Internal Audit Activity of “Kapila Krishi Udyog”

SCOPE
FY 2022

Scope of work and approach

Scope of Services :
Scope of Services -
Annual
Review of current business process
followed by the Company; (Review
of Standard operating procedures)
Review of existing Risk & Control
matrix (RCM’s) followed by the
Company;
 Identification GAPs and reporting to
management (Diagnostic Study);
Suggest best business practices
considering nature of business and
size of the Organisation;
Agree with the management GAPs and
suggested process/control and
assisting in implementation of the
same
Scope of Services -
Quarterly
Significant process and illustrative key
activities which will be discussed with
the process owners:
 Order to cash / customer management
 Procure to pay & project execution
 (Including inventory management)
 Acquire to retire
 Taxation
 Banking & treasury
 Hire to exit
 Information technology
 Book & financial statement closure
 Tender management & others
For detailed scope – Refer next slides
Integrated internal audits, indicative areas and activities for coverage
On the basis of our initial understanding, we have mapped few significant processes to specific cycles for coverage in the internal audits, in the
ensuing table. These processes will be covered as part of the quarterly internal audits.
Order to cash / customer
management
• Customer master management;
• Issuance of sale agreements &
finalisation
of discounts/price;
• Order Management
• Responding to requirement of tender.
• Development of payment plan &
invoicing;
• Collections & application of funds;
• Contractual compliances; &
• Transfers/cancellation.
Taxation
• Review Compliance tracker related to
Direct & Indirect taxes;
• Reconciliations; &
• Tax compliances.
Information technology
• Assess management;
• Backup & restoration management;
• Disaster recovery, BCP or EHA;
• Security management;
• Change management.;
• Incident management; &
• Application lifecycle management.
Procure to pay & project execution
• Vendor evaluation;
• Vendor master management;
• Purchase requisition & order management;
• Management of brokerage.
• Receipt of materials & quality check;
• Physical verification of materials; &
• Processing of payments.
Banking & treasury
• Approval of payments,
• Investment of surplus;
• Recording of financial income;
• Management of loans (including interest
calculations & payments);
• Review of compliances with loan agreement signed with
lender.
• Investment confirmations (liquid funds, FDs etc); &
• Bank reconciliation.
Book & financial statement closure
• Budget and variance analysis;
• Journal processing, accruals and processing;
• Chart of accounts management;
• Disclosure & compliances;
• Working capital and cash flow management; &
• Employee benefits (AS 15 in India);
• Lease accounting (AS 19); &
• Payables, advances; vendor & inter company
reconciliations..
Acquire to retire
• FA purchases;
• FA acquisition;
• Procurement and capitalization;
• Updating of fixed assets register;
• Verification of assets;
• Retirement of assets;
• Depreciation and amortization; &
• Rationalization of fixed assets.
Hire to exit
• Acquisition (sourcing, recruitment & induction);
• Employee master data management;
• Attendance & payroll processing;
• Employee benefit management;
• Rationalization and reconciliation of salaries;
• Separations; &
• Performance evaluation and appraisals.
Project management & others
• Consumption analysis;
• Quality control of materials;
• Project completion & delivery management;
• Recovery from contractors & closure of running
bills/contract;
• Travel;
• Insurance; &
• Loans & advances (including employee advances/dues).
 Internal Audit coverage Quarterly

Q1 FY 2021- Procurement to pay and project execution

22
1. Understanding of the business process of procurement primarily
2. Understanding of the operations, factory visits, etc.
3. Detailed analysis of flow of transactions from placing an order to booking of purchases to
payment in the books of account. For clarity and better coverage scoped in the details from FY
18-19 to 31 July, 2021
4. Analysis of scrap sales process and how the store is being managed and improvements
suggested.
5. Identification of transactions where appropriate documentation is required to be done and way
forward plan
6. Gap identification in system and suggestions for the necessary corrections to be done

Q2 FY 2021- Order to cash/customer management and taxation and treasury process

22
All the activities mentioned in above slide for the said processes will be covered

Q3 FY 2021- Banking and Treasury and Entire payroll process from Acquire to Hire to Retire
22
All the activities mentioned in above slide for the said processes will be covered

Q4 FY 2021- Financial statement closure and Project management and other

22
All the activities mentioned in above slide for the said processes will be covered
Q1 FY 2021-22 Core observations and Suggestions

Appropriate  On reviewing Purchase Register from April 2018-July 2022, it has been observed that GST input has
controls to be in been (short)/excess recorded in the books and the difference amount has been adjusted in the
place for proper purchase amount recorded in the books.
recording of  Following differences has been observed in the GST Input:
o FY 2018-19: Rs. -82,919 (net)
accounting
o FY 2019-20: Rs. -672,479 (net)
entries of
o FY 2020-21: Rs. 10,321,368 (net)
purchases of raw
o FY 2021-22: Rs. 253,737 (net) (Apr-July 21)
material  The above-mentioned issue may lead to understatement/ overstatement of purchases/ GST input
and wrong reporting of taxes to GST Authority.
 Proper system should be implemented to enable maker-checker process in the ERP system.

(Refer Annexure A1)

Adequate control  On reviewing the Scrap sale vouchers, it has been observed that in case of Scrap Sale of Old Jute
over invoicing of bags, there is variation in the weight of old jute bags as mentioned in the Weigh Bridge Report and
scrap sales the Invoices weight.
 The variation in the quantity as per Invoice and Weigh Bridge varies from -42% to 44%.
 A limit of permissible variation should be fixed in the system so as to prevent the revenue leakages.

(Refer Annexure A2)

Appropriate  On reviewing the store inward register, it has been observed that there is huge variation in the per
controls to be in unit rate of few items such as PP Bags, Detergent Bars, Detergent powder, etc. On our discussion
place for proper with the management, it has been clarified that per unit rate of few items has been wrongly entered
recording in store as invoice amount, which needs to be fixed in the system.
inward register
Avg Min Max Differenc
Party Item Name
Rate Rate Rate e
RCS PRODUCTS LLP KRISHI_DETERGENT_BAR_250 GM 9,604 5 31,200 31,195
RCS PRODUCTS LLP PICK DETERGENT POWDER (RS. 5 POUCH) 6,859 2 24,000 23,998
RCS PRODUCTS LLP PICK_DETERGENT_BAR (RS.10) 7,449 5 31,640 31,635
5,69,62
SRB PLASTIPACK LLP PP BAG 50 KG BOPP NIRMATA MM SUPREME 17,286 23 5,69,602
5
GARG POLYPACKS PVT.LTD PP BAG 50 KG MPP NIRMATA MILKOMORE 1,637 16 27,552 27,536
Appropriate  Based on our visit in the Kanpur Plant and with discussions with store manager, we observed
controls to be in that scrap of store items was lying at different places in the factory premises which was not
place for store recorded in the store register.
management


 Proper system of when to procure which will be available based on updated inventory listing
in hand and prior experience of frequency of utilization of parts to avoid unnecessary
blocking of funds.
 Develop a process of obtaining quotation on periodic basis at least quarterly for clarity on
actual prices in the market.
 Developing clear criteria to aid, categorize, and define spares (marking parts with terms like
“critical” can help in parts inventory prioritization).
 Periodically stock count of Stores and spares as on month end.
 Store manager has to ensure whenever any item is issued from the store, an item in
replacement has to be received. In case of damage, special approval of the same and
necessary proof has to be recorded. This will prevent leakage of scrap sale of the said part
out of store if any.
 Periodically reviewing all spare parts based on the time change, replacements/substitutes,
and more.
 Conducting a regular review of spares to see if you are holding excess stock for particular
parts can help to reduce your overall inventory costs.

Updation and  Primarily, an module for management of FAR in system has to be checked if that can be
automation of prepared
Fixed Assets  As of now, fixed assets purchases are simply entered in the system as a purchase entry and
Register not updated in FAR.
 Updation in FAR on realtime basis and assessment of useful life of the asset and calculation
of depreciation has to be made on monthly basis even if exercise of maintaining in excel has
to be done.

Documentation  Based on our review of Purchase vouchers, we observed that in case of purchase of Channa
for intercompany Choori, Makka, DORB and Wheat Bran from Kapila Infratech Pvt. Ltd., Savaria
transactions Industries Pvt. Ltd. And Direct Purchases, availability of the below mentioned
documents are missing:
o BPA
o Weight Bridge Report
o Purchase Token
o Receipt Note
o E-Way Bill
o Builty of transporter
o Invoice
o Bargain Report
o Unloading Receipt
 Proper system should be developed to ensure that entire purchase trail is available with the
company in case of above-mentioned purchases.

Timely closure of  Based on our review of bargain report, it has been observed that in case of Khalilabad and
outstanding Khanna Plant, company has outstanding bargain for FY 2019-20 which are not yet executed/
bargain closed.
 Timelines should be set for timely closure of Outstanding Bargains if the orders are not to be
executed to avoid the risk of unauthorised purchases.