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INDIA LIMITED
PKF Sridhar & Santhanam
www.pkfindia.in
Chartered
Accountants
Chennai
TEAM LEADER
Mr. Sudarshan
PARTNER-IN-CHARGE
CA Prasanna
Copy to:
1. Mr.
2. Mr.
3. Mr.
4. Mr.
Bhaskar
Prasanna
Sudarshan
Vignesh
Dimensions:
1. Requirement Analysis
2. Budgets & Approvals
3. Contracts & Commercials
4. Results
5. Monitoring and maintenance
6. Financial
Focus Areas:
Each of the above dimensions are enumerated with focus areas to guide the audit to test the presence / absence of controls
and/or efficacy of controls and procedures in place. A detailed checklist each of the focus areas is annexed hitherto.
S.N
o
1
Dimension
Focus Areas
Requirement
Analysis
Detailed
checklist in
Annexure 1.
Information/Documents/Questionn
aire
1. Plant capacity utilisation
certificates.
2. Production reports.
3. Pre-budget technical analysis
report of the existing plant.
4. Details of consultants engaged
in the analysis.
5. User opinion reports.
6. Minutes of the meeting where
the proposal was discussed.
7. Proposal document with
complete annexures and
explanations viz., technical,
financial, operational and
safety.
Results
ANNEXURES
S.N
o
1
2
3
4
5
6
7
8
9
10
11
12
CheckPoint
REQUIREMENT ANALYSIS
What was capacity utilisation before CAPEX? Review
difficulties if any faced.
What was the source or origin of CAPEX requisition?
Was a technical analysis done before considering the
proposal? What was the result of the analysis?
Were any possibilities of adjustments that do not
require capital expense was considered ? Was capital
expense avoidable?
Were users opinion taken? If not Why? If yes, what was
majority opinion?
Was there a complete requisition with all the
attachments as to Technical analysis of current
capacity, throughput of plant vis--vis requirements,
features expected through expansion etc.,
Whether the technical analysis performed by third
party consultant or in-house expert.What was their
opinion?
BIDDING AND APPROVALS
Was board approval taken?
Was the approval within the delegated authority as per
company DOA.
Whether there is any Investment committee in place. If
yes, what was their appraisal?
Y/N/NA
Remarks
Control Sheet
No.
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
CheckPoint
What is the company policy on CAPEX. A recent
applicable copy of such policy should be obtained.
DOA, KRA and approval matrix. Obtain a copy and
check compliance.
What were the sources of finance considered for CAPEX
and whether it was appropriately approved as per
delagtion of powers.
Justification of sources by the management.
How the blanket budget approval was allocated among
different CAPEX and what was the basis.?
CONTRACTS AND COMMERCIALS
CONTRACT BIDDING PROCESS
Press Tender has been invited
Limited Tender based on previous experience with
group companies, recommendation of Engineering
Consultant
Minimum 3 nos. of vendors have been invited to quote
Price comparison statement available at each stage of
negotiation
Difference in non-price factors has been valued and
vendors bought on an equal footing.
Technical Recommendation for placement of order by
the Engineering Consultant
Scope of work detailed in Order is as per enquiry
specifications.
Price is all-inclusive, except E.D. to be reimbursed
against Cenvat Invoices.
Whether contract is on EPC basis if yes, than
segregation of price for supply and supervision portion
If imported supply than has EPCG benefit been
considered
Effective date of contract mentioned
Payment terms are based on milestones achieved
Y/N/NA
Remarks
Control Sheet
No.
45
46
47
48
49
50
51
CheckPoint
Advances have been secured against Bank Guarantees
Advance Bank Guarantee clause covers the scheduled
completion period
Performance Bank Guarantee clause covers the
warranty period
L.D. clause for delay in supplies is there Minimum 5%
of the contract value
L.D. clause for performance parameters is there
linked with technical parameters
Withholding Taxes in case of foreign contracts to be
borne by PEIL/Vendor
WCT, TDS, Service Tax considered in case of
Works/Labour Contracts
Completion Schedule mentioned in the Contract
Arbitration clause considered in the contract
Place of Jurisdiction of Courts is Udaipur, Rajasthan
Tender Award Note Approved by Tender Award
Committee
Contract has been awarded to L-1, party. If no reasons
given in Tender Award Note
Letter of Intent / Order signed/approved by M.D. in case
value exceeds Rs. 1 crore
BANK GUARANTEES
Whether the BG is issued by the local Bank
If so whether the BG is issued in Stamp paper.
Stamp paper value is commensurate with the
guaranteed amount
Whether two officers of the Bank signed if the value
exceeds Rs.5,00,000/-(Changes from Bank to Bank)
Whether the BG is dated
Y/N/NA
Remarks
Control Sheet
No.
56
57
58
59
60
61
62
63
64
65
66
CheckPoint
Whether the date of the BG is later to the date of
stamp paper bought.
Whether the Bank seal has been affixed in all the
pages.
Whether the Guarantee correctly indicates the Party on
whose behalf the same is given
Whether the BG mentions correctly the reference of the
contract/PO etc., (Applicable for foreign Bank/Branch
as well.
Whether the BG specifies correctly their liability in
conformity to the order requirement viz., Advance, SD,
Performance Guarantee, etc.
Whether the validity period indicated in the BG is in
accordance with the order terms.
Whether the claim period has been indicated in the BG
Whether there is a clear gap of minimum 3 months
between the validity period and claim period
Whether there is a clause for not absolving the Bank for
any liquidation, winding up, etc., of the party on whose
behalf the BG is issued
Whether the power of the Bank official is indicated in
the BG for issuing such Guarantee
Whether the BG specifies about the irrevocability of the
BG/right to subrogation.
Whether the definitions of all parties involved have
been correctly mentioned.
Whether the effective date of the BG in force is
specified
Whether the liberty of PEIL to alter the terms of the
contract has been specified.
Whether the jurisdiction of Udaipur courts is specified
in case of litigation/remedies.
Y/N/NA
Remarks
Control Sheet
No.
74
75
76
77
78
79
80
81
CheckPoint
Whether the succession /assignment of the BG is
specified in case of any change in the constitution of
Bank/party.
Whether a final synopsis indicating the liability, validity
period / claim period is given
Whether confirmation from Banker is available for issue
of such BG
In case of BG issued through fax by foreign banker
whether the same is authenticated by his local Agency.
FOREX TRANSACTIONS FOR AQUIRING CAPITAL
ASSETS
Review the Forex Policy and ensure that the Latest
Policy is there on records with us.
Ensure that the above Policy is approved by the Forex
Committee.
For each of the import contracts, find out the expected
delivery schedule from the Commercial Section.
Update the same in the Forex File maintained as a soft
copy. The expected payment date is called as the
Value Date
For each instalment payable by PEIL on the respective
dates in Foreign Currency, ensure that Forex Cover is
taken. This information would be available with the
Forex Department.
Ensure that the rates negotiated for Forex cover with
the bank are reasonable. Please note that the Forex
Cover rate consists of the following:
(a) Spot Rate.
(b) Forward Premium / Discount.
(c) Margin.
(d) The total of the above (a) + (b) + (c) is the Net
Rate.
Verify the confirmation given by the bank for the
intimation sent to the bank for taking the Forex Cover.
Y/N/NA
Remarks
Control Sheet
No.
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
CheckPoint
To ensure the rates quoted for the spot rate is correct,
verify the same with the RBI Reference Rate. The RBI
reference rate can be made available from their
website namely www.rbi.org. The rate quoted by the
RBI would not be exactly matching with the bankers
spot rate.
From The Policy verify the following:
(a) What is the % of the cross leg to be covered. (eg
euro-usd).
(b) What is the % of direct leg to be covered. (eg. Usd
inr).
Whether the above is as per the latest policy.
Review the Policy for the following:
(a) ECB ( External Commercial Borrowing)
(b) Buyers credit
Report for the extent of coverage based on the
utilization of the same.
Enter the above details in the Forex folder maintained
in the Excel Format in the Computer system.
(PW:prithvi)
Rollovers: For the Rollovers made check the following:
(a) The Rollover date is the next due date or value date
for which the payment is postponed. For this there are
rollover charges and the same needs to be verified by
us.
(b) To ensure that the next due date is confirmed by
the Commercial Department.
Cancellation of Forex Covers: In case the Forex covers
are cancelled the following needs to be verified:
(a) The rate at which the Forex cover is cancelled.
(b) To ascertain the reasons why the cover is cancelled
whether there is any change in Forex Policy.
( c) To find the Profit / Loss on Exchange fluctuation
and the same is booked in SAP Accounting System.
Y/N/NA
Remarks
Control Sheet
No.
103
104
105
106
107
108
109
110
111
CheckPoint
(d) To ensure that such profit / loss is correctly taken in
the monthly MIS.
You can also take the help of SBI reference rates for
Forex Payments made.
To ensure that the Stop Loss Levels/ Take Profit
Levels are correctly adhered to as per policy.
MANAGEMENT INFORMATION SYSTEMS AND
STATEMENTS
Ensure all small value contracts are entered in the
Commitments and the payments for the same is
recorded in the payments / cash outflow.
Ensure Infrastructure / Administration expenses are
correctly recorded in the MIS and are adequately
supported.
Ensure that the Interest accrued but not due is
correctly calculated and disclosed by way of note to the
Final Summary.
Excise Duty which is not included in the Cash Outflow is
disclosed separately.
The note to the Final Summary should mention the
amount paid through Buyers Credit in the Cash
Outflow.
Ensure that the Capex Estimate figures are the same as
disclosed in the previous months MIS and also
compare the same with the Original MIS. Report if there
are any differences.
Ensure that Internal Transfers between various Capex
Heads is not done.
Ensure that the Payouts are tallied with the Individual
Account of Capital WIP maintained under the SAP
Accounting System. Report for any differences.
Ensure that the monthly Bank Reconciliation Statement
is prepared and report for any long outstanding
cheques.
Y/N/NA
Remarks
Control Sheet
No.
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
CheckPoint
CONTRACT CLOSURE
Review of original BOQ/ Purchase orders
Review of revised BOQ /change order
Finalization of rates for extra items
Sign off on final BOQ
Review of final letter issued to contractor for amended
value of the contract
Review of original technical specifications and
subsequent technical specifications issued to the
contractor and to highlight the major deviations.
Review of consumption of materials with bar bending
schedules and technical drawings.
Review of consumption of reinforcement steel for
lapping with engineering standards.
Review of normal wastage with actual wastages and
claims made on the contractor.
Review of issue of material to parties
Review of reconciliation and recovery of expenditure
pertaining to material, labour, and crane hire charges,
other expenses incurred by the company on behalf of
contractors
Transfer of unutilized stores, materials, spares etc.
Review of contracts /contractor correspondence and
minutes.
Review of Insurance compliances
Review of Labour Compliances
Issues pertaining to taxation as per contract ( Direct
/Indirect taxes )
Work Certification on mile stone basis
Quality and quantity/measurement test checks
Poor quality / rework /excess and short work
Review of warranties and guarantees
Availability of bank guarantee as per the terms of the
Y/N/NA
Remarks
Control Sheet
No.
CheckPoint
contract
Review of adhoc advances paid to the contractors
Review of adjustment of deductions made
Release of retention money/security deposits
Invoice validation process
Review of accounting process.
Review of payment process
Compliance to all contractual obligations
Closure of punch list
Certification work completion
Certification material delivery
Certification engineering completion
Review of material reconciliation statement from
contractor
Review of invoice reconciliation statement from
contractor
Review of site clearances
Equipment performance guarantee release
Note for approval for closure of contract
NOC issued to the contractor
Cost capturing in SAP
Deviation Planned vs. Actual
FINANCE
PAYMENTS
Bill has been certified for payment by Project team.
In case of Civil/Erection works quantities have been
certified by Uhde India Ltd. (Quantity Surveyor)
For Supply Bills Stores Issue Voucher accompanies the
RCIR.
PEIL name appears as consignee/buyer in Excise
Invoices and MODVAT credit has been taken.
Bill quantities are verified with RCIR quantities.
RCIR has been certified by stores and Project Manager
Y/N/NA
Remarks
Control Sheet
No.
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
CheckPoint
Specifications of Material not Different from P.O.
Rate as given in the bill is verified with rate as per
order/billing schedule
Arithmetical Calculations checked, subtotals and Main
totals verified
Payments Terms as per contract are checked before
certifying bills.
In case of Bill for Advance Payment, bank guarantee for
Advance/Security Deposit is verified with PEIL FormatValidity, Claim period is in order.
In case of EPC Payments Quantities are entered in
Control Sheet maintained with us.
Actual Billed Quantity not more than P.O./BOQ. If yes,
approval from Project Team.
Bill is in the name of the Vendor on whom P.O. has been
placed
In case of Bill for contractual work/professional
services/erection TDS has been deduced. TDS to be
deducted on amount exclusive of Service Tax.
Work Contract Tax has been deducted in case of bills
for Civil Work
Completion Period as mentioned in Contract is verified.
Sales Tax Reg. No. for supply of Material
PAN No. for supply of Services
Service Tax Registration No. where Service Tax is
charges
Time Taken for Processing of Bills
Deduction of Advance
Check for Excise duty, whether price inclusive /
exclusive
Check fir Declared goods ST rate within state
Check for DRR dates / Weighment slip dates
Check for Cenvat taken/ availed in manual records
Y/N/NA
Remarks
Control Sheet
No.
CheckPoint
Y/N/NA
Control Sheet
No.
Remarks
STATUTORY COMPLIANCES
List of Statutory Compliances we will be looking at:
S.N
o
1
2
3
4
Particulars
Companies Act, 1956
Income Tax Act, 1961 and Income Tax Rules, 1962
Service Tax Laws and Rules
Central Excise Act, 1944
Applicability
Applicable at plant
Applicable at plant
Applicable at plant
Applicable at plant
level
level
level
level
9
10
11
12
13
Particulars
Local Sales Tax
Customs Act, 1962
The Employees' Provident Fund and Miscellaneous Provisions Act, 1952
The Employees' State Insurance Act, 1948
The Payment of Gratuity Act, 1972 & 'The Payment of Gratuity (Central)
Rules, 1972
The Payment of Bonus Act, 1965 & Payment of Bonus Rules, 1975
The Payment of Wages Act, 1936
Minimum Wages Rules
The Indian Stamp Act, 1899
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Applicability
Applicable at plant level
Applicable at plant level
Check GMD File
Check GMD File
Check GMD File
Applicable at plant level
Applicable at plant level
Applicable at plant level
Applicable at plant level
Dealt at Parry Travels and
Tuflex
Applicable at plant level
Applicable at plant level
Applicable at plant level
Applicable at plant level
Check GMD File
Note: Any other document or statute may be checked into if need so arises as the audit progresses.
Thank You.