management.
3.
Identify and check key items of inventory for prices that once tested, can be used
as a basis to test the reasonableness of pricing of other items in stores inventory.
For example, if the cost of eleven-gauge steel is tested, the internal auditor can
normally scan the costs of other gauges of steel and determine if variations from
the item tested are reasonable.
4.
9. 23
E.
MISCELLANEOUS
1.
Review that the physical verification reports relating to stores are promptly
attended to and action for adjustment of excesses/shortages has been taken
after obtaining sanction of the competent authority.
2.
3.
4.
5.
Examine the method of fixation of price for sale of scrap (drums, packing
material, etc.) to employees.
6.
7.
Check that in case of allotment of a new code whether code master is updated
by the Stores Department immediately with complete nomenclature of item.
8.
Ensure that the new code number is given by stores only after the approval of the
same by the competent authority.
9.
Verify that indent control no. is given by the stores only after checking the code
number or after issue of the new code number as the case may be.
10.
11.
Review of SD/EMD including the system and follow up of the bank guarantees.
12.
Review of missing and diverted wagons/rakes of coal and oil and settlement
thereof.
13.
14.
9. 24
15.
Review the system of providing services to outside parties for heavy equipments
including fixation and recovery of the charges.
16.
Deduction and deposit of taxes e.g. income tax including TCS on scrap, service
tax, entry tax/purchase tax /VAT as applicable.
F.
S. No.
1.
2.
3.
4.
Particulars
Pricing of stores receipt vouchers &
issue notes
Register of Provisional Liability for
Stores
Priced stores ledger
5.
6.
Other items
Extent of Checking
One months transactions in
each year.
One months transactions in
each year.
One months transactions in
each year.
One months transactions in
each year.
One months transactions in
each year.
One months transactions in
each year.
9. 25
9.6
9.6.1
Introduction
Budget Accounts Section is concerned with the preparation of Capital, Revenue,
Cash, Inventory and other Overhead budgets besides production and sales plan
The Budget Accounts Section has to also ensure that all the concerned
departments adhere to the targets laid down in the budgets.
9.6.2
2.
Verify that budgetary systems are effective and adequately meet the control
objective, of providing an accurate and reliable budgeting system, as a means
to ensure that agreed financial and business objectives are achieved.
3.
Verify whether the initial data for the preparation of budgets have been
worked out by the concerned departments with adequate supporting details
and in accordance with the time schedule.
4.
5.
Verify that the subsidiary budgets viz. Cash Budget, Inventory Budget,
Working Capital Budget and Repairs & Maintenance Budget etc. have been
prepared as per norms prescribed.
6.
Verify that the relevant portions of the approved budgets have been
circulated to the concerned departments.
7.
Verify whether the plant managers are comparing the actual with the
budget allotments for the period and the budgets are actually being used as
instruments of control.
9. 26
9.6.3
8.
9.
10.
11.
Verify that all appropriation of the provisions made in the budget from one
head to another have been approved by the Competent Authority and no
re-appropriation has been made between capital and revenue allocations.
12.
13.
To see that cost review meetings are being regularly held and verify the
implementation of the decision taken.
14.
The internal auditor is to keep himself updated with the guidelines, policies,
instructions and clarifications given by the Government / FICC with regard
to subsidy applicable to NFL.
15.
16.
Examine whether claim for subsidy has been correctly raised and timely
submitted to the appropriate authority with full documentary evidence.
17.
Review whether all the terms and conditions and guidelines of FICC for
claim for subsidy have been fulfilled.
18.
Examine whether payment against claim is timely received and for that
vigorous follow up is being made.
9. 27
9.7
9.7.1
A.
INSURANCE POLICIES
1.
2.
Review all the insurance policies ensuring that these have been taken as per
directions of the Corporate Office.
3.
Check that wherever called for assets like Buildings. Plant etc are insured on a
replacement cost basis subject to the terms, conditions, and exclusions of the
policy.
4.
Insurance Values - Examine the basis of valuation of insurance policies and that
there are no cases of under insurance so that average clause is not invoked in
case of a claim. Test check the procedure being followed and forms being used
to collect details of insurable coverage /values from the concerned departments
and examine some of the reports submitted to insurance companies to:
Ascertain the manner of linking the original cost of assets with the
insurable value, and to
9. 28
5.
6.
Renewal of Policies Verify that all the policies are renewed timely and that
there is no break in insurance. Assess whether controls on renewal are
adequate.
7.
8.
Check that assets written off/retired during the year are excluded from the list of
insurable assets and that these are not insured.
9.
10.
Check that Insurance cover is obtained from commercial insurers (public and
private) who have strong financial ratings and a good track record for
settlement of claims.
11.
Verify if competitive bids have been used in the procurement of insurance when
the premium cost is estimated to exceed any Rupee limits that may be set by the
management and revised from time to time.
12.
9. 29
B.
INSURANCE CLAIMS
1.
Verify that the declarations in respect of transit insurance are made correctly and
well in time.
2.
Verify if there are any cases, which were included in the Insurance Declaration
statement but were the liability of the supplier as per the terms of the purchase
order?
3.
Verify that the claims for shortages, breakages, damages, non- delivery, short
delivery etc. are promptly lodged with the underwriters/carriers.
4.
Check the figures in the Register of Claims and reconcile the amount thereof with
the amount actually booked in the accounts.
5.
Ensure that there is no avoidable delay in furnishing the documents asked for by
the insurers.
6.
7.
Appraise the procedures and the adequacy thereof for the reporting of accidents
and losses by operating departments to claims section.
8.
Test check a few cases of current and processed claim files beginning with
original reports of loss and following through the final settlement of claims which
are closed. Due attention is to be given to compliance with policy and procedures
with regard to:
9. 30
C.
1.
Identify and remedy everything in the premises that could interfere with ability of
workers and staff to get out quickly in an emergency including windows that are
stuck, heavy objects blocking an exit and broken and dangerous locks.
2.
3.
Replace two-keyed deadbolt locks (require a key inside) which can delay a quick
exit, and made sure that security bars on doors and windows have a quick
release mechanisms.
4.
5.
Ensure that copies of the escape plan sketches are posted in a visible areas of
the premises.
6.
Hold fire drills frequently and at various times so that escape plans become
second nature.
7.
During fire drills, also practise what it would be like to escape through smoke by
getting down on hands and knees and crawling below the smoke to the nearest
exit.
8.
All flammable items, such as turpentine, gasoline, paints etc., kept in their
original containers in a locked and separate storage areas approved for such
storage.
9.
Proper inspections of all boilers, chimneys, central furnaces and other equipment
by professionals to be done on a periodic basis.
10.
11.
Ensure that electrical outlets, cables extension cords and power strips are not
overloaded.
12.
Check all wires, cables and cords for damage, periodically and ensure all unused
electrical outlets are covered.
9. 31
Smoke Alarms
13.
Ensure smoke alarms are on every level and at each critical area of the
premises.
14.
Ensure smoke alarms are mounted high on walls or ceilings away from windows,
doors and ducts where drafts might interfere with their operation.
15.
Smoke alarms should be located well away from the path of steam, which can
result in false or nuisance alarms.
16.
Smoke alarms to be tested periodically preferably monthly to make sure they are
in good working order.
17.
18.
20.
Ensure that sketch of floor plans of the premises including all offices, rooms,
windows, interior and exterior doors, stairways, fire escapes and smoke alarms
are available and that personnel are made familiar with the layout.
The insured shall give immediate written notice to the Company of any loss,
protect the property from further damage, forthwith.
The company shall prepare a record of the following:
(b)
Prepare details pertaining to all the policies involved in fire accident as follows:
Policy No.
Risk
covered
Location
Sum
insured
Estimated
amount of loss
9. 32
(c)
(d)
Period of Insurance,
(e)
Nature and Cause of Loss (Describing the circumstances leading to the loss)
(f)
Details of insurance with any other insurance company on the risk involved in the
fire/accident (this includes all other contracts of insurance, whether valid or not,
covering any of said property).
(g)
The interest of the insured in the property - If insured is not sole owner, the
nature of his/their interest in the property and details of other interests.
(h)
(i)
In case any claim was reported in the past on the same property during current
policy period, the following details to be documented:
(a)
(b)
(c)
(d)
(e)
Cause
Date of incident
Claim
Policy Issuing Office
Amount of claim paid/Outstanding Rs.
(j)
The actual value of each item thereof and the amount of loss thereto; all
encumbrances thereon,
(k)
(l)
It shall keep on record the descriptions and schedules in all policies and, if
required, verified plans and specifications of any building, fixtures or machinery
destroyed or damaged.
(m)
Where practicable, separate the damaged and undamaged property, put it in the
best possible order and a complete inventory of the destroyed, damaged and
undamaged property, showing in detail quantities, costs, actual cash value and
amount of loss to be claimed within the time period stated in the policy, unless
such time is extended in writing by the Insurance Company.
9. 33
D.
DISCOUNT ON PREMIUM
1.
E.
1.
2.
3.
4.
Considering multi-year policies: A potential cost-saving measure is a multiyear policy, in which the premium is set for several years, instead of one. This
option, though not widely available can allow for NFL to plan on a set premium
for a number of years. The possibility of obtaining insurance cover on this basis
for some of the policies can be explored.
5.
9. 34
F.
9.8
9.8.1
Introduction
This section is responsible for the upkeep of central/sub-ledgers, Assets ledger,
compilation of periodical returns i.e. monthly trial balance, monthly accounts,
inter-unit adjustments and reconciliation thereof, calculation of depreciation,
annual accounts and income tax returns.
9.8.2
A.
1.
Review that all the ledgers are prepared regularly and are up-to-date.
2.
Check that the accounts in the Central Ledger are reviewed monthly and
irregular balances, if any, are probed into and rectified/appropriate action taken
for their rectification.
B.
1.
Review the Asset Ledger to ascertain that complete details of all assets are
recorded therein monthly and are reconciled with the central ledger.
2.
9. 35
3.
Ascertain and check that the assets have been verified physically at the
prescribed intervals and proper action has been taken for missing/unserviceable
items after observing the correct procedure.
4.
5.
C.
PERIODICAL RETURNS
1.
Verify whether periodical returns i.e., monthly trial balance, monthly accounts,
inter-unit adjustments and reconciliation are prepared and reviewed.
2.
D.
b)
c)
As of April 2008, the following Accounting Standards have been issued by the
Institute of Chartered Accountants of India (lCAI), which are mandatory in nature.
9. 36
Some of these are not applicable in NFLs case these are marked in bold text.
Some others may not be presently applicable but can become applicable at a
future date e.g., Accounting for Amalgamations..
Sl.
AS No. Title of the Standard
No.
Status
1.
AS 1
Disclosure of Accounting
Policies
2.
AS 2
Valuation of Inventories
Mandatory - 1.4.1999
Issued June 1991, Revised in
1999
3.
AS 3
Mandatory 1.4.2001
Issued Jun 1981, Revised in
1997
4.
AS 4
Mandatory 1.4.1995
Issued Nov. 1982, Revised in
1995
5.
AS 5
6.
AS 6
Depreciation Accounting
Mandatory - 1.4.1995
Issued Nov 1982, Revised in
1994
7.
AS 7
Construction Contracts
(AS 7 not applicable to NFL)
Mandatory 1.4.2003
Revised in 2002
8.
AS 8
9.
AS 9
Revenue Recognition
10.
11.
Mandatory
Issued in 1989, Revised in
1994 and again revised in
2003
9. 37
Sl.
AS No. Title of the Standard
No.
Status
12.
13.
Mandatory in 1.4.1995
Issued in 1994, Revised Feb in
1997
14.
Mandatory in 1.4.1995
15.
AS 16 Borrowing Costs
Mandatory 1.4.2000
16.
AS 17 Segment Reporting
Mandatory 1.4.2001
Issued in 2000
17.
Mandatory 1.4.2001
Issued in 2000
18.
AS 19 Leases
Mandatory 1.4.2001
Issued in 2001
19.
Mandatory 1.4.2001
Issued in 2001
20.
AS 21 Consolidated Financial
Statements
Mandatory 1.4.2001
Issued in 2001
21.
Mandatory 1.4.2001
Issued in 2001
22.
Mandatory 1.4.2002
Issued in 2001
23.
AS 24 Discontinuing Operations
Mandatory 1.4.2004
Issued in 2002
24.
Mandatory 1.4.2002
Issued in 2002
25.
AS 26 Intangible Assets
Mandatory 1.4.2003
Issued in 2002
9. 38
Sl.
AS No. Title of the Standard
No.
Status
26.
27.
AS 28 Impairment of Assets
Mandatory 1.4.2004
Issued in 2002
28.
AS 29 Provisions, Contingent
Liabilities and
Contingent Assets
Mandatory 1.4.2004
Issued in 2003
With regard to the above, Internal Audit should exercise the following checks:
1. Check that compliance has been made with the Mandatory Accounting
Standards AS-l to AS-29 to the extent applicable to the Company. If
compliance with the requirements of any applicable accounting standard has
not been made whether the disclosure has been made as stated above.
2. Check that change in accounting policy, which has a material effect has been
disclosed to reflect the effect of such a change in financial statements of the
current period.
3. Check that the nature and amount of each extraordinary item although shown
in net profit or loss for the current period, separately disclosed in the
statement of profit and loss in a manner that its impact, on current profits or
loss can be perceived.
4. Check that Foreign Exchange rates prevalent as on 31st March, of the year
have been adopted as a basis for accounting for Foreign Exchange
transactions for the purpose of purchase/sale of foreign exchange.
5. Check that depreciation has been provided for in conformity with provisions of
schedule XIV to Company's Act 1956 on SLM by leaving a residual value of
5% in respect of plant and machinery and Re. 1/- for each item in respect of
other fixed assets.
6. Check that leasehold property is amortized over the lease period.
7. Ascertain that present value of future liability towards gratuity and encashable
EL / HPL, is accounted for, on the basis of year end actuarial valuation.
9. 39
8. Deferred Taxes - Show deferred tax assets and liabilities separately from
assets and liabilities representing current tax for the period under a separate
heading in the balance sheet. Disclose major components of deferred tax
assets and deferred tax liabilities along with their balances in the notes to
accounts.
9. Discontinuing Operations - Any disclosures required by this Standard should
be presented separately for each discontinuing operation.
10. Intangible Assets Check that the information is available for disclosure in
the financial statements for each class of intangible assets, distinguishing
between internally generated intangible assets and other intangible assets.
Rates of amortization are also to be disclosed.
11. Impairment of Assets Amount of impairment loss is recognized in the P/L
account verify that has been computed for various assets which may have
suffered impairment and also that details of line items of P/L account in which
impairment losses are included are disclosed.
Impairment of Assets (AS) 28
The objective of the Standard on Impairment of Assets is to prescribe the procedures that a
company applies to ensure that its assets are carried at no more than their recoverable
amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds
the amount to be recovered through use or sale of the asset.
This Statement should be applied in accounting for the impairment of all assets, other
than:
a)
b)
Assets arising from construction contracts (AS 7, Accounting for Construction Contracts
which pertains to Construction Companies);
c)
Financial assets, including investments that are included in the scope of AS 13,
Accounting for Investments; and
d)
9. 40
iii.
FIXED ASSETS
1.1
1.2
1.3
Capitalization
License and know-how fee
Depreciation
INVESTMENTS
Inventory
Claims
Pre-paid expenses
9. 41
Provisions
5.
5.1
5.2
Sales
5.3
Retirement benefits
5.4
5.5
5.6
Allocation of CO expenses
6.
ACCOUNTING POLICIES
Significant accounting policies followed by the Company are as under:
SIGNIFICANT ACCOUNTING POLICIES
1.1
Basis of Preparation of Financial Statements
The financial statements are prepared as a going concern, under the historical
cost convention in accordance with the generally accepted accounting principles
in India (GAAP) and the provisions of the Companies Act, 1956.
1.2
Use of Estimates
The preparation of the financial statements in conformity with GAAP in India
requires management to make estimates and assumptions, wherever necessary,
that affect the reported amount of assets and liabilities and contingent liabilities
as at the date of financial statements and the amounts of revenue and expenses
during the period. Actual results could differ from those estimates. Any revision
to such estimates is recognized in the period in which the results are
known/materialized.
1.3
Fixed Assets
Fixed Assets are stated at cost of acquisition (including expenses allocated
wherever applicable) less accumulated depreciation and impairment loss, if any.
Fixed Assets acquired out of capital grants are accounted for net of grants
received.
Expenditure during construction attributable to the fixed assets incurred upto the
date of commercial production are capitalized.
9. 42
1.4
Borrowing Costs
Borrowing costs directly attributable to the acquisition or construction of
qualifying assets are capitalized. A qualifying asset is one which necessarily
takes a substantial period of time to get ready for intended use. Other borrowing
costs are charged to revenue.
1.5
Depreciation
Depreciation on fixed assets is provided at the rates specified under Schedule
XIV of the Companies Act, 1956 on straight line method retaining residual value
of five percent in respect of plant and machinery and computer systems and
rupee one in respect of capital spares and other fixed assets.
Leasehold land and buildings are amortized over the lease period. Buildings
constructed over leasehold land are depreciated as per the provisions of
Schedule XIV of the Companies Act, 1956.
Addition to items of fixed assets costing up to Rs.5,000/- is depreciated fully in
the year of acquisition
License and process know-how fee having future economic benefits is amortized
on straight line method over a period of ten years.
1.6
Investments
Long term investments are carried at cost, after providing for diminution in value
if it is of a permanent nature. Current investments are valued (individually) at
lower of cost and quoted/fair value.
1.7
Inventories
Raw Materials, packing materials and stores & spares, are valued at lower of
weighted average cost and net realizable value.
In case of stores and spares not moved for more than two years and upto five
years, provision is made at five percent per annum (on straight line basis) and
charged to revenue. In case of stores and spares not moved for more than five
years/identified as surplus or obsolete, value is taken as certified by an
Engineering Valuer and diminution, if any is charged to revenue.
Finished and semi-finished goods are valued at lower of weighted average cost
and net realizable value based on the applicable Retention Price/Sale Price. The
plant- wise finished stocks lying at warehouses are determined on first-in-first-out
basis.
1.8
Foreign Currency Transactions
Transactions in foreign currency are accounted at the exchange rate prevailing
on the date of the transaction.
9. 43
The value of assets and liabilities expressed in foreign currency are translated at
the exchange rate prevailing at the end of the year.
Exchange Gain/Loss on conversion of foreign currency transactions is
recognized as income/expense.
1.9
Employees Benefits
Provision towards encashable leave, gratuity, long service award, social security
scheme and benefits under post retirement medical and settlement schemes,
are made based on the actuarial valuation as at the end of the year.
Companys contribution under Provident Fund and Employees Family Pension
Scheme are accounted for on accrual basis.
1.10 Adjustments pertaining to earlier years and prepaid expenses
Income/Expenditure relating to prior period up to Rs.50,000 in each case is
considered as income/expenditure of current year.
Prepaid expenditure up to Rs.10,000 in each case is charged to revenue in the
year in which it is incurred.
1.11
Revenue Recognition
Sales include excise duty wherever applicable and are net of rebates.
Subsidy under Fertilizer Pricing Policy is recognized based on quantity sold.
Equated freight subsidy is recognized on quantity despatched from the plants.
Subsidy is estimated taking into account the guidelines, policies, instructions and
clarifications given by the Government, pending notification from Fertilizer
Industry Coordination Committee (FICC).
Sale of scrap/ waste materials is recognized on disposal.
1.12 Claims
Pending settlement, claims on underwriters/railways/others as assessed by the
Company are recognized in the year of lodgement. Claims for grade variation of
coal are recognized on the basis of company's laboratory analysis.
1.13 Deferred Tax
The deferred tax resulting from timing differences between book profit and
taxable profit for the year is accounted for applying the tax rates and laws that
have been enacted or substantially enacted as on the Balance Sheet date.
9. 44
Deferred tax assets are recognized to the extent there is a virtual certainty that
the assets can be realized in future and are reviewed for the appropriateness of
their respective carrying values at each Balance Sheet date.
F.
1.
Return is to be filed in Form ITR 6 for AY 2008-09 and the last date for filing is
30th September 2008
2.
Deduction u/s. 10A, 10B, 80-IA, 80-IAB, 80-IB & 80-IC shall not be allowed
unless the return has been filed on or before the due date. Likewise, the losses, if
any, shall not be allowed to be carried forward unless the Return has been filed
on or before the due date.
3.
Form No. ITR 6 and schedules forming part thereof are very much in detail and
to facilitate filling of the return, it will be necessary that the company maintains
heads of accounts as given in ITR 6 and schedules thereof.
4.
(a)
(A) Income from house property, (B) profit and gains from business or profession,
(C) capital gains, and (D) Income from other sources.
Compute taxable income of the current year (i.e., the previous year) under each
head of income separately in the schedules which have been structured so as to
help in making these computations as per provisions of the IT Act. These
statutory provisions decide what is to be included in your income, what you can
claim as an expenditure or allowance and how much, and also what you cannot
claim as an expenditure / allowance.
Set off current years head-wise loss(es) against current years head-wise
income(s) as per procedures prescribed by the law. A separate schedule is
provided for such set off.
Set off, as per procedures prescribed by the law, losses, allowances or earlier
assessment year(s) brought forward. Also compute losses and / or allowances
that could be set off in future and is to be carried forward as per procedures
prescribed by the law.
Aggregate the head-wise end-results as available after (d) above; this will give
gross total income.
From gross total income, subtract, as per procedures prescribed by the law,
deductions mentioned in Chapter VIA of the Income Tax Act. The result will be
the total income.
(b)
(c)
(d)
(e)
(f)
5.
9. 45
(a)
(b)
(c)
(d)
(e)
(f)
6.
Compute income tax payable on the total income. Special rates of tax are
applicable to some specified items.
In case the tax liability computed as above is less than 10% of book profit, the
company is required to pay minimum alternate tax (MAT) under section 115JB at
the rate of 10% of the profit. The excess tax so paid is allowable to be carried
forward for credit in the year in which tax liability under the normal provisions of
the Act is more than MAT liability. Such carry forward is allowable up to 5 years.
Add surcharge at the rate of 10% of the tax liability computed as explained in (a)
& (b) above. No surcharge will be levied if net income of the company is less
than Rs.1 crore.
Add education cess including secondary and higher education cess at the rate of
3% on the tax payable plus surcharge.
Add interest payable as prescribed by the law to reach total tax, surcharge and
interest payable.
Deduct the amount of prepaid taxes, if any, like tax deducted at source,
advance tax and self assessment tax. The result will be the tax payable or
refundable.
This forms has to be compulsorily furnished to the Income Tax Department in
any of the following manners:
(i)
(ii)
7.
No document including TDS / TCS certificate, tax audit report etc. should be
attached to this Form.
G.
1.
Chapter XII-H of the Act relates to income-tax on fringe benefits paid to deemed
to have been paid by an employer to his employee.
Section 115WB provides the list of fringe benefits provided or deemed to have
been paid by an employer to his employees which are chargeable to tax. Section
115WC provides as to how to compute the value of the fringe benefits provided
or deemed to have been provided.
Additional income tax (fringe benefit tax) is required to be paid by every specified
employer at the rate of 30% on the value of such fringe benefits. Surcharge and
education cess including secondary and higher education cess at specified rates
are also to be paid on fringe benefit tax. FBT is payable by an employer even if
no income tax is payable by him on his total income.
The CBDT had issued an exhaustive circular No.8/2005 dated 29.8.2005
explaining the provisions relating to fringe benefit tax. In case of any doubt, the
assessee may refer to the said circular.
2.
3.
4.
9. 46
H.
Central Excise duty is an indirect tax levied on goods manufactured in India. Excisable
goods have been defined as those, which have been specified in the Central Excise
Tariff Act as being subjected to the duty of excise.
H.1
Basic Procedures
1.
2.
3.
4.
Duty is payable on monthly basis through TR-6 challan / Cenvat credit by 5th of
following month, except in March the duty shall be paid by the 31st day of March.
[Rule 8].
5.
Cenvat records and return by 10th of following month [Cenvat Credit Rules].
6.
Monthly return in form ER-1 should be filed by 10th of following month. [Rule 12
of Central Excise Rules].
9. 47
7.
8.
9.
10.
11.
12.
Large assessees who paid duty over Rs.1 crore through PLA are required to
submit on-line data of production, clearance and revenue every week [Required
by a circular not a statutory provision]
H.2
Form of Return
Description
ER-1
[Rule 12(1) of Central
Excise Rules]
ER-2
[Rule 12(1) of Central
Excise Rules]
ER-3
[Proviso to Rule 12(1)
Monthly Return
by large units
Return by EOU
Who is required to
file
Manufacturers not
eligible for SSI
concession
EOU units
Quarterly Return
by SSI
Assessees availing
SSI concession
9. 48
Form of Return
Description
of Central Excise
Rules]
ER-4
[Rule 12(2) of Central
Excise Rules]
Annual Financial
Information
Statement
ER-5
[Rules 9A(1) and 9A(2)
of Cenvat Credit Rules]
Information
relating to
Principal Inputs
Monthly return of
receipt and
consumption of
each of Principal
Inputs
Assessees paying
duty of Rs.1 crore
or more per annum
through PLA
Assessees paying
duty of Rs.1 crore
or more per annum
through PLA and
manufacturing
goods under
specified tariff
headings
Assessees required
to submit ER-5
return
H.3
for
Annually by 30th
November of
succeeding year
Annually, by 30th
April for the
current year (e.g.
return for 2005-06
is to be filed by
30-4-2005].
10th of following
month
9. 49
The first page and last page of such account book shall be duly authenticated
by the producer or manufacturer or his authorised agent. All such records shall
be preserved for 5 years.
2. Remission of duty on lost/destroyed goods - Goods which are fully
manufactured and entered in Daily Stock Account (DSA) are liable for duty.
However, if these are lost or destroyed in storage, by natural causes or by
unavoidable accident or are unfit by consumption for marketing, remission of
duty can be given by Commissioner on application. Section 5 provides that
Central Government can provide for remission of duty of excise payable on
excisable goods, which due to any natural cause, are found to be deficient in
quantity, by making rules in that behalf.
If the goods were not entered in 'daily stock account' as they were not fully
manufactured, question of remission of duty does not arise at all as there is no
duty liability.
The application for remission has to be made before removal of the goods from
factory. [Rule 21 of Central Excise Rules].
3. Penalty for not maintaining records - Not accounting for excisable goods
manufactured, produced or stored by assessee is an offence under Rule
25(1)(b) of Central Excise Rules. Penalty up to duty payable on goods can be
imposed and offending goods can be confiscated.
Goods can be confiscated and penalty can be imposed if DSA is not
maintained up to date and there is overwriting and cutting in the accounts.
4. Clearance of Goods from factory
Excisable goods can be removed from factory only under an Invoice.
Requirements of Invoice are as follows:
(a) Contents Of Invoice - As per Rule 11(2) of Central Excise Rules, invoice
shall contain (a) Registration Number (b) Name of consignee (c)
Description and classification of goods (d) Time and date of removal (e)
Quantity and Value of goods (f) Rate of duty (g) Duty payable on the
goods.
(b) Serial Numbered - Invoice should be serially numbered. Hand written
serial numbers shall not be accepted. The serial number should start from
1st April and will continue for the whole financial year.
(c) Invoice In Triplicate With Suitable Marks - Invoice should be in triplicate
and should be marked as follows (i) Original shall be marked ORIGINAL
FOR BUYER (ii) Duplicate copy shall be marked DUPLICATE FOR
9. 50
9. 51
H.4
1.
Credit of duty paid on input and input services - The Cenvat scheme is
principally based on system of granting credit of duty paid on inputs and input
services. A manufacturer or service provider has to pay excise duty and
service tax as per normal procedure on the basis of Assessable Value, which
is mainly based on selling price. However, he gets credit of duty paid on inputs
and service tax paid on input services.
2.
9. 52
Inputs goods eligible for cenvat to service provider - Credit will be available of
excise duty paid on inputs used for providing output services, except highspeed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol).
4.
No input credit if final product/output service exempt from duty/ service tax - No
credit is available if final product is exempt from duty or final service is exempt
from service tax. If the manufacturer/service provider uses common inputs both
for exempted as well as un-exempted goods/services, he should maintain
separate records for inputs/input services used for manufacture of exempted
final products and should not avail Cenvat on such inputs/input services.
However, if he does not maintain separate records and inventories of
inputs/input services used in exempted final products/services, he has to pay
an amount of 10% of price of exempted goods. In case of exempt services, he
can utilize Cenvat credit only up to 20% of service tax payable on output
service.
5.
6.
7.
Cenvat on capital goods - Credit of duty paid on machinery, plant, spare parts
of machinery, tools, dies, etc., is available. However, upto 50% credit is
available in current year and balance in subsequent financial year or years.
8.
Waste and scrap is final product for Cenvat - As per Cenvat provisions, waste
or scrap is treated as a final product and its clearance is as if it is a final
product.
9.
9. 53
he cannot claim excise portion of All India duty drawback rate. However, he
can avail customs portion of duty drawback rate even if he avails Cenvat.
10.
11.
Supplementary Invoice
Bill of Entry
Challan of payment of tax where service tax is payable by other than input
service provider
9. 54
12.
Provisions for sending inputs / capital goods for job work/testing/repairs Provisions contained in Rule 4(5)(a) of Cenvat Credit Rules for this purpose
are as follows:
i) Removal for processing/test - The inputs / capital goods can be removed as
such or after partial processing to job worker for further processing, testing,
repairs, reconditioning or any other purpose.
ii) Goods should be returned to factory/premises of service provider - After
carrying out the operation/test/repair etc., the goods should be returned to the
factory or premises of service provider within 180 days. If these are not
received back within 180 days of their being sent out, manufacturer/service
provider should pay an amount equivalent to Cenvat credit attributable to
inputs / capital goods. Payment can be through Cenvat credit or PLA. If the
inputs / capital goods come back after 180 days (say after 220 days),
manufacturer/service provider can take Cenvat credit of duty paid by him.
13.
II. Record of inputs and capital goods - The manufacturer of final products or
provider of output service or input service distributor shall maintain proper
records for the receipt, disposal, consumption and inventory of the inputs and
capital goods. The record should contain relevant information regarding (a) value
(b) duty paid (c) the person from whom inputs / capital goods have been
procured.
Burden of proof regarding admissibility of Cenvat credit is on the manufacturer or
provider of output service taking the credit.
III. Record of input services The manufacturer of final products or the provider of
output service shall maintain proper records for receipt and consumption of the
input services. The record should contain relevant information regarding
(a) Value of service
(b) Tax paid
9. 55
Quarterly return by first stage/second stage dealer within 15 days from close
of quarter.
Half yearly return within one month from close of half year, by provider of
output services
Half yearly return within one month from close of half year, by Input Service
Distributor
9. 56
I.
Who is liable to
pay Service
Tax?
Provider of Services
Providing taxable services
in various sub-clause of
section 65 (105) of the
Finance Act, 1994
Recipient of Services
Liable to pay tax u/s.68(2) of
the Finance Act, 1994 read
with rule 2(1)(d) of Service
Tax Rules including importers
of services u/s.66A
Step 1.2
Step 1.3
Identify each service provided and received and make separate sheet for
every service provided and / or received for the purpose of service tax
return.
Step 1.4
Are you eligible for value based exemption (up to Rs.10 lacs in a financial
year w.e.f. 1.4.2008) and opting for the same.
Payment of service tax depends upon taxable event of the service provided
or received. Taxable event of any service is Service provided or to be
provided.
Though taxable event is Service provided or to be provided, yet liability to
pay tax arises on receipt of payment including advance (even before
rendering of service).
9. 57
Computer the gross amount of taxable services during the tax payment
period as per the Service Tax (Determination of Value) Rules, 2006.
Separate calculations shall be made for amount accrued and amount
received / paid during the tax payment period for the purposes of Service
Tax Return.
The value of consideration received (or paid in case of service receiver),
other than in the form of money, shall be estimated in its equivalent money
value.
Gross amount includes:
a) Amount towards exported service,
b) Amount towards exempted service (other than export), and
c) Amount received as pure agent.
Gross amount excludes:
a) Service tax
b) Education cess
c) Secondary and higher education cess, and
d) Any other amount in terms of rule 6(2) of the Valuation Rules, 2006.
Step 2.3
Compute the value of export of services (It is not applicable for importer of
services u/s.66A).
Step 2.4
9. 58
Step 2.5
Step 2.6
Step 2.7
Step 2.8
Repeat the step 2 in relation to every service provided and every service
received.
Compute the amount of service tax payable on the taxable value computed
in step 2.8.
Calculate tax at the prescribed rates:
General rate of tax 12%
Optional rates:
Step 3.2
9. 59
Step 3.3
Step 4.2
Reduce the amount of Cenvat credit in relation to capital goods, inputs and
input service.
The term inputs, capital goods, input services shall be understood as
defined in the Cenvat Credit Rules 2004.
Recipients and importers of services cannot avail Cenvat Credit for payment
of service tax. However, the service tax, so paid, can be availed against the
inability to pay service tax arisen from providing the output services.
Step 4.3
Reduce the amount of Self Adjustment of tax in accordance with Rule 6(3),
6(4A), 6(4B) and 6(4C) of the Service Tax Rules.
Step 4.4
9. 60
J.
CONTINGENT LIABILITY
1.
(a)
Contingent liability is a possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or non-occurrence of
one or more uncertain future events not only within the control of the enterprise;
or
A present obligation that arises from past events but is not recognised because:
(b)
3.
4.
5.
In extremely rare cases, disclosure of some or all of the information required can
be expected to prejudice seriously the position of the enterprise in a dispute with
other parties on the subject matter of contingent liability. In such cases, an
enterprise need not disclose the information, but should disclose the general
nature of the dispute, together with the fact that, and reason why, the information
has not been disclosed.
6.
(a)
(b)
(c)
(d)
(e)
9. 61
(f)
(g)
(h)
(i)
(j)
K.
b)
Once in a year
c)
Periodical returns
d)
Once in a year
e)
Annually
9. 62
9.9.
9.9.1
Introduction
The Cost Accounts Section is responsible for computation of cost of fertilizers
and industrial products manufactured in NFLs Units. The section also compares
the actual cost of production for a month with the standard cost, and
consumption of materials and services with the norms laid down by the
Management. The Cost sheet is a tool for analysing the profitability and
productivity of semi-finished and finished products in the Units.
9.9.2
1.
Check that "input and output statements" are being sent to HODs duly signed by
the person authorized by the Competent Authority in this behalf.
2.
Verify that salaries and wages are booked in the cost statements with reference
to the computerised department-wise analysis statement given by EDP
department.
3.
Verify the cost of raw material, utilities, stores consumed as shown in the cost
statements with reference to the input and output statements and issue notes as
given in the summary of issue notes received from the computer section. The
correctness of the prices may be verified/cross-checked from the priced stores
ledger.
4.
See that proper records are maintained showing various items of over-heads and
these have been analysed, classified and grouped into "Works, General
Administration and Selling and Distribution Overheads and properly allocated to
various products/utilities. Also ascertain that expenses such as insurance, rent
and rates etc. are properly allocated and included in the cost of production
statement.
5.
Check that depreciation and interest have been calculated on approved basis
and allocated in various cost centres/service centres in the prescribed proportion.
6.
7.
Ensure that periodically at the units level cost review meetings are conducted
and proper action as suggested in the meetings are implemented from time to
time to cut the cost of production.
9. 63
8.
Ensure that cost centre-wise accounts are prepared and tallied with the Main
Accounts Head (each plant) on quarterly basis.
9.
Verify that the costs of catalysts etc. are allocated to the finished products
depending upon their useful life by the constituted committee as approved by the
Management.
10.
See that cost of service departments has been properly allocated to various cost
centres in the approved proportions.
11.
Check that monthly variation (quantity and price-wise) statements have been
prepared to show variations between standard cost and actual cost and that
cause-wise analysis of variations is recorded with reference to norms of
consumption, production plan and budgeted expenses.
12.
Verify that the material at site account as indicated by the various plants is tallied
periodically with the books being maintained by the Accounts Section.
13.
See the 13th cost statement with reference to the basic documents and check the
reconciliation between the 13th cost statement and the Profit and Loss Accounts
for the year.
14.
15.
Verify that the quantity produced as shown in the stock Register maintained by
Production Department tallies with the figures mentioned in the Monthly
Management Report.
16.
See that the finished products and work in process (W-I-P) are valued, for the
preparation of Profit & Loss Account, as per the policy laid down by the
Management.
17.
9. 64
9.2.3
S. No.
1.
2.
9.10
Particulars
Extent of Checking
Twice a year
Annually
9.10.1 Introduction
Works Account Section is concerned with the payment to the contractors for
various Civil, Mechanical, Electrical Works and accounting thereof. This could
take the form of both Capital Expenditure (CAPEX) as well as Revenue
Expenditure (OPEX).
During the course of the contract, works accounts section exercises control over
the following activities.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
xiii.
Execution of works
Recording of measurements and standards of test checking
Preparation & checking of bills (R/A and final bills)
Advance payments
Payment to contractors/project management consultants/engineering
firms & architects
Payment for sub-standard work
Extra / substituted items
Escalation
Payment for secured advance, security deposit
Various statutory (TDS) and other deductions like Liquidated Damages,
non-conforming work etc.
Extension of time
Receipt consumption & control of materials
Completion and capitalization (in respect of capital expenditure)
9. 65
AWARD OF WORK
1.
Whether each work has been awarded on an approved estimate against budget
provision keeping in view the justification/necessity of jobs. Check that work
awarded is covered in the list of works to be awarded as per C.O. guidelines.
2.
3.
4.
Verify that tenders are called for in accordance with the prescribed procedure.
Further check that approved list of contractors has been prepared as per norms.
Check that all contracts have been awarded in accordance with company rules.
5.
Examine the comparative statement for its correct compilation. Check that major
contracts have not been extended time and again without following normal
tendering procedure.
6.
Verify that work has been awarded to the lowest tenderer, if not, justification for
awarding the work other than the lowest has been recorded and financial
concurrence/approval of the competent authority obtained.
7.
Check that in case of works like white washing, repair of roads, cleaning of ash
ponds etc. contracts are awarded as per prescribed time period norms.
8.
9.
10.
Check the bills for payment of technical fee, travel expenses of foreign experts
and baggage charges to ensure that they are correctly passed in accordance
with the provisions of the agreement or with the approval of competent authority.
9. 66
11.
Review that the tendering procedures and directives issued for the works
contract procedures are properly followed. Check that subsequent amendments,
if any, were imperative due to technical considerations of the design consultant
and additional financial implication, if any, has the financial concurrence and
approval of the competent authority.
12.
Test check completed works for detailed scrutiny. Correlate the expenditure with
the physical achievement and critically examine the reasonableness of the
expenditure. Significant deviations, if any, may be specially investigated.
B.
RECORDINGS OF MEASUREMENTS
1.
2.
Sketches are given for odd measurement, stone chips or moorum stacked and
measured.
3.
All measurement sheets are serially numbered and register thereof is maintained
for its control.
4.
Check that works are not got done in piece-meal violating delegation of powers
etc.
5.
C.
1.
2.
Bank guarantees - Bank guarantees are kept valid and there is a proper system
of watching the validity. Examine that validity of Bank Guarantees has been
extended in time, wherever necessary.
3.
Secured advance - Secured advance is paid only for non-perishable items and
against prescribed Indemnity Bond.
4.
Tax at source deductions - Income Tax and other statutory dues are deducted
at source before payments are released.
9. 67
D.
1.
Payments for all work done are made on the basis of measurements recorded in
the Measurement Sheets.
2.
Whether the measurements are test checked by a higher authority as per the
delegation of powers.
3.
E.
1.
2.
Test check the arithmetical accuracy of measurements to find out whether the
same are completely checked and correctly carried forward to the abstract.
3.
4.
Whether the measurements were test checked as required under the extant
rules.
5.
TDS - Check that income tax has been deducted at source and deposited as per
provisions of Income Tax Act. In addition, check for deduction of works contract
tax/sales tax/VAT and other statutory levies, wherever applicable.
6.
Extra Items - Review that the rates of extra items of work were analysed in
terms of work order and sanction of the competent authority obtained before
hand. Also check that an item admitted as an extra escalation item was not
actually covered by the scope of the contract.
7.
Verify that the basis for additional charges for an extra item is also in agreement
with contract provisions, paying particular attention to any overhead items that
might have been included as additional charges.
8.
Check the reasons for surplus materials procured on a project's account with
reference to laid down criteria and that they have been disposed off
expeditiously.
9. 68
9.
10.
11.
Rates of materials not provided in the contract - Also see that materials not
provided in the Contracts have not been issued to the contractors without
approval of the competent authority and that the rates for such materials have
been fixed in consultation with the Finance & Accounts Deptt.
12.
Work for which there is no authorized unit price - Verify that work, for which
there has been no authorised unit price, is not paid for by applying an arbitrary
rate. Also ensure that where there is (reduction in scope or work arising from
technical or other reasons, the value of contract is also reduced correspondingly.
13.
14.
15.
16.
Examine that the materials consumption statement submitted with each bill does
not show any excess consumption vis-a-vis estimates, all the materials issued
have been accounted for and that the surplus or salvages are duly returned and
accounted for.
17.
Verify that recoveries for any other facility/services rendered/stores and spares
issued to contractor etc. are duly effected as per the terms of the contract.
9. 69
F.
FINAL BILLS
1.
2.
Whether quantities of work done are as per approved work order and the work
has been competed within the time allowed.
3.
Whether 'item-wise deviation statement' for bills of quantity as per work order and
as per final bill has been prepared and justification for abnormal deviation has
been given? Also see whether revised estimate (in case of more than 10%
deviation) has been prepared and sanction of the competent authority has been
obtained.
4.
5.
Has the contractor accepted the measurements and the bill in full and final
settlement of all claims?
6.
7.
Whether "no demand certificates" are obtained from all concerned before release
of final payment? Completion certificate obtained from contractor
8.
Has the contractor returned all the empties, like cement bags, cut pieces and
scraps etc? If not whether the cost is recovered at agreed rates?
9.
Whether the total security deposit has been recovered as per the work order?
10.
Whether objections raised during the running bills have been cleared?
11.
Whether statement of stores issued and consumed have been prepared and
compared with the norms fixed for the purpose?
12.
Whether recovery at penal rate has been made for excess consumption of
cement, steel and other items provided in the contract.
13.
14.
9. 70
15.
Whether the contractor has vacated and handed over the company's land given
to him for use during execution of work.
G.
1.
Verify that changes of any sort, regardless of any size are recorded, approved by
the competent authority and documented before implementation.
2.
Check that there is proper justification for the variation/change. Under the
following circumstances changes to the baseline plan may be warranted and
justified.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
3.
Check numerical control exists over change request documents for motivating a
scope change and that the document describes the scope change proposed, list
of associated drawings and documents together with the reason for the change.
4.
Check that the request has been initiated by competent authority before
necessary action is taken.
5.
9. 71
6.
Check that a summary of all changes recorded and approved during the
implementation and execution of the project is maintained for effective project
control and monitoring and for promoting communication to those involved.
H.
1.
The amount due from the contractor has been recovered from the security deposit.
2.
Refund has been made strictly in terms of the provisions of the contract and the
refund has been made after obtaining "no claim/demand" certificate from the
contractor.
3.
I.
ABANDONMENT OF WORK
1.
Cases of works left incomplete by contractors and got completed at the risk and
cost of the defaulting contractor should be examined thoroughly.
J.
OTHER ITEMS
1.
Check that bank guarantees are kept validated and claims, if any, are
lodged/settled before their expiry.
2.
Verify that the information received from other sections for effecting recoveries
e.g. medical charges, rent, electricity, etc. from contractors is being recovered
and adjusted.
3.
Verify that the list of pending final bills is being prepared periodically and pursued
with the respective departmental heads for information and final settlement.
4.
9. 72
K.
1.
Test check entries in contractors ledger and works register to see that these are
correct and records are up to date.
2.
For departmental work, verify that proper records of materials and labour are
maintained.
3.
Check the following for purpose of quarterly and yearly closing of accounts:
i.
ii.
iii.
iv.
v.
vi.
4.
That running and final payment of each work along with the departmental cost
incurred, if any, are recorded work-wise in a 'work-in-progress ledger' and cost
ledger' to the Asset A/c as and when finally completed, as per norms fixed from
time to time.
L.
CAPITALISATION OF EXPENDITURE
Internal Audit shall check the following:
1.
2.
9. 73
3.
If project estimate is revised during the year, see that the adjustments to
capitalized value of Plant & Machinery have been carried out as per the
prescribed procedure.
4.
5.
Check whether there are instances where expenses, which should have been
rightly booked to repairs and maintenance but have been booked to the project,
account and vice-versa. (This can especially occur in the case of projects
executed departmentally where major repair and maintenance work is running
concurrently with the project).
6.
Check that the expenditure on completed or partly completed projects has been
correctly capitalised, considering different contractors for equipment supply, civil
work, erection etc. from the date of putting the assets into use after the same has
been determined with proper approval.
M.
9. 74
9. 75
C
D
E
9.11
100%
9.11.1 Introduction
The internal audit of the Establishment Section mainly consists of the
examination, scrutiny and review of the following categories of bills;
i.
ii.
Overtime payment
iii.
TA Bills
iv.
v.
LTC Claims
vi.
Reimbursement of LTE
vii.
viii.
ix.
x.
9. 76
PAY BILLS
Besides the detailed scrutiny of pay bills for the selected month, the following
additional checks may be exercised:
1.
Check the input data for preparation of the salary bill, the controls and checks in
force to prevent double/wrong payments.
2.
Review the procedural instructions and confirm that they broadly cover
adequately the processes and controls expected for the system.
3.
4.
Test check the absentee reports with the computerized attendance records/time
cards.
5.
Check that all statutory deductions such as provident fund, income tax and other
recoveries i.e. Life Insurance premium, house rent, water and electricity charges,
conveyance/house building/household/other advances, if any, are made regularly
in such manner and at such rates as are prescribed under the relevant
rules/orders and there are no abnormal delays in affecting recoveries.
6.
Review the control on unpaid wages. Are such amounts recorded separately in a
register? Ensure that payments from unpaid amounts are properly authorized
and that there is an effective system of preparing separate vouchers for
payments against unpaid amounts and cross-referencing the same in the register
of Unpaid Wages to prevent any double payment.
7.
Verify that unpaid wages as per the Register is reconciled to the control account
periodically.
8.
Check whether the house rent allowance is paid after due verification of the
house rent receipts as required under the rules.
9.
Check that recoveries from the employees for whom accommodation has been
taken on lease/tripartite basis are correctly made.
10.
9. 77
11.
Review that the men in position have not exceeded the total sanctioned strength.
12.
Examine the last payroll or employee listing, which was checked by departments
and confirm that it evidences that the validity of the listed employees was
checked.
13.
Select a sample new start on a random basis from payroll output and confirm that
a properly authorised notification of appointment was received.
14.
Select a sample of a few bank detail amendments from payroll output. Ensure
that written notifications were received and that the payroll change matches the
notification.
15.
Select a sample of leavers on a random basis and ensure there is evidence that
pay staff/time office confirmed their timeous removal from the payroll.
16.
Select a sample of new starts /leavers and ensure there is evidence that each
has been checked to authorised source documents by officers independent of
processing staff.
17.
18.
19.
B.
OVER-TIME PAYMENT
1.
Verify that the overtime paid is duly sanctioned by the Competent Authority and
is in accordance with the rules in force.
2.
Vet the basis of overtime hours with relevant records and the hourly rate.
3.
Ensure that the statutory limit of number of hours for a worker is not exceeded
and where this has happened, the matter has been reported to the appropriate
authority and approval obtained.
9. 78
4.
5.
6.
7.
Check that Revenue Budget of Overtime is not exceeded during the year and
approval of CMD is obtained in case the same exceeds the budget provision.
C.
1.
Check that travelling advance is paid only on sanction by the competent authority
and the amount paid is duly posted in the TA advance ledger.
2.
Verify that second advance is not paid unless TA bill against the first advance
has been submitted.
3.
Examine if any T A advance has remained outstanding for an unduly long period.
Comment on old outstanding TA advances.
4.
5.
Check entitlement, Railway Fare, DA etc. and verify whether Railway Ticket
number has been recorded in the TA Bills. Where the journey is undertaken by
bus verify whether bus tickets are attached with the vouchers.
6.
Ascertain that tour programmes were got approved by the Competent Authority
before undertaking the tour.
7.
8.
9.
9. 79
10.
11.
Ascertain that no DA/ Lodging charges are paid for leave period during the tour.
12.
Check that Lodging charges are paid as per entitlement of Star category of hotel
/ ceiling limit of non-star hotel or guesthouse.
D.
1.
Ensure that the employee has completed one-year continuous service on the
date of commencement of journey.
2.
Verify the required option for availing the LTC either on actual or encashment.
E.
1.
2.
Report cases where the employee is paid LTE / used Company's vehicle for
official journeys within a radius of 10 Kms.
F.
ENCASHMENT OF LEAVE
1.
Check that encashment of earned leave is not allowed more than twice in a year.
2.
Ascertain that encashment of earned leave less than 15 days is not granted.
3.
Ensure that encashment of leave is granted for not more than 50% of the leave
balance as on 1st January subject to a minimum balance of 30 days (except on
cessation of employment).
G.
HOUSE BUILDING
ADVANCE ETC.
1.
CONVEYANCE /
9. 80
2.
3.
4.
5.
6.
Check that personal ledger account for each employee is maintained for control
purposes and the balances are reconciled with the General/Central Ledger.
7.
Ensure that all prescribed conditions for the grant of above advances are fulfilled.
8.
H.
1.
Verify that the statutory bonus has been paid only to those employees whose
monthly pay including dearness allowance (VDA) does not exceed Rs. 10,000/-.
2.
Check that bonus has been calculated at the prescribed percentage rate on the
pay (including dearness allowance) limiting the same to Rs. 3,500/- p.m. (i.e. the
amount of bonus does not exceed Rs.3,500/- per annum if the bonus declared is
8.33%).
3.
4.
Check that production / profit linked incentive for workers and officers
respectively have been calculated based on the relative factors as laid down in
the schemes notified on 22nd December 2000 as amended from time to time.
I.
1.
J.
1.
9. 81
50%
45%
40%
Check that payment of entitled perks and allowances w.e.f. 1.4.2000 is as under
and does not exceed the following limits:
Sl.No.
1
2
3
4
5
6
4.
Education/Transport
Check the perks as percentage of Basic Pay are further restricted as follows:
(i)
(ii)
(iii)
3.
and
Reimbursement of expenses
LTC
Local transport conveyance /
reimbursement
Canteen Tea, snacks & lunch coupons
Kit maintenance
Professional journal / periodicals
Education / Transport facility
Total
Workmen
14%
12%
Executives
14%
12%
10%
8%
4%
2%
50%
8%
8%
4%
4%
50%
b)
Dust Allowances
c)
d)
e)
f)
g)
h)
9. 82
i)
5.
Check that perks listed in the above para 2 & 3 are not calculated/paid to
PP/PP/SP/INPA etc.
6.
Check that perks listed at above referred para are paid on reduced Basic Pay if
reduced due to HPL, EOL and absence etc.
7.
Check that perks listed at above referred para are not paid during suspension
period except Education/Transport facility to be calculated on subsistence
allowance.
8.
Particulars
Salary bills
Extent of Checking
One months bill in each year
Overtime payments
TA bills
4
5
Reimbursement of LTE
Encashment of leave
8
9
25%
10
Statutory bonus
10%
11
12
Incentive
Final settlements
50%
9. 83
9.12
9.12.1 Introduction
Provident Fund Accounts Section is responsible for the efficient maintenance of
Provident Fund Accounts of the employees of the company and the timely
remittance of the recoveries relating to Employee's Pension to the appropriate
Government authority. The section also deals with the investment of the
Provident Fund accumulations in various securities etc. as prescribed by the
Government of India from time to time as well as the payment of refundable/nonrefundable advances to the members of the Provident Fund as per the rules laid
down in this regard.
9.12.2 Audit guidelines / checklist
The checklist given below is accordingly designed for conducting the internal
audit of this Section:
A.
PROVIDENT FUND
1.
2.
Ascertain that Company's contribution has been correctly worked out and
credited to the members' account.
3.
Check that the interest has been allowed at the rate as approved by the Central
Board of Trustees of the National Employees Provident Fund. Also test check
calculation of PF interest periodically.
4.
Examine the file/register of the nominations to see that the nominations on the
prescribed form have been made by all the members in time and accepted by the
competent authority in accordance with the rules. Also ensure that the
nomination forms are kept in safe custody.
5.
Check that the refundable / non-refundable loans to the employees have been
sanctioned in accordance with the rules and regulations and prompt advices sent
to the Establishment Account Section (Personnel Accounts Branch) so that there
is no delay in the recovery of the instalments and interest etc.
6.
9. 84
7.
Review the LIC policies of the employees financed out of their Provident Fund to
see that policies stand duly assigned in favour of National Fertilizers Employees
Provident Fund and the premiums are being regularly remitted to LIC.
8.
9.
Physically verify the securities; if they are with the bankers, obtain a certificate
giving in details all the necessary particulars of the securities.
10.
11.
12.
Scrutinize the inspection charges paid to the Government to ensure that the
same are correct and have been paid in time.
13.
Verify that proper returns have been submitted in time to the Provident Fund
Commissioner/other prescribed authorities and the information given therein is
correct and complete.
14.
9. 85
15.
Examine the minutes of the meetings of the Board of Trustees and verify whether
action has been taken as per decisions taken by the Board of Trustees.
16.
Review the bank book of the National Fertilizer Employees Provident Fund with
reference to the payments authorized and the receipts of contributions etc. and
also ensure that the balances as per bank book and bank account have been
regularly reconciled.
17.
Scrutinize the interest accrued account to ensure that the interest amounts
accrued on the various investments have been realized timely.
B.
1.
Verify that employees who have become members of Provident Fund Scheme on
or after 16.11.1995 have been taken as members of the Employees Pension
Scheme.
2.
3.
Check that contributions are correctly calculated and recovered from all the
employees who are members of the Pension Scheme.
4.
See whether the records required to be kept as per Employees Pension Scheme,
1995 are properly maintained and all the prescribed returns are being submitted
to the Provident Fund Commissioner in time.
5.
6.
Verify that transfer cases of Employees Pension Scheme from other regional
offices are expeditiously made and review status of pending cases.
9. 86
9.12.3 QUANTUM
1.
2.
3.
4.
5.
6.
7.
9. 87
CHAPTER 10
10.1
Introduction
Capital Expenditure at National Fertilisers Ltd. encompasses outlays on the
following;
Concept Capture,
Clarification of purpose,
Concept elaboration,
Concept evaluation.
Capital Expenditure
10.1
Clearances
clearances.
Capital Expenditure
Obtaining
environment,
pollution
and
other
statutory
10.2
10.3
The internal auditors responsible for conducting the review should familiarise
themselves with all the above-mentioned phases of a project, prior to commencing the
audit. The auditors will note down all weaknesses, risk and control issues that may have
surfaced. Particular attention will be give to
Feasibility studies report and the detailed project report, the capital and
operating cost estimates, scope of work, contract specifications, cost benefit
analysis, etc. contained therein.
The method of recording the cost over-runs under-runs and the immediate
reflection of the same in the estimated cost on a component-wise basis and
the methods and controls used to contain costs over-runs/under-runs within
the overall sanctioned project cost.
WORKING PAPERS
In order to develop the audit programme in a systematic manner and keeping in
aspects of materiality in the area of Capex the working papers should be set up
separately for each project to be examined and these should contain the
following information.
i.
ii.
Capital Expenditure
Project Ref.
Type of Work (Modification, Replacement, Additions, New P&M)
10.3
iii.
iv.
v.
vi.
vii.
viii.
ix.
Type of Contract i.e. Item Rate, Lump Sum, Cost Plus etc
Original contract prices and subsequent increases as may have been
authorised due to change in scope of work, escalations etc. with brief
description.
Stipulated completion date and extension of time granted.
Amounts authorized against various components.
Amount expended and committed to date against various
components.
Particulars of major vendors, contractors, sub-contractors.
Purchase order number references, work order nos. etc.
Internal audit should thereafter proceed in accordance with the guidelines and
check-lists delineated in the succeeding paragraphs.
10.4
The approved procedures for establishing the need for the Capex project as also
for carrying out detailed work thereon are being adhered to.
2.
The projects are classified according to their respective types i.e. additions,
modifications, replacements, etc. in line with the Capital Budget/Annual/ Long
term Plan.
3.
The project estimates are specific and detailed enough with regard to aspects
such as;
Capital Expenditure
10.4
source
of
financing
foreign
exchange
4.
5.
Estimates are in sufficient detail for facilitating planning and control processes.
Abnormal increases/deviations in the physical components of an estimate and
extra items arising during execution should be examined in depth along with the
original estimates/tenders as.
6.
7.
The outlays on the project which are to be charged off to revenue /deferred
revenue, if any, are separated from those to be capitalised with justification for
charging the expenditure to revenue/ deferred revenue as the case may be. This
is particularly important in the case of replacement /modification type projects.
2.
Time taken in inviting bids and finalising the contracts for the jobs to be executed
and equipment and supplies to be procured was according to bar charts and time
schedules as have been approved.
3.
Capital Expenditure
10.5
5.
6.
The relevant contract documents clearly define the terms of preliminary and final
acceptance, quality of work, performance requirements, penalties for shortfall in
performance, etc.
7.
The purchase orders/work orders etc. have been issued in the prescribed
formats. In the case of additions to/ deletions of any standard terms and
conditions, check that justification for the same was recorded and approved by
the competent authority in consultation with Finance and Legal Departments.
8.
9.
Capital Expenditure
10.6
the
the
the
the
2.
Verify that projects / jobs are not undertaken before the sanctioning of the
scheme.
3.
Examine the constraints that have been experienced which have hindered timely
completion of projects and verify whether timely and adequate action has been
taken to overcome the same. Highlight and report losses due to time over-runs.
4.
Check that where premium costs are authorised for acceleration of work (e.g.
airlifting of equipment etc. instead of surface transportation as specified in the
original contract) the contractor is not reimbursed for inefficiency or negligence
on his part.
5.
6.
Are various techniques e.g. CPM, PERT, PM Software etc. being used and kept
updated for control purposes and timely corrective measures taken in respect of
critical activities, in case of slippages in the project.
7.
Determine that the status and control and other MIS reports submitted to
management are timely and reasonably accurate.
8.
Analyse the reasons for abandoning any project/scheme and examine the
treatment of expenditure on it in accounts. Highlight and report on the cost of
abandonment to the company giving justification thereof.
9.
Check that storage and erection insurance cover is adequate and valid.
10.
CAPEX MIS REPORTS With regard to MIS reports internal audit will verify
that Reports highlight and pinpoint root causes of deficiencies instead of only
broadly stating reasons. Recommendations regarding possible preventive /
corrective action are also stated for managements consideration;
Capital Expenditure
10.7
The escalation formula is specific and unambiguous. The base indices for labour,
material etc. and linkages with statutory levies have been clearly defined and the
same are based on scientific study and methods and not on ad-hoc basis.
2.
The contracts clearly provide that no escalation will be payable due to extension
of time if the delay is attributable to the contractor.
3.
Check adherence to the contract clauses for trial runs for important components,
assemblies and sub-assemblies so that the stipulated capacity is operationally
achievable.
2.
3.
Verify that the operation and commissioning and insurance spares received
along with the equipment are accounted for properly.
Capital Expenditure
10.8
10.4.6 ACCEPTANCE
1.
Check that the preliminary and final acceptances are in accordance with all
contractual terms. Examine the observations, if any, in respect of qualified
acceptance (these are significantly important in the event of subsequent
malfunctioning or non-performance of the equipment! facilities and claims for
damages arising there from).
2.
Verify that the warranties contained in the contract document have been duly
fulfilled in case of completed works where warranty period has expired.
Capital Expenditure
10.9
Also compare the estimates of time, cost, physical and financial benefits with
the actual achievements and that they bring out reasons for major variations,
if any.
4. The closeout report evaluates the performance of the current project against
the project objectives along with recommendations for future projects. In
addition the close out report may also contain a compilation of historical data
from previous projects, if any, and the current project to predict trends and
problem areas on the current project.
5. Document any learning experiences so as to make use of lessons learnt from
the post completion reviews, in future audits.
10.5
100%
50%
25%
10%
5%
Capital Expenditure
10.10
CHAPTER 11
11.1
INTRODUCTION
These Departments look after the work of general administration, recruitment,
personnel policies, schools, canteens, guest houses, hospital and welfare
activities of the company The following checks will be exercised while conducting
the audit of the Personnel Dept. Audit checks with regard to Guest House,
Township, Schools and welfare activities are covered in the Chapter Township
Administration.
11.2
1.
Where payment of electricity and water bills, telephone bills etc are controlled by
Administration Dept. ascertain whether:
(a) Proper registers are maintained and entries are recorded therein as and
when bills are passed for payment and forwarded to Accounts Dept. so as to
guard against duplicate payments.
(b) Meter readings are got verified and in case of telephone bills they are got
verified by the officers concerned before bills are passed for payment.
Actuals are compared with the budgets.
(c) Officers certifying the telephone bills maintain suitable records of STD calls
made by them for official/private purposes.
2.
11. 1
4.
11.3
PERSONNEL DEPARTMENT
1.
Check that recruitment is made against sanctioned posts only and periodical
review is undertaken for posts not filled up for a long time and action is taken to
surrender the posts.
2.
(a) Check if certain jobs have been given on contract even though manpower has
been assigned in the set up.
11. 2
(b) Check if all statutory stipulations in regard to contract labour are being
adhered to e.g. P.F. Deduction, ESI etc.
3.
4.
Check that in case of trainees, service bonds in the prescribed form are obtained
promptly and cost of training is recovered from trainees who discontinue their
training.
a) Check manpower productivity every quarter in respect of production and
sales and examine reasons for increasing/decreasing trends.
b) Check if recruitment, mandatory as per Govt. regulations ratio is not resulting
in over staffing and not affecting the manpower productivity.
c) Check if final settlement of retiring /resigning employees are made within a
reasonable time and there is a safeguard of having sureties at the stage of
final settlement.
d) Checking of statutory reports being sent to State Govt./Central Govt./Labour
Commissioner as per guidelines of Dept. of Personnel / labour, of the
respective State/Central Govt. Office where the particular plant/office
including Area Office is located and also to examine if the same are being
sent as per schedule.
e) Check if Joint Management Committee/Works committee meeting is as per
laid down procedure and follow up action on the approved minutes is taken.
f)
6.
Examine the personal files to see that they area) Properly maintained and all information relating to employees' date of birth,
date of appointment, home-town etc. are recorded therein
b) Updated family particulars, nomination forms for gratuity, pension etc. have
been obtained wherever necessary.
11. 3
c) All events during the employment of the individual like revision of pay,
promotion, increments, suspension, EOL, break in service if any, etc are
available in the Personal tiles.
d) See that abstract sheet is updated from the master files.
11.4
LEAVE ACCOUNTING
1.
Check whether leave account of each employee has been maintained up to date
and correctly as per rules of the Company.
2.
Check whether grant of maternity leave, CSL, Extra Ordinary leave etc. are in
accordance with the rules of the Company and are correctly recorded.
3.
4.
Check that leave encashment has been allowed as per rules i.e. (a) Not more
than twice in a year (b) Not for less than 15 days (c) Not more than 50% of leave
to the credit of employee as on 1st January subject to a balance of 30 days etc.
5.
Check that casual leave has not been combined with any other type of leave.
6.
Check that effect of EOL has been taken for deferment of increment, promotion
etc. as per company rules.
7.
Check that credit has not been given to the employee for HPL for the period of
the absence of the employee.
11.5
1.
Verify that the advance for medical expenses is paid on the recommendations of
the authorized medical attendant.
2.
3.
Check that the bills for reimbursement are duly supported with Doctor's
prescription and cash memo etc.
4.
Test check the admissibility of medicines and other expenses as per rules of the
Company.
5.
11. 4
6.
In case of claims for dependants, check the list of dependants with the records
maintained by the Personnel Dept.
7.
Ensure that room charges, diet charges, etc. have been correctly reimbursed.
8.
Verify that medical reimbursement bills are processed within reasonable time and
outstanding advance, if any, is refunded forthwith.
9.
Where both husband and wife are employed in NFL/other organization, verify
whether the person (i.e. husband or wife) preferring the bill entitled to claim
reimbursement in terms of a valid option exercised for the purpose.
11.6
1. Administration Department
Once in a year
2. Personnel Department
Once in a year
3. Leave Accounts
4. Contracts
Once in a year
11. 5
CHAPTER 12
12.1
Introduction
Stress should be given on developing and maintaining safety as regular working
culture.
12.2
1.
Check that the system of on-line monitoring of ambient air in the plants is
recorded and counter checked by taking samples/dragger tube.
2.
Check that unsafe areas, improper working conditions/ practices are pointed out
and action taken on them.
3.
4.
Ascertain that persons are repeatedly given regular training/practice to use the
above-mentioned equipment.
5.
Verify that regular checks are made on the working of eye showers etc.
6.
Check that working persons use hand gloves/helmets earplugs etc. whenever
and wherever required.
7.
8.
Check that Emergency Disaster Plan (EDP) is in order and mock drills are
conducted for updating.
9.
Ensure that an effective system exists to record the functioning of pillboxes and
local alarm systems.
10.
11.
12. 1
12.
Check that an effective system exists for remote area alarms at places like lift,
railway siding etc. Check that fire extinguishers are tested as per procedure.
Ascertain that right types of extinguishers are placed at various locations.
13.
Check the availability of First Aid Safety Boxes at all necessary locations.
14.
15.
12.3
PERIODICITY
Internal Audit will verify that the above checks are in place on yearly basis.
12. 2
CHAPTER 13
MATERIALS MANAGEMENT
13.
PURCHASES
13.1
Introduction
Materials Management Department is responsible for the timely procurement of
material, components etc. in the required quantity and quality both from within
and outside the country at most economical rates.
13.2
To evaluate and select vendors on the basis of their ability to supply materials
and services as per the specified requirements,
Materials Management
13. 1
13.3
1.
Selection of New Vendors - Verify that new vendors are selected considering
various factors viz. financial resources, infrastructure, technical competence,
quality control and inspection facilities, ISO certification, and customer base.
Bankers report where feasible may be obtained and kept on record. Copies of
the vendors bank statements, VAT/ST Returns, Income Tax Returns etc. if
available may be examined to assess the financial position of the vendor.
2.
3.
4.
5.
Indents for Proprietary Items & Capital Items Verify that indents for
proprietary items have been approved by the competent authority certifying that
the proprietary items have to be purchased from the manufacturers/suppliers
mentioned in the indent. See that budget provision is available.
Capital Items - Indents for capital items have been raised only after prior
financial concurrence and approval of competent authority and budgetary
provision.
6.
Tenders - Examine that open tenders, limited tenders, single tenders have been
invited as per purchase procedure and tenders were opened by a committee
consisting of representatives of Material Department and Finance Dept. in the
presence of tenderers.
Materials Management
13. 2
7.
EM Deposit - That the Earnest money was deposited by the tenderers invariably
along with the tender as per NIT.
8.
9.
Award to lowest tenderer - Ascertain that the contract/work was allotted to the
lowest tenderer and if not, the reasons for ignoring the lowest quotation have
been recorded in detail in writing and got approved by the competent authority.
10.
Vetting POs - Check that the purchase order has been properly and thoroughly
vetted and placed by an authority delegated with powers to do so. In case a
technical evaluation is required to be undertaken ensure that this has been
done.
11.
Terms of supply - See that terms of the supply are not disadvantageous to the
company.
12.
Repeat Orders - Verify that repeat orders have been placed after following the
proper purchase procedure.
13.
14.
Lead time -Ascertain the lead time for processing the order and examine
whether in any case there has been any unreasonable delay. Review the
procedure to see whether internal lead time can be reduced.
15.
16.
BGs for advance payments - See that advance payment, to any party except a
PSU, have not been agreed without obtaining a bank guarantee for equivalent
amount from a Nationalised / Scheduled Bank.
17.
Materials Management
13. 3
could not have been predicted under normal circumstances. It should also be
ensured that approval of competent authority is taken for emergency purchases.
18.
Check if limited tender enquiry in lieu of press tender has the approval of the
Competent Authority.
19.
20.
As per guidelines of CVC negotiations can only be held with the lowest tenderer.
See if the lowest tenderer has executed the order in line with the negotiations
which enabled the party to get the order.
Materials Management
13. 4
13.4
3
13.5
10%
20%
30%
25%
50%
Once in a year
Check if wagons are getting unloaded within the free time allowed for
different types of wagons. Whether system for expected date/time of rake is
known to the Rail Transport Department to line up the resources in
advance.
2.
3.
Check the Contract for transportation of Urea by road for timely award and
compliance to the procedures.
4.
Check the claims on Railways for excess freight, under loading, missing /
diverted wagons for coal and oil and follow up/settlement there of.
5.
6.
7.
Check if Advance for PLA Account is as per forecasted sales and funds are
not unnecessarily blocked with Excise Authorities.
8.
Materials Management
13. 5
13.6
9.
10.
Contracts
100%
Cases of demurrage
Checking of wagons
Other items
Once in a year
Materials Management
13. 6
CHAPTER 14
STORES
14.1
14.2
1.
2.
Goods Inward Register - Ascertain that the Goods Inward Register has been
maintained properly and kept up to date.
3.
Timely Delivery - See that Delivery of all incoming consignments have been
taken from Railways / Road Transporters without incurring demurrage, wharfage
Stores
14. 1
etc. by the Stores Dept. and discrepancies, if any, noticed have been dealt with
in accordance with the procedure for lodging of claims with the insurance
Company / Railways etc.
4.
5.
Bin-cards - Verify that receipt, issue and balance are shown correctly in the Bincards after every transaction and the balance in the Bin card is periodically tallied
with physical balance of each item.
6.
7.
Check that the stock in hand in case of raw-material is commensurate with the
normal consumption.
8.
Check the accuracy of Stores receipt vouchers keeping in view the receipt of
material vis-a-vis stipulations in the purchase order.
9.
10.
Surplus Inventory - Check surplus inventory of Stores and progress made for its
disposal.
11.
Stores
Nature of
Inventory
Non moving
Slow Moving
Moving
14. 2
13.
Procedures in the Stores Manual Ensure that the procedures provided in the
Stores Manual are followed while sending material to fabricators for repairs and
maintenance. Also ensure that all important control procedures laid down in the
stores manual are adhered to.
14.
To check that sale of scrap is effected as early as possible within one year to
avoid deterioration of quality of material and loss of interest on sale value.
16.
Testing empty urea bags - Testing of empty urea bags on random basis is done
as per audit program.
17.
Procedure for rejecting bags - Verify from the records that procedure for
rejection of bags is strictly followed and supplier lifts the ruptured bags from NFL
units within stipulated date of sending information to this effect.
18.
19.
Stores
14. 3
14.3
Stores
10%
30%
50%
Once in a year
Quarterly
Stores Inventory
Once in a year
Other items
Once in a year
14. 4
CHAPTER 15
MARKETING FUNCTIONS
15.1
INTRODUCTION
Well-defined systems and procedures aimed at clarity of the role, responsibility
and accountability of all concerned contributes a great deal towards overall
marketing operational efficiency.
In order to achieve the objectives mentioned above, the following points should
be checked/examined/reviewed while conducting the audit of marketing
functions.
15.2
1.
Survey - Regular survey has been carried out to assess the market potential of
the concerned market centre / Mandi.
2.
3.
Wide circulation of vacancy for dealership - Vacancy for dealership has been
widely circulated in the surveyed area.
4.
5.
6.
7.
Marketing Functions
15. 1
8.
9.
In Areas where dealership does not exist but ECA allocation has been
received.
(ii)
To liquidate the stocks where existing dealers are not forthcoming to take
up the responsibility.
(iii)
(iv)
(v)
To ensure if all guidelines for ad-hoc appointment have been adhered to.
(vi)
To ensure that ad-hoc dealers do not continue for more than 12 months
from date of appointment.
(vii)
10.
11.
Up-to-date list of Ad-hoc dealers at Area Offices - See that Area Office is
maintaining an up to date list of black listed dealers. Terminated/debarred
dealers are not to be given fresh/ad-hoc or probationary dealership.
15.3
1.
Signing of credit applications - Credit application form has been signed by all
the partners of the firm, and by the Managing Director along with a copy of Board
resolution authorizing the Institution to draw the supplies on credit in case of
Corporate Bodies.
Marketing Functions
15. 2
2.
Certified copy of registered partnership deed has been submitted along with the
application. Internal auditor shall also check-up that in the marketing manual,
there is a provision about any changes in the Partnership Deed to be intimated to
NFL immediately duly signed by the Managing Partner and in case there is no
Managing Partner, by all the Partners, failing which, it may invite termination of
dealership. There should be another provision in the Marketing Manual that
within one week after financial year closing, a declaration is taken duly signed by
the Managing Partner and in his absence by all the Partners that there is no
change in the Partnership Deed. In case of change, fresh deed of partnership is
to be submitted.
3.
4.
5.
6.
Effective tracking of expiry dates of Bank Guarantees / Letters of Credit Whether system exists for keeping track of expiry date of BG/LC & claims (if any)
are preferred within the stipulated period.
15.4
1.
2.
NIT to be issued to per qualified parties - The NIT for H&T contract has been
issued to pre-qualified parties after the due approval of GM (Mktg.)/Marketing Incharge.
3.
i)
EMD
Marketing Functions
15. 3
ii)
Certificate of experience
iii)
iv)
v)
vi)
vii)
Income Tax Returns for the last 3 years and income tax clearance certificate.
viii)
Certificate from the Bank confirming financial status of the party and to extend
working capital facility.
have been submitted by the tenderer.
4.
5.
6.
7.
8.
9.
10.
11.
Material from rake point to dealer is not unjustifiably routed through warehouse.
Marketing Functions
15. 4
12.
Movement of material to be strictly as per least cost movement plan Movement of material from Unit to rake point, Unit to Mandi, Unit to warehouse,
rake point to warehouse, rake point to dealer and warehouse to dealer is strictly
as per the least cost movement plan duly approved by Competent Authority.
13.
14.
Validity of H&T contract not to exceed one year - Validity of H&T contract
does not exceed one year. Extension, if any, is allowed on the same terms and
conditions for one more year on the proposal of Area Manager.
15.
Validity of Ad hoc H&T contracts - To see that efforts are made to avoid
awarding of Ad-hoc Contracts. In any case such contracts are to be valid only
for the period specified as prescribed in Companys policy.
16.
15.5
1.
2.
3.
Warehouses appearing on the hired list of Marketing Offices are actually hired.
4.
5.
6.
Marketing Functions
15. 5
7.
Materials in warehouses to be fully insured and issued on FIFO basis Materials stored in warehouses are fully insured and material issued on First in
First out basis (FIFO)
8.
9.
10.
11.
Surprise checks of private godowns - See that surprise checking of the private
godowns is being done by the constituted committee.
12.
Receipt and disposal reports - Warehouses are sending receipt and disposal
reports (R&D) regularly every month.
13.
14.
15.
16.
17.
Whether proper procedure has been laid down in case warehouse operator has
also been assigned the role of H&T Contractor.
15.6
1.
Marketing Functions
15. 6
2.
Delivery orders must contain sale terms - Check if Delivery orders contain the
sale terms approved by Competent Authority and within the validity period.
3.
It is to be verified that i)
Delivery Orders (DO) are in line with despatch instructions (DI) and sales
terms.
ii)
The Cash receipt voucher (CRV) has been raised with reference to Delivery
Orders (DO) and sales terms.
iii)
iv)
v)
Letter of Credit is opened strictly as per the terms and conditions settled by
NFL with foreign vendor.
vi)
vii)
15.7
1.
Recording Input documents - Check if all input documents are recorded by the
Computer Services. Cancelled pre-numbered documents should also be entered
to run validity check by Auditors.
2.
3.
Interest - Check interest chargeable (if any) from the customers is charged
4.
5.
6.
Examination of the Dealer Master - Check on random basis Dealer Master for
Type of Party, Duplication of Party Code, Credit limit etc.
Marketing Functions
15. 7
Records
It is to be verified that -
15.8
i)
ii)
iii)
1.
2.
3.
4.
5.
Validity of P.G. Bond - P G Bond received from supplier should be valid for 90
days enforceable till six months after its effective date and is strictly as per (he
approved proforma supplied by the company to safeguard the interest of the
company.
Marketing Functions
15. 8
6.
7.
8.
Import Contracts - Check that the import contract is duly approved and covers
all the vital terms & conditions governing the supply/ purchase arrangements
between buyer & seller.
9.
10.
11.
12.
Marketing Functions
15. 9
CHAPTER 16
16.1
INTRODUCTION
Township administration including guest house is essentially a service
department. The internal audit should exercise all normal financial checks on
their activities as would be applicable in the case of a service department. The
audit check list below highlights all important checks necessary for an effective
internal audit of this function.
16.2
TOWNSHIP ADMINISTRATION
Audit Guidelines / Checklist
Township administration is basically a service department. The internal audit
should exercise normal financial checks on their activities.
1.
2.
Audit the records of land procured, source of procurement (i.e. rented land from
Govt/land from individuals etc.) rates and values of land procured with reference
to original documents like deeds/ intimation from Collectorate etc.
3.
4.
16. 1
5.
Out of turn allotments - Check and review out of turn allotments of houses
and see whether such allotments are in conformity with the relevant rules and
regulations.
6.
7.
Audit of the billing system of recoverable from outsiders - Audit the billing
system for recoverable from outsiders in respect of land/ buildings
/quarters/shops etc. allotted to them. Test check documents in respect of
recoveries for two months with reference to the lease agreements/rules of the
company to verify the following:
16. 2
Rent and other charges are being assessed and recovered correctly in all
cases.
8.
Appraise the system for raising bills for electricity consumed by employees and
outsiders.
9.
10.
11.
12.
13.
Fixation of rent for new construction and revision of rent - An overall review
of computation of fixation of rent for new construction or revision of the same for
old buildings.
14.
Review of the computation of charges for services which do not pay for itself
should be carried out by the internal auditor.
15.
16.
16. 3
16.3
TOWNSHIP MAINTENANCE
Audit Guidelines / Checklist
1.
Major contracts / work orders - Review award and operation of major contracts
/ work orders to outside agencies for township maintenance, in particular to those
awarded without financial concurrence, if any. Also examine as to why the work
could not be done departmentally.
2.
3.
Stores - Check the accounts of stores for important items like cement, steel,
bricks and costly electrical and mechanical items. Undertake surprise physical
verification of some of these items. Examine cases of shortages, if any.
4.
Issue and Consumption of Stores - Check the issue and consumption of stores
to contractors.
5.
6.
7.
Examine the records of issued and returned tools etc. and check entries in the
relevant register maintained for this purpose.
8.
9.
10.
11.
Collectibles - Review all outstanding recoverable on this account and see that
adequate action has been taken for recovery.
12.
Imprest Accounts - Check the imprest account and temporary advances and
reports cases of non-adjustments or where there have been unreasonable
delays.
16. 4
13.
16.4
TOWNSHIP INCOME
Audit Guidelines / Checklist
Township income includes income from the following sources:
16.5
1.
Recovery of rent, electricity and water charges are being made regularly and
promptly on the basis of the following:
i)
ii)
iii)
iv)
All cases where the dues remain outstanding for a period of more than 3 months,
should be brought out.
16. 5
3.
Billing of income and deposition of cash- All income are properly billed and
accounted for and that ash collected at various points in the township are
deposited in the main cash section timely.
4.
Adequacy of rates charged from outsiders - Rates charged from outsiders for
rent, electricity, water, guest house etc. are reviewed at regular intervals and
suitably revised if circumstances so warrant. Check that the revisions from time
to time are based on and in sync with the rates charged by the local distributing
agencies to the public.
5.
Verify that outside parties are prompt in depositing their dues. In case there are
delays whether action taken in this regard is adequate.
6.
7.
Test check the basis of fixation of house rent and other service charges both in
respect of employees and outsiders, so as to ensure that the rent has been fixed
in accordance with the companys rules.
TOWNSHIP CONSTRUCTION
For audit guidelines pertaining to Township Construction, the guidelines as
appearing in the Chapter on 'Capex (Capital Expenditure) may be referred to.
16.6
PUBLIC HEALTH
Audit Guidelines / Checklist
Internal Audit will refer to the following checklist on Public Health and will report
any shortcomings in the systems and procedures followed.
1.
Public Health jobs contracted out - If any jobs have been contracted out, these
may be examined for necessity, contractual terms, authorization and
performance.
2.
3.
Water sampling - Check that water sampling is done regularly for bacteriological
16. 6
analysis and potability and suitable action is taken, wherever found necessary
4.
Pest control - Check the adequacy of steps taken to control insects and pests
and insects borne diseases in the township.
5.
Any need for Pest Management Plans- Determine whether Pest Management
Plans (PMP) that outlines any sampling, testing, treatment and cultural practices,
best management practices, or other control measures need to be developed for
any plant/site or whether present practices are sufficient and provide pest
control.
A PMP refers to a written description of procedures or processes designed to
control a pest population, either to eliminate it or to suppress it to a level that
meets the high sanitary standards.
6.
7.
Review the system and adequacy of health services carried out in the schools at
the units.
8.
Imprest accounts - Check that the imprest accounts and temporary advances
are accounted for promptly.
9.
16.7
1.
2.
Test checking bills - Test Check the copies of the bills with entries in the
Visitor's/Occupancy Register, statements for depositing the cash/cheques with
the Cash Section.
3.
Amounts received from guests - See that the amounts collected from the
Visitors are promptly remitted to Accounts Dept. Cases of unusual delays should
be brought out along with reasons thereof. Also ascertain the reasons for
outstanding amounts against guests, the progress of recovery and also report on
the follow up of old and exceptional cases.
16. 7
4.
Stock Registers - Check the stock registers of the following items and also see
whether the periodical verification and reconciliation of the following assets have
been carried out;
i)
Furniture
ii)
iii)
iv)
Miscellaneous equipments
v)
Safety equipment.
Also verify that the total quantity in the register are duly tallied periodically. The
actual life of these items in comparison to norms to be checked to ascertain
whether there is any premature retirement/abandonment.
5.
6.
See that the Trunk Calls Register is maintained and recovery is effected from the
Visitors for private trunk calls, if any, made by them.
7.
Leased Guest Houses - Scrutinize the lease agreement for guest house
accommodation taken on lease or on rent. Check the terms and conditions in
respect of allotment to guests and ascertain whether these are being followed
and dues are recovered accordingly.
8.
9.
Scrutinize the conditions of the contract with outside caterers and point out
deviations, if any.
10.
11.
Check that the food charges to guests in case of departmental catering are
adequate.
16. 8
12.
Examine the service contract for upkeep and maintenance including electrical
maintenance for its adequacy and efficiency where the same has been entrusted
to an outside agency.
13.
Imprest Account - Check the imprest account and advances drawn by the incharge. Guest House in-charge shall ensure that the expenditure is within the
limits and advances are adjusted expeditiously. Examine that the imprest
account is being maintained properly.
14.
Look into the procedure for disposal of used / unserviceable articles and
comment if the laid down procedure has not been followed. Cases of write- off, if
any, may also be seen.
15.
Whether complaint book is maintained and the complaints are regularly attended
to.
16.8
HORTICULTURE
Audit Guidelines / Checklist
The Audit Checklist outlining the specific elements that need to be considered by
internal audit is as given below:
1.
Area covered
No. of trees (considering type of trees)/saplings (considering type)
planted
Survival percentage etc. (tree-wise).
2.
3.
4.
16. 9
5.
Imprest Accounts - Check the imprest accounts and temporary advances and
comment on any major non-adjustments pending beyond prescribed time limits.
6.
Casual labour - Verify casual labour records and payments thereof and compare
present data with historical data. Ensure records are proper and adequate.
7.
8.
16.9
1.
Once in a year
2.
Public Health
3.
Once in a year
4.
Horticulture
Once in a year
16. 10
CHAPTER 17
17.1
SCHOOLS
Audit guidelines / checklist
1.
Check Fee Collection Register in order to verify that all amounts due from the
students have been received by the prescribed date.
2.
Ensure that various funds collected by the school are properly accounted for and
expenditure incurred there from as per the budget provision is as per the relevant
rules and orders of the competent authority.
3.
Check the various School Equipment and Stores Registers and ensure that all
the stores issued to the schools have been taken on stock register.
4.
5.
6.
Check the Library Register and ensure that all the books have been entered
therein. Ensure that there is a proper system of periodical check of the books.
See that proper write-off action is taken for the books lost / mutilated.
7.
8.
Ensure that the rate of fee prescribed for students other than the children of
employees have been fixed by the competent authority after considering the
relevant factors and examine if any subsidy is being given by the company.
17. 1
17.2
HOSPITALS
Audit guidelines / checklist
Internal Audit should examine the following matters:
(2)
Safety
(3)
(4)
Pest, Rodent and Animal Control (Prevention , Control and eradication thereof)
(5)
(6)
(7)
(8)
Environmental Hygiene
(9)
Infection Control
(10)
17. 2
(2)
(3)
(4)
(5)
Check the Register of persons (Employees as well as others) who have been
issued Medical Cards for treatment in the Hospital in order to verify that these
have been correctly issued as per the existing orders. In the case of persons like
shop- keepers who are required to pay certain fee before the Card is issued, it
may be ensured that requisite amount of fee has been recovered regularly.
(6)
(7)
Check that the established procedure for referring patients for outside treatment
and passing of their bills for travel treatment has been followed.
(8)
(9)
(10)
(11)
Check the system followed for disposal of waste materials, such as used X-ray
films, empties etc.
(12)
Check the system and basis of raising requisitions for procurement of medicines
and medical stores. Ensure adherence to the companys contracting provisions.
17. 3
(2)
(3)
(4)
(5)
(6)
Whether stock verification reports show any major discrepancy, and what action
has been taken on these reports.
(7)
Check the award of contracts for supply of dietary articles and their operation.
(2)
Examine the system of receipt and issue of dietary articles to the kitchen staff
and verity that the consumption of materials is as per norms.
(3)
(4)
Wherever dietary charges are recoverable from the employees, verify that
prompt intimation for recovery is sent to the Salary Section.
17. 4
(2)
Asset Inventory Records - Ensure that an exhaustive duly codified fixed asset
inventory record is maintained showing locations of all equipments /machines
with the Hospital/Health Centre is maintained. The internal auditor should
examine the same as to its completeness.
(3)
Idle Equipment - Check the reasons, if any, for equipment/machines which are
lying idle. Report on whether these were purchased without adequate scrutiny
and what action is being taken for their effective use/disposal.
(4)
Equipment Breakdown - Check whether prompt action has been taken in case
of breakdowns of equipment/machines. The internal auditor should enquire into
cases of equipment/machines sent out for repair long back but not received back.
(5)
(6)
Ensure that all equipment installed in the hospital are in working order.
(7)
Check if the facilities provided in the hospital e.g., X-ray machine Ultra-sound,
ECG etc. are being utilized to the maximum.
(2)
Check that treatment given to non-entitled persons has the sanction of the
competent authority and recoveries thereof have been made as per the schedule
of rates approved by the competent authority. Outstanding bills for long periods
should be highlighted.
(3)
Verify that bills are raised promptly and whether treatment charges realised are
deposited with central cash department without delay.
(4)
17.3
Once in a year
2.
Schools
Once in a year
17. 5
CHAPTER 18
18.1
INTRODUCTION
This chapter deals with the Production Department. The system of working /
reporting should be studied for the purpose of improving efficiency and
profitability. Wherever possible economic benefits /losses should be quantified
and highlighted.
18.2
1.
2.
3.
Reasons for high consumption of input material to be inquired into Reasons for high consumption of input material based upon actual figure should
be ascertained and suggestions for improving the same should be given. In case
actual consumption of an item is not available because of deficiency in
measuring instrument, then total consumption based upon opening stock,
receipts and closing balance should be calculated. For example, if feed stock
consumption in ammonia production is not available then total oil consumption
Operation Audit
18. 1
(feed stock + fuel + oil for power) can be evaluated. Similarly the total natural
gas/Naphtha used as feedstock + fuel to Primary Reformer should be monitored.
4.
Stack temperature monitoring - All the furnaces, reformers and Heat recovery
Units should be closely monitored for Stack temperature, Oxygen in the flue
gases for optimum energy efficiency. Wherever possible losses should be
quantified and highlighted.
5.
6.
Unit operation equipment - All unit operation equipments such as mass transfer
towers in gas purification section, package units such as Absorption Refrigeration
Unit, Inert Gas Unit, Air separation Unit etc. should be studied for efficient
operation. Special attention should be paid to CO2 slip from gas purification units,
of towers/ packing.
7.
Factors that can cause loss of efficiency - Various parameters such as CH4
(methane) slip in ammonia plant, steam & CO (carbon monoxide) ratio in shift
conversion section, water balance and ammonia losses in urea plant,
combustibles in the fly ash etc. are some of the examples that cause loss in
efficiency. Such activities need to be looked into with care and pointed out with
facts and proper laboratory analyses if required.
8.
See that available resources and assets are used to maximize the operating
profit. Purge gas recovery unit should be kept operational 'to the extent possible,
keeping overall corporate profitability in view.
9.
Start up activities - Study the start up activities and evaluate the delays that
may have caused excessive expenditure. Avoidable losses should be worked
out. Suggestions to avoid such losses may be incorporated in the audit reports.
10.
11.
12.
Steam Balance - Check the steam balance every fortnight and ascertain that
unprofitable operations are being looked into for rectification during the
planned/unplanned shut downs.
Operation Audit
18. 2
13.
Boiler efficiencies - Check that boiler efficiencies are evaluated every month
(either by direct or indirect method) and corrective action is taken.
14.
Checking cooling water flow - Cooling water flow in each plant should be
checked every fortnight and reasons for keeping higher flow than required
(depending upon CW temp) should be considered. Alternatively, C.W. Pumping
energy may be evaluated. Also efficiency of C.W. pumps should be comparable
with the design value. It may also be ensured that proper performance
parameters such as Cycles of Concentration, Corrosion rate and Fouling factors
are demanded and monitored in case of Cooling Water Treatment Program.
15.
Checklists for day-to-day plant activities - Ascertain that checklists for day-today plant activities are being filled sincerely and records are being maintained.
16.
Calibration of important instruments as per ISO 9001 (2000) manual Check that important instruments such as analyzers, flow meters are
calibrated/checked as per the agreed practice or as per ISO 9001 (2000)
manual.
17.
18.
Instrument interlocks to be simulated after major shut-down/break down Check that instrument interlocks are simulated, after major shutdown and after a
break down. Also, ensure that that all safety interlocks are in-line. Bypassing of
safety interlocks should have approval of the competent authority and ascertain
that it has been reviewed once a year.
19.
20.
21.
Quality of urea - Quality of urea is checked and necessary checks are made in
the Prilling Section of the Urea plant every month. Ensure that condition of
distributors/Prilling Bucket is sound and these are changed as per requirement.
Molten urea temperature is maintained as per requirement.
22.
Maintenance of log books - Check, that log books, log sheets etc. are
maintained and preserved for reference. Verify that these records are destroyed
after the expiry of stipulated period as specified in ISO-9002.
Operation Audit
18. 3
23.
Plant history records - Check on quarterly basis that plant history records are
maintained.
24.
25.
26.
Control over plant effluents - Check once a year that proper control is
maintained over generation of effluents from each plant.
27.
28.
NDT Reports - See that NDT reports such as thickness of pipes or equipments,
vibrations of rotating machinery are looked into and similarly rotating machinery
efficiency calculations and fouling factors calculations are given due importance
by operating staff.
29.
Quality and quantity of bowl mill coal rejects - Check the quality and quantity
of bowl mill coal rejects and their reasonableness.
30.
31.
Check that steam is not wasted in unloading of FO, LSHS etc. Proper care is
taken in steam heating of wagons and is properly accounted for.
32.
Weight checking of filled urea bags - Ascertain that weight checking of filled
urea bags is done as per ISO 9001 (2000) and general house keeping activities
are in order.
33.
Check that off grade urea in silo is segregated and recycled back timely.
34.
35.
Operation Audit
18. 4
36.
37.
38.
39.
An overview of the production process for both FO and Gas based Urea Plants is
described in Appendix - 7 This may be referred to for a full understanding of the
production process.
Operation Audit
18. 5
CHAPTER 19
19.1
OVERVIEW
The nature of the process manufacturing industry is characterised by high capital
investments. Maintenance costs are high and constitute a significant component
of fixed cost .
Proper and timely maintenance of plant & machinery and equipment is critical to
the successful operation of the plants, driving a better return of net assets
(RONA) and for meeting top managements strategic objective of plant reliability
management for business success.
NFLs maintenance programmes are designed to meet the following business,
strategic and competitive objectives:
19. 1
19.2
(1)
Examine the effectiveness of the overall control systems prevalent within the
maintenance department. In this regard controls over work order planning and
timely execution of jobs is important.
(2)
Examine the statistics of down time due to maintenance delays and highlight the
cost/revenue losses from such delays. Analyse bottlenecks and remedial steps
taken/required.
(3)
Compare the approved maintenance schedules with the actuals and ascertain
reasons for deferment of any shutdowns.
(4)
Whether equipment sent for repairs in-house or outside agencies have been
allowed to lie with them for an unduly long time.
(5)
(6)
(7)
(8)
(9)
Check the equipment utilisation at various maintenance shops, identify the idle
equipments and bring out system failures responsible for their purchase and
make suggestions for their gainful disposal.
(10)
(11)
19. 2
(12)
Ascertain whether imports are continuing even when indigenous substitutes have
been developed.
(13)
(14)
When specialists are engaged / hired for a particular job ascertain that adequate
preparatory work is done before their arrival so that their services are effectively
and optimally utilised.
(15)
Check that all important details viz, equipment detail, frequency and type of
maintenance, parts repaired on different occasions, reasons for replacements,
hours run etc. are duly built into the database.
(16)
(17)
Examine the systems being practiced for scrapping of plant and equipments
whose maintenance cost has become uneconomic.
(18)
(19)
Appraise the maintenance cost with reference to the relevant production and
highlight trends. Data for this purpose may have to be obtained from Cost
Accounts/F&A.
19.3
MECHANICAL MAINTENANCE
Audit guidelines / checklist
(1)
(2)
(3)
19. 3
(4)
(5)
(6)
(7)
To see that daily or other periodic checks as decided are done sincerely and
records maintained. Sample check of these reports should be done.
(8)
(9)
(10)
(11)
(12)
(13)
Steam Traps - Ascertain that right types of steam traps are used and the traps
monitoring and management is up to the mark so that no energy loss is there.
19. 4
(14)
Usage of proper material during repairs - Check that right material is used
during repairs/replacement so that safety is not sacrificed and environment
pollution is not ignored.
(15)
Safety Procedures - Ascertain that safety procedures are not bypassed in doing
jobs and (Personal Protective Equipments) PPEs are used.
(16)
Check whether possibility of use of similar material in other Unit/s of NFL has
been explored. If so whether necessary action has been taken
(17)
Control over inventory - Check that inventory lying in the sub-stores of the plant
is controlled.
(18)
Painting jobs are in conformity with work order and painting codes - in To
ascertain that painting jobs are awarded as per work order and painting codes.
Line numbers on pipes should be painted and date of painting is marked and
after ensuring the necessity of the job itself.
(19)
Specification of spare parts - Ascertain that specifications of all the spare parts
are available and prepared/certified if required. Competent Authority should
approve changes in specifications.
(20)
Consumption of frequent use items - Ascertain that consumption of frequentuse-items such as pump seals and compare with other units. Ascertain that
similar practice is followed at other units. Similarly, other repeatedly failing
machines should be dealt in.
(21)
See that efforts are made to develop drawings of the spares, if required, for
developing vendors to avoid the proprietary procurement as far as possible.
(22)
(23)
Levels of critical spares inventory items should be fixed - Level of all critical
items, which can cause stoppage of operation should be fixed, even when the
life of the equipment is uncertain or the spare equipment is installed.
(24)
19. 5
19.4
INSTRUMENTATION MAINTENANCE
Audit guidelines / checklist
(1)
Instruments should remain in working order and should satisfy the need of
process.
(2)
(3)
(4)
(5)
(6)
Check that instrument interlocks are simulated, after major shutdown and after a
break down and records maintained
(7)
(8)
One code for similar items across all plants - There should be one code for
same item being used in different plants.
(9)
(10)
It should be ascertained that new spares are purchased only after considering
the improvisation, and use of non-moving items must be stressed.
(11)
(12)
19. 6
(13)
Ascertain that periodic checklists are made, filed and a record maintained.
(14)
All the control valves should have the agreed colour code.
(15)
(16)
(17)
Maintenance Planning - Ascertain that maintenance planning is done for day-today activities and for the annual shutdown.
19.5
ELECTRICAL MAINTENANCE
Audit guidelines / checklist
(1)
Control over consumption of electrical energy - See that efforts are made to
reduce electrical energy. Provide Energy saving equipments, if cost economics
justifies.
(2)
See that motors/ generators are operated on higher load as far as possible.
(3)
Maintenance of routine daily records to pre-empt equipment failure Record of routine (Daily / Weekly / Fortnightly) checks of the substation and
switchyard equipments, rotary machines is maintained to pre-empt failure on the
equipment/machine.
(4)
Control over township site stores - Township, site stores should be under the
control of responsible officer to avoid pilferage.
(5)
(6)
(7)
(8)
(9)
19. 7
(10)
Control over costly spares - Costly spares should not be kept in the plant as
loose items and if it demands, so these must be kept under lock and key.
(11)
Draw the spares from stores only when they are required. Used spares and
scrap material is returned to the main stores.
(12)
Counter check relay settings as per the schedule framed for isolation of faulty
equipment.
(13)
(14)
Ascertain that for the better output of men, single line diagrams (SLD), drawings
and documents are, displayed or kept at conspicuous locations in the substation /
shift office/ or other plant offices.
(15)
Persons engaged for the operation and maintenance of electrical system must be
suitably qualified/trained for the work assigned to them.
(16)
(17)
(18)
Use the inventory available to its fullest before resorting to fresh indenting.
(19)
(20)
(21)
(22)
(23)
Control over cost of spares - Check that efforts are made to reduce the cost of
spares, by import substitution, innovation or improvements, without
compromising quality.
(24)
19. 8
(25)
(26)
19.6
CIVIL MAINTENANCE
Audit guidelines / checklist
(1)
(2)
(3)
Ascertain that routine jobs such as painting, whitewashing etc. is done according
to schedule.
(4)
(5)
(6)
(7)
(8)
19. 9
CHAPTER 20
20.1
PRESENT STATUS
Considering the multi-locational nature of the company's business operations and
also the need to assess risk through cost-effective and speedy auditing tools, the
Internal Audit personnel should possess adequate ICT skills as part of their core
competencies.
At present the ICT internal audit is conducted by executives from the EDP
department, not for their own but for other units i.e., on an inter unit basis. This is
because the Internal Audit Department presently has not inducted audit
specialists extensively trained and equipped to conduct audits of ICTs i.e.
personnel CISA/DISA backgrounds. It is desirable that the ICT function be
reviewed by qualified persons independent of the EDP/ICT function. While this
arrangement may continue for some more time, in due course when a much
higher degree of day to day reliance will be placed on ICTs, on a company wide
basis, it would become necessary to induct suitably trained and qualified persons
in the internal audit department to conduct the internal audit more professionally
and with due regard to generally accepted auditing principles.
20. 1
20. 2
20.3
ICT CONTROLS
Information systems form a critical part in the overall delivery mechanism and in
all front and back end activities. Its information systems policies commit the
company to be cost effective and efficient in various aspects of its operations and
allow it to focus on immaculate delivery to create and provide the best value to its
stakeholders.
To ensure backup of data for speedy recovery in the event of any disaster.
20. 3
20. 4
(2)
(3)
(4)
(5)
The information created and stored by the companys information systems must
be retained for the minimum period that meets both legal and business
requirements.
(6)
Alphanumeric.
20. 5
(2)
(3)
(4)
(5)
20. 6
20.5
Copyright and other intellectual property rights in relation to both programs and
data shall be respected.
All emails shall be appended with disclaimer regarding its confidentiality,
intended recipient, restricted forwarding or copying.
All emails shall be scanned for viruses, spam, phishing attack etc. (this could be
through an automated process)
Organizations confidential information shall not be divulged, shared or
compromised.
Data retention periods for e-mail shall be established to meet business
requirements and must be adhered to by all staff.
Emails or attachments belonging to another user shall not to be sent without
acquiring permission from the originator.
Identity shall not be disguised when sending emails.
ICTs shall not be used for commercial solicitation or conducting or pursuing their
own business interests or those of another Organization.
Large distribution lists concerning non-business related matters shall not be sent,
forwarded and/or replied to.
Hoaxes, chain letters, advertisements, shall not be forwarded.
Rude, obscene or harassing messages shall not be forwarded.
Unsolicited e-mail is to be treated with caution and not responded to.
20. 7
MAINTENANCE
ICTs shall be maintained in accordance with vendor's recommended
service intervals.
ICTs shall be kept under maintenance contracts with qualified and
reputed vendors, wherever required.
Continuity of power shall be ensured through installation of uninterruptible
power supply to ensure continuity of services during power outages.
Records of all faults and corrective action taken shall be maintained for
proactive and reactive maintenance.
Secondary and backup power generators are to be employed where
necessary to ensure the continuity of services during prolonged power
outages.
Information systems shall be adequately insured against insurable risks
such as fire, theft etc.
20.7
20. 8
Failure and damage to both data and other linked systems through the
use of inadequate testing of critical functions before being used.
20. 9
TELECOMMUNICATIONS
Telecommunication systems shall be used for work related business and
shall be consistent with professional conduct
Personal long distance calls should not be made from official telephones,
except in emergencies and authorised by a member of senior management
functionary
Personal Local Telephone Calls should be avoided allowed except in
emergencies.
Messages for other employees shall be taken accurately and in detail:
20.9
IN and OUT register shall be signed when leaving the business premises during
work hours.
Message of absence shall be left at the office prior to availing leave.
20.10 RECORDS MANAGEMENT
All Organization records maintained by EDP shall be maintained and kept in
proper condition.
Records should be labelled and indexed.
20. 10
(2)
20. 11
(2)
(3)
Check that the Systems Administrator formally plans authorizes and documents
systems operations schedules. Necessary documentation is also essential for
system maintenance.
NFL systems require a combination of routine maintenance as well as processing
runs or batch jobs in view of interfaces which have been developed which
require the export from one system to become the import to another system. This
necessitates more detailed scheduling to avoid processing snarl ups.
Scheduling at NFL is an important adjunct of the control process and is designed
to address the following control issues:
(4)
EDP Head / System Administrator shall ensure that suitably qualified staff are
engaged for ongoing management of the companys network, and to preserve
the integrity of the network in collaboration with the nominated individual system
owners.
(5)
Check that operational audit logs are reviewed regularly by trained and
knowledgeable staff deputed by the EDP Head / Systems Administrator and all
discrepancies noticed shall be reported to the owner of the information system.
20. 12
(6)
(7)
II.
III.
IV.
Project Management (e.g. cost estimation BOQs, cash flows and profitability
of projects, equipment ordering, contractor follow up and accounting, physical
and financial progress etc.)
V.
Technical areas (e.g. production planning and control PPC, input and output
control in the process areas, maintenance schedules, downtime planned /
unplanned etc.)
VI.
20. 13
(9)
Policy on disposal of assets and check on loss of data at the time of disposal
of tapes, CDs, hard disks etc.
Any formal written anti-virus policy and has such policy been effectively
communicated to individuals in the organisation. Is anti-virus software
installed on all microcomputers?
Ensure that the systems are adequate under the existing conditions. If not,
suggest changes.
Are the requirements of the user properly defined, documented and kept on
record?
Check the number of existing programs from the point of view of adequacy in
meeting the users needs and make recommendations for programme
modification/upgradation.
20. 14
Verify that checkpoint restart capability is built into long runs such as master
file updates.
Are the subsequent changes in the system accepted both by the user as well
as EDP Department and kept on record?
Are proper procedures in force for backing up data (transaction and master
files) and is data backup taken on a regular basis. The following backup
routine may be considered sufficient;
i. Backup of critical files shall be taken on daily basis.
ii. Backup of non-critical files shall be taken on weekly basis.
iii. Backup data shall be stored in offsite storage to avoid loss due to
fire/ theft.
iv. Backup media shall be tested every three months to ensure their
workability
(10)
Review of documentation,
specifications.
user
manuals,
technical
requirements
20. 15
(11)
Check that adequate validation checks exist in the software and also check
that all major and critical applications have an adequate trail.
AND
Check the Software procurement system review. Ensure that cost benefit
analysis has been done for acquisition of new software / hardware and
sanctions are in accordance with delegation of powers for procurement.
Requests for new applications systems or software enhancements must be
presented to senior management with a Business Case with the business
requirements presented preferably in a User Requirements Specification
document.
NFL shall generally avoid the selection of business critical software, which, in
the opinion of management, has not been adequately proved by the early
adopters of the system. The selection process for all new business software
must additionally incorporate the criteria upon which the selection will be
made. Such criteria must receive the approval of senior management.
Ensure that all office software packages are compatible with the companys
preferred and approved computer operating system and platform.
20. 16
(12)
Identification and retirement, of idle hardware assets and the system of their
disposal.
20. 17
(13)
Check movement under proper authority and check the system being
followed for ensuring that all the records in the master files are being
processed properly, reconciliation is done and integrity of master files
is maintained at al times. Examine from the point of view of the
following risks:
Master files may contain erroneous data that cause errors in all
transactions using those data.
Master file data may be altered to allow the processing of
fraudulent transactions.
Master file data may be altered prior to the preparation of
statements or confirmation.
Alteration of master files can be done only by a senior member of
EDP who is authorize do so.
Check that there is a laid down policy on the retention of the files (linked
with a fixed period or for a purpose) and that the same is periodically
reviewed.
20. 18
(14)
COMPUTER FACILITIES
Check that ICTs are kept under maintenance contracts with reputed vendors,
wherever required. Also check that maintenance contracts with specialised
vendors are unambiguous and the maintenance expenditure does not show any
abnormal increase.
Check that Records of all faults and corrective action taken are maintained for
proactive and reactive maintenance.
Check that ICTs are maintained in accordance with the vendors recommended
service intervals.
Whether the frequency of the breakdowns and their durations are recorded and
analysed for each equipment for suitable action and guidance for future.
Check that Information systems are adequately insured against insurable risks
such as fire, breakdown etc.
(15)
Are operational staff are rotated to ensure better exposure, flexibility and
development of skill sets.
20. 19
excessive.
Verify that the fire precautions and standby arrangements for stored data are
adequate and effective.
Productivity of IT resources
20. 20
Manuals/Procedures
b)
Security Arrangements
Compliance with Policies
Twice a year
c)
Other activities
Twice a year
Once in a year
20. 21
CHAPTER 21
21.1
DEFINITION OF ERM
Risk is the potential for loss caused by an event (or series of events) that can
adversely affect the achievement of a companys objectives.
Enterprise-wide risk management (ERM) is a structured, consistent and
continuous process across the whole organisation for identifying, assessing,
deciding on responses to and reporting on opportunities and threats that affect
the achievement of its objectives. Enterprise risk management (ERM) is an
integrated, forward-looking and process-orientated approach to managing all key
business risks and opportunities - not just financial ones - with the intent of
maximizing value for the enterprise as a whole.
The ERM process is effected by the board of directors, management, and other
personnel, applied in strategy setting and across the enterprise, designed to
identify potential events that may adversely affect the entity, and manage risk to
be within its risk appetite, to provide reasonable assurance regarding the
achievement of entity objectives.
21.2
21. 1
2.
3.
To help ensure effective reporting and compliance - ERM helps
ensure effective reporting and compliance with laws and regulations and helps
prevent losses whether in the form of revenues or reputation.
4.
To comply with Clause 49 of the listing agreement - Clause 49 of the
listing agreement has also been revised by SEBI, which inter-alia includes Risk
Management and provides as under:
The Company shall lay down procedures to inform Board members
about risk assessment and minimization procedures. These procedures
shall be periodically reviewed to ensure that executive management
controls risk by means of a properly defined framework.
The Board of Directors has overall responsibility for ensuring that risks are
managed. In practice, the board will delegate the operation of the risk
management framework to the management team, who will be responsible for
completing necessary activities. There may be a separate function that coordinates and project-manages these activities and brings to bear specialist skills
and knowledge.
Everyone in the organisation plays a role in ensuring successful enterprise-wide
risk management but the primary responsibility for identifying risks and managing
them lies with management.
21.3
21. 2
The Risk Management Policy of NFL was approved by the Board in their meeting
held on 30.01.2006 (Refer Appendix-6). As per this policy, the Audit Committee
has been vested with the powers to review the financial and risk management
policies.
Risk Management shall also be one of the items for consideration at the unit
Heads Meet for review of risk profile of the Company. Executive Director
(Technical) is the Coordinating Officer to implement Risk Management Policy
across the entity.
Senior executives concerned shall send Quarterly Compliance Report in the
prescribed format for each quarter to Executive Director (Technical) so as to
reach him by the first week of the following month.
The Risk Management Policy along with risk matrices developed for the following
major risks are placed at Appendix 6.
A.
1.
2.
3.
B.
Operational Risks
1.
2.
21. 3
3.
C.
Utilities Risks
1.
2.
Water availability
Uninterrupted Power supply
D.
Environmental Risks
Environmental & Pollution Control Regulations, etc.
E.
1.
2.
3.
4.
5.
F.
Regulatory Risks
1.
2.
G.
Business Risks
1.
2.
3.
H.
1.
2.
3.
Costs
Revenue
Customer Preferences
I.
Market Risks
1.
2.
3.
J.
Asset Risks
1.
2.
21. 4
K.
Financial Risks
1.
2.
Funding Risk
Financial Frauds
Embezzlement of cash
Misappropriation of bank balances
Others, such as false journal entries, dummy procurements etc.
L.
1.
2.
M.
IT Risks
1.
2.
3.
4.
N.
Legal Risks
1.
2.
3.
4.
Contractual Liability
Frauds.
Judicial Risks
Insurance Risks
O.
21. 5
21.4
The under noted guidelines are framed to assist senior audit executives in
responding to ERM (Enterprise Risk Management) issues in NFL. The guidelines
also suggest ways for internal auditors to maintain the objectivity and
independence required when providing assurance and consulting services.
Internal Auditings core role with regard to ERM is to:
provide objective assurance that the major business risks are being managed
appropriately, and
providing assurance that the risk management and internal control framework
is operating effectively,
21. 6
The above activities are all assurance activities. At a later stage when the
Internal Audit Department is more equipped to do so, internal audit may also
provide consulting services (of the nature highlighted in table 2) that improve
the entities risk management processes. A decision to this effect will be taken by
the Audit Committee.
The extent of internal audits consulting in ERM will depend on the other
resources, internal and external, available to the board and on the risk maturity of
NFL and it is likely to vary over time.
Internal audits expertise in considering risks, in understanding the connections
between risks and governance and in facilitation mean that in due course it
should be well qualified to act as champion and even project manager for ERM,
especially in the first few years of its introduction.
As the NFLs risk maturity increases and risk management becomes more
embedded in the operations of the business, internal audits role in championing
ERM would progressively reduce. For the present internal audit will give value by
concentrating on its assurance role, then also by undertaking consulting
activities.
Table 1
Legitimate internal auditing roles with safeguards
Facilitating identification and evaluation of risks.
Coaching management in responding to risks.
Coordinating ERM activities.
Consolidating the reporting on risks.
Maintaining and developing the ERM framework.
Championing establishment of ERM.
Developing risk management strategy for board
approval.
21. 7
Safeguards
Should internal audits involvement be extended in ERM to encompass
consulting services as well the following conditions would apply:
Internal audit should not manage any of the risks on behalf of management.
Internal audit cannot also give objective assurance on any part of the ERM
framework for which it is responsible. Such assurance should be provided by
other suitably qualified parties.
21. 8
21.5
2.
3.
Have risk exposures identified exceeded risk tolerances (this may happen
despite all the preventive measures) during the course of the review.
4.
In light of audit findings for risks identified and documented does the
grading of risks need to undergo any change e.g. low impact, high
likelihood to medium impact high likelihood.
5.
6.
Verify whether the planned series of mitigation actions that have been put
in place to contain the risk to an acceptable level (these include but are
not limited to new systems or practices, physical risk improvements, staff
training, continued assessment) have achieved the desired objective.
7.
8.
As a part of the internal audit, evaluate that the Risk Matrices are an
appropriate reflection of the risks facing the organization in terms of
impact and likelihood. Have any new risks been identified during the audit
21. 9
10.
Evaluate that risk management is being carried out in a way that really
benefits the entity,
11.
12.
13.
14.
15.
16.
21. 10
21. 11
21. 12
CHAPTER 22
OFFICE NETWORK AUDIT
22.1
INTRODUCTION
Fertilizer is a capital intensive industry. Companies have a widely spread and
well-organized network of offices, plants, warehouses and dealer network. NFL
has also well-organized network of offices having the following units:
a) Registered office / Corporate Office
b) Manufacturing Units:
22.2
Nangal Plant
Bathinda Plant
Panipat Plant
Vijaipur Plant
22. 1
matters from time to time in view of the contemporary view of internal audit as
a consulting activity.
(b) Review of organization structure
(c) Review of internal control system
(d) Review of planning and control mechanisms
(e) Review of aspects of financial management
(f) Review of production planning, marketing, warehousing and transport
management.
(g) Review of materials management
(h) Review of Management Information Services (MIS)
(i) Review of Research & Development management
(j) Review of other management activities such as special investigations,
systems and methods studies etc.
22.2.2 Audit Guidelines / Checklist
A.
Secretarial functions
Examine and review whether notices and other documents are received at
the appropriate time
Examine and review whether minutes are duly prepared, entered in the
minute book and signed by the appropriate authority.
Examine and review whether various registers under the law are properly
maintained.
Examine whether the annual accounts and annual returns are filed within the
prescribed time.
22. 2
B.
Examine whether the common seal and other important documents are kept
under safe custody.
Examine whether the dividend warrants are properly drawn up and dividend
is paid in time.
Organization Structure
Understanding the organization structure of NFL is essential for an effective and
efficient internal audit. The internal auditor is to review the organization structure
for improvement in productivity, enhancement in achieving higher internal
economies and overall improvements in profitability.
C.
The following financial ratio analysis would be useful to assess the business
performances:
Measures of performance
Profit margin, Assets turnover, Debtors turnover and Stock turnover.
22. 3
Financial Management
Review of financial management by the internal auditor is of paramount
importance and it is linked strongly with the other functions of management.
Apart from the general principles and practices relating to audit of finance
functions of management, there are certain areas like management of funds,
capital expenditure, investments, loans etc., which need particular emphasis in
the internal audit. For this, auditor is to apply the following checks:
E.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Review of deposits with Excise and other Authorities and also dues with
FICC to ensure that they are kept at an optimally low level.
Claims
There arise numerous claims in the fertilizer industry. Most important claim is for
subsidy from FICC for which detailed note is given separately. There are
insurance claims, excise rebates, duty drawbacks, Modvat / Cenvat claims etc.
Internal audit of this area should lay particular emphasis on the following aspects:
(i)
22. 4
F.
(ii)
(iii)
(iv)
(v)
Loans
Loans are taken from financial institutions / banks for many purposes like asset
creation, working capital finance etc. Internal audit of this area involve the
following aspects:
G.
(i)
(ii)
(iii)
(iv)
(v)
Liabilities
Liabilities arise for a variety of reasons relating to capital as well as revenue
expenditure. Internal audit of liabilities should lay particular emphasis on the
following aspects:
(i)
22. 5
H.
(ii)
(iii)
Taxation
Efficient and prompt handling of tax matters is of paramount importance. Land
revenue, cess, entry tax, sales tax / VAT, import duties, income tax, FBT, local
taxes and licence fees are some of the taxes that are levied on the fertilizer
industry. Internal audit of this area should lay particular emphasis on the
following aspects:
I.
(i)
(ii)
Examining whether all tax returns are filed in time and are properly
prepared taking in due consideration various benefits, rebates,
deductions etc. available under the relevant statute(s).
(iii)
Examining whether all tax dues are paid promptly and in time to avoid
attraction of penal provisions under the relevant statute(s).
(iv)
(v)
(vi)
(ii)
22. 6
J.
(iii)
(iv)
(v)
Examining compliance with the relevant forex laws for the time being in
force.
Inter-Plant comparison
Inter-plant comparison of condensed accounting data particularly financial ratios,
goes a long way in improving working efficiency of the management besides
giving a good insight to the internal auditor. Internal auditors work in this area is
largely based on financial ratios and their analysis and more particularly the
analysis of the following ratios:
(a) Sales to capital employed
(b) Net profit to capital employed
(c) Operating profit to capital employed
(d) Individual components of cost to total production in physical terms
(e) Per unit price realisation
(f) Debt-equity ratio
(g) Working capital turnover ratio
K.
22. 7
22.3
(i)
(ii)
(iii)
(iv)
(v)
MANUFACTURING UNITS
NFL has got Manufacturing Units at
Nangal Plant
Bathinda Plant
Panipat Plant
Vijaipur Plant
22. 8
CHAPTER 23
23.1
BACKGROUND
NFL was given the Mini Ratna Category - I status by Govt. of lndia in July 1998,
based on the company's overall performance during the preceding years. As
such it then became imperative on the part of NFL to improve its Corporate
Governance practices by constituting an Audit Committee with four non-official
directors as Members. It was also one of the mandatory recommendations of
Kumar Mangalam Committee on Corporate Governance that a qualified and
independent audit committee should be set up by the Board of the company,
which would go a long way in enhancing the credibility of the financial disclosures
of the company, more corporate accountability and promoting transparency.
One of the primary results of the emphasis on corporate accountability has been
the increased attention to the audit committees as guardians of financial integrity.
With the passage of time audit committees have become more involved in the
review of corporate accountability and governance, particularly as the focus on
risks and controls expands to include not only financial integrity, but also
compliance systems and processes needed for a company to meet legal and
ethical standards.
Listed companies are also required to comply with Clause 49 of the Listing
Agreement with stock exchanges wherein such companies are required to have
a Qualified and Independent Audit Committee. Besides the requirements of
Clause 49, Section 292A of the Companies Act also requires every public
company having paid up capital of Rs.5 crores or more to constitute a committee
of the board to be known as Audit Committee
Given the present Corporate Governance environment it is clear that activities
that the audit committees perform will continue to expand especially in being
more proactive in overseeing risks and controls related to financial and nonfinancial information.
The role of the audit committee and various legal provisions relating thereto are
highlighted in the ensuing paragraphs.
23.1
23.2
Every public company having paid-up capital of not less than Rs.5 crores of
rupees shall constitute a committee of the aboard known as Audit
Committee which shall consist of not less than three directors and such
number of other directors as the Board may determine.
The Audit Committee constituted as above shall act in accordance with terms
of reference to be specified in writing by the Board.
The chairman of the Audit Committee shall be elected by the members from
amongst themselves.
The annual report of the company shall disclose the composition of the audit
committee.
The audit committee shall have authority to investigate into any matter in
relation to the items specified in this section or referred to it by the Board and
for this propose, shall have full access to information contained in the records
of the company and external professional advice, if any.
The auditors, the internal auditor, and the director-in-charge of finance, shall
attend and participate at the meetings of the audit committee but shall not
have the right to vote.
The Audit Committee shall have discussions with the auditors periodically
about internal control systems, the scope of audit, including the observations
of the auditors, and review the half-yearly and annual financial statements
before submission to the Board and also ensure compliance of internal
control systems.
If the Board does not accept the recommendations of the audit committee, it
shall record the reasons therefor and communicate such reasons to the
shareholders.
23.2
The Chairman of the Audit Committee shall attend the annual general
meeting of the company to provide any clarification on matters relating to
audit.
Audit Committee will have access to financial and other data / information of the
Company including its subsidiaries. The important observations, as deemed fit by
the Audit Committee, would be reported to the Board as and when necessary.
The Internal Audit Department of Corporate Office will assist the Audit Committee
in their functioning. The statutory requirements relating to the meetings of Audit
Committee will be looked after by the Company Secretary, NFL.
TERMS OF REFERENCE
Stock Exchanges following SEBIs directives have included Clause 49 - Audit
Committee in the Listing Agreement with Companies. Accordingly the Stock
Exchanges have included this clause in the listing agreement, which is required
to be complied with by NFL since it is a listed company. The terms of reference
of the Audit Committee of the Board of Directors of NFL, stipulated in line with
this clause and adopted by the Board are provided below:
23.3
PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing the financial reports and other
financial information provided by the Company to any Govt. body or the investors
or the public; the Company's systems of internal controls regarding finance,
accounting and legal compliance that management and the Board have
established; and the Company's auditing, accounting and financial reporting
process generally consistent with this function; the audit committee should
encourage continuous improvement of and should foster adherence to the
Company's policies , procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
Review and appraise the audit efforts of the Company's statutory auditors and
internal audit department.
COMPOSITION
The Audit Committee shall have minimum three directors as members, all being nonexecutive directors, two thirds of the members of audit committee shall be
independent directors.
All members of audit committee shall be financially literate and at least one member
shall have accounting or related financial management expertise.
The Audit Committee may invite such of the executives, as it considers appropriate
(and particularly the head of the finance function) to be present at the meetings of
the committee, but on occasions it may also meet without the presence of any
executives of the company. The finance director, head of internal audit (presently Dir
Fin at NFL is also the head of IA) and a representative of the statutory auditor may
be present as invitees for the meetings of the Audit Committee.
23.4
The audit committee should meet at least four times in a year and not
more than four months shall elapse between two meetings.
The quorum shall be either two members or one third of the members of
the audit committee, whichever is greater, but there should be a minimum
of two independent members present.
POWERS
The Audit Committee shall have powers, which should include the following:
23.5
23.6
The annual report of the Company shall disclose the composition of the Audit
Committee.
The chairman of the Audit Committee shall be present at Annual General Meeting to
answer Shareholder queries.
23.7
23.3
GOVERNMENT AUDITORS
The office of the Principal Director of Commercial Audit and Ex-officio Member
Audit Board, with headquarters at Indraprastha Bhawan, IP Estate, New Delhi, is
responsible for the Audit of NFL and its units.
Audit parties at field locations continuously conduct audits pertaining to propriety
and regulatory aspects through the test audit of various transactions of the
respective plants/units/offices. The preliminary audit queries are issued to the
auditee departments seeking comments of the management. Inspection Reports
containing audit observations on points which have either not been replied to at
the preliminary stage or where Government Audit party is not satisfied with the
replies given are sent to the Chief of the plant/unit concerned with a copy to the
Chairman of the Company. The replies to the inspection report paragraphs are
coordinated by internal audit unit of the concerned plant/unit.
For exercising proper control over audit observations and the managements
responses it is necessary to keep a chronological record of all the Inspection
Report paragraphs. Such record shall be kept in a register and shall at the
minimum contain the following particulars;
Serial number,
Inspection report number with date of report,
Dates of receipt by Plant/Unit Chief, and Internal Audit Wing,
A brief description of each paragraph,
Follow-up particulars and results with auditee departments,
Date of obtaining approval of Chief of the Unit,
Date of sending comments to Regional Audit Officer.
23.8
23.9
23.4
STATUTORY AUDITORS
The role of the internal audit function is determined by the company management
and its prime objectives differ from that of the external auditors who are
appointed by the Shareholders to report independently on the annual financial
statements in accordance with the Companies Act.
However, as the means of achieving their respective objectives are often similar,
some part of the internal audit work is also useful and relied upon by the statutory
auditor. It is, therefore, necessary that internal audit builds up necessary
documentary records and evidence to satisfy the statutory auditors that the
Internal Audit system is commensurate with the size and nature of business of
the company.
The important aspects considered by the statutory auditor in evaluating the
internal audit function are its organisational status, scope of its functioning,
professional competence of the persons undertaking the internal audit work and
the exercise of due professional skill, care and diligence by the internal auditors.
The statutory auditors also evaluate the extent to which management considers
and, where appropriate, acts upon internal audit recommendations. Also as
required under section 227(4A) of the Companies Act 1956, as amended from
time to time, statutory auditors are required to include in their report a statement
on the matters specified in the Companies (Auditors Report) Order, 2003
issued by the Central Government of India. The text of the said order is as per
Appendix - 5.
23.5
23.10
between the Audit Board and the top management. Based on the replies of the
management and discussions, a final report is tabled by C&AG in Parliament.
Three annual reports on the accounts of Central Government companies and
corporations issued by the C&AG to the Central Government are as follows:
23.6
Action taken notes in the prescribed format are to be sent to the C &AG
through the of Department of Fertilizers in the Ministry of Chemicals &
Fertilizers on all the paragraphs included in the various Reports of the C
&AG. This will also be coordinated by Corporate Internal Audit following the
same procedure as for Draft Audit Paras.
23.11
CHAPTER 24
CONFLICTS OF INTEREST
24.1
INTRODUCTION
NFL has sound system of Corporate Governance. The integrity, transparency
and compliance with laws in all dealings with government, customers, suppliers,
employees and other stakeholders are the objectives of good Corporate
Governance. NFL is guided by its Vision & Mission Statement Corporate
Governance Code.
24.2
Conflicts of Interest
24. 1
CHAPTER 25
DISPUTE RESOLUTION
25.1
25.2
Dispute Resolution
25. 1
25.3
25.4
25.5
Scope Limitations
Definition - Scope limitations include situations in which a client / the auditee is
uncooperative, attempts to limit the scope of planned work or denies access to
records, personnel, assets or other information necessary to complete the audit.
The Charter provides Internal Audit unrestricted access to all assets, information,
reports, records, and personnel required to perform their work.
Resolution Process - The auditor should bring all matters involving scope
limitations to the attention of the local/unit head/in-charge of the Internal Audit. If
Internal Audit head is unable to resolve the matter at the local level, In-charge
Internal Audit should be notified and involved in the process to assist in its
resolution. The matter should be brought to the attention of the Audit Committee,
as warranted.
All scope limitation discussions should be documented in the audit work papers.
Impact on Audit Report - In the event a scope limitation significantly impacts
the planned scope of the audit and is not resolved to the satisfaction of Internal
Dispute Resolution
25. 2
Audit, the audit report should state that the audit team was unable to perform the
planned tests.
Audit reports with significant limitations on scope will be put up to Director
(Finance) for direction.
Dispute Resolution
25. 3
CHAPTER 26
26.1
RECORD RETENTION
Audit guidelines / checklist
(1)
(2)
(3)
Verify that files are stored only in boxes with similar items, dates and
retention periods to allow for easier access and purging of records.
(4)
Check that the listing and categorization of records files is as per the
procedures framed for this purpose.
(5)
Verify that files are maintained for as long as is necessary but only to the
extent they serve a useful purpose or satisfy corporate or legal
requirements and are as per the norms of the prescribed policy of the
Company on Record Retention Periods.
(6)
For better internal control copies of critical records that are vital to the
daily operations of the Company should also be kept off site, where
practicable, in case of possible disasters. This may include information
needed to file insurance claims (assets lists, insurance contacts, policy
numbers), financial data for tax purposes, contacts lists to inform or
restart the operations (vendors, customers, investors and employees),
and other data that would assist in rebuilding the business (business
plans, intellectual property, or proprietary information).
26. 1
26.2
RECORD DESTRUCTION
Audit guidelines / checklist
(1)
Verify that three to six months after each year-end the department
responsible for this purpose has proceeded with destruction of all files
that have exceeded their recognized holding period.
(2)
(3)
Verify that destruction of the files should be done through file shredders.
Disposal of records into the company's general trash is not permitted.
26. 2
APPENDIX 1
Introduction
1.
2.
The internal auditor should review and assess the analysis drawn from the
internal audit evidence obtained as the basis for his conclusion on the efficiency
and effectiveness of systems, processes, controls including items of financial
statements.
3.
4.
The internal auditors report includes the following basic elements, ordinarily, in
the following layout:
(a)
(b)
(c)
(d)
(e)
Appendix - 1
Title
Addressee
Report distribution List
Period coverage of the Report
Opening or introductory paragraph
A.1
(i)
identification of the processes / functions and items of financial
statements audited
(ii)
a statement of the responsibility of the entitys management and
the responsibility of the internal auditor
(f)
(g)
(h)
(i)
(j)
Conclusions
(k)
(l)
(m)
(n)
with
A measure of uniformity in the form and content of the internal auditors report is
desirable because it helps to promote the readers understanding of the internal
auditors report and to identify unusual circumstances when they occur.
6.
The internal auditor should exercise due professional care to ensure that the
internal audit report, inter alia, is:
(i)
(ii)
Appendix - 1
clear
factual presents all significant matters with disclosure of material facts
A.2
(iii)
(iv)
(v)
(vi)
(vii)
specific
concise
unambiguous
timely
complies with generally accepted audit procedures in India, as applicable.
Title
7.
The internal auditors report should have an appropriate title expressing the
nature of the Report.
Addressee
8.
9.
10.
11.
There should be mention of the recipients of the report in the section on Report
Distribution list.
The internal auditors report should identify the systems, processes, functional
lines or other items of the entity that have been audited, including the date of and
period covered by the engagement.
The report should include a statement that the operations of systems, procedures
and controls are the responsibility of the entitys management and a statement
that the responsibility of the internal auditor is to express an opinion on the
weaknesses in internal controls, risk management framework, exceptions and
cases of non-compliance and suggest or recommend improvements in the
design and operations of controls based on the Internal audit.
Scope Paragraph
12.
The internal auditors report should describe the objectives and scope of the
internal audit by stating that the internal audit was conducted in accordance with
generally accepted audit procedures as applicable. The management needs this
as an assurance that the audit has been carried out in accordance with
established standards.
13.
Scope refers to the internal auditors ability to perform internal audit procedures
deemed necessary in the circumstances.
14.
The report should include a statement that the internal audit was planned and
performed to obtain reasonable assurance whether the systems, processes and
Appendix - 1
A.3
controls operate efficiently and effectively and financial information are free of
material misstatement.
15.
The internal auditors report, in line with the terms of the engagement, should
describe the internal audit which may include:
(a)
(b)
(c)
(d)
16.
The Executive Summary paragraph of the internal auditors report should clearly
indicate the highlights of the internal audit findings, key issues and observations
of concern, significant controls lapses, failures or weaknesses in the systems or
processes.
The Observation paragraph should clearly mention the process name, significant
observations, findings, analysis and comments of the internal auditor. The
responses and comments from the auditee the local management in charge of
the entity under audit should be included in this section. Further comments from
the internal auditor, in response to the auditee feedback, are to be clearly
mentioned. This paragraph should also contain the internal auditors suggestions
and recommendations to mitigate risks, strengthen controls and streamline
processes with respect to each of the observations and comments made.
Appendix - 1
A.4
and control weakness, deficiency. The management action plan, should contain,
inter alia :
(a) the timeframe for taking appropriate corrective action,
(b) the person responsible
(c) resource requirements, if any, for ensuring such compliance.
Compliance Report Paragraph
20.
(b)
(c)
Revised timelines for compliance of all open items in (b) above and
responsibility fixation of concerned process owner.
Date Paragraph
21.
The date of an internal auditors report is the date on which the internal auditor
signs the report expressing his comments and observations.
Place of Signature
22.
The report should name the specific location, which is ordinarily the city where
the internal audit report is signed.
The report should be signed by the internal auditor in his personal name. Where
the firm is appointed as the auditor, the report should be signed in the personal
name of the internal auditor and in the name of the audit firm. The
partner/proprietor signing the internal audit report should also mention the
membership number assigned by the Institute of Chartered Accountants of India.
Communication to Management
24.
The internal audit report contains the observations and comments of the internal
auditor, presents the audit findings, and discusses recommendations for
improvements. To facilitate communication and ensure that the
Appendix - 1
A.5
recommendations presented in the final report are practical from the point of view
of implementation, the Internal Auditor should discuss the draft with the entity
management prior to issuing the final report. The different stages of
communication and discussion should be as under:
(a)
Discussion Draft - At the conclusion of fieldwork, the internal auditor should draft
the report after thoroughly reviewing the internal audit working papers and the
discussion draft before it is presented to the entity management for auditee
comments. This discussion draft should be submitted to the entity management
for their review before the exit meeting.
(b)
Exit Meeting - The Internal Auditor should discuss with the management team of
the entity regarding the findings, observations, recommendations, and text of the
discussion draft. At this meeting, the entity management should comment on the
draft and the internal audit team should work to achieve consensus and reach an
agreement on the internal audit findings.
(c)
Formal Draft - The internal auditor should then prepare a formal draft, taking into
account any revision or modification resulting from the exit meeting and other
discussions. When the changes have been reviewed by the internal auditor and
the entity management, the final report should be issued.
(d)
Final Report - The Internal Auditor should submit the final report to the appointing
authority or such members of management, as directed. The periodicity of the
report should be as agreed in the scope of the internal audit engagement. The
internal auditor should mention in the Report the dates of discussion draft, exit
meeting, Formal Draft and Final Report
Limitation on Scope
25.
When there is a limitation on the scope of the internal auditors work, the internal
auditors report should describe the limitation.
Restriction on usage and report circulation otherwise than to the list of Intended
Recipients as per Report Distribution List
26.
The internal auditor should state in the report that the same is to be used for the
intended purpose only as agreed upon and the circulation of the report should be
limited to the recipients mentioned in the report distribution list.
Effective Date
27.
Appendix - 1
A.6
APPENDIX 2
Audit work products are the property of NFL. Internal Audit maintains custody of all audit
work products, which are subject to the retention requirements set forth below.
Audit work products Audit work products include reports and work papers for all
audit (whether in-house, govt. or out-sourced), investigation, and advisory service
projects. They may be in electronic or hardcopy form
Administrative records - Administrative records consist of reports, documents,
analyses, and other materials generated to support the IA departments functions.
Administrative records inter alia include:
Training records
Interim performance reviews, etc. details of training programmes.
Retention Periods - The retention period begins with the end of the fiscal year in which
the report is issued.
Audit work products should be retained as follows:
Appendix - 2
A. 7
All other notes, documents and reports relating to a completed audit that are not
included in the work papers (i.e., retained in auditors desk files) should be destroyed
after the final report has been issued. All versions of the draft audit report should also be
destroyed after the final report has been issued.
Privileged Records - Audit work products and administrative records that are related to
a lawsuit or other court action are not to be destroyed until the lawsuit or other court
action has been closed or the 5 year work paper retention period has been reached,
whichever is later.
Disposition Process - Audit work products and administrative records will be destroyed
by March 31 of the year in which the records have reached the end of their retention
period.
The audit head of the unit / office will be responsible for reviewing the inventory listing of
records scheduled for destruction to ensure that they should be destroyed (i.e., there is
no reason that their retention period should be extended).
Audit work products and administrative records should be destroyed in a manner that
gives appropriate consideration to the sensitivity of the information contained in the
documents to prevent the unauthorized release of proprietary or confidential information.
Appendix - 2
A. 8
APPENDIX 3
Date : ___________
National Fertilisers Ltd.
Unit:________________
____________________
SUBJECT: INTERNAL AUDIT OF CAPITAL EXPENDITURE
Dear Sir,
We have completed the internal audit of the xxx Capex Project regarding the existence of
key project and payment approval process controls and their application by the xxxx
Department. The audit was intended to provide assurance that appropriate systems and
procedures were in place and measures required to implement these key controls were
adequately taken.
The internal audit was carried out in accordance with NFL guidelines on Internal Audit and
the Institute of Chartered Accountants of India Standards for the Professional Practice of
Internal Auditing.
The audit took place between ________ (day month year) and _______ and had two
components: the first reviewed the Capex project approval process and the second, the
payment approval process. Both components covered the period between ______ and
______. The audit included preparing a summary of key controls, and examining project
files. We carried out the tests deemed necessary in the circumstances to allow us to form an
opinion.
In our view, both the audit procedures followed and evidence gathered are appropriate and
sufficient to support the accuracy of the conclusions in this report. The conclusions are
based on an examination of the situations identified in light of the criteria established and
apply to the process/programme audited only. The evidence gathered meets professional
audit practice standards and is adequate to satisfy senior management and the Audit
Committee that the conclusions of the internal audit are well founded.
In our opinion, the systems, procedures and control procedures used by the Department
during the period audited are appropriate for managing the Project efficiently. Furthermore,
during the period audited, Capex payments were made in accordance with the contract and
met NFLs operational requirements in all material respects.
Sd/-
Appendix - 3
A. 9
APPENDIX 4
HANDBOOK ON INSURANCE
1.
INTRODUCTION
This Hand Book on Insurance, which forms a part of the Internal Audit Manual,
has been developed for use as a reference tool by the Internal Audit Department
of National Fertilizers Ltd.
It contains a broad framework of the insurable risks for which cover is available a
description of the various policies. It also describes the significant risks that NFL
is exposed to. Based on a periodic assessment of the exposure to these risks
and the need to control them the Internal Audit may make recommendations to
the management about whether to enhance or obtain insurance if not already
obtained, to cover these risks.
The manual also provides guidelines on insurance cost control and guidelines for
evaluating, controlling, treating and managing insurance risks.
2.
PURPOSE
NFL purchases insurance and has established insured programs for its property
and liability risks, as specific circumstances require. This handbook describes:
a. the various types of insurance coverages that are available to NFL for
mitigating its exposure to insurable risks, and
b. the methodology to be adopted for identifying and analyzing risks, controlling
risks and treating or managing risks.
3.
OBJECTIVES
To develop a cost-effective environment with respect to NFLs general
insurance practices.
Risk Profiling: a. Identifying all significant insurable risks;
b. Identifying other risks that are more routine yet could result in
accumulated losses or bad publicity for the company.
Adequacy of Insurance: Ensuring adequacy of insurance cover for all
significant insurable business risks,
Appendix - 4
A. 10
TYPES OF COVERAGE
Generically, there are two basic types of insurance;
As per the Indian Insurance Act 1938 adopted by the Insurance Industry there
are three broad classifications of insurance.
a. Fire Insurance
b. Marine Insurance, and
c. Miscellaneous Insurance.
The significant insurable risks that NFL is exposed to are described below.
Based on a periodic assessment of the exposure to these risks and the need to
control them the internal audit may make recommendations to the management
on whether to enhance or obtain insurance to cover these risks.
5.1
INDUSTRIAL INSURANCE
5.1.1
Appendix - 4
A. 11
(i)
(ii)
(iii)
Bought New
Obsolete Machinery
&
Accessories
(including
Stocks:
Raw Material
Finished Goods
In process
In trade
(v)
Appendix - 4
Cables, Pipings
A. 12
5.1.2
Fire
Lightning
Explosion / Implosion
Aircraft damage
Bush Fire
BURGLARY POLICY
This policy is designed to cover business premises only like godown, factory,
office etc.
Scope
a. Loss or damage to the property insured by theft following upon actual,
forcible and violent entry into the premises.
b. Damage to the premises following upon entry as above or any attempt
thereat
The indemnity provided is to the extent of the intrinsic value of the property so
lost or damaged, subject to the limit of the sum insured.
Appendix - 4
A. 13
5.1.3
Full Value Insurance: The policy must be effected for the full value of the
property to be insured.
First Loss Insurance: In the event of improbability of total loss, proposer can
opt for a percentage of total stocks to be insured
Stock Declaration Policies: These policies are given where large stocks
frequently fluctuate in quantity during the year. The sum insured is fixed at
the maximum value of stocks, which the insured anticipates he will hold at
any one time. A deposit premium of 100% of the annual premium will be paid
at the beginning of the insurance. Monthly declarations of value are to be
sent to the company and the deposit premium will be adjusted at the end of
the policy period based upon the average of the monthly declarations.
Appendix - 4
A. 14
5.1.4
(i)
(ii)
(iii)
(iv)
Air freight
(v)
(vi)
(vii)
Third party liability i.e. liability falling on the insured for bodily injury to any
other party other than those covered by the policy or for property damage
belonging to such other party.
(ii)
Telecommunication equipment.
(iii)
(iv)
(v)
Electro-Medical Installations.
Appendix - 4
A. 15
(vi)
(vii)
(viii)
The policy covers sudden and unforeseen physical damage including breakdown
to the electronic equipment covered under the policy due to any reason not
specifically excluded. Damage caused by the following perils is covered:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Loss caused by the following perils are specifically excluded from the scope of
the policy.
(i)
Normal wear and tear and corrosion of parts arising from use and
continuous operation (limited to parts immediately affected, subsequent
damage to other parts of the unit covered).
(ii)
(iii)
(iv)
(v)
Aesthetic defects.
(vi)
(vii)
The sum insured or value of the policy should be equivalent to the present day
purchase price of a similar new electronic equipment including all incidental
expenses like cost of installation, duty, freight, taxes etc. If the sum insured is
Appendix - 4
A. 16
less than required as stated above then the claim will only be paid in such
proportion as the sum insured bears to the amount required to be insured.
The policy can be extended to include the following risks on payment of
additional premium.
1. Damage to external data media for example tapes, discs etc. as also the cost
of reconstruction of data on this external media caused by a peril covered
under the policy.
2. The additional expenditure incurred due to use of a substitute computer
system as a result of an accidental damage to the computer insured under
the policy and which is covered by the policy.
5.1.5
(ii)
(iii)
Selecting the sum insured: The sum insured under Consequential Loss Policy
should represent the gross profit of the indemnity period selected.
The indemnity period is the maximum period required to put the business back
into normal operation after damage to insured property by an insured peril. The
indemnity period could vary from 6 months to 3 years.
Upto an indemnity period of one year , the annual gross profit should be selected
as sum insured. Thereafter the gross profit should be in proportion to the
Appendix - 4
A. 17
indemnity period selected i.e. for 18 months - 1 1/2 times the annual gross profit
for 24 months - 2 times the annual gross profit for 36 months - 3 times the annual
gross profit
The gross profit should represent the net trading profit plus insured standing
charges (fixed charges). The standing charges which are to be insured have to
be specified. Gross profit can be insured on one of the following basis :
5.1.6
i.
Turnover basis
ii.
Output basis
iii.
Difference basis
iv.
Revenue Basis
Section II-Third Party Liability-covering the legal liability falling on the insured
contractor as a result of bodily injury or property damage belonging to a third
party.
The policy covers all risk of physical loss or damage of insured property other
than those specifically excluded, including:
Appendix - 4
A. 18
The main exclusions are :a. loss or damage due to faulty design, defective material or casting, bad
workmanship other than faults in erection. This exclusion is limited to the
items immediately affected and does not apply to any consequential loss to
correctly executed items.
b. cost necessary for rectification or correction of any error during erection
unless resulting in physical loss or damage.
c. loss or damage due to gradual deterioration, atmospheric condition, rusting
etc.
d. loss discovered only at the time of taking inventory.
e. loss arising out of penalty for delay, non-fulfilment of terms of contract.
Add-ons The policy can be extended to cover the following on payment of
additional premium.
civil works
express freight
air freight
Appendix - 4
A. 19
The sum insured shall be adjustable on completion of the erection, on the basis
of actual values incurred by the insured in respect of freights, handling charges,
customs dues, cost of erection etc. and premium adjusted accordingly.
The sum insured under section II should represent the, per accident limit (the
maximum legal liability that may fall on the insured as a result of an accident in
the insured's site). The limit per policy period should be fixed taking into account
the maximum number of such accidents, which can reasonably be expected to
occur.
5.1.7
Loss
of
Gross
Profit
Net
Profit
Standing
Charges
or
The policy pays for the actual loss of gross profit incurred during the period of
delay, commencing from the scheduled date of commencement of commercial
operation up to the actual date of commencement of commercial operation
Appendix - 4
A. 20
subject to a time excess and indemnity period selected. The delay, however
should have occurred due to a claim payable under marine -cum- erection policy,
storage-cum -erection policy or contractor's all risk policy.
The policy does not cover delay due to:
Inventory losses
Sum Insured
The sum insured should represent the Anticipated Gross Profit (i.e. Net Profit +
Standing Charges) for the Indemnity Period selected (net profit is the business
profit before taxation).
Standing Charges means fixed charges incurred even in the absence of business
activity e.g. Interest Charges, Salary & Wages, Director's fees, O&M costs,
Liquidated Damages.
Indemnity Period should be selected keeping in mind the maximum period
required for re-importing, re-erecting and/or re-testing any part of the project.
5.1.8
a. To boilers & pressure vessels caused solely due to explosion or collapse of the
plant during its normal course of working.
b. To Surrounding Property arising due to explosion and collapse of the pressure
plant during its normal course of working (optional on selected limits of
indemnity).
c. Third party legal liability arising due to explosion and collapse of the pressure
plant during its normal course of working (optional on selected limits of
indemnity).
The following extensions can also be opted for:
a.
b.
Airfreight
Appendix - 4
A. 21
c.
Basis of Sum Insured - It is a requirement of the policy that the boiler and
pressure plants are covered for their current / present day new replacement
value with a view to avoid under-insurance.
This Policy does not cover:
a. Fire and related perils
b. War & Nuclear perils
c. Overload experiments / tests imposing abnormal conditions
d. Gradually developing defects not necessitating stoppage
e. Normal wear and tear, corrosion not leading to explosion / collapse.
f.
Consequential losses
5.2
LIABILITY POLICIES
5.2.1
Appendix - 4
A. 22
1:1
b.
1:2
c.
1:3
d.
1:4
The AOA limit, which is the maximum amount payable for each accident should
be fixed taking into account the nature of activity of the insured and the maximum
number of people who could be affected and maximum property damage that
could occur, in the worst possible accident in the insured's premises.
In the case of Public Liability Insurance Act 1991, the AOA limit should represent
the paid up capital of the company subject to maximum of Rs.5 crores. The AOY
limit is fixed at 3 times the AOA limit (Max.Rs.15 crores).
5.2.2
Appendix - 4
A. 23
The policy covers the sales turnover of the company- both domestic and/or
exports. The policy is on a claims made basis i.e. the claims must arise and be
made in writing on the insurance company during the policy period.
The policy does not cover any liability for product recall, product guarantee, pure
financial loss such as loss of goodwill or loss of market. The policy also does not
pay for the cost incurred for repairing or reconditioning or modifying the defective
part of the product.
Add on covers
The policy can be extended to cover liability arising out of judgments or
settlements made in countries which operate under the laws of U.S.A or Canada
(which is an exclusion under the policy) by opting for the North American
Jurisdiction Clause.
The policy can also be extended to cover Limited Vendors Liability for named or
unnamed vendors. Limited vendors liability means liability arising out of the sale
and distribution of named insured products by vendors with original warranties
and instructions of use of the product specified by the manufacturers.
Selecting the sum insured - In Product Liability Policy, the sum insured is
referred to as Limit of Indemnity. This limit is fixed per accident and per policy
period, which is called Any One Accident (AOA) limit and Any One Year (AOY)
limit respectively. The ratio of AOA limit to AOY limit can be chosen from the
following:
a.
1:1
b.
1:2
c.
1:3
d.
1:4
The AOA limit, which is the maximum amount payable for each accident should
be fixed taking into account the nature of product covered and the maximum
number of people who could be affected and maximum property damage that
could occur, in the worst possible accident after sale of the product
5.2.3
Appendix - 4
A. 24
Appendix - 4
A. 25
Appendix - 4
A. 26
Premium
Premium rating is governed by tariff. It depends on the nature of work carried on
by the insured. Tariff prescribes twp forms of insurance
Table-A: Indemnity against legal liability for accident to employees under
(i)
(ii)
(iii)
Common Law
(ii)
Common Law
(ii)
(iii)
Exclusions
This Policy does not cover liability:
1. arising out of wilful or intentional non compliance of any statutory provisions,
2. in respect of fines, penalties, punitive and/or exemplary damages,
3. arising under any other legislation except in so for as provided for in Section
8 Sub Section (1) and (2) of the Act,
Appendix - 4
A. 27
COMMERCIAL POLICIES
5.3.1
(ii)
During uninterrupted service with the Insured and discovered during the
continuance of this policy or within twelve calendar months of the
expiration thereof
(iii)
Conditions
The liability of the insurer shall not exceed
i.
Appendix - 4
(a) in respect of any employee the sum insured stated against his
name or as declared herein.
A. 28
(b) in respect of all claims under this policy, the total sum insured.
ii.
If this policy shall be continued in force for more than one period of indemnity or if
any liability shall exist on the part of the Company under this Policy and also
under any other Policy in respect of fraud or dishonesty of the employee, the
liability of the Company hereunder shall not be accumulated or increased thereby
but the aggregate liability of the Company during any number of periods of
indemnity and for any number of acts of fraud or dishonesty committed by the
employee shall not exceed the sum insured hereunder or the sum insured under
any other such policy as aforesaid whichever is greater.
iii.
The Insurer shall not be liable to pay more than one claim in respect of the action
of any one employee.
Exceptions
The Insurer shall not be liable in respect of losses arising elsewhere than in
India.
5.3.2
Inland Transport
(ii)
Import
(iii)
Export
Appendix - 4
A. 29
times during the policy period of one year; but care should be taken to ensure
that adequate sum insured is available to cover the consignment to be
despatched.
c. Special Declaration Policy - For covering inland transit of goods wherein
the value of goods transported during one year exceeds Rs.2 crores.
Although the premium for the estimated annual turnover [i.e. the estimated
value of goods likely to be transported during the year] has to be paid in
advance, attractive discounts in premium are available.
d. Multi-transit Policy - For covering multiple transits of the same consignment
including intermediate storage and processing. For e.g. covering goods from
raw material supplier's warehouse to final distributors godown of final
product.
For Import/Export
a. Specific Policy - For covering a specific import/export consignment.
b. Open cover - This policy, which is issued for a policy period of one year
indicates the rates, terms and conditions agreed upon by the insured and
insurer to cover the consignments to be imported or exported. A declaration
is to be made to the insurance company as and when a consignment is to be
sent along with the premium at the agreed rate. The insurance company will
then issue a certificate covering the declared consignment.
c. Custom duty cover - This policy covers loss of custom duty paid in case
goods arrive in damaged condition. This policy can be taken even if the
overseas transit has been covered by an insurance company abroad, but it
has to be taken before the goods arrive in India.
Add on covers
Inland transit policies can be extended to cover the following perils on payment of
additional premium:
(i)
(ii)
Export /Import policies can be extended to cover War and /or SRCC perils on
payment of an additional premium.
Who can take the policy
The contract of sale would determine who buys the policy. The most common
contracts are:
Appendix - 4
A. 30
In FOB AND C&F contracts, the buyer is responsible for insurance. Whereas in
CIF contracts the seller is responsible for insurance from his own premises to
that of the purchaser.
How to select the sum insured
The sum insured or value of the policy would depend upon the type of contract.
Usually, in addition to the contract value 10/15% is added to take care of
incidental cost
5.4
PERSONAL POLICIES
5.4.1
Appendix - 4
A. 31
5.4.2
Appendix - 4
A. 32
5. Personal Liability
Premium : The premium will depends on Age-band, Trip-band and Country of
visits.
Coverage: Initially cover up to 180 days is provided under Business & Holiday
Plan Extension is allowed on original policy for further period of 180 days subject
to declaration of good health.
Eligibility
Age Limit: 6 months and above up to 70 years.
Policy is to be taken prior to departure from India.
Travellers over 60 years of age and for those travelling to USA & Canada over 40
years the following Medical reports (from an MD Cardiologist) need to be
submitted along with the proposal form:
1. ECG
2. Fasting Blood Sugar or Urine Strip test
These reports are required if the travel period exceeds 60 days and above.
In case of travellers unable to submit the above Medical reports cover stands
restricted to USD 10,000.
Major Exclusion
All pre-existing disease/illnesses are not covered (known and unknown).
Travelling against Medical advice or for Medical treatment including routine
check-up.
First USD 100 of all claims are to be borne by the traveller.
5.4.3
Motor Policy
This policy covers all types of vehicles plying on public roads such as:
Scooters &Motorcycles
Private cars
As per the Motor Vehicles Act, 1988 it is mandatory for every owner of a vehicle
plying on public roads, to take an insurance policy, to cover the amount, which
the owner becomes legally liable to pay as damages to third parties as a result of
Appendix - 4
A. 33
Appendix - 4
A. 34
5.4.4
Money Insurance
Money Insurance policy provides cover for loss of money in transit between the
insured's premises and bank or post office, or other specified places occasioned
by robbery, theft or any other fortuitous cause.
The policy also covers loss by burglary or housebreaking whilst money is
retained at Insured's premises in safe(s) or strong room
Section I: Covers money in transit under the following heads: Cash, Bank
Drafts, Currency Notes, Treasury Notes, Cheques, Postal Orders and current
Postage Stamps.
Section II: Covers money in safe / on premises
Basis of Sum Insured
Two amounts are specified in the policy:
Limits of liability for any one loss (i.e. maximum liability of the Company)
Estimated amount in transit during the year for the purpose of premium
computation.
Extensions
This policy can be extended to include the risk of infidelity of the employees,
terrorism and disbursement risk.
Exclusions
1. Shortage due to error or omission
2. Losses due to the fraud/dishonesty of the employee of the insured.
3. Losses which are covered by other policies
5.4.5
Fire.
ii.
iii.
Theft.
iv.
Accident.
v.
Fortuitous circumstances.
Exclusions
Exclusions under the mobile phone insurance policy are
Appendix - 4
Mysterious disappearance.
A. 35
Theft from unattended vehicles, except from fully enclosed car that is
securely locked.
Loss or damage due to war or nuclear perils, loss by water or from any
water borne craft.
Compensation
The insurance cover provides compensation equivalent to the the cost of
replacement of the instrument by a new instrument of the same specification and
same capacity, including all taxes and duties.
6.
6.1
whether existing insurance limits are adequate for worst case loss,
6.2
For this purpose a line by line evaluation of each existing insurance policy wording,
examination of each exclusion, condition, restriction, basis of loss determination
and settlement and insuring agreement for its potential effect shall be conducted.
In addition whether all commercially available coverage extensions are
incorporated shall also be evaluated.
6.3
Appendix - 4
A. 36
business interruption values are adequate, but not excessive along with an
evaluation of insurance rates for competitiveness, against both prevailing market
rates and benchmarked peer group rates.
6.4
NFL shall proactively manage insurable risks and shall undertake an assessment
as described above once every two years or at lesser intervals if circumstances so
warrant. However Insured values shall be reviewed annually with the insurance
carrier to avoid under insurance.
6.5
It shall be insured there is no break in insurance and that all renewals are promptly
effected.
6.6
6.7
Insurance coverage shall be placed with commercial insurers (public and private)
who have strong financial ratings and a good track record for settlement of claims.
6.8
Competitive bids shall be used in the procurement of insurance when the premium
cost is estimated to exceed any Rupee limits that may be set by the management
and revised from time to time.
6.9
Making the best possible arrangements ahead of time so that serious financial
harm does not result when a loss occurs through unforeseen, unintended or
accidental loss: Apart from a periodic review of existing policies and as a part of
the risk management process the periodic assessment shall also take into account
the need to control other insurable risks (hitherto not under coverage). Whether the
best possible arrangements are made ahead of time so that serious financial harm
does not result when a loss occurs through unforeseen, unintended or accidental loss
costs.
Appendix - 4
A. 37
6.10.3 Examining scope for increasing deductibles: NFL may also increase
deductibles in future to reduce premiums by considering adoption of risk
retention or self-insurance in appropriate cases. With an excellent loss
record, for instance, it may be possible to increase deductibles and
thereby take on greater risk.
6.10.4 Considering multi-year policies: A potential cost-saving measure is a
multi-year policy, in which the premium is set for several years, instead of
one. This option, though not widely available can allow for NFL to plan on
a set premium for a number of years. The possibility of obtaining
insurance cover on this basis for some of the policies can be explored.
6.10.5 Claims Management: The company should comply at all times with
requirements of insurers to ensure that claims are promptly and
adequately settled. Any special requirements stated in the policies shall
be documented and circulated to all concerned departments to ensure
compliance with the policy.
6.11
The goal here of the study shall be to evaluate whether the best possible
arrangements are made ahead of time so that serious financial harm does
not result when a loss occurs through unforeseen, unintended or accidental
loss.
6.11.2 The risk management process and practices shall be evaluated by
considering whether the following steps were and remain in place for
identification of risks.
I. Identification of the loss and evaluation of the exposure and
elimination of the severity and frequency;
II. Selection the most economical way of handling the risk;
III. Formulation of a risk management plan; and
IV. Revision and monitoring the risk management plan.
I.
Appendix - 4
A. 38
Potential property losses include direct and indirect losses; potential liability
losses are those associated with torts or, to a much lesser extent, breach of
contract.
The inventory of all owned real and personal property should be reviewed
along with value to identify the possible property loss exposures that should
be addressed. The possible causes of losses would take into account both
direct physical damage as well as indirect loss. There would also be liability
loss exposures (casualty loss, liability loss (civil/contractual and criminal) in
addition to property loss exposures, which may need to be addressed.
Risks identified should be broken down into intolerable risks, difficult to
tolerate and tolerable risks. From this estimates of both the maximum
possible loss and the maximum probable loss NFL faces can be drawn.
The frequency and severity of loss exposures under the different
insurance categories shall be taken into account to assess how best to
deal with property and liability loss exposures.
II.
Appendix - 4
ii.
A. 39
iii.
IV
Appendix - 4
A. 40
APPENDIX 5
1.
(1)
This order may be called the Companies (Auditors Report) Order, 2003.
(2)
(ii)
(iii)
(iv)
a private limited company with a paid up capital and reserves not more
than fifty lakh rupees and has not accepted any public deposit and does not have
loan outstanding ten lakh rupees or more from any bank or financial institution
and does not have a turnover exceeding five crore rupees.
(3)
2.
Definitions
In this Order, unless the context otherwise requires,(a)
(b)
(c)
Appendix - 5
A. 41
(e)
(f)
(g)
(h)
(i)
3.
4.
(a)
Appendix - 5
A. 42
(c)
(iii)
(a)
has the company either granted or taken any loans, secured or
unsecured to/from companies, firms or other parties covered in the
register maintained under section 301 of the Act. If so, give the number of
parties and amount involved in the transactions.
(b) whether the rate of interest and other terms and conditions of loans
given or taken by the company, secured or unsecured, are prima facie
prejudicial to the interest of the company;
(c)
whether payment of the principal amount and interest are also
regular;
(d)
if overdue amount is more than one lakh, whether reasonable
steps have been taken by the company for recovery/payment of the
principal and interest;
(iv)
(v)
(a)
whether transactions that need to be entered into a register in
pursuance of section 301 of the Act have been so entered;
(b)
whether each of these transactions have been made at prices
which are reasonable having regard to the prevailing market prices at the
relevant time;
(This information is required only in case of transactions exceeding the
value of five lakh rupees in respect of any party and in any one financial
year).
(vi)
in case the company has accepted deposits from the public, whether the
directives issued by the Reserve Bank of India and the provisions of
sections 58A and 58AA of the Act and the rules framed there under,
where applicable, have been complied with. If not, the nature of
contraventions should be stated; If an order has been passed by
Company Law Board whether the same has been complied with or not?
(vii)
Appendix - 5
A. 43
(viii)
(ix)
(x)
whether in case of a company which has been registered for a period not less
than five years, its accumulated losses at the end of the financial year are not
less than fifty per cent of its net worth and whether it has incurred cash losses in
such financial year and in the financial year immediately preceding such financial
year also;
(xi)
(xii)
whether adequate documents and records are maintained in cases where the
company has granted loans and advances on the basis of security by way of
pledge of shares, debentures and other securities; If not, the deficiencies to be
pointed out.
(xiii)
whether the provisions of any special statute applicable to chit fund have been
duly complied with? In respect of nidhi/ mutual benefit fund/societies;
(a)
whether the net-owned funds to deposit liability ratio is more than 1:20 as
on the date of balance sheet;
(b)
whether the company has complied with the prudential norms on income
recognition and provisioning against sub-standard/default/loss assets;
(c)
Appendix - 5
A. 44
(d)
(xiv)
(xv)
whether the company has given any guarantee for loans taken by others from
bank or financial institutions, the terms and conditions whereof are prejudicial to
the interest of the company;
(xvi)
whether term loans were applied for the purpose for which the loans were
obtained;
(xvii)
whether the funds raised on short-term basis have been used for long term
investment and vice versa; If yes, the nature and amount is to be indicated;
(xviii) whether the company has made any preferential allotment of shares to parties
and companies covered in the Register maintained under section 301 of the Act
and if so whether the price at which shares have been issued is prejudicial to the
interest of the company;
(xix)
(xx)
(xxi)
whether any fraud on or by the company has been noticed or reported during the
year; If yes, the nature and the amount involved is to be indicated.
5.
Appendix - 5
raised
A. 45
by
APPENDIX 6
Long Term implies if the problem persists for longer duration, becomes repetitive or severity increases
NATURE OF
RISK
(GRADING)
A. FEED / FUEL RISK
1. Availability High impact
of
Low
a)
Fuel
likelihood
b)
Coal
TYPE OF
RISK
Appendix - 6
INDICATOR
(Trigger)
Average receipt of
fuel, less than the
requirement OR
reducing Fuel /
Oil/coal stock
(gradually/suddenly)
and the usable Fuel
oil /coal stock
position less than 7
days of full lad
requirement of Plant
for a consecutive
MITIGATION MEASURES
SHORT TERM
LONG TERM
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Daily reporting
is already in
vogue.
Unit
Head/
ED(P&M)
Special report
by respective
Unit head, in
case of shorter
suppliers or
lesser tocks.
A. 46
TYPE OF
RISK
c) Gas (NG /
RLNG)
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
period of 5 days.
MITIGATION MEASURES
High Impact
Low
Likelihood
SHORT TERM
Appendix - 6
LONG TERM
Ministry to be
approached for long term
linkages backed by
enforceable FSA.
Captive coal
mining, which may also be
considered through
integrated Projects.
Initiate action
for alternate source of
supply.
Regular follow-up
with the gas
suppliers and
resolution of
operational
problems at their
end, which may
eventually affect
the suppliers.
Arranging for
appropriate
interventions from
Government.
Identify Potential
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Daily reporting
is already in
vogue and
when plant
availability is
less than 80%
on account of
shortage.
Special report
by respective
Unit head.
Unit
Head/ED
(Tech)
A. 47
TYPE OF
RISK
Lining up of
Contracts for
i) Fuel Oil
ii) NG / LNG
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
MITIGATION MEASURES
SHORT TERM
Natural Gas and
RLNG suppliers,
interested in gas
supplies to NFL
for gas tie ups.
LONG TERM
High impact
low
likelihood.
High Impact
High
Likelihood
Appendix - 6
Existing Contract is
valid up to Feb 2008.
There is likelihood of
diversion of FO for
hydro cracking by
refineries.
Availability of NG is
shrinking gradually.
LNG is not likely to
be adequate to meet
complete demand and
also its prices are
apprehended to go
high.
Further existing
contracts are valid as
follows :
NG-PMT: 31.3.2006
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Generation of
status report on
Quarterly basis
ED(Tech)
ED(P&M)
CGM(F&
A)
Generation of
status report on
Quarterly basis
ED(Tech)
ED(P&M)
CGM(F&
A)
A. 48
TYPE OF
RISK
2.Quality
a) Fuel oil
b) Coal
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
NG-APM: 31.12.2007
RLNG : 31.12.2008
MITIGATION MEASURES
SHORT TERM
LONG TERM
High Impact
Low
Likelihood
Low Impact
High
Likelihood
Variation in Analysis
w.r.t. critical
parameters as per
contract
3. Fuel pricing
a) Coal
Low Impact
Low
Likelihood
Appendix - 6
Lower grade of
coal received from
colliery
Presence of stones
in coal rake.
Increase in Average
fuel cost >8% on
annualized basis.
Depute own
personnel at point
of loading.
Contest with
collieries for any
variation in
analysis.
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Daily reporting
is already in
vogue.
Unit head
/
ED(P&M)
Immediate- As
and when
significant
deviation is
noticed.
Daily reporting
is already in
vogue.
Unit head
/
ED(P&M)
Immediate- As
and when
significant
deviation is
noticed.
Quarterly
review or
whenever price
is revised
Unit head
/
ED(P&M)
/CGM
A. 49
TYPE OF
RISK
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
b) Fuel Oil
Low impact
high
likelihood
Increase in Average
fuel cost> 8% on
annualized basis.
c) Gas Price
Low impact
high
likelihood
Appendix - 6
MITIGATION MEASURES
SHORT TERM
LONG TERM
Agreements, which shall
provide for appropriate
mechanism in order to cap
any arbitrary increase in
price.
To work out actual
Taking up with DoF/
impact and find out
Ministry of
measures to
Petroleum/Coal.
neutralize it.
Lining up of Fuel Supply
Agreements, which shall
provide for appropriate
mechanism in order to cap
any arbitrary increase in
price.
Identify Potential
Appropriately taking up
Natural Gas and
the issue with
RLNG suppliers
suppliers/DoF/MOP&NG.
Lobbying for vesting the
at affordable
Regulator with the powers
prices
to delineate the principles
Arranging for
appropriate need
of gas pricing. Exploring
possibility of participation
based
interventions from
in LNG value chain both
domestic and overseas.
governments
lobbying for
containment in
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
(F&A)
Quarterly OR
whenever price
of gas is
revised.
Unit
Head/ED
(Tech)
A. 50
TYPE OF
RISK
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
MITIGATION MEASURES
SHORT TERM
price hike
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Appropriate spares
planning and procurement.
Ensuring that critical
spares are always in stock;
Predictive maintenance.
Common Inventory control
of all Units to enable inter
unit use in case of
emergency
Understanding with other
companies for exchange of
similar spares during
exigencies.
Quarterly
Unit
Heads/
ED (Tech.)
Procurement and
replacement with new
generation instruments in
phased manner.
Discussion with technology
suppliers for Feasibility of
technology upgradation
Monthly
review. Critical
areas to be
identified and
reported
separately.
Unit
Heads/
ED (Tech.)
Quarterly
G.M.
LONG TERM
B) OPERATION RISKS
1. Machine /
System break
down &
spares
availability
high impact
high
likelihood
Loss of production
Increased energy
Planned
Preventive
maintenance.
Equipment health
assessment.
Plan for
restoration of
Plant operation.
Maintaining
Spares in
adequate quantity
and proper
quality
i)Regular upgradation
2.
Obsolescence
of Instruments
technology
etc.
High Impact
High
Likelihood
3. Labour
High Risk
Low
i) Loss of production
ii) Increased energy
Appendix - 6
1. Employees unrest.
Dialogue with
Proper monitoring at
Immediately
AS and when
breakdown
occurs
A. 51
TYPE OF
RISK
C) Utilities
1. Water
availability
2. Interruption
in Power
supply
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
Low
2. Recourse to legal
Likelihood
remedies
High impact
Low
Likelihood
High Impact
Low
Likelihood
Reduced receipt.
Low reservoir
level
MITIGATION MEASURES
RESPON
SIBILITY
CENTRE
(HR) I/c
and Unit
Head
Unit
Heads/E
D (Tech)
SHORT TERM
employees, their
union/association,
persuasion and
motivation
LONG TERM
Corporate and Unit level by a
professional group.
i) Keep emergency
water conservation
plan ready.
Improved Re-circulation
Capacity enhancement of
Water storage.
Take up the matter with state
irrigation department
Daily reporting
is already in
vogue.
Increase dependence on
captive generation by
installing more systems than
required.
Explore possibility of Power
sale from surplus capacities
during normal running that
can be consumed internally as
and when required.
Daily
Appendix - 6
PERIODICITY
OF
REPORTING
Provide protection
relays
Ensure smooth
operation/change
over of captive
power
Implement Load
management
system
Immediate As
and when
significant
reduction in
water level in
reservoir.
Unit
Heads/E
D (Tech)
A. 52
NATURE OF
RISK
(GRADING)
C. ENVIRONMENTAL RISKS
Environmental High Impact
& Pollution
Low
Likelihood
Control
Regulations,
etc.
TYPE OF
RISK
INDICATOR
(Trigger)
Pollutant level
exceeding the
specified limits
MITIGATION MEASURES
SHORT TERM
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Sophisticated pollution
control equipment to be
installed so as to keep the
pollution under the
prescribed standards.
Before implementation of a
new scheme, EIA must be
conducted.
Mutual assistance
agreement with
neighbouring factories.
Regular
monitoring is
carried on &
reported
monthly
Immediate
reporting as
and when the
pollutant level
/ flow
increases.
Unit
Heads/E
D (Tech.)
Adequate
system to be
developed for
regular
monitoring,
reporting and
control.
Concerne
d Project
Team
/Unit
Head/ED
(P&M)
LONG TERM
Continuous
control,
monitoring and
reporting system
to be developed
Action to be based
on deviation in
quality and
quantity of
pollutant at site.
Onsite /offsite
disaster
management plan
to be made ready
in case of any
exigency
Continuous
monitoring
&follow-up with
all concerned
agencies.
Constitution of
Task Force for
High Impact
Low
Likelihood
Appendix - 6
Delay in Suppliers /
inadequate progress
likely to cause
slippages in schedules
Stoppage of work at
site/suppliers
workshop.
A. 53
TYPE OF
RISK
2. Manpower
management
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
Non-payment/delay
in payment to subSupplier
Low Impact
Low
Likelihood
3.
a)Technologica
l Changes
Availability
High Impact
Low
Likelihood
Appendix - 6
i
Deployment of
inadequate
manpower by
Consultant,
Owner or
Contractor.
Slippages in
various
milestones.
Slowdown of
work.
Strike.
Sudden
changes in
availability of feed
stock necessitating
MITIGATION MEASURES
SHORT TERM
expediting at
vendors shop,
port/customs
clearance,
transportation etc.
Taking up the
matter with top
management of
concerned
agencies
Dialogue with
concerned agencies as
required on case-tocase basis.
LONG TERM
Putting defaulting agencies
on holiday.
Invoking Risks and Costs
clauses like L/d, unlimited
liabilities, Performance
Bank Guarantee (PBG) etc.
Insistence on Joint Deed of
understanding from the
Collaborator and the
bidder.
Regular communication &
better Industrial Relation
practices.
Awareness of related statutory
requirement and their
compliance.
Matter to be
immediately
reviewed and sorted
out with Consultants
i) To build up in-house
database/competence
regarding various aspects of
technology in vogue.
PERIODICITY
OF
REPORTING
Normally on
Monthly basis.
Routine
monitoring and
control on daily
basis.
RESPON
SIBILITY
CENTRE
Monthly
OR
Immediate on
occurrence of
an incident.
Project
Group/
DGM
(HR),
Safety
Officer,
Unit
Head/ED
(P &M)
GM(I/c)HR CO
Brain storming
session to be
held quarterly
Project
Group,
Unit
Head,
A. 54
TYPE OF
RISK
price of
feedstock
necessitating in
change in
technology
b) Change in
technology
worldwide
necessitating
corresponding
changes in the
plants
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
corresponding
change in design
engg.
Low impact
low
likelihood
4. Availability
of skilled
manpower for
specialized jobs
Low impact
low
likelihood
Appendix - 6
Deviation in major
technological
requirements like
production
capacity,
efficiency, product
or effluent
specifications
Necessitation
change in
construction
methodology.
Slippages in various
milestones.
Improper quality of
work.
Manpower Turnover
is critical function
MITIGATION MEASURES
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
ED(Tech)
ED(PM)
Brain storming
session to be
held quarterly
Project
Group,
Unit
Head,
ED(Tech)
ED(PM)
SHORT TERM
on case-to-case basis.
LONG TERM
Matter to be
immediately
reviewed and sorted
out with Consultants
on case-to-case basis.
Formulate
qualification criterion
for different
categories of
skilled/semi skilled
personnel.
Make alternate
i) Preparedncess to give
Regular
assignments on contract
monitoring and
business /outsourcing in case
reporting
of Engg. Functions
Suitable HR Policy for building
up competencies.
Selection of appropriate
technology with proven
track record/experience
To build up in-house
regarding various aspects
of technology in vogue.
Project
Group/
DGM
(HR),
Safety
Officer,
Unit
A. 55
TYPE OF
RISK
5. Financial
availability
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
High impact
Low
Likelihood
E. REGULATORY RISK
1. Changes in
High impact
GOI Policy/
Low
Legal
Likelihood
Framework/
Statutory levies
regulations
Appendix - 6
Non-disbursement of
loan as per agreed
schedule
Companys liquidity
position not sound
Increased :
Project Cost.
Cost of Production
Tax liability, etc.
MITIGATION MEASURES
SHORT TERM
arrangements
Suitable incentives for
deployment at project
sites.
Formulation,
monitoring,
reporting and
control of cash
flow status.
Discussions with
financial
institutions to
resolve issue
Immediate
Review of cost
estimates
Take up with
MOC
&F/appropriate
authorities
highlighting the
impact on NFL/
Sector
LONG TERM
PERIODICITY
OF
REPORTING
Monthly report
to be generated
indicating fund
availability and
cash
expenditure
Immediately, in
case of any
contingency.
As and when
such changes
occur
RESPON
SIBILITY
CENTRE
Head/ED
(P &M)
GM(I/c)HR CO
Project
group,
DGM(F&
A), Unit
head,
CGM(F&
A),
ED(P&M)
Unit
Head,
CGM (F &
A
ED(Tech.)
ED (P
&M) Co.
Secy.
A. 56
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
2. Chang in
High impact Likely difficult in
compliance of
Environmental Low
Likelihood
statutory
criteria
requirement.
Additional cost
due to change in
norms.
Threat regarding
stoppage of plant
by statutory
authorities
F. BUSINESS RISK
1.Business
High Impact Negative
portfolio Risk
Low
Contribution of any
i) Urea and
Likelihood
segment.
others
TYPE OF
RISK
ii) Industrial
products
Low Impact
High
Likelihood
Negative
Contribution of any
segment.
MITIGATION MEASURES
RESPON
SIBILITY
CENTRE
Unit
Heads/E
D
(Tech.)/E
D
(Proj.)
SHORT TERM
Emergent action
plan to comply
with the changed
requirement.
Take upto with
FIC to recovery of
additional
expenses through
tariff, wherever
applicable.
LONG TERM
Take up with DoF/MoE&F
where companys long
term interests cannot be
protected.
To plead for companies
interest at appropriate
forums.
Suitable decisions
on case to case
basis.
Assess the
duration of factors
leading to
negative
contribution.
Suitable decisions
on case-to-case
basis.
Assess the
duration of factors
leading to
Quarterly OR
AS and when
such risk arises.
ED
(Mktg.)
/ED(Tech
) / Co Sec
Monthly OR
AS and when
such risk arises.
ED
(Mktg.)
/ED(Tech
) / Co Sec
Appendix - 6
PERIODICITY
OF
REPORTING
As and when
such changes
are announced
A. 57
TYPE OF
RISK
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
2. Customer
Risk-Revenue
realization
Low Impact
Low
Likelihood
3. Entry in
newer business
areas
low impact
low
likelihood
Customer wise :
i) Outstanding
payment along with
period of default.
Failure/delay to
commence the
business
MITIGATION MEASURES
SHORT TERM
negative
contribution.
Regulate Supply
of Fertilizer and
reallocate.
Follow-ups at
various levels for
realization of
sundry debtors.
Consultancy
Outsourcing
Unorganized or
international
competition
impacting margins, as
could counterfeit
products
Rich product
knowledge economies
of scale and efficient
logistics management.
Appendix - 6
RESPON
SIBILITY
CENTRE
Tracking of customer
health-financially and
business wise
Measures such as LS back
up.
Allocation as per past
payment record.
Legal Action.
Development of in-house
expertise in various related
fields like project
management, leadership
etc.
Selection of a JV partner
Quarterly OR
As and when
receivables
accumulate for
over 60 days
CGM
(Mktg.),
CGM(F&
A)
Six monthly
CGM
(Mktg.),
Application engineering
capabilities to customize
products for specific use,
low cost, innovative
packaging, and periodic
market audits.
Representation to
concerned authorities for
levying of antidumping
Half-yearly
LONG TERM
G. COMPETITION RISKS
1. Costs
High impact
2. Revenues
High
3. Customer
likelihood
Preferences
PERIODICITY
OF
REPORTING
GM(CP)
CGM(Mkt
g.)
/ED(tech)
A. 58
TYPE OF
RISK
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
H. MARKETING RISKS
1. Govt. Policy High Impact
on regulation.
Low
2. Sale
Likelihood
Proceeds
realization.
3. Climatic
conditions
Freight limiting
factor because of
low consumption
in periphery of
Vijaipur Unit,
Change in sale
consumption
patter,
Glut and price
war in the market.
MITIGATION MEASURES
SHORT TERM
I. ASSET RISKS
1. Natural
High impact
calamities like
Low
storm,
likelihood
hurricane,
earthquake,
flood, etc.
Outage due to
such events.
Production loss.
Slippage of
milestones of
projects leading to
delay in project
construction
Appendix - 6
Increase market
share by
strengthening
dealers network,
Adopt least cost
movement
Divert to markets
with potential
with additional
cost
Improve brand
image and equity.
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Half-yearly
ED(Mktg.)
Quarterly OR
Immediately on
occurrence of
the event
depending on
severity.
ED(Tech.)
/ ED
(Proj.)
LONG TERM
duty
Immediate steps
for restoration of
production.
Constitution of
Damage Control
Group.
Lodge Insurance
Claim.
Rescheduling of
project completion
period
A. 59
TYPE OF
RISK
2. Fire
explosion/
implosion and
other major
accidents
NATURE OF
RISK
(GRADING)
High Impact
Low
Likelihood
Appendix - 6
INDICATOR
(Trigger)
MITIGATION MEASURES
SHORT TERM
Outage due to such
Immediate steps
events.
for restoration of
Production loss.
production.
Slippage of milestones Construction of
of projects leading to
Damage Control
delay in project
Group.
construction
Creation of Task
Force for
assessment of
damage and
immediate
restoration to
maintain project
schedule. Onsite
and offsite
Disaster
management plan
to be formulated
and mock drills
conducted
frequently Lodge
insurance claim.
LONG TERM
Adequate Insurance Cover.
Design of plant equipment
system as per latest code
and past data on accidents.
Fire station manned by
trained fire and safety
personnel.
Fire Hydrant system
approved by the Fire
Station Authority.
Fire extinguishers of fire
sensitive locations.
Certification of overhead
cranes, hoists and lifting
tackled by approved
personnel.
Ambulance room and
ambulance to meet and
contingencies.
The workmen of the
company are covered by
ESI, PF, EPF to meet the
events to death,
disablement and sickness
compensation
PERIODICITY
OF
REPORTING
Quarterly
OR
Immediately on
occurrence of
the event
depending on
severity.
RESPON
SIBILITY
CENTRE
Unit
Head/ED
(Tech.)/E
D
(P&M)
A. 60
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
J. FINANCIAL RISK
1. Funding
Low impact
Percentage of tied
Risk
Low
loan to total debt
likelihood
component of the
approved
investment
Increase in the
cost of borrowing
> 5% on
annualized basis
TYPE OF
RISK
2.Financial
Frauds :
i
Embezz
lement of
Cash.
ii
Misapp
ropriation
of Bank
balances.
iii
Others,
such as
false
Journal
entries,
Low Impact
Low
Likelihood
Appendix - 6
Perpetual Noncompliance of
systems &
procedures.
Unadjusted
entries for a long
time.
Non-standard
entries.
Avoidance of
dispute
settlement.
Non-availability
of balance
MITIGATION MEASURES
SHORT TERM
LONG TERM
Interest swaps.
Renegotiation with
Lenders
Periodic surprise
checks.
Insurance
Coverage.
Safe custody of
Cheque Books.
Restrict no. of
authorized
signatories.
Periodic Bank
reconciliation.
Transaction
tracing.
System audit
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Quarterly
Unit
Head,CG
M (F&A)
Unit head,
CGM
(F&A)
And
GM(IA)
A. 61
TYPE OF
RISK
dummy
procureme
nts, etc.
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
confirmation
2. Safety and
Security
High Impact
Low
Likelihood
Unsafe
practices by
contractors
Terrorist
attack.
Sabotage
by
disgruntled
elements.
Appendix - 6
High executive
attrition rate,
particularly, high
performers/havin
g critical skills.
Low response to
manpower
recruitment
drives.
No. of
accidents/injuries,
stoppage of work.
Frequency of such
occurrences.
Time & cost
involved to bring
normally
MITIGATION MEASURES
SHORT TERM
through internal
audit.
LONG TERM
Job rotation.
Contractual
employment
Outsourcing
Increased
supervision.
Development of
enhanced security.
Training on safe
practices.
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Succession Planning.
Quarterly
Training & Development.
Systems for outsourcing,
such as identifying/finding
suitable agencies,
empanelment,
Development of such
agencies, etc.
Unit
Head,
GM(I/c)HR
Contractual provisions to
mitigate unsafe practices
by contractors.
Insurance coverage to
losses due to terrorist
attack and sabotage.
Development and
implement a Disaster
Management
Scheme/Plan. A group to
be formed in each location
that shall be trained to
Unit
Head,
GM(I/c)HR
Quarterly
A. 62
TYPE OF
RISK
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
MITIGATION MEASURES
L. IT RISKS
1. Failure of
servers for
Business
Applications
High Impact
Low
Likelihood
2. Failure of
business
Applications
High Impact
Low
Likelihood
Collapse/nonfunctioning of
systems for > 24 hrs.
SHORT TERM
Non-functioning of
critical business
Application for >24
hours (Maintenance,
Finance, Material,
Operations)
3. Attack,
Hacking or
Intrusion into
internal System
or defacing of
website.
High Impact
Low
Likelihood
Collapse/nonfunctioning of
systems for > 24 hrs
Appendix - 6
LONG TERM
manage at the time of
disaster.
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Annual
Maintenance
contracts.
High Availability
features in the
servers.
Backup system.
Maintenance of
backup
In-house
Application
maintenance
team.
AMC
Deployment of Disaster
Recovery System.
Business continuity thru colocated servers
Half-yearly
Dy. GM
(MS), Unit
Head
Deployment and
implementation of robust ERP
System with an independent
audit tool
Parallel connectivity to
collocated servers for Business
continuity
Half-yearly
Dy. GM
(MS), Unit
Head
Isolation by
creating
Militarized and
Demilitarized
Zones.
Elaborate Firewall
systems.
Regular Security
Half-yearly
Dy. GM
(MS), Unit
Head
A. 63
TYPE OF
RISK
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
4.
Communicatio
n network
High Impact
Low
Likelihood
M. LEGAL RISK
Contractual High Impact
Low
liabilities
Likelihood
Frauds
Judicial
risks
Appendix - 6
MITIGATION MEASURES
SHORT TERM
audit &
vulnerability
system. Gateway
Anti-virus &
content scan
Complete Collapse for Email facility thru
> 24 hours
Internet.
As and when
decisions are
pronounced against
the Company.
To be ensured that
contracts clearly
specify the
contractual liabilities,
deduction, penalties,
interest and force
major conditions
clearly and
unambiguously.
Resolution of disputes
through arbitration
and conciliation.
PERIODICITY
OF
REPORTING
RESPON
SIBILITY
CENTRE
Half-yearly
Dy. GM
(MS), Unit
Head
Every quarter.
Unit
Head/CG
M(F&A)
/ED(P&M
) / GM
(HR) /
Co. Secy.
LONG TERM
Immediately
when a
fraud/judicial
decision having
wider
implication
comes to notice.
A. 64
NATURE OF
INDICATOR
RISK
(Trigger)
(GRADING)
N. INTERNAL CONTROL RISKS
Weak Internal
High Impact Non-compliance with
Control can
Low
Laid down
jeopardize the
Likelihood
procedures/
Companys
regulations:
financial
No laid down
position and its
policies
very existence.
/procedures with
regard to key
operations.
System failures,
frauds, etc.
TYPE OF
RISK
Appendix - 6
MITIGATION MEASURES
PERIODICITY
OF
REPORTING
SHORT TERM
LONG TERM
RESPON
SIBILITY
CENTRE
Unit
Heads/E
D (Mktg.)
/GM(IA)
A. 65
ANNEXURE-I
REPORTING FORMAT (*)
ASSESSMENT
TYPE OF RISK
INDICATOR AS
PROPOSED
CURRENT
STATUS
FUEL OIL/COAL/Naphtha/NG/RLNG
OPERATIONS
UTILITIES
PROJECT IMPLEMENTATION
REGULATORY
BUSINESS
COMPETITION
MARKETING
ASSETS
Appendix - 6
MITIGATION
MEASURES
SHORT TERM
LONG TERM
A. 66
FINANCIAL
CGM (F&A)
HUMAN RESOURCE
CGM (HR)
IT
Dy. General Manager (MS)/Unit Heads
LEGAL
UNIT HED/ CGM (F&A) /ED (P7M)/CGM (HR)/Co Sec
INTERNAL CONTROL
UNIT HEADS / CGM (Mktg.) / GM (IA)
(*) Responsibility to Report to the Audit Committee and Board of Directors shall rest with ED(Technical).
Appendix - 6
A. 67
RAW WATER
COAL
FUEL OIL
RAW WATER
RESERVOIR
FUEL OIL
HANDLING&
STORAGE
RAW WATER
FILTRATION
PLANT
COAL HANDLING
&CRUSHING
AIR
AIR SEPARATION
PLANT
O2
OIL GASIFICATION
&CARBON
RECOVERY
UREA
SYNTHESIS
N2
WATER
DEMINERALIZATION
PLANT
BOILER FEED
WATER
CONDENSATE RETURN
FROM TURBINES
CONDENSERS
STEAM GENERATION
BOILER HOUSE
DESULPHURISATION
CO SHIFT
CONVERSION
CPP
ASH HANDLING
&DISPOSAL
COOLING TOWER
I,II&III
SULPHUR
RECOVERY
SULPHUR
CARBON DIOXIDE
REMOVAL
LIQUID NITROGEN
WASH
GAS COMPRESSION
& AMMONIA
SYNTHESIS
AMMONIA
DECOMPOSITION
&RECOVERY
CONCENTRATION
&
CRYSTALLIZATION
UREA DRYING
& PRILLING
UREA BAGGING &
STORAGE
BAGGED
UREA
Prepared by:
Other Offices
Head Office:
60 Bentinck Street,
Kolkata.
Park Centre
24 Park Street
Kolkata.
81 Mittal Chambers,
228 Nariman Point,
Mumbai.
14 Padmanabha Street,
T-Nagar, Chennai.
Room No.105,
Prince Complex,
31/62 Hazrat Ganj,
Lucknow.