“appointment of internal auditors f.y. 2016-17...“appointment of internal auditors f.y....

“Appointment of Internal Auditors F.Y. 2016-17”

Annexure-I

An abridged advt. will be inserted in two/three news paper having wide coverage in inviting expressions of interest from firms of Chartered Accountants seeking following information:

1.Name of the Firm.

2.Firm Registration no. allotted by ICAI.

3.Address of the Head Office as well as Branch Offices (if any).

4.Contact Nos. (Landline and Mobile).

5. Details of Registration with CAG Office, if any.

6. Details of Internal Audit and Statutory Audit of companies undertaken by

the firm during last five years.

7.Details of partners with their Membership Nos.

8.Details of paid CA employees of the firm with their Membership Nos.

9.Details of total staff strength of the firm.

10.Turnover of the firm.

11.Details of experience as Internal Auditors / Statutory Auditors of companies.

12.Details of having experience of working in ERP a/w certification from the respective

organisation(s) where SAP is implemented is to be submitted by the CA firm where they have

conducted audit a/w the application form.

13.Details of having experience of contract work’s audit with a minimum contract value of Rs. 1

Crore should be prescribed. a/w certification of major works contract is to be submitted by the

CA firm where they have conducted audit.

1) Eligibility criteria :)

1. The firm should have its Head office or Branch office in Himachal Pradesh. 2. The firm should have minimum 10 years' experience in carrying out Statutory Audit / Internal

Audit of Companies. 3. Minimum experience of 3 years in SAP should be compulsory.

4. Experience of contract work’s audit with a minimum contract value of Rs. 1 Crore.

5. Firms having maximum experience w.r.t. the above points will be given preference by giving

due weightage during evaluation of technical bids.

Himachal Pradesh Power Corporation Limited

(A State Government Undertaking)

Himfed Bhawan, Panjri, (Below Old MLA Quarters), Shimla-171005. Landline: 0177-2633589/2813830

2) The Time frame of Audit:

The Internal Audit shall be conducted in two phases as per details given hereunder:

3) Fee structure for Internal Audit:

Sr. No. Projects/Units Proposed amount in rupees (FY 2016-17)

1 For projects under construction stage/ in operation (5 No’s)

45,000/- + taxes as applicable ( Each Project)

2 For projects under investigation stage (9 No’s) 15,000/-+ taxes as applicable ( Each Project)

3

Corporate office, Shimla 45,000/- + taxes as applicable

4 Design Wing, Sunder Nagar

15,000/-+ taxes as applicable

Further, out of pocket expenses i.e. TA/DA shall be paid to the partner(s) and articles of the firm as

per State Govt. TA/DA rules applicable to H.P. State Government employees. For this purpose,

partners of the firm and the audit assistants will be entitled for TA/DA at par with State Government

officers of Grade I and Grade III respectively.

4) Proposed schedule of payment:

The payment to Audit Firms shall be released as under:

20% payment on receipt of each quarterly report followed by the bill along with stay certificate issued

by Head of Finance of the unit and supporting documents required to process such bills, and the

balance 20% payment on completion of Statutory Audit. The payment will be made within 15 days of

submission of all required papers and reports.

Phase Period of Audit Last date for commencement of audit

Audit Duration Last date for submission of audit report

1 1st April 2016 to 30th September 2016

10th October 2016

Not less than 10 days for each unit under construction & not less than 6 days for projects under investigation stage

31st October 2016

2 1st October 2016 to 31st December 2016

15th January 2017


31st January 2017

3 1st January 2017 to 31st March 2017

10th May 2017 31st May 2017

Annexure “A”

1. Scope of Work:

A) Audit process: 1. The Auditor shall have a meeting with Head of the Project/Office at the beginning of the audit

and finalize the modalities and schedule of audit.

2. The auditor should have final meeting with the Head of the Project/Office before closing the audit, discuss the audit observations and obtain the signature of the Head of the Project /Office or his authorized representative in confirmation of having discussed the audit observations with him and the same be submitted with audit report.

B) Scope of internal audit:

The Internal Auditor should work as guide to develop and motivate the staff of HPPCL as he/she is an important tool in the hand of the management in strengthening internal controls. The auditor may seek required information and explanations from the concerned officials/executives for the accomplishment of his/her task. The Internal Auditor has direct and unrestricted access to the Head(s) of Department(s), Head of the Project/Office and the Corporate Finance & Accounts Department. The auditor shall lay emphasis on compliance of all rules regulations, policies, procedures, accounting standards, manuals, statutory obligations etc.

The Internal Audit would, interalia, cover the following operational activities of HPPCL:

1. Vouching. 2. Audit of transactions which involves examination of supporting documents, concurrence

and approval from the competent authority. 3. Checking of trial balance, scrutiny of general ledger and reconciliation of each head of

accounts thereof, wherever necessary, and preparing balance Sheet of the period under report.

4. Checking of expenditures incurred with reference to the laid down procedures, delegation of powers and budgetary provisions.

5. Checking of calculations and payments of statutory dues and all tax related matters as applicable to HPPCL from time to time.

6. To check financial statements i.e. Balance Sheet and P & L Account if any (incidentals account in respect of projects under implementation) with reference to accounting standards and verifying whether the records have been properly maintained so as to safeguard the assets of HPPCL.

7. Insurance of all assets. 8. To see whether the stocks / assets acquired / purchased are in quantities required for the

smooth operation of the Office / department. 9. To check whether physical verification of assets / stocks has been carried out at the close of

financial year and variations, if any, have been accounted for and recorded properly. 10. To check the bank reconciliation statements. 11. To check whether the surplus funds of HPPCL are judiciously invested to get the maximum

possible return. 12. To check the cash book to ascertain whether cash in hand has been verified by the

competent authority at regular intervals. 13. Checking of subsidiary ledgers. 14. To check the listing of contingent liabilities, if any, in the notes to Balance Sheet. 15. To check the calculations of salary and reimbursement bills of staff to ascertain the

legitimacy of payments and deductions thereof. 16. Checking whether all liabilities against the accepted claims have been provided for in the

books of accounts for the full accounting year and verifying compliance with statutory

obligations of employer towards the employees: viz. Gratuity, Leave encashment, Provident Fund, Bonus etc. Similar checks to be done in respect of TA / DA and claims for reimbursements.

17. To review compliance with laid down policies and procedures in respect of calling of tenders, related approvals, budgetary provisions made and letters of award (LOA) issued for work contracts.

18. To check whether the tender documents / contract documents are vetted by the legal and finance departments of HPPCL.

19. To check whether the committees for tender opening and evaluation /negotiations are constituted as per the prescribed norms of HPPCL and whether the tenders have been awarded by the competent authorities.

20. To verify whether the advance for works such as initial advance, interim advance, mobilization advance etc. are paid as per the terms of the contract / provisions of LOA and is being adjusted· from the running bills properly and regularly. Also to check whether the escalation bills are being paid as per the terms and formulae given in the LOA

21. Whether provisions of penalty / damages / compensation / LD clauses are being invoked as per the LOA.

22. To verify the validity BGs obtained from parties to whom the work is awarded. 23. To verify whether BGs are kept in safe custody of competent authority and whether related

records are properly maintained. 24. To verify whether the procurements have been made after completion of all formalities

prescribed by HPPCL and whether approvals of competent authorities have been obtained.

25. To check whether the stationery & stocks have duly been accounted for as per accounting standards and whether records have been properly maintained to ensure safeguard of such stocks of HPPCL.

26. To verify whether the funds have been unnecessarily blocked due to excess procurements. 27. Checking of guest house / transit camp registers. 28. To suggest modifications to the delegation of powers, if shortcomings are noticed

during audit. 29. To verify whether TDS has been properly deducted and deposited with the Income Tax

Authorities within the prescribed periods. 30. To verify whether TDS returns have been submitted in time to the Income Tax Authorities. 31. To verify whether Service Tax has been properly charged, wherever applicable, and

whether proper returns have been filed with the Authorities. 32. To verify whether the Works Contract Tax (WCT), at applicable rate, has been deducted

from the bills of the contractors and timely deposited with the Sales Tax Authorities. 33. To verify whether proper returns have been filed under the WCT. 34. To check whether the Central Vigilance Commission (CVC) guidelines have been duly met.

C) Code of ethics for Auditors:

1. They should keep themselves away from illegal practice / dishonest arrangements.

2. The Internal Auditor shall have an obligation to work objectively and diligently while performing

his/her duties.

3. The Internal Auditor shall not accept any gifts or hospitality from any employee, contractor, supplier or business associate of HPPCL.

4. The internal audit staff should collect and keep information from HPPCL only for carrying out the assignment and should not take undue advantage of such information for personal profit or use the information in a manner contradictory to the ethics set forth by the Institute of Chartered Accountants of lndia.

5. None of the staff of Internal Audit Team would direct or supervise the activities of any department of HPPCL, except where such activities are a part of the internal audit process.

Annexure “B”

Guidelines

Although, the areas and magnitude in respect of scope of audit has been defined however some of

the important areas are elaborated and detailed as under :-

1. Statutory compliances and Internal Controls:

To ensure compliance of Companies Act, 1956 with particular reference to the accounting

functions and the Accounting Standards & Guidance Notes issued by the Institute of Chartered

Accountants of India from time to time and also other statutory provisions applicable to the

company. To assist and advice the company in formulation / revision of accounting policies and

in establishing proper control over accounting practices and procedures as per the changing

business environment and laws.

Works Accounting:

I. To verify and scrutinize payments to contractors with reference to respective contracts and

adjustment thereof while accounting for the work done by them and ensure that

deductions in respect of Mobilisation Advance etc. and statutory deductions are correctly

made from their bills.

II. The internal auditor should check that adjustments for returns, shortages, damages and

unserviceable stores and materials at sites are properly made.

III. The internal auditors should check that various Statutory Tax Returns should be timely

filed with the Tax Authorities and also verify the facts and figures given in the Tax Returns.

IV. Review of terms and conditions of tender documents and agreements, verification of Bank

guarantees and specific emphasis to be given on final payments.

V. Review of system for issue of Project Authority Certificates (PAC) and reimbursement of

the customs / excise duty due to change in subsequent legislation so that loophole in the

system for issue of certificates can be curtailed.

VI. To plug loopholes, which might have crept in the system due to passage of time and

complacency on the part of persons particularly engaged in financial concurrences,

release of payments, updating accounting records, authorizations as per DOP etc.

2. Capital work-in-progress and capitalization:

a. Work-in-progress should be verified by the internal auditors with reference to field records

such as Interim Payment Certificates and certification of progress issued by the EIC.

Quantum of work-in-progress recorded should be compared with work orders / contracts

and subsequent approvals for variations, to ensure that payments are duly authorized.

b. To verify capitalization of assets and accounting of capital expenditure (including

expenditure incidental to the construction) and its further distribution on the specific assets

as per Accounting Policy of the company for capitalization.

3. Fixed Assets :

To verify that proper records of assets of the company are maintained as required. Review the

system regarding accounting, custodianship and safeguarding of monetary and non-monetary

assets of the enterprise and to see that the assets of the company are reasonably and adequately

protected against loss. Also check that the transfer / sale of each asset is immediately and

properly accounted for. Also check the applicable depreciation rates and calculation of

depreciation.

4. Scrutiny of Bank Transactions and Reconciliation:

a) Scrutiny of Bank Transactions

To verify that cash (wherever applicable) & bank transactions are recorded properly and

surplus funds, if any, shall be kept in short terms / flexi deposits with the banks as per

Investment Guidelines. Entries in the deposit statement should tally with the term deposit

certificates. Also to verify that interest on deposits and TDS thereon has been correctly

calculated and accounted for in the books of the Company. Also review the stale cheques, if

any.

b) Bank Reconciliation:

Verify the Bank Reconciliation Statements of various Bank Accounts and report for old /

unadjusted items requiring special attention on monthly basis.

5. Vouching :

To verify all accounting transactions so as to ensure interalia that booking have been made to the

appropriate heads of accounts.

6. Ledger Scrutiny :

Scrutiny of trial balance, groupings, General Ledger, subsidiary records, review of sundry debtors,

creditors and loans and advances outstanding for more than one year and ensure that CWIP of

the project is accounted correctly.

7. Store transactions and valuation thereof:

To verify the vouchers pertaining to stores receipts, issues and the valuation thereof. The

coverage shall include purchases of stores and scrap disposal on test basis. The internal auditor

while verifying these transactions shall evaluate internal control procedures operative within the

enterprise for efficient materials management.

8. Verification of secured / unsecured advances and securities given / received on behalf of the

company:

a) Documents / agreements relating to secured & unsecured advances to parties / Govt. Bodies

shall be verified on test basis.

b) The scope includes verifications of securities deposited by the company with different

authorities / parties. The internal auditor shall check and examine the purpose and the duration

of such deposits and whether the deposit certificates are in safe custody for presentation at the

time of claiming refund. Security deposit received from the parties shall also be verified to

ensure that the company beyond prescribed period does not retain these.

9. Income Recognition:

To verify that income recognition is being made in conformity to Accounting Policy / procedure and

the transactions are recorded accordingly.

10. Strengthening of Internal Control System:

To identify weaknesses in control systems which can lead to frauds and report the same to the

Management for timely corrective actions.

11. Other matters :

To examine that:

I. The authorities at every level are being strictly adhered to as per DoP.

II. The expenditure are sanctioned and booked as per the authorisation.

III. All important documents including term deposit receipts, tax returns, bank guarantees,

cheque books etc. are kept under safe custody,

IV. There is a proper mechanism that the bank guarantees are extended well before the

expiry dates.

12. Keeping in view the above requirements, internal auditors are also required to contribute for

following activities:

Helping in rectification of errors and omissions observed in the course of audit.

Guiding in location of difference in Bank Reconciliation and proper control over banking

transactions.

Review and guidance in the finalization of accounts.

Online scrutiny of TDS deductions from payments made to contractors / suppliers and

consultants.

Advising on statutory requirements of the Companies Act, Accounting Standards and other

various taxation laws.

To report any other matters coming to notice during verification in order to strengthen internal

control system and for improving MIS.

Review of liabilities and provisions.

Proper accounting of expenditure and incomes accruing to the enterprise and adherence to

matching principle.

Review the system for intangible assets assessment and impairment of assets.

Review the adequacy of the insurance cover for the various risks involved.

To verify that all moneys received are accounted for.

13. (a) Insurance and other claims lodged by the company:

Internal auditor while verifying insurance and other claims of the company should see that

losses to the company giving rise to claims are properly lodged and proper follow up action is

taken for realization of overdue claims and the claims are properly accounted for after

settlement.

(b) Claims lodged against the company:

Internal auditor while verifying claims lodged against the company should ascertain that the

passed claims are with the approval of Competent Authority and are properly accounted for

after settlement.

14. Employee payments:

To verify that accounting for salary and benefits admissible to employees and directors are

being done properly and all subsidiary records for loans / advances and other deductions

related to employees are reconciled properly. Ensuring the recovery of advances given to

employee within the stipulated period, Payment and statutory dues to the workers. Ensuring

the use of vehicles as per policy of the HPPCL. Requirements of AS 15 should be complied

with ensuring the payment.

15. Consultancy Services: Review the terms and conditions of all consultancy contracts and

report the debtors’ position in case the same are overdue.

Apart from the above, audit should also cover all the other activities like Workshop & Transport

Deptt., Stores, Legal, R&R, and Corporate Planning etc.

Annexure “C”

Extent of coverage MAJOR AREAS TO BE COVERED DURING THE AUDIT OF PROJECTS/STATIONS

Sl. No. ITEM I Works including contracts (Pre-award and Execution) II Procurement – (Pre-award and Execution) III Accounts including establishment accounts IV Human Resources Department (HR Establishment) V Stores VII Guest House and Transits camp

Keeping in view the broadly above stated aspects the following would be the AREA & EXTENT OF COVERAGE

Sl.No. Area Coverage in each phase

I WORKS INCL. CONTRACTS (Pre-award and execution) i) Contracts with value more than Rs.10 Lakh ii) Contracts with value Rs.10 Lakh or less iii) Expenditure below Rs 25000/ having no F.C

100% 50% 100%

II PROCUREMENT (Pre-award and execution) i) P.Os with value more than Rs5.00 Lakh ii) P.Os with value Rs.5.0 Lakh or less

100% 50%

III ACCOUNTS i) Bank Payment Documents ii) Documents for Bank Receipt iii) Documents for Adjustments iv) Review of Bank Reconciliation Statements (BRS)

50% 100% 100% 100%

IV ESTABLISHMENT – ACCOUNTS i) Checking of Off-Cycle payments w.r.t rules and proprietary

aspects ii) Review of Subsidiary Ledgers

50% 100%

V ESTABLISHMENT – HR i) Extra ordinary Leave Records ii) HTC/LTC Records iii) Documentation for Advances

100% 50% 50%

VI STORES i) Documentation and procedures ii) Review of claims iii) Accounting and Review of Suppliers’ Sub-ledgers iv) Review of Returnable Gate-Pass system v) Test-checking suppliers’ bills w.r.t policies & circulars

100% 100% 100% 100% 50%

VII GUEST HOUSE AND TRANSIT CAMP

i) Proprietary Aspects ii) Accounts

100% 100%

V111 AUDIT OF OPERATIONS i) Fuel/power Accounting records ii) Verification of Fuel Price Adjustment iii) Review of Monthly Operating Results

100% 100% 100%

Annexure “D”

REPORTING REQUIREMENTS Internal Audit Reports should be divided into four separate parts, namely: PART- I IMPORTANT OBSERVATIONS, OBJECTIONS AND RESERVATIONS: This part should contain the auditor’s comments on all such irregularities or occurrences which auditors want to bring to the notice of management, along-with their financial implications, if any. This part should also bring out deviations (non - compliances) by units from (with) policies, systems and procedures prescribed by HPPCL. Any non-compliance with the matters/areas specified in the Guidelines/ policy of HPPCL should also be identified here. The observations should be arranged in self-contained paras, preferably with suitable titles. PART – II COMPLIANCE REPORT: Auditors to Report on compliance of internal audit observations outstanding as at the end of the previous year (that is, as contained in the Report of the preceding phase). For example, while submitting the internal audit report of Phase – I for the current year (say, 2015-16) it may be ensured that a compliance report on audit observations contained in Phase – 1V report of the previous year (i.e. 2014-15) as well as on such observations contained in reports of earlier years, pending settlement, is included and details of corrective actions taken on those observations are furnished in the current year’s audit report. PART –III REPORT ON CONTRACTS / P.Os PLACED ON SINGLE TENDER BASIS: Internal auditors will report separately on Contracts / Work Orders (W.Os)/Purchase Orders (P.Os) placed on Single Tender basis, ascertaining the follow- up, of procedure etc. PART – IV DETAILED REPORT: This part shall comprise auditor’s detailed observations regarding areas specified in the Scope of the audit. However, non-compliance with the matters / areas specified in the Audit Scope which are identified in Part I of the report, should also be invariably detailed in Part IV. While, Contracts/W.Os. / P.Os placed on Single Tender basis should be reported in Part – III of the report, auditors should report their findings on all Contracts/W.Os. / P.Os placed on other than Single Tender basis in this Part (i.e. Part IV). Further, a point -wise report on the scope of audit is to be submitted a/w a certificate that the internal audit has been done as per scope of work. The following may also be kindly ensured:

(a) The report should be supplemented, in each phase, by a statement indicating:

(i) Particulars of records checked along with their volume and value as compared to the total volume and value of the transactions. Auditors should also mention the entry date of the last document verified by them in the SAP system.

(ii) A statement indicating the audit personnel deployed their designation and the period of deployment in each phase.

(b) The report should also contain references to areas where no adverse observations have been

noted. In respect of other areas, specific suggestions for improvement, if any, may also be highlighted for each area.

(c) The results of audit should be discussed with Head of Project followed by Director (Finance) in each phase and important observations should be brought to their notice so that timely corrective actions may be taken. The report should be prepared after duly taking into account the additional information that may be provided / obtained at such discussions.

Annexure “E”

1. Time frame of Audit:

The Internal Audit shall be conducted in two phases as per details given hereunder:

Phase Period of Audit Last date for commencement of audit

Audit Duration Last date for submission of audit report

1 1st April 2016 to 30th September 2016

10th October 2016


31st October 2016

2 1st October 2016 to 31st December 2016

15th January 2017


31st January 2017

3 1st January 2017 to 31st March 2017

10th May 2017 31st May 2017