Internal Audit Report

Faisalabad Electric Supply Company

(FESCO) WAPDA

FINANCIAL STATEMENT ANALYSIS (Provisional-

Unaudited)

FOR THE FINANCIAL YEAR ENDED

30 JUNE,2017
 Executive Summary

Key findings

Accounting and Financial reporting – policies and procedures:

Observations  Management has not devised and approved an Accounting and Financial Policies and
Procedures Manual. Further, the following has been observed:
– Both at corporate as well as at branch level, knowledge and skill to implement
IFRS and other applicable laws is deficient.
– Roles and responsibilities for each Finance and Accounting position has not
been documented in form of approved job descriptions.

Management of fixed assets:

Observations  We have noted that the physical verification exercise in respect of fixed assets has not been
carried out. According to applicable laws and guidance, each category of fixed assets should
be verified at least once in every 5 years, and reconciled with records by making necessary
adjustments (if any required).
 It has been observed that currently Purchase Orders are not raised for fixed assets purchases.

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 Executive summary

Key findings

Poor development of ERP/SAP system:

Observations  Proper ERP/SAP system has not been developed which hinders the management from seeking
updated and timely information.

All the investment appraisals should be reviewed and approved by designated

authorities:

Observations  It has been observed that the Company lacks a proper and formalized investment appraisal
process. The investments made involve the commitment of a large amount of Company
resources which necessitate careful evaluation to be undertaken before a decision is reached.

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 Detailed Audit Findings:
1:Accounting and Financial reporting – policies and procedures:

2: Management of fixed assets:

3: Poor development of ERP/SAP system:

4: All the investment appraisals should be reviewed and approved by designated authorities:

5: Long outstanding reconciliation items with associated undertakings:

6: Share deposit money:

7: Non-implementation of transport policy:

8: Advance payment of GST:

9: Difference of security deposit as per trial balance and cp-41:

10: Pension receivables from WAPDA and other associated undertakings since long:

11: Huge amount of repair and maintenance cost of transformers :

12: Non recovery of store shortage items receivable from employees:

13: Non-charging of interest on long term advances to employees:

14: Blockade of money in the shadow of temporary advances:

15: Provision for workers profit participation fund:

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16: Equalization surcharge
17: Blockade of FESCO funds under the shadow of Advances-Warranty /Guarantee Material (Rs.137.9 million under account head 1071000)

18: Transfer of property and rights:

19: Provision for doubtful debts:

20: Unsecured trade debts:

21: Blockade of FESCO funds on account of amount receivable from director fund Lahore:

22: GST refund claim receivable from FBR:

23: Collection Expenses (Rs.301.6 million under account head 710000):

24: Retention of service charges on collection expenses under Income Tax ordinance section 153(1)(b):

25: Financial loss due to distribution losses:

26: Reconciliation of CPPA accounts:

27: Difference of CPPA units and tentative sheet:

28: Corporate plan and policy manual regarding budgeting is not prepared

29: Physical verification of fixed assets:

30: Non-impairment of fixed assets:

31: No SOP for the settlement of IOTs:

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1. Accounting and Financial reporting – policies and procedures:

Observations Recommendations Agreed Management Actions

a) Management has not devised and a) Management should devise and

approved an Accounting and Financial implement an Accounting and Finance
Policies and Procedures Manual. The Policies and Procedures Manual which
following has been observed: should clearly define and communicate
– Both at corporate as well as at the requirements and same needs to be
field formation level, knowledge adhered with by the formations. Job
and skill to implement IFRS and descriptions should be properly
other applicable laws is deficient. documented and approved in each
– Roles and responsibilities of each case.
Finance and Accounting position Competency Framework should be
has not been din form of approved designed and implemented to ensure
job descriptions. that suitably qualified and experienced
Implications staff are hired in Finance / Accounts
related job roles.
a) In the absence of an approved
Accounting and Finance Policy and
Procedures Manual, management’s
defined accounting policies and
procedures may not be followed. Non
compliance of IFRS and applicable
laws may not be highlighted.
Further more absence of approved job
descriptions create lack of
accountability in respect of the
employees responsibilities.
Responsibility Accounts / Finance Department
2. Management of fixed assets:
Agreed
Management
Observations Recommendations Actions

a) The Company does not have a written policy a) The Company should develop a proper
for capitalization of fixed assets. As a result capitalization policy which describes
inconsistent capitalization procedures have assets to be capitalized and establishes a
been observed by the management. minimum amount for capitalization.
b) We have noted that the physical verification b) PO should follow to clarify the Purchase
exercise in respect of fixed assets i.e. Feeders terms with the vendor and to ensure
and Grids has not been carried out. According effective and timely delivery of goods.
to applicable laws and guidance, each category c) Physical verifications should be
of fixed assets should be verified at least once periodically conducted to ensure
in every 5 years, and reconciled with records by safeguard of assets as well as ensure that
making necessary adjustments (if any book balances match physical balances.
required).
Implications
a) Without formal capitalization policy, proper
recording of fixed assets may not take place.
b) Similarly without raising PO’s the related
terms with the vendor may not be enforceable
and adhered with.
c) Company is in non-compliance of Technical
Release 6 of ICAP. Fixed assets physical
balances may not match with the book
balances.

Responsibility Accounts / Finance Department

3. Poor development of ERP/SAP system:

Agreed
Management
Observations Recommendations Actions

a) Proper ERP/SAP system has not been a) Proper ERP/SAP system should be installed
developed which hinders the management so as to confirm timely availability of
from seeking updated and timely information and guided decision making.
information.

Implications

a) Due to non-availability of timely information

appropriate decision making might be stalled
which may end up into deficient action plans.

Responsibility Finance Department/ IT Department

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4. All the investment appraisals should be reviewed and approved by designated
authorities:

Agreed
Management
Observations Recommendations Actions

a) It has been observed that the Company lacks a) Investment decisions are usually linked to
a proper and formalized investment strategic and tactical business decisions and
appraisal process. The investments made therefore need to achieve desired long-term
involve the commitment of a large amount of objectives, if such procedures are not properly
Company resources which necessitate careful formalized risk and uncertainty of
evaluation to be undertaken before a undertaking’s medium and long-term
decision is reached. investments shall be high.

Implications
a) It can be extremely expensive and difficult to
reverse an investment decision, so care needs
to be exercised in reaching the initial
investment decision. Further projected
future benefits and costs are difficult to
predict. Consequently, the risk and
uncertainty of undertaking a medium to
long-term investment can be high.

Responsibility Finance Department/ IT Department; Accounts

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5. Long outstanding reconciliation items with associated undertakings:
Observations Recommendations Agreed Management Actions

We observed that timely reconciliation is not

being carried out with its associated companies a) Timely reconciliation should be
mainly with NTDC/CPPA. In this regards, we prepared with associated undertakings
have identified certain long term outstanding in the best interest of the company.
reconciliation items appearing in these
reconciliations.
Supplementary charges on power purchase
amounting to Rs.6,719/-million for the financial
year ended 30 June, 2017 has not been booked
by FESCO.
Balance of Rs.2,213/-million in respect of
amount recoverable on power purchase from
SPPs have been less credited/booked by CPPA
since financial year 2010-11 to financial 2016-17.
Further amount of Rs.9,174/-million relating to
same issue have not been also booked by CPPA
for the financial year 2016-17.
Balance of Rs.(536)/-million in respect of cash
difference with CPPA since financial year 2013-
14 to financial year 2016-17.
The list is given in Annexure “ A ”.
Implications
Non reconciliation with associated undertakings
may result into misstatement of balances and
figures on account of irresponsible behavior
of respective officers.
Responsibility Finance Department/ IT Department; Accounts
6. Share deposit money:

Observations Recommendations Agreed Management Actions

It has been observed that during the FY-2014, the a) It is recommended that the
company received credit notes from CPPA management should take-up
amounting to Rs. 44.50/- billion approximately the matter with the related
representing GOP investment in the company as a authority to safeguard the best
result of the clearance of circular debt in the interest of the company.
power sector. Accordingly, the company has
accounted for the aforesaid amount in share
deposit money account resultantly the balance
increased from Rs.3.7 billion to Rs.23.9 billion
during the FY-2014. But later on, in the FY 2016
the amount was reduced to Rs.18.67 billion with
difference 3.25 billion without showing any detail
of transferring such a huge amount out of GOP
investment in the company.

Implications
According to the companies ordinance 1984, the
company should issue shares to GOP by enhancing
its paid up share capital whereas the present paid
up share capital remains Rs.10,000/- only.

Responsibility Finance Department

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7. Non-implementation of transport policy:
Agreed Management
Observations Recommendations Actions

FESCO’s vehicle fleet consists of a total of 873

vehicles, out of which 725 vehicles include 12 a) FESCO management should adopt the
years, and remaining 20 years, 30 years and policy and replace the vehicle accordingly
more than 40 years old vehicles. The company’s to minimize the maintenance cost of the
fleet management policy requires vehicle vehicles.
replacement when a vehicle reaches ten years of
d) Timely replacement of the vehicles can be
age, but vehicles are rarely replaced on schedule in the best interest of the company.
due to conflicting approval policies. Even if the
utility were to demonstrate that purchase of a
new vehicle would result in lower operating and
maintenance costs, there is no policy allowing
for a replacement of a vehicle. Not surprisingly,
older vehicle maintenance costs are significant
in current FY 2016-17 i.e. Rs.44.5/- million.
These costs are exacerbated by a PEPCO policy
that requires FESCO to send all fleet vehicles to
a WAPDA vehicle repair workshop, where prices
are approximately twice the market rate.
FESCO has significant financial vulnerability
due to a lack of insurance on its facilities. Grid
stations and certain new vehicles are presently
the only facilities covered by insurance.
Implications
The higher maintenance cost of expired old
vehicles is ultimately a financial loss to the
company.
Responsibility Finance Department/ IT Department; Accounts

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8.Advance payment of GST:

Observations Recommendations Agreed Management Actions

FESCO is forced to remit payments for GST The management of the company
on all billings, regardless of whether the should take up this matter with the
bills are actually collected.
FBR on priority basis in the best
FESCO’s collection rate for government
clients is much lower than it is for private interest of the company.
clients; the collection rate for government
clients is 73.5%, while FESCO has a
collection rate for private clients of 94.7%.
GOP accounting regulations prohibit
making provision for past due receivables
from government clients and therefore
FESCO must consider all government
receivables as collectible.
This results in payment of GST on
uncollected amounts by FESCO.
Implications
Thus, even though taxes are considered a
pass-through, the difference between
billed and collected taxes is paid from
company’s distribution margin. These
taxes represent a significant financial
burden on the company.
Responsibility Finance Department/ IT Department; Accounts

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9. Difference of security deposit as per trial balance and cp-41:
Observations Recommendations Agreed Management Actions

While scrutiny of the accounting record, we a) It is recommended that timely

observed the difference of consumer
security deposit amount as per CP-41 and
trial balance on June 30, 2017, as per CP-41
is amounting to Rs.5.89 billion and as per
trail balance amounting to Rs.5.94 billion
resulting a huge difference of Rs.50
million. Reconciliation need to be provided
for this difference.
reconciliation should be made
and adjustment should be made
in the books of accounts if
required to ensure transparency
and accuracy of financial
statements.

Implications
Whereas the difference in accounting
record may lead to misstatement or
fraud.

Responsibility Finance Department/ IT Department; Accounts

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10. Pension receivables from WAPDA and other associated undertakings since long:

Observations Recommendations Agreed Management Actions

We have observed that the amount of pension a) It is recommended that Finance

for the financial year ended on 30 June, 2017 Director should make it possible to
paid to WAPDA/Other associated recover these heavy amount of
undertakings employees retired amounting to receivable on urgent basis.
Rs.3.67 billion is receivable from WAPDA
since long.

Implications
The blockade of funds on account pension
receivables from WAPDA resulting from
which FESCO is suffering from the
opportunity loss.

Responsibility Finance Department

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11. Huge amount of repair and maintenance cost of transformers :
Observations
It has been observed that a huge amount of
repair and maintenance cost of transformers
significantly increasing every year as Rs.239
million incurred during FY 2014-15, Rs.249
million during FY 2015-16 and now Rs.262
million in FY 2016-17 which is totally
abnormal and ultimately causing a financial
loss to the company over years.
Agreed Management
Recommendations Actions
a) It is recommended that CEO
FESCO may kindly look in to the
matter personally and make efforts
to make it possible to recover such
amount.

Implications
The increasing maintenance cost of
transformers is ultimately a financial loss to
the company.

Responsibility CEO FESCO

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12. Non recovery of store shortage items receivable from employees:

Observations Recommendations Agreed Management Actions

Scrutiny of financial statements for the year
ended june-2017 revealed that a huge amount
is recoverable on account of store shortage
items and store shortage items due to dacoity
amounting to Rs.8.3 million and Rs.1 million
respectively. It shows that no good efforts
have been made to recover the said amount
from the responsible employees.
a) It is recommended that the relevant
authority may kindly look in to the
matter personally and make efforts
to make it possible to recover such
amounts from concerned
employees.

Implications
Non recoverability of such amount would
result in financial loss to the company as well
as provides further opportunity to make
misappropriation in company’s assets.

Responsibility Finance Department

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13. Non-charging of interest on long term advances to employees:
Agreed Management
Observations Recommendations Actions

While going through the trial balance for June-2017, it a) It is recommended that Finance
has been observed that Rs.147 million was shown as Director may kindly look in to the
long term advances to employees under account head matter personally and make efforts
070100 but no interest charged during the whole to make it possible to recover such
financial year by violating the authority instructions amount.
i.e. Pakistan WAPDA rules regulating the grant of
advances for the construction/purchase of
Houses/plots 1967 (as amended up to January 2014)
and Pakistan WAPDA rules regulating the grant of
advances for the purchase of motor car/motor
cycle/scooter/cycle,1962 (as amended up to January
2014). Under rule-17 vide Office order
No.S/DD(Rules)/07456/13/70362-71141 dated
12/09/1983, the interest charged on amount advanced
under these rules shall be at the rate fixed by the Govt.
of Pakistan from time to time. The rate fixed for FY
2016-17 is 6.54% and accordingly financial loss of
Rs.9.6 million.
The list is given in Annexure “ B ”.
Implications
A huge sum of amount still recoverable from the
employees on account of interest on long term
advances which is ultimately a financial as well as
opportunity loss to the company.
Responsibility Finance Department

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14. Blockade of money in the shadow of temporary advances:

Observations Recommendations Agreed Management Actions

While going through the trial balance for
June-2017, it has been observed that
Rs.10.86 million was shown as temporary
advances (Other expenses) and Rs.6.35
million (Travelling expenses) outstanding
against the staff of field formations.
a) It is recommended that Finance
Director may kindly look in to the
matter personally and make efforts
to make it possible to recover such
amount.

Implications
Blockade of FESCO funds in the hands of
officers and company suffering opportunity
cost on the blockade of funds and ultimately
financial loss to the company.

Responsibility Finance Department

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15. Provision for workers profit participation fund:

Observations Recommendations Agreed Management Actions

It has been observed that the company a) It is recommended that Finance

created a provision for Workers profit Director may kindly look in to the
Participation Fund for the year ended 30 matter personally and make efforts
June2004 and 2005 amounting to Rs.110 to make it possible to recover such
Million as per requirement of the Companies amount.
profit (Workers Participation) Act, 1968.
Whereas, the Act requires an establishment of
separate Fund having its own Board of
trustees to handle its affairs independently
and made payment of allocated amount to
workers within nine months of the close of
the relevant financial year.

Implications
However, the huge amount not yet paid by
the company under the directions of the
WAPDA.

Responsibility Finance Department

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16. Equalization surcharge:
Agreed Management
Observations Recommendations Actions
The company’s trade and other payable a) Adequate efforts should be made
includes a balance of Equalization surcharge for early clearance of this huge
payable amounting to Rs.2,211 million and amount with the related authorities
Rs.2210/- million for FY 2015-16 and FY keeping in view the best interest of
2016-17 respectively collected from the company.
consumers as per S.R.O 236(1)2011,
Dated:15/03/2011 issued by the Ministry of
Water and Power, GOP. The Equalization
surcharge has been charged till 10/2013 and
payment should be made to GOP accordingly
whereas the Equalization surcharge was
collected till 10/2013 then why the same
amount reduced to Rs.2210/- million instead
of the whole amount.

Responsibility Finance Department

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17. Blockade of FESCO funds under the shadow of Advances-Warranty /Guarantee
Material (Rs.137.9 million under account head 1071000) :
Agreed Management
Observations Recommendations Actions
It has been observed while going through the a) It is recommended that CEO
trail balance for the FY 2016-17 that a huge FESCO may kindly look in to the
amount of Rs.137.9 million were shown as matter personally and make efforts
returnable material from suppliers under to make it possible to recover such
warranty / guarantee material since long amount.
accumulating over the years having age up to
04 years. No time frame mentioned in the
purchase orders issued to suppliers by the
procurement agency from time to time at the
cost of FESCO.

Implications
Blockade of FESCO funds in the hands of
suppliers causing company to suffer
opportunity cost on the blockade of funds
and ultimately financial loss to the company.

Responsibility CEO FESCO

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18. Transfer of property and rights:

Observations Recommendations Agreed Management Actions

Scrutiny of the financial statements under a) It is recommended that Finance

head Property Plant And Equipment Director may kindly take-up the
revealed that title of Freehold land having matter with the related authority
value of Rs.4.3 billion is still in the name of in the best interest of the
WAPDA since incorporation i.e. 29 June company.
1998 while title of land having value of
Rs.1.1 billion has neither been transferred
in the name of WAPDA nor in the name of
FESCO.

Implications
Non transferring of property and rights of
freehold land in the name of FSECO after
incorporation since 1998 may cause serious
financial loss of billions of rupees to the
company.

Responsibility Finance Department

23
19. Provision for doubtful debts:

Observations Recommendations Agreed Management Actions

Provision for doubtful debts for the FY 2016-17 a) It is recommended that the
as per note 19.1 shown as Rs.67.9 million. management should overlook
Whereas the provision is less booked with a the matter in the best interest
difference of Rs.0.65 million and accordingly of the company.
not charged to profit and loss account due to
which the profit shown for the FY 2016-17
become overstated.

Implications
Due to non charging of provision for bad debts
to profit and loss account, the company
management shows overstated profit for the
year.

Responsibility Finance Department

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20. Unsecured trade debts:

Observations Recommendations Agreed Management Actions

It has been observed that trade debts shown in a) It is recommended that the
the balance sheet under current assets are management should overlook
amounting to Rs.13.156 billion and explained the matter in the best interest
in note 19 that trade debts are secured to of the company.
extent of corresponding consumer’s security
deposits. On the other hand, the amount of
consumer’s security deposits in the balance
sheet under Non-current liabilities amounting
to Rs.5.94 billion. The huge difference of trade
debts and consumer’s security deposits is
Rs.7.216 billion which shows that trade debts
are not fully secured.

Implications
Unsecured trade debts may cause huge
financial loss to the company and resultantly
less charging of provision for bad debts to
profit and loss account, the company
management showing overstated profit over
the years.

Responsibility Finance Department

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21. Blockade of FESCO funds on account of amount receivable from director fund
Lahore:
Agreed Management
Observations Recommendations Actions
Scrutiny of the trial balance for the financial a) It is recommended that the
year ending on June 2017, it has been observed management should take-up the
that a huge amount of Rs. 369/- Million is paid matter with the director fund
to widows on behalf of director accounts Fund Lahore in the best interest of the
Lahore which is still not yet disbursed by FESCO.
director Fund Lahore.

Implications
A very serious matter on part of field offices that
lead to doubt the payment which has been made
against the head of account resultantly the huge
amount is accumulated over the period and
leads to bear the opportunity cost and
ultimately financial loss to the company.

Responsibility Finance Department

26
22. GST refund claim receivable from FBR:

Observations Recommendations Agreed Management Actions

It has been observed that in the financial year a) Adequate efforts may be made for
ended 30 June,2017 the GST refund claim recovery of such a huge
amounting to Rs.7,754 million receivable from refundable amount from FBR at
FBR which is still outstanding and appearing in earliest in the interest of the
the books of accounts since long. No claim of company.
refund for the whole financial year 2016-17 made b) It would save the company from
from the FBR . the suffering of any tax
complications.
The list is given in Annexure “C”

Implications:

The amount is pending since long resultantly

company is suffering from opportunity loss on
account of blockade of funds.

Responsibility Finance Department

27
23. Collection Expenses (Rs.301.6 million under account head 710000):
Observations Recommendations Agreed Management Actions

Scrutiny of trial balance for the Financial year ended a) It is recommended that Finance
30 June,2017 revealed that huge amount of Rs.301.6 director should take-up the
million was booked as expenditure on account of matter with the related banks
collection charges which deducted/paid to various that they should act upon
bank branches during the financial year. It is pertinent according to the defined policy
to mention that no detail has been maintained showing rather than their own set of
the number of electricity bills collected by the bank rules.
branches and payment thereon which is very serious
and against the authority instructions. Accordingly,
monthly detail was required to be maintained at the
level of each revenue office to verify the expenditure
incurred in this connection is according to the
collection of electricity bills by the bank branches or
otherwise. Furthermore monthly statement showing
No. of bills collected and collection charges all over the
FESCO should be maintained in the office of CFO to
verify all the deductions/payments were made
according to the collection of monthly electricity bills
by bank branches correctly or otherwise and the same
may be provided to audit for verification.

Implications
Non maintenance of proper record of payment on
account of collection expenses is ultimately a financial
loss of company.
Responsibility Finance Department

28
24. Retention of service charges on collection expenses under Income Tax
ordinance section 153(1)(b):

Observations Recommendations Agreed Management Actions

It has been observed that a sum of money a) It is recommended that the

Rs.300.6 million charged by the banks on management should take-up
account of collection expenses i.e. collecting the matter with the related
utility bills, during the financial year 2016-17 banks to recover the amount in
and the company did not deduct tax as the best interest of the company
mentioned in Income tax ordinance under as early as possible.
section 153(1)(b) according to which the tax is
chargeable at 8% to the service charges
retained by the banks ( i.e. Rs.8/ bill ). In this
way Rs.24 million is collectable from the banks
for better reconciliation with the tax
authorities.

Implications
Timely reconciliation was not done with the
various banks due to which a huge sum of
amount still recoverable from the banks which
is ultimately a financial as well as opportunity
loss to the company.

Responsibility Finance Department

29
25. Financial loss due to distribution losses:
Observations
It is observed that FESCO sustained revenue
loss of worth Rs.3,839.77 million on account of
units lost beyond the NEPRA allowed limit i.e.
9.36% during the financial year 2016-17.
The list is given in Annexure “D”.
Implications
By not keeping in view the limit as allowed by
the NEPRA, the company has to bear huge
financial loss for the year.
Responsibility
Recommendations Agreed Management Actions
a) It is recommended that the
management should take proper
measures to be in a defined limit
as allowed by NEPRA to save the
company from huge financial
loss.
Finance Department
30
26. Reconciliation of CPPA accounts:
Agreed Management
Observations Recommendations Actions
We has been observed that timely reconciliation a) We recommend that timely
is not being carried out during the financial year reconciliation should be prepared
ended 30 June,2017 due to which, the company with the related authority.
afforded the credit on account of SPPs debit b) Timely reconciliation would help
notes issued to CPPA during FY-2010-11,2011- in avoiding any financial
12,2012-13 and 2013-14 amounting to Rs.1761.86 complications.
Million is still unadjusted which is quite serious
and resultantly affording the huge opportunity
loss to the company.

Implications
Due to Non reconciliation of CPPA accounts the
company has to bear the opportunity loss for the
year.

Responsibility Finance Department

31
27. Difference of CPPA units and tentative sheet:

Observations Recommendations Agreed Management Actions

It has been observed a huge difference of units a) It is recommended that the

purchased and received during the financial year
2016-2017 i.e. 234,311/- units as compare to
CPPA provisional invoice i.e. 12,857,816,616
units with FESCO tentative record sheet i.e.
12,587,582,305 units resultantly FESCO
sustained revenue loss for the year.
management should take-up the
matter with the related authority
to recover this huge revenue loss
for the year.

The list is given in Annexure “E”.

Implications
The difference of CPPA units and tentative sheet
units are ultimately revenue/financial loss to the
company.

Responsibility Finance Department

32
28. Corporate plan and policy manual regarding budgeting is not prepared:
Observations
We have observed that the corporate plan for
budgeting and policy manual regarding
budgeting is not being prepared for the
financial year 2016-17, consequently budgets
prepared are not aligned and reliable.
Implications
Budgets prepared are not aligned and reliable.
Responsibility
Recommendations Agreed Management Actions
a) We recommend that all budgets
are to be prepared in order to
align with the corporate plan.
b) Budgets prepared will be
aligned with overall
organizational objectives and
strategy.
Finance Department
33
29. Physical verification of fixed assets:

Observations Recommendations Agreed Management Actions

It has been observed that the company has a
practice of physical verification of fixed assets
other than grid station equipment and feeders
whereas in accordance with the provision of
Technical Release-06 of the Institute of
Chartered Accountants of Pakistan. Physical
verification of the fixed assets should be carried
out on regular interval and should be reconciled
with the fixed assets records and adjusted
accordingly.
a) It is recommended that the
management should take-up the
matter with the related field
formations for the physical
verification of grid stations and
feeders in the best interest of the
company.

Implications
In this way, physical verification exercise should
cover all the fixed assets of the company
including the grid stations and feeders by teams
of other offices of the company to save from any
financial loss in future.

Responsibility Finance Department

34
30. Non-impairment of fixed assets:

Observations Recommendations Agreed Management Actions

It has been observed while the course of audit a) It is recommended that the
that presently the company is not in a practice of management should charge
impairment of its fixed assets since long whereas impairment loss of its fixed assets
an impairment loss is recognized wherever the to profit and loss account in
carrying amount of the asset exceeds its every financial year.
recoverable amount. Every year company has to
bear impairment loss on account of theft of
transformers from the site but the same is not
booked to the respective financial year.
Impairment losses are recognized in profit and
loss account.

Implications
The company had no impairment loss recognized
for the assets in prior years resultantly
overstating the profit for the years.

Responsibility Finance Department

35
31. No SOP for the settlement of IOTs:
Agreed Management
Observations Recommendations Actions
During the course of audit for the year ended 30 June,2017 a) It is recommended that
it has been observed that there is no proper procedure the Finance director
regarding the settlement of IOT of worth Rs.1,014/-million should look into the
with other offices including DISCOs etc. as the balance matter and make efforts
against payable IOT is accumulating over the period which to reduce the amount of
shows carelessness on the part of management to make IOTs with the related
efforts regarding its early settlements and consequently this authorities so that same
may result in accounts unbalancing. may be cleared on timely
basis.
WAPDA Rs.121/- million b) This would assist the
LESCO Rs.661.8/- million company in
MEPCO Rs.98.8/-million implementation of strong
PEPCO Rs.132.7/-million internal controls over the
management processes.
Implications
Unadjusted IOTs may cause the relevant record i.e.
receivable and payables over stated or under stated for the
financial year.

Responsibility Finance Department

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