Professional Documents
Culture Documents
REPORT ON
Internal Audit Functions and its Performance in OIL, Duliajan
As a partial fulfillment of the requirement for the MBA degree
Submitted By:
Debashish Phukan
Wilson Kikon
NAGALAND UNIVERSITY
DECLARATION
We undersigned hereby declare that the project entitled Internal Audit
Functions and its Performance in Oil India Limited is the original piece of
work submitted by us under the guidance of Mr. M D Gupta, Chief Manager
(IA), for the partial fulfillment of the requirement of MBA Degree of SCHOOL
OF MANAGEMENT STUDIES (SMS), NAGALAND UNIVERSITY and is
exclusively prepared and conceptualized by us and the findings in this project
report are based on the data collected by us and to the best of our knowledge and
belief this report has not been copied from any research submitted by anyone,
anywhere earlier.
_______________
Debashish Phukan
_______________
Wilson Kikon
School of Management Studies (SMS),
Nagaland University
PREFACE
The MBA is not an end in itself, but a means to an end. It is a degree
designed to give us the ability to develop our career to its fullest potential, at an
accelerated pace. To become a successful manager in this competitive era the first
and foremost task is to have a real life experience about the corporate world. We
are very much fortunate that in our syllabus there is a provision for Summer
Training of eight weeks in the public sector or private sector. We have made our
summer training at Oil India Ltd. (OIL) Head Office, Duliajan, Assam. In OIL we
have been given the necessary training regarding their organization and working
also we have been given the necessary inputs regarding our project work. It is a
splendid experience to work with the professionals. In IOL we have come to know
a lot and I believe those will pave our way during our working in the corporate
world.
I am very much glad to present our project report on Internal Audit Functions
and its Performance in Oil India Limited
This project is a sincere attempt to study and understand the overall Internal Audit
functions of Oil India Limited (OIL) and its prospects.
Debashish Phukan
Wilson Kikon
School of Management Studies (SMS)
NAGALAND UNIVERSIT
ACKNOWLEDGEMENT
We take this opportunity to thank all the person without whose constant
guidance, support and help, this project would not have seen completion.
We avail our self of the opportunity of offering our sincere thanks to all the
members of the Department of Business Administration, School of management
Studies (SMS), Nagaland University for organizing the summer training in Oil
India Limited, Duliajan and also for their generous guidance and help in the
preparation of this report.
We would like to express our gratefulness to Ms. D.Borborah, Sr. Manager,
T&D and Mr. T K Das Gupta, GM (IA), OIL, for giving us the chance to carry
out our project in his organization.
We acknowledge our indebtedness to our project guide Mr. M D Gupta,
Chief Manager (IA), OIL for his insightful comments and guidance regarding the
manuscript of this report.
We also like to thank Mr. M B Chetri Sr. Manager (IA), Mr.Utpal
Kaushik Sarma Dy. Manager (IA), Mr. A K Sinha Sr. Audit Officer (IA) and all
the Officers and staff of Internal Audit Department, OIL for helping and
supporting us during the summer training.
Last but not the least, our thanks also extended to all the respondents of OIL,
who has taken the pain of filling up the questionnaire and helped us to carry out the
study on their inputs.
Debashish Phukan
Wilson Kikon
EXECUTIVE SUMMARY
Project title: Project Report on Internal Audit Functions and its Performance in
Oil India Limited
Organization: Oil India Limited, Duliajan, Assam
Organizational Guide: Mr. M D Gupta, Chief Manager (Internal Audit)
Duration: 1st June 31st July, 2011 (2 months)
Research design :
Sampling plan :
Sample Size:
50
Data source :
Schedule design :
Sample area :
Method of data
collection:
Analysis Technique:
Limitation
The survey was limited to few departments in the organization.
Unavailability of executives in their cabins as they were engaged in field
work at that time.
Sampling error might have occurred because no sample in perfect
representation of a give population unless the sample size equals the
population.
There is a possibility of occurrence of false judgment due to the biased
responses by some of the executives staff while giving answers.
Since the report is based on the primary data and personal interview,
occurrence of personal biased cannot be ruled out.
TABLE OF CONTENTS
Page No.
Contents
DECLARIATION
PREFACE
ACKNOWLEDGEMENT
EXECUTIVE SUMMARY
CHAPTER-1
(General observation of the Organization)
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
Introduction
History Of Oil
Executive Profile
Objectives
Mission And Vision
CSR
List Of Departments
Achievements
2.1
2.2
2.3
2.4
2.5
2.6
2.7
CHAPTER-2
(Introduction to Internal Audit)
Internal Audit
History Of IA
Role In Internal Control
Role In Risk Management
Role In Corporate Governance
Nature Of IA Activity
IA Report
CHAPTER-3
(Internal Audit in OIL)
3.1
3.2
3.3
3.4
Introduction
Activities of IA Department
IA Mission Statement
IA Purpose
I
II
III
IV-VI
1-7
1
2-3
3
3-4
4-5
5-6
6
6-7
8-13
8-9
9-10
10
10
10-11
11-12
11
11-12
12-13
14-24
14
14
14
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
15
15
15
16
16-17
17-18
18
19-20
21
22-24
25-42
4.1
4.2
4.3
CHAPTER-4
(Analysis, Interpretation, Findings and Conclusion)
Analysis and interpretation of the Questionnaire
Findings
Conclusion
ANEXTUREI
BILBOGRAPHY
24-40
41
42
42-46
47
CHAPTER 1:
OIL INDIA LIMITEDS PROFILE.
1.1 INTRODUCTION
The story of OIL India Limited (OIL) traces and symbolizes the development and growth of the
Indian petroleum industry. From the discovery of crude OIL in the far east of India at Digboi,
Assam in 1889 to its present status as a fully integrated upstream petroleum company, OIL has
come far, crossing many milestones.
On February 18, 1959, OIL India Private Limited was incorporated to expand and develop the
newly discovered OIL fields of Naharkatiya and Moran in the Indian North East. In 1961, it
became a joint venture company between the Indian Government and Burmah OIL Company
Limited, UK.
In 1981, OIL became a wholly-owned Government of India enterprise. Today, OIL is a premier
Indian National OIL Company engaged in the business of exploration, development and
production of crude OIL and natural gas, transportation of crude OIL and production of LPG.
OIL also provides various E&P related services and holds 26% equity in Numaligarh Refinery
Limited.
The Authorized share capital of the Company is Rs. 500 Cr. The Issued, Subscribed and Paid
share capital of the company is Rs. 240.45 Cr. At present, The Government of India, the
Promoter of the Company is holding 78.43% of the total Issued & Paid-up Capital of the
Company. The balance 21.57% of the Equity capital is held by others.
OIL has over 1 lakh sq km of PEL/ML areas for its exploration and production activities, most of
it in the Indian North East, which accounts for its entire crude OIL production and majority of
gas production. Rajasthan is the other producing area of OIL, contributing 10 per cent of its total
gas production.
Additionally, OILs exploration activities are spread over onshore areas of Ganga Valley and
Mahanadi. OIL also has participating interest in NELP exploration blocks in Mahanadi Offshore,
Mumbai Deepwater, Krishna Godavari Deepwater, etc. as well as various overseas projects in
Libya, Gabon, Iran, Nigeria and Sudan.
In a recent CRISIL-India Today survey, OIL was adjudged as one of the five best major PSUs
and one of three best energy sector PSUs in the country.
Company signed a Promotion Agreement with the Government of India (GoI) in January 1958 to
form a company - OIL India Private Limited (OIL) - to take over the management of the AOCdiscovered fields of Nahorkatiya and Moran. OIL was incorporated on 18 February 1959, with
two-thirds of the shares held by BOC and the rest by GOI. The Agreement assured Burmah OIL
a dividend of 10% and Digboi Refinery 1.3 million barrels of OIL per year. Mr W P G
Maclachlan, a key player in the negotiation, became the first Chairman of OIL.
Growth, dynamism, adaptability and technological awareness have marked the activities of OIL
from 1959 till today.
OIL's Vision
OIL India is the fastest growing Energy Company with highest profitability.
OIL India delights the customers with quality products and services at competitive prices.
OIL India is a Learning Organization, nurturing initiatives, innovations and aspirations
with best practices.
OIL India is a team, committed to honesty, integrity, transparency and mutual trust
creating employee pride.
OIL India is fully committed to safety, health and environment.
OIL India is a responsible corporate citizen deeply committed to socio-economic
development in its areas of operations.
OILs Mission:
Balance between our investment in the E & P section and other low risk diversification
opportunities with the objective of optimizing our asset portfolios.
Continuously upgrade manpower skills, processes and technologies and thereby
consistently improve operational and financial performance which adhering to the highest
standards business conducts.
Grow with unwavering concern for the community and all over stick holders.
Have unstinted faith in our employees to enable them to make quick and informed
decision through adequate training and to improve then to do so.
Philosophy:
To promote the awareness and practice of Good Corporate Citizenship, by business becoming
an integral part of societal process where people have access to resources to make informed
choices and decisions towards a more humane and compassionate society.
Strategy:
To mobilize core competencies and resources of business, public organisations and Government
Institutionsto facilitate their working in partnership on projects that benefit communities.
Departments
Administrative
Civil
Chemical
Drilling
Drilling TS
Contracts
Finance and accounts
Geology and reservoir
General engineering
Instrumentation and Field Communication
L.P.G
Production OIL & GAS
Pipeline
Personnel
R&D
Well Logging
Internal Audit
Sl. No
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Departments
Electrical
Geophysics
Employee relation
Information technology
Land
Material
Medical
Personnel
Mechanical engineering
Planning
Research and development
Security
Safety and Environment
Training And Development
Transport
Field Engineering
Vigilance
1.8 ACHIEVEMENTS
OIL India bags three Petrofed Awards
OIL India Limited bagged three Petrofed OIL & Gas Industry awards for the year 2009.
Instituted by Petrofed the OIL & Gas industry Awards were given away by the Hon'ble Union
Minister of Petroleum & Natural Gas, Shri Jaipal Reddy at a packed function at New Delhi on
May 10, 2011, in presence of Captains and leaders of the petroleum industry in India.
OIL India received the OIL & Gas Pipeline Transportation Company of the year award, Special
Commendation award for Innovator of the Year-Team and Mrs Rupshikha Saikia Borah, General
Manager (Treasury), OIL India Limited, received the special commendation award for Woman
of the Year in The OIL & Gas Industry. It is indeed a proud moment for all in OIL India limited
to have been recognized for their efforts. The awards have strengthened the resolve of the
Companys employees to perform even better.
OIL bags India Pride Awards
OIL India Limited received the silver award in the OIL & Gas category of India Pride Awards Dainik Bhaskar group. The award was received by Shri N.M. Borah, Chairman & Managing
Director, OIL India Limited, at a glittering ceremony, from Honble Finance minister of India,
Shri Pranab Mukherjee in front of many PSU leaders and business magnates.
OIL Receives PSU award
OIL India Limited received the Heavyweight Miniratna PSU award at the 2nd, Dalal Street
Investment Journal PSU Award 2010, ceremony at New Delhi on 6th April, 2010. The award
was presented to Shri N.M.Borah, Chairman & Managing Director, OIL India Limited, by
Honble Union Minister of Steel, Shri Virbhadra Singh at a glittering ceremony in presence of
CEOs of other PSUs and dignitaries. The award was given taking into account the Companys
Net Sales, Operating profit, Net Profit and Balance Sheet size.
OIL bags "PSU with the highest Book Value" award
OIL India Limited was conferred with the PSU with the highest Book Value award by Dalal
Street, the renowned Financial and Investment Journal. The award was given away by the
Honble Chief Minister of Delhi Shrimati Sheila Dikshit at a glittering ceremony at New Delhi
on 24th March, 2009.
Oil India Limited received the certificate conferring the NAVRATNA Status
Oil India Limited received the certificate conferring the NAVRATNA Status by Govt. Of India
at New Delhi on 16.11.2010. The certificate was presented to Shri N.M.Borah, Chairman &
Managing Director, Oil India Limited by the Hon'ble Minister of Heavy Industries and Public
Enterprises, Shri Vilasrao Deshmukh at a ceremony in new Delhi organized by ASSOCHAM.
the ceremony was attended by several dignitaries. OIL was conferred the Navratna Status in
April, 2010.
Oil India lists at 8% premium
New Delhi: Shares of staterun northeast explorer Oil India Ltd settled at over 8% over their issue
price , the day of debut on the Bombay Stock Exchange. The scrip closed at Rs 1,140, though it
had opened marginally down. The stock hit an intraday high of Rs 1,156 and touched a low of Rs
1,019. On the NSE, the scrip settled at Rs 1,135, up 7.48%. The stock during market hours
climbed to a high of Rs 1,156.70 and had also slipped to a low of Rs 1,090 a share. With the
debut on the stock market, Oil India has joined the club of country's top 40 companies in terms
of market capitalisation, with a valuation of Rs 27,424.52 crore. In its maiden run, over 2.84
crore shares changed hands on both the bourses. The issue price for IPO of 2.64 crore shares had
been fixed at Rs 1,050 per share. TNN
CHAPTER 2:
INTRODUCTION TO INTERNAL AUDIT
Internal auditing is an independent, objective assurance and consulting activity designed to add
value and improve an organization's operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes. Internal auditing is a
catalyst for improving an organizations effectiveness and efficiency by providing insight and
recommendations based on analyses and assessments of data and business processes. With
commitment to integrity and accountability, internal auditing provides value to governing bodies
and senior management as an objective source of independent advice. Professionals called
internal auditors are employed by organizations to perform the internal auditing activity.
Internal Audit is not a discipline of Accountancy; External Audit is related to Accountancy, but
Internal Audit is an entirely separate discipline more closely related to Enterprise Risk
Management. Internal Audit does, of course, cover financial risk amongst its portfolio, but this is
one very minor element of the role. Significant misunderstandings in this area have resulted in
many organisations recruiting accountants with external audit experience to staff an internal
audit function; this is usually detrimental to the quality and completeness of assurance provided
to the Non-Executive Directors/Board, and may, in part, have contributed to corporate failures
where key operational risks that were not directly related to financial statements remained
unidentified and/or unmanaged by the Executive Management. When IIA and ACCA signed the
Global Memorandum of Understanding, IIA President David A. Richards said, "The IIA and
ACCA are both long-standing, highly respected professional associations, each with members
from all around the world. Although we represent two distinctly different professions, our codes
of ethics and perspectives on enhanced professionalism, ongoing education, and quantifiable
research mirror one another."
The scope of internal auditing within an organization is broad and may involve topics such as the
efficacy of operations, the reliability of financial reporting, deterring and investigating fraud,
safeguarding assets, and compliance with laws and regulations.
Traditionally, internal auditing involved measuring compliance with the entity's policies and
procedures. However, internal auditors are not responsible for the execution of company
activities; they advise management and the Board of Directors (or similar oversight body)
regarding how to better execute their responsibilities. As a result of their broad scope of
involvement, internal auditors may have a variety of higher educational and professional
backgrounds. Developments in internal auditing have moved away from "compliance" which is a
function of management control, towards Risk Based Internal Auditing (RBIA) which results in
monitoring and evaluation of the risk based control framework to manage enterprise risk. The
modern approach seeks to ensure that key risks are identified, a risk appetite is defined, and
controls are instigated in a fit for purpose way to manage risk according to the risk appetite of the
organisation.
Publicly-traded corporations typically have an internal auditing department, led by a Chief Audit
Executive ("CAE") who generally reports to the Audit Committee of the Board of Directors,
with administrative reporting to the Chief Executive Officer.
Other definitions
The definition above (first sentence of this page) is in essence the IIA's definition. A similar
definition has been developed by the accounting profession and adopted by the government
auditors: the ISA 610 and the INTOSAIs standard ("ISSAI") 1003 define the Internal audit
function as "An appraisal activity established or provided as a service to the entity. Its functions
include, amongst other things, examining, evaluating and monitoring the adequacy and
effectiveness of internal control."
2.2 History of internal auditing
The Internal Auditing profession evolved steadily with the progress of management science after
World War II. It is conceptually similar in many ways to financial auditing by public accounting
firms, quality assurance and banking compliance activities. Much of the theory underlying
internal auditing is derived from management consulting and public accounting professions.
With the implementation in the United States of the Sarbanes-Oxley Act of 2002, the
profession's growth accelerated, as many internal auditors possess the skills required to help
companies meet the requirements of the law.
2.3 Role in internal control
The role of internal audit is to provide independent assurance that an organizations risk
management, governance and internal control process are operating effectively. Internal auditors
deal with issues that is fundamentally important to the survival and prosperity of any
organization. Unlike external auditors, the look beyond financial risks and statements to consider
wider issues such as the organizations reputations, growth, its impact on the environment and the
way it treats its employees.
Internal auditors have to be independent people who are willing to stand up and be counted.
Their employers value them because they provide an independent, objective and constructive
view. To do this they need a remarkably varied mix of skills and knowledge. They might be
advising the projective running a difficult change programme one day, or investigating a
complex overseas fraud the next.
From very early on in their careers, they talk to executives at the very top of the organization
about complex, strategic issues, which is one of the most challenging and rewarding parts of
their role
Internal auditing activity is primarily directed at improving internal control. Under the COSO
Framework, internal control is broadly defined as a process, affected by an entity's board of
directors, management, and other personnel, designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories:
Management is responsible for internal control. Managers establish policies and processes to
help the organization achieve specific objectives in each of these categories. Internal auditors
perform audits to evaluate whether the policies and processes are designed and operating
effectively and provide recommendations for improvement.
2.4 Role in risk management
Internal auditing professional standards require the function to monitor and evaluate the
effectiveness of the organization's Risk management processes. Risk management relates to how
an organization sets objectives, then identifies, analyzes, and responds to those risks that could
potentially impact its ability to realize its objectives.
In larger organizations, major strategic initiatives are implemented to achieve objectives and
drive changes. As a member of senior management, the Chief Audit Executive (CAE) may
participate in status updates on these major initiatives. This places the CAE in the position to
report on many of the major risks the organization faces to the Audit Committee, or ensure
management's reporting is effective for that purpose.
2.5 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal,
accomplished primarily through participation in meetings and discussions with members of the
Board of Directors. Corporate governance is a combination of processes and organizational
structures implemented by the Board of Directors to inform, direct, manage, and monitor the
organization's resources, strategies and policies towards the achievement of the organizations
objectives. The internal auditor is often considered one of the "four pillars" of corporate
governance, the other pillars being the Board of Directors, management, and the external auditor.
A primary focus area of internal auditing as it relates to corporate governance is helping the
Audit Committee of the Board of Directors (or equivalent) perform its responsibilities
effectively. This may include reporting critical internal control problems, informing the
Committee privately on the capabilities of key managers, suggesting questions or topics for the
Audit Committee's meeting agendas, and coordinating carefully with the external auditor and
management to ensure the Committee receives effective information.
2.6 Nature of the internal audit activity
Based on a risk assessment of the organization, internal auditors, management and oversight
Boards determine where to focus internal auditing efforts. Internal auditing activity is generally
conducted as one or more discrete projects. A typical internal audit project [14] involves the
following steps:
1. Establish and communicate the scope and objectives for the audit to appropriate
management.
2. Develop an understanding of the business area under review. This includes objectives,
measurements, and key transaction types. This involves review of documents and
interviews. Flowcharts and narratives may be created if necessary.
3. Describe the key risks facing the business activities within the scope of the audit.
4. Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored.
5. Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended.
6. Report problems identified and negotiate action plans with management to address the
problems.
7. Follow-up on reported findings at appropriate intervals. Internal audit departments
maintain a follow-up database for this purpose.
Project length varies based on the complexity of the activity being audited and Internal Audit
resources available. Many of the above steps are iterative and may not all occur in the sequence
indicated.
By analyzing and recommending business improvements in critical areas, auditors help the
organization meet its objectives. In addition to assessing business processes, specialists called
Information Technology (IT) Auditors review information technology controls.
2.7 Internal audit reports
Internal auditors typically issue reports at the end of each audit that summarize their findings,
recommendations, and any responses or action plans from management. An audit report may
have an executive summary; a body that includes the specific issues or findings identified and
related recommendations or action plans; and appendix information such as detailed graphs and
charts or process information. Each audit finding within the body of the report may contain five
elements, sometimes called the "5 C's":
1. Criteria: What is the standard? The standard may be a company policy or other
benchmark.
2. Condition: What is the particular problem identified (difference between criteria and
actual status)?
3. Cause: Why did the problem occur (which control over risk was missing - design
effectiveness failure; or which control did not execute as planned -operating effectiveness
failure)?
4. Consequence: What is the risk/consequence (or opportunity foregone) because of the
finding?
5. Corrective action: What should management do about the finding? What have they
agreed to do and by when?
The recommendations in an internal audit report are designed to help the organization achieve its
goals, which may relate to operations, financial reporting or legal/regulatory compliance. They
may relate to effectiveness (i.e., whether goals were met or compliance with standards was
achieved) or efficiency (i.e., whether the outputs were generated with minimum inputs).
Audit findings and recommendations also relate to particular assertions about transactions, such
as whether the transactions audited were valid or authorized, completely processed, accurately
valued, processed in the correct time period, and properly disclosed in financial or operational
reporting, among other elements.
2.8 Developing the plan of engagements
Internal auditing standards require the development of a plan of audit engagements (projects)
based on a risk assessment, updated at least annually. The input of senior management and the
Board is typically included in this process. Many departments update their plan of engagements
throughout the year as risks or organizational priorities change.
This effort helps ensure the audit activity is aligned with the organizations objectives, by
answering two key questions: First, what goals are the organizations trying to accomplish in the
upcoming period? Second, how can the Internal Audit Department assist the organization in
achieving these goals?
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements. Changes in people, processes, or systems often generate audit project ideas.
Various documents are reviewed, such as strategic plans, financial reports, consulting studies,
etc. Further, the results of prior audits and resolution of open issues are considered. The
preliminary plan of engagements is documented and prioritized. Audit resources and expertise
are then considered and a final plan is presented to senior management and the Audit Committee.
CHAPTER 3:
INTERNAL AUDIT IN OIL
3.1 INTRODUCTION
In OIL, internal audit of pipelines, Kolkata Office, BEP & KG and partly the fields headquarter
Duliajan are carried out by Internal Audit Department located at Duliajan, Assam. In respects of
rest of the project/ offices of the company, the same is outsourced through Chartered
Accountants Firms.
Internal Audit is an independent department having executives & staff of Finance and Accounts
discipline. Presently the department is headed by GM- Internal audit who reports to the Director
(Finance).
3.2 Activities of Internal Audit Department
The scope and areas to be covered by Internal Audit is decided at the beginning of the year
through Annual audit program which is approved by audit committee.
The main areas covered by Internal audit are as follows:a)
b)
c)
d)
e)
f)
g)
h)
Scrutiny of Contracts and Purchases Proposal awarding contracts and purchase orders.
Payment of contractors and suppliers bill.
Deduction of sales tax, income tax and deposit thereof.
Establishment payment like- salary/ wages, tour claims, medical bill claim, etc.
Documentation and payment of advances and recovery.
Physical verification of assets.
Monitoring of capital work-in-progress.
Audit of billing of crude OIL, natural gas, LPG and scrap sale.
Liaise with Comptroller and auditor General (C&AG) and statutory Auditor
Audit Committee
The audit committee is established with the aim of enhancing confidence in the integrity of an
organizations processes and procedures relating to internal control and corporate reporting
including financial reporting. Audit Committee provides an independent reassurance to the
board through its oversight and monitoring role. Among many responsibilities the boards entrust
the Audit Committee with are the transparency and accuracy of financial reporting and
disclosures, effectiveness of external and internal audit functions, robustness of the systems of
internal audit and internal controls, effectiveness of anti-fraud, ethics and compliance systems,
review of the functioning of the whistleblower mechanism. Audit Committee may also play a
significant role in the oversight of the companys risk management policies and programs.
Audit Committee has thus become one of the main pillars of the corporate governance system in
Indian public companies. In steering companies through todays complex business environment,
boards are going to need strong leadership from their audit committees. Expanding the field of
vision, clearly defining whos tracking the companys risk radar, and taking a step back to reevaluate its own performance are some of the important steps every Audit Committee should
consider.
This section of the site includes a range of useful publications relating to the audit committees
operations and oversight responsibilities.
Section 292A of Companies Act Vs Clause 49 of Listing Agreement
The Companies (Amendment) Act (2000), among other things, provides for the formation and
functioning of audit committees (section 292A). Similar requirements for audit committees are
prescribed under clause 49 of the Listing Agreement issued by SEBI. In India, perhaps the 1992
stock market scam and liberalizations of the economy contributed more to the introduction of
these requirements than did Enron. Be that as it may, these scams and corporate failures have
shaken investors confidence and the whole world is watching intently the steps being
undertaken by the various statutory authorities in this respect. Below is a comparison between
the regulations governing the audit committee. It points to a few prominent differences between
the regulations in both.
Base of Diff.
Section 292A
Clause 49
Applicability
Constitution and
independence of
the
audit
committee
The mission of the internal audit is to provide independent and objective assessment and
consulting services to add value and improve the OIL`s operations. The internal audit
accomplishes its objectives by using a systematic, disciplined approach to evaluate and improve
the effectiveness of control, risk management and governance processes.
3.4 Internal Audit Purpose
The purpose of OILs internal audit is to determine whether its controls, risks management and
governance process, as designed and implemented by management are adequate and effective
and functioning to ensure;
- Risks are appropriately identified and managed
- Interactions with the various governance groups as needed
- Financial, managerial and operating information is accurate, reliable and timely
- Employees actions are in compliance with OILs policies and procedures and applicable
laws and regulations
- Resources are acquired economically, used efficiently and adequately protected
- Plans and objectives are achieved
- Quality and continuous improvement are fostered in the OILs control process
- Significant legislative and regulatory issues having impact in OILs operations are
recognized and timely addressed appropriately
3.5 Scope and Objectives:
The objective of internal auditing is to assist all members of the organization in the effective
discharge of responsibilities by furnishing them with analysis, appraisals, recommendations and
pertinent comments concerning the activities reviewed. The internal auditor is concerned with
any phase of business activity where he/she may provide service to the organization. This scope
involves going beyond the accounting and financial records to obtain a full understanding of the
operations under review. The attainment of this overall objective involves such activities as;
- Reviewing and appraising the correctness, adequacy and application of accounting ,
financial and other operating controls and promoting effective control at reasonable cost
- Ascertaining the extent of compliance with established policies ,plans and procedures
- Ascertaining the extent to which company assets are accounted for and safeguarded
from losses of all kinds
- Ascertaining the quality of performance in carrying out assigned responsibilities
- Recommending operational improvements
3.6 Internal Audit Independence:
Internal auditing is an advisory function having independent status within the organization. The
head of internal audit-
Exchange of information related to audit observations that may have an impact on the
financial statement of the company and which need to be reported to the companys
audit committee.
The likelihood rating represents the likelihood of an event or risk, which may occur. The
materiality rating represents the exposure to the organization should the event or risk occurs.
A risk assessment rating for both likelihood and materiality is determined for each audit area
included in the audit universe.
(v) Assigning frequency for each audit area;
The frequency of each audit is determined based on the likelihood and materiality rating of each
audit.
The following parameters are normally used for arriving the frequency of each audit area.
Table 3.1
SI. No. Likelihood Rating
Materiality Rating
Frequency of Audit
1
high
High
Yearly
2
high
Medium
Every alternate year
3
high
Low
Every 2nd alternate year
4
medium
High
Every alternate year
5
medium
Medium
Every 2nd alternate year
6
medium
Low
Every 3rd alternate year
7
low
High
Every 2nd alternate year
8
low
Medium
Every 3rd alternate year
9
low
Low
Once in four years
(vi) Assigning number of auditors, time and skills required for each audit;
The number of auditors, time and skill sets required for carrying out each audit should be
assessed appropriately at the time of preparing audit universe. The assessment is to be based on
the understanding of the business of the company, nature of complexity involved, locations /
activities to be covered, estimated time required for collection of data, time required for planning
the commencement of audit and report writing.
(vii) Estimating systems understanding and documentation- the auditor should assess
the existing systems and documentation work before begins/commencing the audit work of the
department. While carrying out such study, the following should be looked into- understand departmental philosophy and operating style.
- identify business objectives of the department
- understand existing systems and procedures in the department
- perform risk analysis of the functions performed in the department
- Identify critical areas that needed to be audited
- identify the level of assignment of authority and responsibility
- understand the level of information technology risk in the functions.
CMD/Director
(Finance)
Audit Committee
General Manager
(IA)
Head Internal
Audit
Managers/Dy.
Managers/ Sr.
Managers/
Officers/ Asst.
Officers
Deputy General
Manager (Tech.
Dy. Chief/
Suptding/ Sr.
Suptding/ Sr. Tech
Auditors/ Auditors/
Asst. Auditors
3.13 Staffing
The staffing of the IA department is based on factors like quantum and nature of operations,
number of auditable sites, number of employees in the various work centers/ Projects, number of
areas required to be covered by IA department and number of audits to be conducted in a final
year.
The following staff strength is estimated based on the nature and volume of operations carried
out by OIL and various changes made in the companys act and the accounting standards made
mandatory applicable to the company. The corporate Governance is also become mandatory. IA
will be playing a major role to ensure appropriate implementation of corporate Governance in the
company.
Table 3.2
Level of Officers
General manager
Sanctioned
Strength as at
year 2000
-
Head (IA)
Present Status
1
-
1
Chief Manager
Sr. Manager
Manager
Dy. Manager
1
9
5*
Secretary
Steno
Office Staff
Office Boy
Tea Boy
Total
22
14
CHAPTER 4:
ANALYSIS, INTERPRETATION
INTERPRETATION, FINDINGS AND CONCLUSION
4.1 ANALYSIS OF THE QUESTIONNAIRE
Q.1. Have you ever requested sp
specific
ecific services of the Internal Audit function?
Option
Yes
No
Total
No. of Respondent
5
27
32
Percentage of respondent
15.625 %
84.375%
100%
Percentage of Respondent
15.63%
Yes
No
84.38%
INTERPRETATION
Nearly 85% respondents said No
Only 15% respondent reques
request service of IA function.
Q.2. How will you judge OILs present Internal Audit activities towards improving the
performance of the organization?
Option
Good
Average
Poor
Does not
Comment
Total
No. of Respondent
8
21
2
1
Percentage of respondent
25%
65.625%
6.25%
3.125%
32
100%
Percentage of Respondents
Good
80%
65.63%
Average
60%
40%
Poor
25%
20%
Does not
Comment
6.25%
0%
3.13%
Good
Respondents
Average
Poor
INTERPRETATION
Does not
Comment
No. of Respondent
23
4
Percentage of respondent
71.875%
12.5%
5
32
15.625%
100%
Percentage of Respondents
80.00%
Meet
Expectations
71.88%
70.00%
60.00%
50.00%
40.00%
30.00%
12.50%
20.00%
15.63%
10.00%
0.00%
Meet
Expectations
Does not
comment
INTERPRETATION
72% respondents said that IA Meet Expectations
Does not
comment
No. of Respondent
Percentage of respondent
Completely Confident
0%
Somewhat confident
31
96.875%
0%
3.125%
Total
32
100%
Percentage of Respondent
96.88%
100%
Completely
Confident
80%
Somewhat
confident
60%
40%
20%
0%
0%
0%
3.13%
Not at all
confident
Does not
comment
INTERPRETATION
97% respondents were somewhat confident.
Rest 3% respondents did not comment anything.
Q.5. To what extent do you believe that the work of internal Audit improves
the overall internal control
trol of the organization?
Option
Greatly improves
Somewhat improves
Does not improve
Dont know/ not
sure
Total
No. of Respondent
0
21
2
9
Percentage of respondent
0
65.625%
6.25%
28.125%
32
100%
Percentage of Respondents
65.63%
70%
60%
50%
40%
28.13%
30%
20%
10%
6.25%
0%
0%
Greatly
improves
Somewhat
improves
Does not
improve
Dont know/
not sure
INTERPRETATION
Greatly
improves
Somewhat
improves
Does not
improve
Dont know/
not sure
Q.6.Do
Do you believe that the work of Internal Audit helps in identifying
identi
and
improving the overall risk of the organization?
Option
Agree
Neutral
Disagree
Total
No. of Respondent
11
14
7
32
Percentage of respondent
34.375%
43.75%
21.875%
100%
Percentage of Respondents
Agree
21.88%
34.38%
Neutral
Disagree
43.75%
INTERPRETATION
34% respondents Agreed with the above statement.
44% respondents remains neutral
22% respondents Disagreed
No. of Respondent
1
25
4
2
32
Percentage of respondent
3.125%
78.125%
12.5%
6.25%
100%
Response
Agree
78.13%
80.00%
Neutral
60.00%
Disagree
40.00%
20.00%
3.13%
6.25%
0.00%
Agree
Neutral
Response
Disagree
Did not
respond
INTERPRETATION
Did not
respond
12.50%
No. of Respondent
6
17
8
1
32
Percentage of respondent
21.875%
53.125%
25%
3.125%
100%
Percentage of Respondents
60.00%
53.13%
Agree
50.00%
Neutral
40.00%
30.00%
Disagree
25%
21.88%
Not respond
20.00%
3.13%
10.00%
0.00%
Agree
Neutral
Disagree
INTERPRETATION
Only 22% respondent agreed the statement
53% respondents remains neutral
25% respondents Disagreed
3% respondents did not comment anything
Not respond
Q.9. How do you rate the quality of Internal Audit report issued by Internal
Audit Department?
Option
Excellent
Good
Average
Poor
Very Poor
Total
No. of Respondent
0
10
20
2
0
32
Percentage of respondent
0%
31.25%
62.5%
6.25%
0%
100%
Quality of IA Report
70%
Excellent
62.50%
60%
Good
50%
Average
40%
31.25%
Poor
30%
20%
6.25%
10%
0%
0%
Excellent
Good
INTERPRETATION
Average
Poor
Q.10.Do
Do you think that Internal Audit have the right reporting structure?
Option
Agree
No. of Respondent
5
Percentage of respondent
15.625%
Neutral
21
65.625%
Disagree
15.625%
Not respond
Total
1
32
3.125%
100%
Percentage of Respondent
Agree
80.00%
65.63%
60.00%
Neutral
40.00%
20.00%
Disagree
15.63%
15.63%
0.00%
Agree
Neutral
Response
Disagree
INTERPRETATION
Not respond
3.13%
Not respond
Q.11.Do
Do you appreciate that audit work was efficiently performed
performe according
to planning period?
Option
Agree
Neutral
Disagree
Not respond
Total
No. of Respondent
3
23
5
1
32
Percentage of respondent
9.375%
71.875%
15.625%
3.125%
100%
Percentage of respondent
80.00%
71.88%
Agree
70.00%
Neutral
60.00%
50.00%
Disagree
40.00%
Not respond
30.00%
15.63%
20.00%
10.00%
9.38%
3.13%
0.00%
Agree
Neutral
Disagree
INTERPRETATION
Only 9% Agreed
72% respondentt remains Neutral
16% respondents Disagreed
Remaining 3% did not comment anything
Not respond
Q.12.Do
Do you consider that internal audit report was issued in a useful time?
Option
Neutral
Disagree
Not respond
Total
No. of Respondent
20
10
2
32
Percentage of respondent
62.5%
31.25%
6.25%
100%
Percentage of respondent
6.25%
Neutral
31.25%
Disagree
62.50%
INTERPRETATION
63% respondents remains Neutral
31% respondents Disagreed
6% did not comment anything.
Not respond
Option
Agree
Neutral
Disagree
Not respond
Total
No. of Respondent
2
24
2
4
32
Percentage of respondent
6.25%
75%
6.25%
12.5%
100%
Percentage of respondent
75%
80.00%
Agree
70.00%
60.00%
Neutral
50.00%
Disagree
40.00%
30.00%
Not respond
20.00%
10.00%
12.50%
6.25%
6.25%
0.00%
Agree
Neutral
Disagree
INTERPRETATION
Only 6% Agreed
75% remains Neutral
6% Disagreed
Remaining 13% did not comment anything
Not respond
Q.14.Do
Do the Auditors motivate you to improve on your performance with
their suggestions?
Option
Agree
Neutral
Disagree
Total
No. of Respondent
2
15
15
32
Percentage of respondent
6.25%
46.875%
46.875%
100%
Percentage of respondent
6.25%
46.88%
Agree
46.88%
Neutral
Disagree
INTERPRETATION
Only 6% respondent agrees that Auditors motivate them in improving their performance.
performance
Nearly 47% respondent remains neutral with the statement
statement.
Rest 47% disagree the statement.
No. of Respondent
Percentage of respondent
Agree
11
34.375%
Neutral
15
46.875%
Disagree
18.75%
Total
32
100%
18.75%
34.38%
Agree
Neutral
46.88%
Disagree
INTERPRETATION
Only 34% of the respondents Agree that IA functi
functions
ons has appropriate status
in OIL
Nearly 47% of the respondents remain Neutral
18% respondent dont believe that IA functions has a appropriate status in
OIL
Details of respondents-
SEX
No. of Respondent
Percentage of respondent
Male
29
90.625%
Female
9.375%
Total
32
100%
Percentage of respondent
9.38%
Male
90.63%
INTERPRETATION
More than 90% of the total respondents were Male
Female
Length of Service
in OIL
1-5 years
No. of Respondent
Percentage of respondent
3.125%
5-10 years
6.25%
29
90.625%
Total
32
100%
3.13% 6.25%
1-5
5 years
5-10
10 years
90.63%
More than 10 years
INTERPRETATION
More than 90% of the total respondents have an experience of more than 10 years of
service in OIL.
4.2 FINDINGS
Major findings based on primary data collected from the respondents are stated as follows:
The overall internal control of the organization is improves to some extent by work of Internal Audit
The report issued by IA department helps in improving the performances of the departments
The quality of IA report can be rated as average.
The executives of different departments have only few knowledge on the functions of Internal Audit
Department
4.3 CONCLUSION
A Project report on Internal Audit Functions and its Performance in Oil India limited is the
topic for my study. It is a brief study of understanding about the IA functions of the organization.
From the report it can be well identified that the organization has adopted a well and distinguish
Internal Audit functions. The IA department working independently and reporting to the Audit
Committee in a regular basis.
We have felt that the company has come forward to apply new skills and techniques in order to
improve the Functions of IA.
The project work is very beneficial for us and the guidance and support receive from all during
the course of my project was very encourage
ANEXTURE I
Questioner
1. Have you ever requested specific services of the Internal Audit function?
a) Yes
b) No
2. How do you judge OILs present Internal Audit activities towards improving
the performance of the organization?
a) Excellent
b) Good
d) Poor
e) Very poor
c) Average
b) Meets Expectations
b) Somewhat Confident
5) To what extent do you believe that the work of internal Audit improves the
overall internal control of the organization?
a) Greatly Improve
b) Somewhat improves
6) Do you believe that the work of Internal Audit helps in identifying and
improving the overall risk of the organization?
a) Strongly agree
d) Disagree
b) Agree
c) Neutral
e) strongly disagree
b) Agree
c) Neutral
e) strongly disagree
8. Do you feel that Audit report issued by Internal Audit department help the
department to improve the work of department?
a) Strongly Agree
d) Disagree
b) Agree
c) Neutral
e) strongly disagree
9. How do you rate the quality of Internal Audit report issued by Internal Audit
Department?
a) Excellent
d) Poor
b) Good
c) Average
e) Very Poor
b) Agree
e) Strongly Disagree
c) Neutral
11.Do you appreciate that audit work was efficiently performed according to
planning period?
a) Strongly Agree
d) Disagree
b) Agree
c) Neutral
e) Strongly disagree
12.Do you consider that internal audit report was issued in a useful time?
a) Strongly Agree
d) Disagree
b) Agree
c) Neutral
e) Strongly disagree
b) Agree
c) Neutral
e) strongly disagree
14. Do the Auditors motivate you to improve on your performance and with
their suggestions?
a) Strongly Agree
d) Disagree
b) Agree
c) Neutral
e) Strongly disagree
b) Agree
e) Strongly Disagree
c) Neutral
a) M
b) F
Department: ______________________Designation:______________________
Length of the service in OIL:
a) Less than 1 year.
b) 1-5 years.
c) 5-10 years.
d) More than 10 years
_______________________
Signature of the respondent
Thank you for your time and the honesty of your answers.
BIBLIOGRAPHY
Books:
C R Kothari- Research Methodology (New Age International Publishers)
Annual Report OIL
Audit Manual OIL
OIL magazines
Internet:
www.wekipedia.com
www.oil-india.com
www.google.com