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Introduction
This report chiefly focuses the finance system of Pakistan Revenue Automation (Pvt) limited as whole in general. The brief history and overview of the organization has been provided in report. General management philosophy has briefly been discussed. Efforts have also been made to cover the organizational behavior towards allocation of funds to different assets. Accordingly to necessities, aid of chart and graphs has also provided. The components of the report have been stream lined according to the technical specification provided by University. It has also been strive to arrange the report in accordance with internship report format. Last section of report under consideration contains shortfall, weaknesses & recommendation for improvement in prevailing system.

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Objective Of Studying The Paksitan Revenue Automation (Pvt) Limited
In accordance with the MBA program of Allama Iqbal Open University, it is the requirement of the university to carry out internship in any professional organization for a period from 6 to 8 weeks. The objective of studying is to obtain practical application knowledge in the area of specialization that pertains to the student doing MBA. It also promotes the student’s personal development and professional preparation. It also allows students to supplement their formal education with practical experience. As I did my MBA-Finance and already working in Pakistan Revenue Automation (Pvt) Limited as Assistant Manager Accounts/Finance. Being an employee of Pakistan Revenue Automation (Pvt) Limited I am familiar with the culture of the organization and have access to the data of organization that was necessary for report generation. Because of this I preferred to do Internship in my native organization by studying its Finance/Accounts system. Also, I got permission from MBA Department of AIOU, Islamabad.

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Overview Of The Organization
Brief History
Pakistan Revenue Automation (PVT) Limited (PRAL), has been in operation since 1994, and has completed several projects of automation on both direct and indirect taxes being administered by the Central Board of Revenue (CBR), Govt. of Pakistan. In addition it has completed a few projects for other Government Agencies. The company is wholly owned by the Government through the CBR and is governed by a Board of Directors comprising the Chairman, CBR as its Chairman and line members of different taxes as its Directors. Since its creation, the funding of Pakistan Revenue Automation (Pvt), Limited from Finance Division has continued in the shape of lump-sum grants.

Nature of the Organization
Pakistan Revenue Automation (Pvt.) Ltd. (PRAL) is a computer consultancy company owned by the Government of Pakistan. The main purpose of the company is to enhance the efficiency and effectiveness of the Information Systems prevailing in public and private sectors by applying relevant state-of-the-art technologies related to computer software, hardware and data communication. All the efforts being made in the field of Information Technology by PRAL, now has been duly recognized by ISO 9001: 2000 certification in software design and development.

Business Volume
For much of our 10 years, we have been successfully operating in commercial projects as well as government agencies to provide them practical, innovative and appropriate solutions for their present & upcoming prospects. More over, PRAL has distinctive

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position as a group of technology-based problem solvers driven to over-all utility and costeffective solutions. This has been demonstrated on projects large and small -- from Rs. 50,000 to Rs. 50 Million. PRAL is engaged in developing various computer-based applications for Central Board of Revenue and allied revenue collecting agencies. Most of the work being carried out is related to Income Tax, Customs and Central Excise, and reengineering of procedures/ processes for enhancing the efficiency of the departments.

Number of Employees
Pakistan Revenue Automation (Pvt.) Limited, is an ISO 9001-200 Certified information technology solution provider company, being the Largest IT company in Pakistan with about 1400 employees. It has presence in 13 cities and in the very near future will be providing services in 3 more towns.

Product Lines/Services Provided By PraL
PRAL remains engaged in different types of Information Technology-related projects. Major portion of our projects is CBR, Govt. of Pakistan. PRAL has great experience of working on high, medium and small projects. There are following major projects of PRAL.

Services Provided To CBR, Govt Of Pakistan
Pakistan Revenue Automation (Pvt) is a computer consultancy company owned by CBR, Govt. of Pakistan. The main purpose of the company is to enhance the efficiency and effectiveness of Information Systems prevailing in CBR by applying relevant state-of-the-art technologies related to computer software, hardware and data communication. In simple words the purpose of PRAL is the automation of the taxes of CBR, Govt. of Pakistan. Besides CBR’s Website and its maintenance, support on Internet facilities to all officers, Preventive maintenance of personal computers, printers, stabilizers, UPSs in CBR and Its field organizations the brief contribution of PRAL in CBR Can be presented below.

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1)

Income Tax

PRAL is providing services to CBR related to computer applications developed and implemented at various locations of the Income Tax Department which is divided into the following two broad parts from the points of view of the scope of work and methodology.
a)

Maintenance support relating to existing applications developed by M/s PRAL Operational support at all the computer installations of Income Tax.

b)

Income Tax Return Management System (ITMS) The main features of ITRMS is that all the income tax returns i.e. salaried individual, business individual, companies, etc., from all over the country have been processed/entered in one centralized software at Islamabad. This enable CBR, Government of Pakistan to get under one roof the most important statistics/data such as: i) ii) iii) iv) who are the genuine tax payers what is the amount of tax collected through these returns tax payers who have neither submitted returns nor deposited tax such statistics can be very useful for future analysis/decision making

Tax Accounting System (TAS) The main utility of this system is that all the tax which is deposited by the tax payers directly in the banks has been entered in this system. This data has been entered on the basis of tax challans/reports submitted by the banks. The main benefit of this system to CBR can briefly be presented as below. i) When any tax payer wants to claims any refund from income tax department on the basis of paid tax challans its authenticity can be verified. This system has eliminated the chances of refund of tax through bogus challan.

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ii)

Though this system CBR can verify the amount of tax being paid by a particular tax payer or company.

iii)

CBR can make analysis regarding total deposit of tax.

National Tax Number (NTN) At presently PRAL is issuing National Tax Number at more than 16 cities of the country. To facilitate the tax payer, now NTN is being issued within only 24-48 hours on purely merit basis at free of cost. This system has greatly helped in widening the tax base of the country because every NTN holder will have to submit income tax return. PRAL is playing a very key role in the maintenance of NTN Master Index because previously huge numbers of duplicate NTN Certificate has been issued on the same NIC. Tax Management System (TMS) The development of Tax Management System (TMS) is in the final stages. The Assessment of all the income tax returns would be carried out on this system. The demands against tax payable, notices for non-compliance and appeals procedures would be carried on this system. Audit Management System (AMS) Development of Audit Management System (AMS) is also in the final stages. The main objective of which is the cross verification of payment of Income Tax, Sales Tax and Customs Duty of any particular tax payer/company through 360 degree view. This system is being for audit purposes.

Operational Support At All The Computer Installations Of Income Tax
PRAL is also providing operational support at all the computer installations of Income Tax at Karachi, Hyderabad, Sukkur, Multan, Faisalabad, Bahawalpur, Sargodha, Sahiwal, Lahore, Gujranwala, Sialkot, Rawalpinid, Quetta, and Peshawar where ITMS is working. The support is being provided in following areas. i) ii) iii) Basic machine operations User/Group Profile management Granting of authorities

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iv) v) vi) vii) viii) ix)

Bank UP/Restore functions Troubleshooting Configuration of Terminals/Other Devices Hardware problem reporting to vendor Training of DPC/ Circle staff on the Application software Responsibilities regarding New Software Development on the request of relevant field Offices a. Evaluation of the requirement b. Coordination with the user to prepare comprehensive requirement definition document for the approving authority c. Testing of the application software in the light of requirement of the users d. Training/Implementation of the application

2)

Sales Tax

Sales Tax Automated Refund Repository (Starr) The name of software which is development by PRAL for the Sales Tax Department of CBR is called Sales Tax Automated Refund Repository (STARR). To understand the benefits of this system knowledge of payment of sales tax/submission of sales return is must. Every registered sales tax payer is required to submit sales tax return on monthly basis. He has to report the sales tax paid on his purchases in sales tax return which is called input sales tax. He is also required to report the sales tax charged on his sales which is called output sales tax. In simple words input sales tax is charged to tax payer on his purchases where as sales tax output is charged by tax payer on its sales to purchaser. If output sales tax is greater than input sales tax then the tax payer has to deposit the difference with the sales tax return to the sales tax department. If the input sales tax is greater than output sales tax then the difference is claimed as refundable from sales tax department by the tax payer.

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Before the implementation of this application there was no system of cross verification of input sales tax and output sales tax. Sales Tax Department will have to pay a huge amount of sales tax refund claims on flying/fake invoices. After the implementation of STARR, CBR now has an authentic/reliable system of cross verification of input sales tax and output sales tax. This system has unearthed many cases of fake sales tax refund claims, resultantly saving a huge amount of tax of Government of Pakistan.

3)

Customs

To provide facilitation to importer and exporter, on the direction of CBR, PRAL has establishment Custom Facilitation Centers (CFCs) at all the Airports, Sea ports and Dry ports of the country. PRAL has also developed computer application for processing of custom documents on all the Air ports, Sea ports and Dry ports of the country. The main features of these Customs Facilitation Centers (CFCs) can be summarized below: i) ii) Develop computer applications for processing of tax documents. Provide, under one roof, a facility for tax payers for receipts of tax documents, bank branches for tax payments, registration as taxpayers and issuance of NTNcertificate iii) Minimize personal interaction between taxpayers and tax collectors, particularly as these centers will be managed by persons (PRAL officials) who will not hold jurisdiction over any taxpayer. iv) v) Provide services to taxpayers in congenial environment Procure and install all necessary computer hardware, communication equipment for smooth functioning of the Tax Service Centers. vi) Publication of daily imports and exports lists for traders

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Commercial Projects
Besides providing services to CBR, PRAL is also working on commercial projects with the permission of CBR. The brief introduction of some of these projects is presented below. Agreement With M/S National Highway Authority (NHA) PRAL has entered into an agreement with M/s NHA for development of Software and for smooth operations, maintenance and technical support for Lahore–Islamabad Motorway (M-2), Islamabad-Peshawar (M-1), Pindi Bhatian-Faisalabad (M-3). PRAL‘s responsibilities can briefly be described as under: i) ii) iii) Development of Software Ensure continuous and uninterrupted running of the computerized networking system Maintain al interchanges and the central server site 24 hours a day for smooth functioning of the computerized network system through professionally qualified people iv) Be responsible for maintaining, repairing, servicing of computer and related equipment at all interchanges and the central server site v) vi) Be responsible for central site data backups and storate Report on monthly basis all routine and emergency technical support provide

Agreement with M/S Pakistan Museum of Natural History Islamabad (PMNH) PRAL has entered into an agreement with M/s PMNH for the software development of “Biodiversity of Pakistan Database and Global Networking (BGN) Project PMNH”. PRAL‘s responsibilities can briefly be described as under: i) ii) iii) iv) System study, design and application software development Implementation of the software development Conducting hands-on training of PMNH personnel Provide source code of the application software

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v)

Provide technical manual of database design, instructions for technical maintenance of the database

vi)

Provide user manual containing step-by-step instructions for operating the system/software

Agreement with Islamabad Club During the Computerization of Islamabad Club PRAL has developed the following six Software systems.      Member’s Profile Member’s Billing System Personnel/Payroll System Inventory Control System Automation of Guest House and Library

During the computerization of above referred systems of Islamabad Club PRAL has worked in the following fields of above referred systems.  System Study  System Design  System Development  System Implementation  System Training  System Documentation Agreement with CBR In addition to main services to CBR, PRAL has entered into an agreement with CBR for maintenance and repair of CCTV System and X-Ray machine installed at Karachi, Lahore, Islamabad, Quetta and Peshawar Airports and Wagha Railway Stations.

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Agreement with Govt. Of NWFP Broadly speaking PRAL has carried out system study, sytem design and application development, data entry, assessment survey, data compilation, processing and automation of taxation system, in relation to Immoveable properties in NWFP. PRAL had the following responsibilities. i) Supply of area information and property tax calculation in respect of these units ward-wise ii) iii) Supply of print outs of the Demand Notices. Supply of prints outs, updation of of PT-1 Registers maintained by the Excise and Taxation Department on electronic media iv) Consultancy services in procurement , installation and site preparation for hardware and software Agreement With Excise And Taxation Sindh PRAL has entered into an agreement for providing services related to electronically processed Insfrstruture Cess Challan and computer generated daily reports of issuance of such challans and other reports necessary for reconciliation of payment of challans with the daily Banks scroll of challans.

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Organizational Structure
At the time of creation of Pakistan Revenue Automation (Pvt) Limited (PRAL) its hierarchy consists of Matrix Organizational Form. The Organizational Structure in its current updated form is available at the end of this report. (Annex-A page 1-5/6) Main Offices To cope with the requirements /demands of Central Board of Revenue, Pakistan Revenue Automation (Pvt) Limited functions throughout the country. PRAL has the offices in all major cities of Pakistan. Major Offices of PRAL are situated in the following cities.
i)

Airport Karachi Port Qasim Karachi Custom House Karachi Income Tax Building Karachi Large Tax Payers Units Airport Lahore Dry Port Lahore Thokar Niaz Baig Lahore Airport Peshawar Custom House Peshawar Dryport Peshawar Dryport Islamabad Airport Islamabad Dryport Faisalabad

ii) iii) iv) v) vi) vii) viii) ix) x) xi) xii) xiii) xiv)

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xv) xvi) xvii) xviii) xix) xx) xxi) xxii) xxiii) xxiv)

Dryport Sialkot NTN Islamabad NTN Karachi NTN Lahore NTN Faisalabad NTN Sargodha NTN Rawalpind NTN Bahawalpur NTN Sukkur NTN Peshawar

Comments On The Organizational Structure
As it is already mentioned that PRAL has the Matrix Organizational structure. The main purpose of matrix organizational form is an attempt to combine the advantages of the pure functional structure and the product organizational structure. All the major decisions of the company are carried out under the supervision of Board of Directors. Board of Directors consists of six members who work under Chairman Central Board of Revenue, Govt. of Pakistan, Member Direct taxes, Member Administration, Member Central Excise, Member Sales tax, Member IMS; CEO-PRAL has the ownership of one share each of denominations of Rs. 10/-. Board of Directors has sub delegated certain powers to Board of Management to run the affairs of the company efficiently and effectively. Board of Management consists of all the three General Managers and CEO as its chairman. Organizations are continually restructured to meet the demands imposed by the environment. Restructuring can produce a major change in the role of individuals in both the formal and the informal organization. In the current meeting of the Board of Directors, PRAL BOD very kindly

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approved the new organogram for the Company and also accorded approval for creation of different essentially required positions. The detail requirements of human resource for various functional activities of the Company, basis for this working paper is extended scope of work assigned to PRAL in light of CBR reform/reorganization activities.

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Diagram of Finance/Accounts Deptt
NUMBER OF EMPLOYEES WORKING IN THE FINANCE DEPTT

Finance and Accounts department does not exist separately in Pakistan Revenue Automation (Pvt) Limited. Detail list employees working in finance/accounts department is as under: (Organogram of Accounts departments is also attached at annex-A Page 1/6) S.No. Designation 01 02 03 04 05 06 GM Finance Manager Finance Dy. Manager Finance Accounts Officer Junior Executive Record Supplier Approved Strength Working Strength 01 01 02 09 04 01 01 01 02 04 04 01

There is no denying the fact that Finance Department in any company occupies a key position. But unfortunately no importance has been given to this critical department. This is because of the fact that the software professionals occupied all the top positions. No separate department exists for Finance and accounts operations but working of both the departments are carried out under-one roof. Five positions of Accounts Officers are lying vacant which relates to Lahore and Karachi Regions. Structure/hierarchy of the Finance Department is very tall which consists of at least four levels which is evident from the diagram of finance department at annexure- . In the

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present age tall structure of any department is neither efficient nor effective because of the following facts.  Tall structure of any department takes more time to accomplish any specific assignment given by top level.  Involvement of more persons may results in creating misunderstanding about the given task  People takes less responsibility in the accomplishment of a given task

Finance And Accounting Operations
At the time creation of PRAL the Govt. of Pakistan provided the owner’s equity. Major cash inflow is from Central Board of Revenue, Govt. of Pakistan against approved budget. The company has also commercial projects from which substantial cash inflows come. The Major investment of the company is in Computer Hardware Networking equipments to automate the revenue collection of Govt. of Pakistan. Another major revenue expenditure of the company is on salaries of employees who were posted on all the major installation of CBR. Some of the operations of accounting departments are as under:  Maintenance and monitoring of computerized accounting software All the General Entries like Journal Vouchers (JVs), Disbursement Vouchers (DVs) and Receipts Vouchers (RVs) are processed through Computerized accounting software. There is no system of manual accounting in PRAL. After processing of every entry General Ledger and Trial Balance would automatically be updated. There is strong system of checks and balances in this accounting software. No

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entries would be accepted by the accounting software unless its debit and credit effects are equal.  Preparation of monthly payroll Processing of monthly payroll is also takes place through computerized software. Human Resource Department of PRAL issues every month office orders regarding new appointments, resignations, stoppage of salary, annual increments, transfer grants, earned leaves, leaves without pay etc. These adjustments are incorporated by the Dy. Manager every month. Then directions for transfer of salaries are conveyed to the bank along with lists consisting of Names of the employees, their bank accounts and branch name Staff of PRAL is scattered through out the

country. Salaries have been transferred in the accounts of respective employee through online branches of HBL.  Processing the payments of utilities bills received throughout the country All the payments of utilities like telephone bills, Electricity, Gas, Water are processed through head office at Islamabad. Demand Draft of respective

department (PTCL, NTC, Wapda etc) are prepared from Head Office and dispatched to the relevant station where this Demand Draft is being deposited by the staff of PRAL.  Preparation of payments to vendors Processing of payments to vendors from all over the country is carried out at Head Officer after completion of codal formalities and deduction of withholding tax.  Preparations of cheques

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Payment to vendors is done through crossed cheques. Delivery of cheques to local vendors is done by hand while cheques of outstations are delivered through courier companies. Payment of open/cash cheques is discouraged. Signature of two persons out of three is must on cheques.  Preparation of drafts/pay orders Payment of utilities and imprests are carried out through drafts /Payorder.  Bank Reconciliations M/s PRAL has more than thirty bank accounts through out the country. Bank Reconciliations are prepared on monthly basis and adjustments thereof are also made on monthly basis.  Coordination with banks Coordination with banks are made on daily basis on issue like, confirmation of bank balances, preparation of Demand Drafts/Pay orders, transfers of salaries, bank reconciliations etc.  Coordination with external auditors Coordination with external auditors are made on yearly basis to provide them information, facilitate them and to resolve their queries.  Deposit of tax with the govt. treasury Deposit of Withholding tax against salaries of staff and from vendors against provision of supplies/services are deposited in Government treasury through crossed cheque within seven days of deductions  Preparation of Budget Budget is prepared every year and got approved from the Board of Directors.

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Preparation of invoices against services provided by PRAL Invoices are prepared as per agreement against services provided to CBR and against commercial projects by the accounts departments. Receivables are created in the books of accounts which are adjusted at the time of their receipts.

Submission of company income tax/sales tax returns Income tax returns are submitted before 30th September of every year on the basis of provisional/audited accounts. Sales tax return is submitted on monthly basis.

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Functions Of The Finance Department
Accounting System Of The Organization The accounting system of PRAL is based on double entry system. Traditionally, after occurrence of any transaction that affects financial statements of the organization in monetary terms, is recorded, as Journal Entry, then General Ledger is prepared after which Trial Balance is prepared. Any Accounts Officer passes actually only Journral Entry. General Ledger and Trial Balance is automatically updated. At the end of financially year some adjustment were made and adjusted Trial Balance is prepared. From that Adjusted Trial Balance Financial Statements such as Profit & Loss A/c, Balance Sheet and notes to the accounts are prepared. Finance System Of The Organization Broadly speaking the main purpose of finance system of PRAL is to provide an understanding of how the company raises funds and how they are allocated. Thus, the decision function of finance manager in PRAL can be broken down into three major areas:    Investing Financing Assets management

Investment decision is the most importance of the company’s three major decision. Through this decision it is determined of the total amount of assets needed to be held by the company to cope with the demands of CBR. Majority of the funds are allocated for the purchase of computer hardware so that the system of the CBR can be computerized. Another major portion of the funds are allocated for salaries of those employees who are employed on CBR installations.

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The second major decision of the company is the financing decision. Here the financial manager is concerned how the expenses needed above would be financed. Some

companies have relatively large amounts of debt, while others are almost debt free. M/s PRAL is a debt free company. A major portion of the total funding of the company comes from CBR against contract services provided by PRAL to CBR. Besides this PRAL has also commercial projects from which substantial funds are generated. The names of all those projects which were discussed in detail previously are mentioned below. i) ii) iii) iv) v) vi) Agreement with M/s NHA against Motorway M-1, M-2, M-3 Agreement with M/s Pakistan Musuem of Natural History Islamabad Agreement with M/s Islamabad Club. Agreement with CBR against CCTV Project Agreement Govt. of NWFP Agreement with Excise and Taxation Sindh

The third important decision of the company is the assets management decision. Once assets have been acquired and appropriated financing provided, these assets must still be managed efficiently. Finance manager in PRAL must be more concerned with management of fixed assets as well as current assets. Use Of Electronic Data In Decision Making In this Global arena every organization is relocating from manual system to most dynamic and sophisticated ones. In CBR M/s PRAL has introduced the concept of ONE CUSTOM in custom department. According to which all the sites of Pakistan customs is linked

with each other. One Customs is a comprehensive end-to-end solution with built in automated all customs processes and procedures.

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One custom is developed in Ms Dot net technologies on front end and DB2 as back end in OS 400 environment on IBM iseries. Through user interface/language of Ms Dot net technologies on front end it will enable Web/paperless environment. After about 10 years of successful implementation/operation and continuous improvements under the guidance of seasoned customs officials the system kept abreast with the requirements of Pakistan Customs. The system has the capability of paperless processing of goods clearance through web, eliminating the physical documents. The system can handle full container load (FCL), lose container load (LCL) as well as bulk cargo. Now CBR can generate the revenue reports of customs duty at any time without the wastage of any minutes. Any importer/exporter that has made any default/black listed by Govt. of Pakistan due to any reasons at one port/airport cannot make any transaction in any other Port/airport. Because the system introduced by M/s PRAL would automatically blocked him due online information/checking. In CBR M/s PRAL has introduced STAAR Project to block the fake refund of sales tax through flying invoices. Flying invoices are those faked invoices against which no transaction/sale has been taken place Mobilization Of Funds The major funds of the company are mobilized in purchasing computer accessories and its allied equipments to automate the revenue collection of Central Board of Revenue, Govt. of Pakistan. Another major portion of the funds are being utilized for disbursements of salaries of staff deputed in Head Office and field stations of Central Board of Revenue. Generation Of Funds Broadly speaking generation of funds in the company is done through two main resources which can be classified as under.  Central Board of Revenue, Govt. of Pakistan

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Commercial projects in private sector-which were already discussed in detail

CENTRAL BOARD OF REVENUE Pakistan Revenue Automation (pvt) limited is providing services to automate the revenue collection of CBR throughout the country. Against these services M/s PRAL has been entered into a agreement with CBR. Invoices has been raised to CBR against payment is received. COMMERCIAL PROJECTS Besides income from CBR, M/s PRAL is also providing computer software related services in the private sector with the permission of CBR. Out of total expenditure of the company more than 50% expenditure is provide by these projects. Some of these projects are under. Motorway Project M-2 (Islamabad-Lahore) from NHA Motorway Project M-1 (Islamabad-Peshawar) NHA Weighbridge Project from NHA Issuance of NTN throughout the country CESS-Govt of Sindh-Data entry of challans in software CCTV-Camer Project on all Airports of the country CSC-Custom House Karachi Daily List Project-Custom House Karachi Courier Project CFCs-South CFCs-North Allocation Of Funds The Management of the company allocates a very small portion of the funds to different categories of assets. Most portions of funds which is allocated against assets of company is

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consumed on salaries, purchase of fixed assets such as computer accessories, entitled vehicles for employees and furniture and fixtures. About 60% of the total spending of the company goes against salaries expenditure because it is a service provider company. Another important portion of the spending of the company goes against operational/utilities expenditure. Budget of the company has been prepared before the start of financial year on the basis of past expenditure. Funds have been allocated according to that approved budget. Broadly speaking the allocation of funds can be classified into the following three mainly ategories i.e. Salaries and allowances, Fixed assets and Operational Costs.

ALLOCATION OF FUNDS 2006-07
Fixed Assets 4%

Operational Expenses 36%

Salaries and Allowances 60%

Salaries and Allowances

Operational Expenses

Fixed Assets

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Critical Analysis of PRAL
The “financial statement reports” on an organization’s position at a certain point of time and its operation over that period are valuable in predicting the firm’s future earnings as well the risks that may be involved from an investors/bankers point of view. Predicting the future is all that is to be ascertained. The management as well as external stakeholders is always interested to evaluate a firm’s financial condition and performance. Critical/SWOT analysis is as under.

Critical/SWOT Analysis
Strength  Business (automation of taxes) is already in hand given by CBR M/s PRAL has the monopoly in CBR as far as the automation of taxes is concerned and does not have any fear of losing the business. What ever automation of taxes is carried out would be only through PRAL. This means stage is already set to perform efficiently and effectively.  Commitment, Support and Positive expectations from CBR The role/coordination of top management of CBR towards PRAL is very positive and supportive. Suggestion/recommendations given by PRAL regarding

automation of taxes is implemented in true spirit.  Core Group of domain knowledge technical resources PRAL has sufficient technical staff that has domain knowledge of taxes of CBR.  Several systems and initiatives already in place

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Most of the software development by PRAL is already operational in CBR various airports, seaports, dry ports and departments of income tax, sales tax and customs. What ever further is required is more innovation and improvement. Weakness  Manpower attrition There is a lack of justice in PRAL. There is a huge list of employee where new inducted employees are getting more salaries than the previous existing employees while working on the same post with similar qualification and experience. Because of this problem the existing employees are in stress and tension.  Low productivity and motivation levels It is already pointed out that the salaries of the employees are not fixed according to their qualification and experience and domain knowledge. There is a culture of nepotism/discrimination in PRAL. The employees who are very close to the senior management are better rewarded. Performance evaluation/appraisal is not carried on merit. Because of this factor productivity and motivational level of the employee is very low.  Organizational structure not optimally aligned with CBR needs Most of the development of software’s/automation of taxes is carried out at head office of PRAL through interaction of senior management of PRAL and CBR. While these software’s needs to be installed at field offices of CBR. The officers of CBR at field offices are not very cooperative and committed.

Opportunities

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Plenty of problems to fix Majority of the people in business sector don’t realize that tax evasion is a crime which can only be controlled through automation and strong internal controls

Full authority for improvement in the current system through automation. M/s PRAL has the full authority to bring any sort of automation / improvement in the current revenue collection of CBR so the revenue collection of the country can be increased.

Threats  Lack of coordination and team work with in PRAL M/s PRAL has internal threats. The management of company is divided and employees are working in different teams and groups with different objectives which is against the interest of the company.  Lack of support from field offices of CBR Field officers of CBR are not cooperative because of the feeling that their authority would be challenged if the tax system is automated.

Financial Analysis
The firm itself and outside providers of capital (i.e. creditors and investors) all undertake financial statements analysis. The type of analysis varies according to the interests of the party. Trader creditors are primarily interested in the liquidity of a firm. Investors in a company’s common stock are principally interested with present and expected future earnings as well as with the stability of these earnings about a trend line.

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To make rational decision about performance of the organization, financial analysis has its own significance. Financial statements are quite helpful in predicting the performance of any organization but extra prudence should always be taken when making any decision based upon financial analysis because statements have some inherent limitations.

Ratio Analysis
An index that relates two pieces of financial data by dividing one quantity by the other is called financial ratios. The main purpose of these ratios is to evaluate a firm’s financial conditions and performance.

Liquidity Ratios
Liquidity Ratios measure a firm’s ability to meet short-term obligations. These ratios compare short-term obligations to short-term resources available to meet these obligations. 1) Current Ratios

Current assets devided by current liabilities. It shows a firm’s ability to cover its current liabilities with its current assets

Current Assets Current Ratio = ---------------------Current Liabilities 115,333,998/= --------------------- = 3.881 29,720,309/-

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The higher the current ratio, the greater the ability of the firm to pay its bills; however, this ratio must be regarded as a crude measure because it does not take into account the liquidity of the individual components of the current assets.

Bar Diagram of Current Ratio
5 4 3 2 1 0 2002 2003 2004
Years

4.979 3.881 3.339 2.718 3.605

2005

2006

Descriptions Current Ratio

2002 03.881

2003 03.339

2004 02.718

2005 03.605

2006 04.979

2).

Acid-Test (or Quick) Ratio

Current assets less inventories divided by current liabilities. It shows a firm’s ability to meet current liabilities with its most liquid (quick) assets. Current Assets – Inventories Acid-Test Ratio = ------------------------------------Current Liabilities 115,333,998 – 9,190,131 = ------------------------------------- = 3.571/-

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29,720,309 This ratio serves as a supplement to the current ratio in analyzing liquidity. This ratio is the same as the current ratio except that it excludes inventories – presumably the least liquid portion of current assets. This ratio concentrates primarily on the more liquid current assets- cash, marketable securities, and receivables –in relation to current obligations.

Bar Diagram of Acid-Test/Quick Ratio 5 4.5 4 3.5 3 Values 2.5 2 1.5 1 0.5 0 4.811 3.571 3.317 2.565 3.433

2002

2003

2004 years

2005

2006

Descriptions Acid-Test/Quick Ratio

2002 03.571

2003 03.137

2004 02.565

2005 03.433

2006 04.811

Financial Leverage (Debt) Ratios
Debt-to-Equity Ratio shows the extent to which the firm is financed by debt. 3) Debt-to-Equity Ratios

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Debt to Equity Ratio is used to assess the extent to which the firm is using borrowed money. Total Debt Debt to Equity Ratio = ---------------------Shareholder’s Equity

33,491,154 = ------------------------ = 0.1913 or 19.13% 175,014,122

This ratio tells us that creditors are providing 19 cents of financing for each Rs. 1 being provided by shareholders. Creditors would generally like this ratio to be low. The lower the ratio, the higher the level of the firm’s financing that is being provided by shareholders

Bar Diagramm of Debt-to-equity Ratio
40 35 30 25 values 20 15 10 5 0 36.06 25.67 19.13 27.73 21.15

2002

2003

2004 years

2005

2006

Descriptions Debt-to-Equity Ratios

2002 0.1913

2003 0.2567

2004 0.3606

2005 0.2773

2006 0.2115

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4)

Debt-to-Total-Assets Ratio

This ratio highlights the relative importance of debt financing to the firm by showing the percentage of the firm’s assets that are supported by debt financing.

Total Debt Debt-to-Total Assets Ratio = ---------------------Total Assets 33,491,154/= ------------------- = 0.1606 or 16.06% 208,505,276/This ratio serves a similar purpose to the debt-to equity ratio. In the year 2002 16.06 % of the total assets are supported by the debt while the remaining 83.94 % of the financing comes from share-holders’equity.

Bar Diagramm of Debt-to-Total Assets Ratio
30 25 20 values 15 10 5 0 2002 2003 2004 years 2005 2006 16.06 8.2 26.5 21.71 17.46

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Descriptions Debt-to-Total-Assets Ratio Coverage Ratios

2002 0.1606

2003 0.0820

2004 0.2650

2005 0.2171

2006 0.1746

This ratio relates the financial charges of a firm to its ability to service, or cover, them. 5) Interest Coverage Ratio Earning before interest and taxes (EBIT) Interest Coverage Ratio = --------------------------------------------------Interest expenses

9,946,281/= ------------------- = 5.760 times 1,726,730/This ratio serves as one measure of the firm’s ability to meet its interest payments and thus avoid bankruptcy. In general, the higher the ratio, the greater the likelihood that the company could cover its interest payments without difficulty. It also sheds some light on the firm’s capacity to take on new debt. The coverage ratios of M/s PRAL can be considered very well.

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Bar Diagramm of Interest Coverage Ratio 200 150 values 100 50 0 5.76 2002 5.965 2003 2004 years
Descriptions Interest Coverage Ratios 2002 5.760 2003 5.965 2004 Loss 2005 187.054 2006 No Interest

187.54

2005

2006

From the data it is very clear that interest coverage of M/s PRAL is very unpredictable. In the year 2002 and 2003 the interest coverage ratio is very reasonable. But unfortunately in the year 2004 M/s PRAL sustained a loss of Rs. 13,043,601 where as interest expenses is Rs. 838,257/-. So PRAL can not pay this interest expenses. However in the year 2005 the situation is tremendously very favorable. In the year 2006 there is no interest expenses where as EBIT is Rs. 73,071,271/-.

Activity Ratios
Activity ratios, also known as efficiency or turnover ratios, measure how effectively the firm is using its assets 6) Receivable Activity Annual net credit sales

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Receivable Activity

=

--------------------------Accounts Receivables

166,271,264/= ------------------- = 2.516 times 66,077,347/Days in the year Receivable Activity in days = ---------------------------Receivables activity 365 = ------------------ = 145.071 days 2.516 Receivable Activity provides insight into the quality of the firm’s receivables and how successful the firm is in its collections. This ratios tells us the number of times accounts receivable have been turned over (turned into cash) during the year. The higher the turnover, the shorter the time between the typical sale and cash collection. From the analysis it can be concluded that M/s PRAL is not successful in its collections and many receivables are outstanding since long.

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Bar Diagramm of Receivable activity
3 2.5 2 values 1.5 1 0.5 0 2002 2003 2004 years 2005 2006 2.5163 2.8405 2.9395 2.5109 2.3438

Descriptions Receivable Activity Receivable Activity (in days)

2002 2.5163 145.071

2003 2.8405 128.50

2004 2.9395 124.172

2005 2.5109 145.364

2006 2.3438 155.726

Note: Analysis of payable activity and inventory activity can not be worked out as in PRAL there is no involvement of credit purchases and cost of goods sold. 7) Total Asset (Capital) Turnover

The relationship of net sales to total assets is known as the total asset turnover, or capital turnover ratios. Net sales Total assets turnover = --------------------------Total assets 166,271,264/= ------------------- = 0.7974

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208,505,276/-

Bar Diagramm of Total assets turnover
1.2 1 0.8 values 0.6 0.4 0.2 0 2002 2003 2004 years 2005 2006 0.7974 0.7956 0.8376 0.9295 1.0087

Descriptions Total Assets Turnover

2002 0.7974

2003 0.7956

2004 0.8376

2005 0.9295

2006 1.0087

The total assets turnover ratio tells us the relative efficiency with which a firm utilizes its total assets to generate sales. M/s PRAL is more efficient than the in this regard in the year 2006. From the investigation it is concluded that there is also an increase in assets but increase in sales is much more that increase in assets.

Profitability Ratios
8) Gross Profit Margin

This ratio tells us the profit of the firm relative to sales, after we deduct the cost of producing the goods. It is a measure of the efficiency of the firm’s operations.

Net sales – Cost of goods sold Gross profit margin = ------------------------------------

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Net sales

9,505,440/= ------------------- = 5.71 % 166,271,264/-

Bar Diagramm of Gross profit margin

values

25 20 15 10 5 0 -5 -10

22.43 11.36 5.71 3.96 -6.97 2002 2003 2004
years

2005

2006

Descriptions Gross Profit Margin

2002 5.71 %

2003 3.96 %

2004 6.97%(Loss)

2005 11.36 %

2006 22.43 %

Gross Profit of the firm in the year 2002 and 2003 can be considered as neither good nor bad. But in the year 2003 firm is facing loss the main reason of which was the firm’s direct expenditure were increased substantially plus income is recognized on receipts basis instead of accrual basis. However in the year 2006 Gross Profit of firm is substantially increased because revenue of the firm has been increased due to booking on receipts basis instead of accrual basis

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9)

Net Profit Margin

The net profit margin is a measure of the firm’s profitability of sales after taking account of all expenses and income taxes. . Net profit after taxes Net profit margin = -----------------------------------Net sales

7,198,633/= ------------------- = 4.33 % 166,271,264/-

Bar Diagramm of Net profit margin

values

25 20 15 10 5 0 -5 -10

23.09 11.3 4.33 3.52 -7.3 2002 2003 2004
years

2005

2006

Descriptions Net Profit Margin

2002 4.33 %

2003 3.52 %

2004 7.30%(Loss)

2005 11.30 %

2006 23.09 %

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If the gross profit margin is essentially unchanged over a period of several years but the net profit margin has declined over the same period, we know that the cause is either higher indirect (non-production expenses relative to sales or a higher tax rate. One abnormal change has been observed i.e. in the year 2006 Net Profit ratios is above the Gross Profit ratio. This is because of the fact that no provision for taxation has been created and the firm has earned a very huge interest income 10) Return on Investment

This ratio relates the net profit after taxes to total assets or return on assets

Net profit after taxes Return on investment (ROI) = -----------------------------------Total assets 7,198,633/= ------------------- = 3.45 % 208,505,276/-

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Bar Diagramm of Return on investment

values

25 20 15 10 5 0 -5 -10

23.29 10.5 3.45 2.8 -6.12 2002 2003 2004
years

2005

2006

Descriptions Return on Investment (ROI)

2002 3.45 %

2003 2.80 %

2004 6.12%(Loss)

2005 10.50 %

2006 23.29 %

Return on Investment of the firm in the year 2002 and 2003 can be considered as neither good nor bad. But in the year 2003 firm is facing loss the main reason of which was the firm’s direct expenditure were increased substantially. However in the year 2006 Return on Investment of firm is substantially increased because revenue of the firm has been increased plus the firm is earning interest on bank deposits.

Horizontal Analysis
It is important to compare the financial ratios for given company overtime. In this, the analyst is able to detect any improvement or deterioration in a firm’s financial condition and performance. To illustrate above, below mentioned shows selected financial ratios for PRAL over the period from to 2002-2006.

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2002 2006 Liquidity Current Ratio Acid-test Ratio03.571 Leverage Debt-to-Equity Ratio 19.13 % Debt-to-Asset Ratio Coverage Interest Cov. Ratio Activity Receivable activity 2.5163 2.8405 5.760 5.965 16.06 % 03.881 03.137 03.339

2003

2004

2005

02.718 02.565 03.433

03.605 04.811

04.979

25.67 % 08.20 %

36.06 % 26.50 %

27.73 % 21.71 %

21.15 17.46

Loss

187.054

NoInt

2.9395 124 days 0.8376

2.5109 145 days 0.9280

2.3438 156 1.0087

Avg.Collection Period 145 days Total Assets turnover 0.7974 Profitability Gross Profit/(Loss) Margin5.71% Net Profit Margin 4.33%

129 days 0.7956

3.96% 3.52% 2.8%

(6.97%) (7.30%) (6.12%)

11.36% 11.30% 10.50%

22.43% 23.09% 23.29%

Return on Investment 3.45%

COMMENTS ON HORIZONTAL ANALYSIS As can be seen from the above comparison over a period of five years, current and acidtest ratios have fallen from the year 2002 to 2004 but it again climb in the year 2005-2006. The trend here tell us that in the year 2002-2004 cash and bank balances have been decreased where as sundry creditors and advances against contracts increased. Similarly in

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the year 2005-2006 cash and bank balances have been increased whereas sundry creditors have been decreased. Average collection period in days have been increased in the year 2006 as well as receivable activity is decreased in the 2006. The trends here tell us there has been relative build up in receivables and inventories. The only conclusion possible is that a problem exists. The management must investigate the credit policies, the company’s collection experience and its bad-debt losses. Moreover management should investigate inventory management and obsolescence of inventory because apparent deterioration in receivables and inventory is a matter of great concern. Debt-to-equity ratios have been increased in the year 2004. The trend here tells that there is an increase in the sundry creditors and decrease in share holder’s equity because the company has sustained a loss. Gross profit margin, Net profit margin and Return on investment is in negative position because there is an increase amounting to Rs. 30 million in selling , general and admin expenses which needs to be controlled. The total assets turnover ratio tells us the relative efficiency with which a firm utilizes its total assets to generate sales. M/s PRAL is more efficient than the in this regard in the year 2006. From the investigation it is concluded that there is also an increase in assets but increase in sales is much more that increase in assets.

Vertical Analysis

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In addition to financial analysis over time, it often useful to express balance sheet and income statement items as percentages. The percentages can be related to totals, such as total assets or total net sales or to some base year, called common size analysis. ASSETS

Regular (in thousands) Common-Size (%)
Years/Descriptions
Current Assets

2004

2005

2006

2004

2005

2006

Accounts Receivable

64,656,578

91,081,967

134,997,058

28.49

37.02

43.03

NTN Cards-Stock

9,190,131

9,190,131

9,190,131

04.05

03.74

02.94

Advances, Deposits & Prepayments 71,630,277 46,749,396 71,158,499 31.57 19.00 22.68

Cash and Bank Balances Total FixedAssets Tangible Fixed Assets Intangible Fixed Assets Total TOTAL ASSETS

17,976,131 163,453,117

45,564,682 192,586,176

57,305,870 272,651,558

07.92 72.03

18.52 78.28

18.27 86.92

63,306,995 157,574 63,464,569 226,917,686

53,422,006 27,351 53,449,357 246,035,533

41,032,618 13,875 41,046,493 313,698,051

27.90 00.07 27.97 100

21.71 00.01 21.72 100

13.08 00.00 13.08 100

LIABILITIES AND SHAREHOLDER’S EQUITY
Years/Descriptions
Current Liabilities Leased Liability 1,682,909 00.74 00.00 00.00

2004

2005

2006

2004

2005

2006

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Advance Against Contract Sundry Creditors, Accrued and Others Provision for taxation Total Share’s Equity Long Term Liabilities TOTAL LIABILITIES

32,277,183 23,971,339

32,277,183 18,929,132

32,527,183 20,024,886

14.22 10.56

13.12 07.69

10.37 06.38

2,211,766 60,143,197 166,774,489 -

2,211,766 53,418,081 192,617,452 -

2,211,766 54,763,835 258,934,216 -

00.98 26.50 73.50

00.90 21.71 78.29 -

00.71 17.46 82.54 -

226,917,686

246,035,533

313,698,051

100

100

100

INCOME STATEMENTS
Years/Descriptions Net Sales Selling, General & Admin. Expenses Operating Profit/(Loss) Other Income EBIT Interest Expenses EBT Provision for taxation Earning after Taxes 2004 190,055,539 203,301,250 (13,245,711) 202,110 (13,043,601) 838,257 (13,881,858) (13,881,858) 2005 228,701,383 202,719,461 25,981,922 25,981,922 138,900 25,843,022 25,843,022 2006 316,414,513 245,448,305 70,966,209 2,105,062 73,071,271 73,071,271 73,071.271 2004 100 106.97 (06.97) 00.11 (06.86) 00.44 (07.30) (07.30) 2005 100 88.64 11.36 11.36 00.07 11.29 11.29 2006 100 77.57 22.43 00.67 23.01 23.01 23.01

COMMENTS ON VERTICAL ANALYSIS We see that over the three-year span, the percentage of current assets have been increased, that is particularly true because of increase in account receivables and advances deposits and prepayments. On the liability and equity portion of the balance sheet, share holder’s equity has substantially been increased over a three years span. This is particularly true because the revenue of the company has been increased as well as percentage of selling, general and admin expenses have been decreased. Percentage of fixed assets has also been

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decreased because new fixed has not been purchased instead value of fixed assets has been decreased due to depreciation. Common-size income statement shown above shows the substantial improvements in gross profit margin due to better relative control over selling general and admin expenses which were decreased from 107% - 77 % over the period of three years.

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Organization’s Analysis With Reference To Industry
As stated in the initial section of the report that Pakistan Revenue Automation (PVT) Limited (PRAL), has been in operation since 1994, and has completed several projects of automation on both direct and indirect taxes being administered by the Central Board of Revenue (CBR), Govt. of Pakistan. In addition it has completed a few projects for other Government Agencies. The company is wholly owned by the Government through the CBR and is governed by a Board of Directors comprising the Chairman, CBR as its Chairman and line members of different taxes as its Directors. Since its creation, the funding of Pakistan Revenue Automation (Pvt), Limited from Finance Division has continued in the shape of lump-sum grants. PRAL is the sole player regarding the automating of revenue of CBR/enjoying monopoly in the automation of the revenue of Govt. of Pakistan. By virtue of this reason, analysis within the industry is not possible.

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Future prospects of the organization
The prospect of M/s Pakistan revenue Automation (Pvt) limited is very bright because of significant contribution by PRAL in the recent few years. Revenue of the Govt. of

Pakistan has been substantially increased because certain checks have been created by M/s PRAL on tax evasion. M/s PRAL has introduced in Karachi the Pakistan Automated Custom Clearance System (PACCS) that makes random checking of consignments. After the implementation of this system the revenue of Pakistan have substantially been increased because of the following the facts.  All the steps taken by the CBR to restrict the contact of taxpayer with tax collectors, only PACCS has been institutionalized.  PACCS, that make random checking of consignments-unearthed more irregularities than the frauds identified through manual customs that mandates 100 per cent checking.  Genuine importers have been spared the hassle of import procedures and penalties they had to pay as demurrage due to delays caused through no fault of their own. Their consignments are released immediately on ships arrival.  Another positive aspect of PACCS is that its computer immediately points out any wrong released and lists out other similar instances where goods were wrongly released. The custom officials could now make recoveries from all such importers  Appraisers cannot creat problems for genuine importers nor could they spare the defaulters as the system has inbuilt capacity to photograph all opened consignments from all angles and store in the system

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This system would reduce the clearance time of exports and imports to a few hours from six to seven days in the manual clearance system. It has proved globally that clearance delays increase costs by almost 15 per cent.

Furthermore, on all the major Airports, Dry ports, Seaports all the documents processing of imports and exports are carried out by the personnel of PRAL in computerized environment. Certain checks and balances have been created on Airports, Dry ports, Seaports for depositing the genuine taxes.

It is also very important to mention here that a centralized data processing center has also been established for the computerization of tax returns from all over the country.

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Shortfall/Weaknesses of Finance Deptt.
Some of the shortfalls/weak areas of Finance/Accounts Department of PRAL during the studied period are the following.
 Because M/s PRAL is an Information Technology Company, due importance to Accounts/Finance Department were not given and most of the top positions of the company’ Structure are occupied by the IT Professionals.  The position of General Manager Finance remains vacant for the last so many years. However it has been filled recently on the personal intervention of the Chairman, CBR.  Finance Department is assumed to obey the orders and instructions issued by the senior management. The lack of independence causes delay in accomplishment of tasks in a professional way.  There was a shortage of professionals and qualified personnel in Finance department. Proper compensation is also not given to staff working in finance department as compared to IT Professionals. Because of this discrimination qualified and professional staff relating to accounts is also not ready to stay here in PRAL.  Finance sections in major regions such as Lahore and Karachi are working in isolation. At times lack of integration and coordination creates problems in achieving the desired results in time.  Due to lack of staff most critical activities of accounts departments i.e. Bank Reconciliation statements, Finalization of tax assessment of the company, Fixed assets register, Monitoring of various assets and liabilities, proper filing of Journal Vouchers, Receipts Vouchers, Disbursement Vouchers were not carries out.

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 Reconciliation of receipts against different projects throughout the country was not carried out and income has been booked on the basis of receipts provided by the accounts officer of the concerned region.

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Conclusions and Recommendations For Improvement
Pakistan Revenue Automation (Pvt) Limited is only company owned by CBR- Govt. of Pakistan, whose main responsibility is the automation of the taxes. No doubt, Pakistan Revenue Automation (Pvt) Limited is a progressive organization but there are some areas that needs to be improved. Following are the recommendations to overcome the weaknesses of such areas of Pakistan Revenue Automation (Pvt) Limited.
 There exists frustration among old employees due to higher wages/salaries and other benefits of newly appointed professionals/experts. Salaries of employees should be rationalized and decided on the basis of qualification, experience and output.  Just like public sector organization, PRAL is abundant with poor resource utilization and overstaffed with poor quality personnel. Some personnel are overburden and some are totally work free. There must be equal distribution of work.  Deep rooted bureaucratic approval and delays in decision making. Board of Directors should sub-delegate maximum decision powers to Board of Management for smooth functioning of the operations. PRAL must have freedom to decide independently.  Finance section is also ignored in making financial decision which ultimately impact negatively on the working of finance deptt. It is strongly suggested that Finance department should be given due importance in taking financial decision.  All the activities of the finance/accounts department should also be carried out in professionally way.

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 Internal politics in PRAL, at all the times, remains very active between senior management. CEO being head of the organization, instead of supporting selected

General Managers / Senior Managers should take the decisions across the board.  Distressed Senior Managers, instead of leg pooling of each, should remains positive because ultimately it is your organization which suffers.  There is a lack of coordination between finance deptt. and administrative staff at field offices. In short all the above stated facts damage the steady progress of the organization. So these shortfalls can serve as guide to improve the performance of the organization.

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References and Sources Used
In the preparation of this Internship Report, the help has been sought from the following publication and website  Pakistan Revenue Automation (Pvt) Limited. Annual Financial Statements (Five years financial statements are annexed at the end of this report)  Pakistan Revenue Automation (Pvt) Limited. , “http://www.pral.com.pk

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