Presentation On Operational Audit

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OVERVIEW IN CONTEXT OF OPERATIONAL

EXCELLENCY IN MSEDCL BILLING SYSTEM
CMA JITENDRA AHIRE

ICWA
OPERATIONAL AUDIT
An operational audit is a review of the internal processes of
a company. Its goals are to determine if company resources
are being used efficiently and to identify ways to improve
systems. The review includes various tasks, such as
financial and operational controls, the condition of
systems, activities, policies and procedures and human
resources allocations.
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DEFINATION OF OPERATIONAL AUDIT:
Operation audit is systematic process of evaluating an

organizations effectivness, efficiency and economy of
operations under management control and reporting to
appropriate persons the results of evaluations along with
recommandations and improvements.
NEED OF OPERATION AUDIT
i. Information Needs:
Executives require full, objective and current
information about conditions prevalent in their
operational areas like RCI arrears position,
distribution losses, billing efficiency and collection
efficiency, etc. and also in areas beyond their
direct observation like miss practices, consumer
grievances, paid pending, unmetered consumer,
thefts, quality control, maintenance etc. Operational
Audit provides the required information to them.
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ii.. Fill up Communication Gaps:
Conventional sources of Management information are

(a) MIS Reports, routine performance report,
(b) Internal Audit Reports, energy audit reports
(c) Periodic Special Investigation, and
(d) Survey.
These sources create communication gaps on
activities, which do not come under the direct
observation of executives. Hence, Operational Audit is
required.
iii. Effectiveness of Managers:
Executives and officers are too pre-occupied with

implementation of plans and achieving target. They are
left with very little time to collect and analyze information
and locate problems. Hence, an independent Operational
Audit team should provide them analyzed data inputs on
the effectiveness of operations.
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iv. Undetected Cracks:
Even when a department is working well and

smoothly, there may be some deviations,
discrepancies, backlog, crack or gap in operations
or in controls. Operational Audit is a
management information source since it will find out
the possibilities of such undetected gaps / lapses in
control.
v. Analytical Evaluation:
Officers and their aides generally routine transmit

information. But an Independent Operational Audit
Team will be able to evaluate the operations
analytically.
.
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vi. Unbiased Reports:
Performance Reports contained in the annual

performance and routine MIS reports prepared by the
operating departments have their own limitations,
may be subjective, manipulated, window dressing or
biased. Hence, Operational Audit is required
vii.Shortcomings of Internal Audit:
Conventional Internal Audit reports are often routine and

mechanical in character and have definite leaning towards
accounting and financial information. They are historical in
nature. Operational Audit overcomes this limitation of Internal
Audit.
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viii.Need for Current Control:
Surveys and special investigations are occasional in

character. They are costly, time consuming and keep
the departmental key personnel busy during that
period. They are undertaken mostly to find causes
of certain affairs or to fix responsibility for certain
undesirable happenings. These basically attempt to
carry out a post-mortem rather to give a signal for
dangers and forthcoming disasters. Operational
Audit is required to ensure day-to-day control of
activities
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ix. Environment Changes:
Operational Audit is required to analyze whether

the activities, operations, procedures, methods and
objectives of the enterprise are in tune with its
present environmental conditions. There is a need for
an instrument, which should signal change in advance
in form of renovations and modifications.
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Objectives of Operational Auditing

i. Appraisal of Controls:
(a) Internal Controls provide the essential tools / measures to ensure

proper performance in each functional or organizational area for
accomplishing the desired organizational objective.
(b) The purpose of operational Audit is to determine whether the
controls are -
(i) adequate, and (ii) effective in accomplishing Management‘s
objectives or plans or operations.
(c) The Operational Auditor reviews internal controls and reports to
ascertain whether they bring the performance, qualitatively and
quantitatively, to the notice of the Management, also within the
organization‘s policies and plans are being carried out.
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. ii. Evaluation of Performance:
In the area of performance appraisal, the Operational Auditor is

basically concerned with –
(a) Analyzing the technical efficiency of the operations,
(b) Accumulating information and evidence to measure the
effectiveness, efficiency and economy of operations, and
(c) Comparing actual performance with previous performance, set
standard/target, procedures, rules, regulations, policies and plans.
(d) Performance Evaluation is generally based on –
(i) Consumer satisfaction
(ii) Technical losses
(iii) Billing efficiency
(iii) DCL position
(iv) Collection efficiency
(v) Quality of operations and services
(vi) overlapping or duplication of work and deviations.
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iii. Appraisal of Management objectives and plans:
(a) Every Activity in an organization is the product of basic plans and

objectives set by the Management. Hence, Management policies,
plans and objectives should be evaluated properly.
(b) The aim of operational Auditing is to appraise operations and controls
and adherence to prescribed and laid-down policies and not to
go into the question of appropriateness of plans and objectives.
But, the Operational Auditor may look into aspects like –
• Clarity of objectives,
• Proper communication of objectives to the personnel responsible for
implementation,
• Feedback from personnel, i.e. whether they have understood the
objectives in the same sense as meant by the Management, and
• Apparent conflict in the objectives and its effect on operations.
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iv. Appraisal of Organization Structure:
(a) Organizational structure, an essential element of internal control

design, provides the line of relationships and delegation of authority and
tasks.
(b) The Operational Auditor should consider the following in evaluating the
organization structure –
• Conformity with Management objectives,
• Proper match between responsibility and authority,
• Clear definition of Scalar Line of Authority from top to bottom, and
• Possibility of defective delegation
v. Transparency and compliance :
Operational audit should create more transparency and better compliance

environment providing adequate skill and domain knowledge
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FUNCTION
STEP-I
The first step in an operational audit is to structure the upcoming

review. This could entail holding a meeting to outline
expectations and to answer questions about the process i.e.
CHECK LIST. The operational auditor will use this step to gather
pertinent information about vision of the company and set goals
and objectives for the audit. This introductory step establishes
the scope of the review.
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.STEP-II AND III

Steps two and three of the audit are the surveys of management and
of the employees. Executives are typically interviewed for details
concerning company systems and procedures. Employees are
interviewed and observed in their work environments. Observation can
lead to important insights into operational deficiencies/deviations that
would not be evident through an interview.
STEP- IV
The presentation of the audit plan is typically the fourth step in an
operational audit. An audit plan is a written agenda that details the
steps the company will have to follow to complete the audit. It is
customized and based on the information gathered in the previous
steps.
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STEP-V
Step five is the actual audit. The auditor implements the audit plan,
which ordinarily includes a review of the company's performance in
various activities and efforts towards transparence and effective
services . On the financial side, he assesses billing, cash collection
and recovery management, and reporting processes. The company's
risk management procedures are also ordinarily included in the audit.
An operational audit can include these areas and any others that
management thinks.
STEP- VI
In the sixth step, the auditor produces a final written report. It details
his conclusions and recommendations. This report is valuable to
review and improve the performance.
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OPERATIONAL AUDITOR QUALITIES

FRIEND GUIDE PHILOSOPHER
FRIEND-GUIDE-PHILOSOPHER
 The operational auditor should possess some very essential personal
qualities in areas beyond accounting and finance
 He should ask the who why how of everything
 He should try to visualize whether simpler alternative means are

available to do particular activity or process
 He should try to see everything as to whether that properly fits in the

regulation frame and organization policy
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.  He should posses an attitude of skepticism

 He should not give up or feel satisfy easily
 He should with constructive approach rather than fault finding

approach and should give feeling that his efforts are to help attaining
an improved operations
 He should consider a fault or mistake found in the course of audit

more as a guide to effect improvement than treat as a sort of crime
 If auditor succeeds in giving a feeling of help and assistance through

constructive criticism, he will be able to obtain co operation of
persons who are involved in the operations. This will itself be a
tremendous achievement
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INTRODUCTION
MSEDCL Is one of the second biggest distribution network organization
in world
Prime goals are
 Providing electricity at affordable and competitive rate
 Transparent and efficient services to consumer to enhance

consumer satisfaction
 Reduce the AT&C losses
 Provide uninterrupted and reliable power supply
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 To achieve prime aims definitely every distribution

organization are greater emphasis on AT&C losses
 AT&C losses are biggest challenge to every

distribution organization
 Government takes measures for reduction of AT&C

losses by forming various committees on this issue
and initiated programs like APDRP and R-APDRP
 Still target of reduction AT&C losses are not

achieved at required level
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AT&C LOSS
 AT&C stand for Aggregate technical and commercial loss

 It consist technical and non-technical energy loss(commercial loss)
 Technical loss consist transmission and distribution loss.
 For reduction of transmission losses various measures taken in
APDRP and RAPDRP projects/schemes. Which resulted reduction in
transmission and some extend in distribution losses.
 The technical losses in the distribution network could also be
estimated by computer aided system studies through simulation of
the network equipment
 Till we well behind the target due to the non technical energy losses,
because these losses not traced or identify easily.
 Besides huge financial investment; investment of experience,
dedication, skill and knowledge gives best results in evaluation and
reduction of commercial losses.
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AT&C Loss
AT&C Loss(%) = (Energy Input – Energy Realised) x 100

Energy Input
Clearest measure of overall efficiency of the distribution

business as it measures technical as well as commercial losses
Energy Realised = Energy Billed X Collection Efficiency
Collection Efficiency (%) = Amount Realised X 100

Amount Billed
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There are clearly two parameters for control the AT&C loss
1. Increase the Energy billed :
for increase energy billed, control on transmission, distribution and

commercial losses are essential
2. Increase the Energy realized or collection efficiency:
for increase collection efficiency, control on commercial loss is essential
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NON TECHNICAL ENERGY LOSSES

(COMMERCIAL ENERGY LOSSES)
 Commercial losses are key element in AT&C losses
 These losses not easily identify because their
reasons are vary in nature
 There are mainly two types of commercial losses:
Assessment losses and recovery losses.
With general causes some micro causes are always hidden

in the processes.
Without any special efforts, microscopic invention and
analytical exercise existence of this losses are not traceable
 One of the best solution for this is Operational

Audit.
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Commercial losses are two types

Assessment losses: These are main contributor in commercial
losses. Causes behind these losses are very variable in nature and
size. There identification not easy. Mainly due to inefficient internal
control, inadequate supervision, insufficient information, miss-
practices, communication gaps etc.
Recovery losses: These types are losses due insufficient recovery

processes, deficient billings, miss-practices, highly ignorance,
inefficient bill distribution systems, etc.
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To achieve reduction of hidden non technical (commercial) energy

losses operational audit can develop Operational Excellency through
 Visionary Leadership At Every Level
 Planning ,Innovation And Creation
 Analytical Exercise
 Smart thinking
 Proactive Attitude
 Transformation
 Optimum Utilization Of Resources i.e. Human Resources & System Tools
 Strong Internal Control
 Throughout Effective and meaningful Communication
 Performance Accountability
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GENERAL CAUSES OF COMMERCIAL

ENERGY LOSSES
Theft/ Unauthorized use:
 Direct hooking
 Tampering/By passing of Meter/ CT
 Misuse of category
 Use of multiple connections- Misuse of Slab
 Sanction load lower than actual usage
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Metering process deficiencies:
 RNA/RNT/ INACC
 CT Ratio errors
 Stop/slow defective meters
 Mismatch of meter or meter change not effected
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Billing inefficiency:
 Bills raised on provisional basis over a long period

of time may result in losses. These may be due to
defective meter not being replaced or meter not being
made available by consumer (premises locked).
Consumer billed on provisional basis has tendency
to misuse/overuse of energy.
 Consumer not billed (ex. zero SD/paid pending etc.)
 Under billed
 Meter installed/ re fix but not appearing in data base
 Unmetered connections
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Losses due to Collection Inefficiency:
 Part payment by consumer

 Non delivery of bills
 Non payment by consumer(defaulters)
 Improper disconnection drives
 Disconnected with dues(PD arrears)
 Cheque dishonor
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AT&C LOSS REDUCTION – GENERAL STRATEGIES
(I) Reduction in Technical losses:
• Replacing & revamping old equipment – RMU’s installation

• Improvement in System Reliability by regular Maintenance of
Feeders & Transformers
• Critical Asset Surveillance
• HVDS & System Augmentation for Meeting Growth
Requirements
• CAPEX in Critical Priority Areas
• Remote LT Load Shedding in High Loss Areas
• GSM based switching of Street Lighting
• Power Factor improvement (Addition of Shunt Capacitors)
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• Automation / Installation of SCADA for operating & controlling

entire Power System Network at 66 KV, 33 KV,22KV & 11 KV
• Regular monitoring of reliability indices like SAIDI/SAIFI/CAIFI
• GIS
• Network improvement
• Integration of SCADA
• Unmanned Automated Grids for speedy resolution of faults
• Hot Line Maintenance
• Underground Cabling
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(II) Theft Control:
 High Voltage Distribution system (HVDS)

 Regular Inspections / Enforcement at circle & Corporate Level
 Service Line replacement
 Installation of Bus-Bar Boxes
 Mass theft drives
 Accucheck of meters
 New Connection Camps
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(III) Metering:
• Replacement of Faulty, Stop, Slow, sluggish and all Old Meters with
Accurate Electronic Meters
• Installation of Meters in Meter Boxes
• Installation of Meters which are more intelligent with better tamper
proof measures
• Pre-Paid/RF/IR Metering
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(IV) Billing Process:
• Re-engineering of Commercial Processes and Centralization

• Consumer Segmentation for Differentiated Services & Focus
• Automatic Meter Reading for Key Consumers & High Revenue
Based Consumers
• Reading through Hand Held Device for Domestic Consumers
• Reducing RNA, RNT, Premises Locked and Not Traceable Cases
• Address correction and address formatting
• Second attempt on Unread cases / undelivered bills
• DTC wise Route – Sequence wise Meter Reading
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(V) Collection Process:
 Increased number of Customer Friendly Collection Centers

 Addition of Payment Avenue for Consumer Conveniences
o Drop Boxes
o Any Time Payment Machines (ATPM’s)
o Online Payment
 Revenue Recovery Group (Initiated steps for Disconnection on
nonpayment) & analysis of post DVB arrears
 Systematic arrangement for disconnection
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VI) New Connection Process:
 Reduced time
 Convenience – Services at Consumer Doorstep
 Drive for providing New Connection like New Connection Camps etc.
 Prompt New Connection Dues Verification Process
 Providing Metered Connection in JJ Clusters through Waiver of
Old Dues
 Regular Monitoring paid pending and zero SD consumers
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MICRO CAUSES OF COMMERCIAL LOSSES

Operational audit is strategic tool which can control and reduce the
hidden commercial losses by evaluating Operational Excellency by
way of
Different Analytical Processes,

Appropriate check list
Surveillance,
Drilling Down Into Available Information,
Micro Scoping Inventions,
Developing Internal Control ,
Meaningful Communication And Intellectual Skills.
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KEY WAYS TO IMOROVEMENT
Restructuring of billing process one pc for one section which includes TOD
consumer with separate MRC
.Creation of check lists for every activity and periodically verification
Suggestive list “what to do” and “what not to do”
Creation of alert and response groups
Observations of the symptoms and their remedies
Transformation of information to BU TO BU
Develop prevention and detection strategies
Performance incentive schemes
Identifying of best practices and there promotion
Post billing validation concept
Creation of Quality Circles/group
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METHODOLOGY
To evaluate and analyze the current effectiveness of a company's

operations while identifying areas of potential improvement. The
identification of areas requiring improvement is a key aspect, as
the fundamental purpose of the operational audit is to improve
effectiveness.
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POTENTIAL KEY ACTIVITIES
New Connection processes

Meter reading
Metering
Billing Processes
IT programs, procedures and reports
Bill distribution
Customer services
Collection Processes
Recovery Drives
Quality Control and theft drives
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ADVANTAGES
BASE LINE OF OPERATIONAL AUDIT IS
“ MINIMUM EFFORTS MAXIMUM BENEFIT”
Operational audit benefited to all stakeholders i.e. Consumer, Employees and

Management
Consumer:
 Efficient , timely and transparent services
 Reasonable and affordable tariff
 Minimum interruption i.e. reliability of power supply
 Accuracy in billing
 Zero grievance
 Effective feedback
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Employees:
 Healthy working environment

 Prompt appreciation i.e. every efforts should be counted
 Facility of learning and skill developing themselves
 Team spirit
 Effective communications with top management
 Career growth incentives
 Fair supervision
 Job enrichment
47
.
Top management
 Reduction in AT&C losses

 Improve consumer satisfaction index
 Benefit of MBO (management by objective)
 Strong communication channel provide efficient monitoring and close control
 Effective feedback useful for policy and strategy making
 Filling the vacuum between corporate office to field offices
 It provide inexpensive, continuous and objective appraisal of activities and
operations
 Enhanced the quality of exercise causes the reduce the revenue losses due to
commercial losses and distribution losses
 Deliver MIS reports most qualitative
 Provide better coordination and integration
 Overall operations makes more cost efficient
 Enhanced effectiveness of system tools
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Middle management:
 Get advantage to implementing agendas effectively
 Readily available information of key areas and key persons
 Ease to monitoring
 Getting time to attention to other quality and system works
 Easily catch the right thing
 Ease to performance measurement
 Fill the communication gap
 Safety and healthy environment
 Correct reporting's and feedback
 Performance accountability
49
OPERATIONAL AUDIT TEAM
 One operational audit team for one circle
 Consisting 1 leader, 3 member and 2 outsourced member
 Basically members selected from key performer dept. employees/officers
 Base/ criteria of selection should be performance not position
 Reporting to respective S.E., C.E,C.E(Internal Reform) Director(finance)

and Director(operation)
 Program of operational audit are flexible and prepared by Zone office and
approved by corporate office
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SOME PRACTICAL EXPERIENCE IN REDUCTION OF NON

TECHNICAL(COMMERCIAL LOSSES) IN THANE DIVISION AND POWER
HOUSE SUBDIVISION
Residential consumer having different fix charges for 1 phase and 3 phase.
After verifications found more than 2000 consumers wrongly billed. This is
difference of rupees 70 per connection but there yearly cumulative impact
was more than16 lakhs
In accounts of consumer SD receipt amount shows wrongly due to duplicate

entry, wrong punching of amt., other charges consider as SD, etc. after
verification founds more than 70 lakh of wrong SD amt. Deletion of this
amount yearly interest saved up to 6 lakhs.
Verification of CT ratios, found 9 consumer billed with wrong MF. Recovery

done 52 lakhs by way of assessment and increase in revenue yearly 20 lakh.
More than 400 consumer billed with meter change status for 2 to 5 years.
After regularized this assessment of more than 50 lakh billed and increase
regular yearly revenue by 15 lakhs. One of the connection found meter
overflow thrice.
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One of the meter brand HPL 3 Phase meters are observed that, become
faulty after some period by going down slow gradually or showing abnormal
reading suddenly. All of the meter of this brand with specific series are
replaced immediately and save further loss. Same in another brand i.e.
Anchor also having display problem causes losses and raising complaints.
Also replaced immediately.
For meter reading first time using Tongue Tester to measure current of
normal billing consumer give greater results founds plenty of theft and under
billing cases
Before the TOD concept in Thane started separate billing for 3phase
consumers in 2001 which give dynamic results in loss reduction and
revenue collection
Done survey for street light consumer road to road resulted more than 90
connections found unbilled
In thane previously one connection having 2 or 3 meters after starting MSEB
billing only two meters are billed. I identify thus cases and billed, also after
introduction of photo billing same problem arises for second meter, then
more than 900 meters are regularized. .
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REQUEST
 I really think that operational audit is very effective and dynamic in context
of MSEDCL for its Billing System to buildup operational excellency their in.
 I now working on Practical Action Plan and check list of operational audit
with connection with our activities and operation to make them more
efficient ,effective and economic to achieve organizational goals.
 I aspiring to devote my time, energy and resources to leading in the pilot

project of operational audit for improvement in Billing System
 I assure that give 100% dedication towards this projects and their
successful execution and implementation. With improvement the
performance
 Besides professional qualification I have 17 years versatile practical field

experience, good analytical skill, knowledge of system tools, computer,
regulations and policies and MIS reports.
53
.
 I noticed that lot of system gaps , bottlenecks, deficiencies, deviations
and ignorance spreads in all activities/operations due to poor or
absents of supervision, lack of knowledge, non awareness, weak
internal control, informal communication, vague or incomplete
information. I have clear idea how to deal with this, but I have no
appropriate authority. Till I regular share my idea with my seniors and
regularly follow up of the same.
 Though I work in restricted level i.e. subdivision level at lowest position

, till I succeed to contributed 30 to 40 lakh additional revenue each and
every year with applying various innovative ideas, techniques and
analysis of various reports.
 Also increase billing efficiency , minimize arrears, losses and

enhanced consumer satisfaction.
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This power point presentation contain

only overview of operational audit.
Detailed Plan Of Action and check lists
are under progress.
I want to present them personally to

visualize effectively , more convincible
and meaningfully
55
Please give me constructive opportunity to deliver my best to

present and platform to explore more details on operational audit
and their implementation in our organization for strengthen the
operational excellency.
CMA JITENDRA L. AHIRE ( CPF NO. 02189925)

ICWAI
CONT. NO. 8097550145
jitendraahire1975@gmail.com
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. THANKS
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29

Presentation On Operational Audit

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h a n g e Pro h a n g e Pro

OVERVIEW IN CONTEXT OF OPERATIONAL

CMA JITENDRA AHIRE

DEFINATION OF OPERATIONAL AUDIT:

Operation audit is systematic process of evaluating an

NEED OF OPERATION AUDIT

ii.. Fill up Communication Gaps:

Conventional sources of Management information are

iii. Effectiveness of Managers:

Executives and officers are too pre-occupied with

iv. Undetected Cracks:

Even when a department is working well and

Officers and their aides generally routine transmit

vi. Unbiased Reports:

Performance Reports contained in the annual

vii.Shortcomings of Internal Audit:

Conventional Internal Audit reports are often routine and

viii.Need for Current Control:

Surveys and special investigations are occasional in

ix. Environment Changes:

Operational Audit is required to analyze whether

Objectives of Operational Auditing

(a) Internal Controls provide the essential tools / measures to ensure

. ii. Evaluation of Performance:

In the area of performance appraisal, the Operational Auditor is

iii. Appraisal of Management objectives and plans:

(a) Every Activity in an organization is the product of basic plans and

iv. Appraisal of Organization Structure:

(a) Organizational structure, an essential element of internal control

v. Transparency and compliance :

Operational audit should create more transparency and better compliance

The first step in an operational audit is to structure the upcoming

.STEP-II AND III

OPERATIONAL AUDITOR QUALITIES

 He should ask the who why how of everything

 He should try to visualize whether simpler alternative means are

 He should try to see everything as to whether that properly fits in the

.  He should posses an attitude of skepticism

 He should with constructive approach rather than fault finding

 He should consider a fault or mistake found in the course of audit

 If auditor succeeds in giving a feeling of help and assistance through

Prime goals are

 Providing electricity at affordable and competitive rate

 Transparent and efficient services to consumer to enhance

 Reduce the AT&C losses

 Provide uninterrupted and reliable power supply

 To achieve prime aims definitely every distribution

 AT&C losses are biggest challenge to every

 Government takes measures for reduction of AT&C

 Still target of reduction AT&C losses are not

 AT&C stand for Aggregate technical and commercial loss

AT&C Loss(%) = (Energy Input – Energy Realised) x 100

Clearest measure of overall efficiency of the distribution

Energy Realised = Energy Billed X Collection Efficiency

Collection Efficiency (%) = Amount Realised X 100

for increase energy billed, control on transmission, distribution and

2. Increase the Energy realized or collection efficiency:

for increase collection efficiency, control on commercial loss is essential

NON TECHNICAL ENERGY LOSSES

With general causes some micro causes are always hidden

 One of the best solution for this is Operational

Commercial losses are two types

Recovery losses: These types are losses due insufficient recovery