Internal Control Integrate d Framework

Internal controls Objectives: Effectiveness and efficiency of operations Reliability of reporting Compliance with applicable laws and regulations

Joint venture between the Ali Group of Pakistan and Akerlund and Rausing of Sweden

Company Overview

Provides premium packaging solutions Clientele: Unilever, Nestle and Pakistan Tobacco Company Employ over 3000 people Sales of over US $ 257 million in 2011 Listed on all three stock exchanges in Pakistan Packages Limited has maintained a long-time credit rating of AA.

Company VisionPosition ourselves to be a regional player of quality packaging, paper & paperboard and consumer products. Improve on contemporary measures including cost, quality, service, speed of delivery and mobilization. Keep investing in technology, systems and human resource. To effectively meet the challenges every new dawn brings. Develop relationships with all our stakeholders based on sustainable cooperation, upholding ethical values, which the shareholders, management and employees represent and continuously strive for

Core values Smart Governance Our People Customer Satisfaction

Work Environment Conservation Ethical Behavior

Components of Internal Control1.2. 3.

4.5.

Control Environment Risk Assessment Control activities Information and Communication Monitoring activities

1.

Risk is defined as the possibility that an event will occur and adversely affect the achievement of objectives

2. Every entity faces internal &external risks. 3. Risk assessment is the identification and analysis

of relevant risks to achievements of the objectives.

Specifies Relevant Objectives-06 Principle 6: The organization specifies objectives with sufficient clarity to enable the identification of assessment of risks relating to objectivesOperations Objectives Provides customers with quality products Large number of vendors for imported raw material Recycles packaging material Reporting Objectives External & Internal Financial Statements are circulated on quarterly and annual basis. Entitys activities are reflected in the reports Annual performance evaluation scorecards shared by the department heads Compliance Objectives Prepares and fills tax returns based on the regulations EHS department ensures safety compliance procedures to be followed.

Identifies and Analyzes Risks-07 Principle 7:The organization identifies risks to the achievement of its objectives across the entity and analyzes risks as a basis for determining how the risks should be managed Involves Appropriate Levels of Management and Entity, Subsidiary, Division, Operating Unit and Functional levels Risks are identified at all levels by each department and then analyzed in order to analyze the reason for it.

Estimates Significance of Risks Identified Departmental heads measure the level of risk Determines How to Respond to Risks - whether to accept, avoid, reduce, or share the risk. Proper actions are taken according to the company policies and procedures which are shared with the involved personnel

Assesses Fraud Risk-08Various Ways That Fraud Can Occur possible loss of assets, fraudulent reporting, and corruption Judgments in costs of raw material Machine performance measurement can b faulty Considers Risk Factors Departments consistently evaluate risk factors especially the costing and production departments. Assesses Incentive, Pressures and Opportunities Technology is effective Organizational structure is strong Assesses Attitudes and Rationalizations Employee performance is assessed by use of evaluation form.

Identifies and Analyzes Significant Change -09Assesses Changes in the External Environment Environmental regulations are assessed periodically Energy situation is assessed Assesses Changes in the Business Model Management is involved in evaluating the risks due to changes in business model Assesses Changes in Leadership BoD continuously assess the senior management policies and actions.

1. The policies and procedures that help ensure management directives are carried out. 2. They help ensure that necessary actions are taken to address risks. 3. Control activities occur throughout the entity at all levels and in all functions. 4. They include activities such as approvals , authorization, reconciliations and segregation of duties.

Selects and Develops Control Activities-10Integrates with Risk Assessment Setting high sales targets with risk of employees not aware of customer potential Determines Relevant Business Processes Every department has written functional procedures available to every employee Considers Entity-Specific Factors Decentralized decision making but monitored Evaluates a Mix of Control Activity Types Verifications, authorizations, reconciliations, physical controls Considers at What Level Activities Are Applied

operating unit reviews procurement process that include purchase price variances, percentage of orders that are rush purchase orders, and the percentage of returns to total purchase orders

Addresses Segregation of Duties Duties are well divided

Selects and Develops General Controls over Technology-11Determines Dependency between the Use of Technology in Business Processes and Technology General Controls Error reporting and exception handling is done by SAP

Establishes Relevant Technology Infrastructure Control Activities Procedures are updated by the head of departments when required

Establishes Relevant Security Management Process Control Activities SAP privileges are password protected Establishes Relevant Technology Acquisition, Development, and Maintenance Pro cess Control Activities IT managers is involved in this with other business unit heads

Deploys through Policies and Procedures - 12Establishes Policies and Procedures to Support Deployment of Ma nagements Directives Customers performance reviews are done based on managements directives Establishes Responsibility and Accountability for Executing Policies and Procedures Business unit heads ensure responsibility and accountability Performs Using Competent Personnel in a Timely Manner Industrial relations department is involved to ensure company policies are followed Takes Corrective Action and Reassesses Policies and Procedures Inter departmental meetings and meetings with management to devise corrective action

Uses Relevant Information

Information & Communication

Communicates Internally

Communicate Externally

Use of Relevant Information -13Information Requirements Identifies the information needs of all the functional aspects. Procedure is displayed on the notice boards of every department regarding the processes.

Information through relevant sources Internal and External data are available in the ERP SAP. Proper documentation of all the sources of information. Processing data through information system

SAP allows to access to information that is available in report forms as required by the user.Information Quality Accurate real time updated information is maintained in the SAP Whenever there is incorrect information available in SAP, the access to others helps to identify and rectify it during departmental meetings.

Internal Communication-14Communication with Personnel Presentation given by Managers of other departments Orientation to explain responsibilities Written booklet of the companys codes of conduct Communication with BoD Monthly meeting with BoD. Departmental heads present their performance. Communication beyond Normal Channels Emails are used as a platform for sharing confidential information. Method of communication General information is provided through the mass email service SAP is updated on real time basis Job openings are posted on the website. Letters are handed over for specific information.

External Communication-15Outbound Communication Annual general Meetings are held in April and the date is communicated through press. Quarterly financial reports are share with the public also through website. Inbound Communication

Customers usually communicate with the sales personnel Vendors communicate with the Supply chain personnel Auditors communicate with the finance personnel Communication beyond Normal Channels Customer/vendor has the ease of access to talk to anyone in the organization through email or phone. Method of communication Press and news releases issued through investor or public relations channels are for reaching a broad audience of external parties

Uses Relevant Information Identifies Information Requirements Identifies the information needs of all the functional aspects. Procedure is displayed on the notice boards of every department regarding the processes.

Uses Relevant Information Captures Internal and External Sources of Data Internal

Announcements thourgh Email communications Minutes of the meeting circulated and put on notice boards SAP generated Daily Production Report/ Daily Dispatch Report/ Daily Sales Reports

Uses Relevant Information Captures Internal and External Sources of Data External

Website Press releases

Uses Relevant Information Processes Relevant Data into Information SAP allows to access to information that is available in report forms as required by the user.

Uses Relevant Information Maintains quality throughout processing Accurate real time updated information is maintained in the SAP Whenever there is incorrect information available in SAP, the access to others helps to identify and rectify it during departmental meetings.

Communicates Internally Communicates internal control information with personnel Presentation given by Managers of other departments Orientation to explain responsibilities Written booklet of the companys codes of conduct

Communicates Internally Communicates with the BOD Monthly meeting with BoD. Departmental heads present their performance

Communicates Internally Provides separate communication lines Emails are used as a platform for sharing confidential information

Communicates Internally Selects relevant method of communication General information is provided through the mass email service SAP is updated on real time basis Job openings are posted on the website. Letters are handed over for specific information.

Communicates Externally Communicates to External Parties Annual general Meetings are held in April and the date is communicated through press. Quarterly financial reports are share with the public also through website

Communicates Externally Enables Inbound Communication Customers usually communicate with the sales personnel Vendors communicate with the Supply chain personnel Auditors communicate with the finance personnel

Communicates Externally Provides separate communication lines Customer/vendor has the ease of access to talk to anyone in the organization through website, email or phone.

Communicates Externally Selects relevant method of communication Press and news releases issued through investor or publi c relations channels are for reaching a broad audience of external parties

Conduct ongoing or separate evaluations

Monitoring Activities

Evaluates and Communicates Deficiencies

Conduct Ongoing or Separate Evaluations-16Mix of Evaluations Production supervisors evaluate the machine performance through technology Line managers evaluate their subordinates performance by comparing it with given targets Baseline Understanding Standards can be adjusted to increase efficiency after evaluations Rate of Change Stock levels are reviewed by the Internal audit team on monthly basis. Number of days outstanding are analyzed by Finance Manager monthly Knowledgeable Personnel Cross functional project teams in line with the business objectives Business unit heads meetings for companys overall evaluation monthly Objective Evaluation Sales and Production targets are set at the end of the year and evaluation is done by the business unit heads monthly, quarterly and annually Scope Adjustment GM involved in it with consultation of business unit heads in comparison to set targets

Evaluates and Communicates Deficiencies-17Assesses Results Weekly results are shared within departments by the departmental heads Communication of Deficiencies to Management Email is used as a form of communication to update about the deficiencies as and when it occurs to the line manager

Reports deficiencies to Senior Management In monthly review meetings the deficiencies in productions and sales are shared by the business unit heads Monitors Corrective Action Finished goods stock went up high in 2011 when most of the snacks customers were not lifting their stock

Conducts Ongoing and/or Separate Evaluations Considers a mix of ongoing and separate evaluations Production supervisors evaluate the machine performance through technology Line managers evaluate their subordinates performance by comparing it with given targets

Conducts Ongoing and/or Separate Evaluations Establishes baseline understanding

Standards can be adjusted to increase efficiency after

evaluations

Conducts Ongoing and/or Separate Evaluations Considers rate of change Stock levels are reviewed by the Internal audit team on monthly basis. Number of days outstanding are analyzed by Finance Manager monthly

Conducts Ongoing and/or Separate Evaluations Uses knowledgeable personnel Cross functional project teams in line with the business objectives Business unit heads meetings for companys overall evaluation monthly

Conducts Ongoing and/or Separate Evaluations Objectively evaluates Sales and Production targets are set at the end of the year and evaluation is done by the business unit heads monthly, quarterly and annually.

Conducts Ongoing and/or Separate Evaluations Adjust scope and frequency Business unit heads are empowered to make adjustments

Evaluates and Communicates Deficiencies Assesses results Weekly results are shared within departments by the departmental heads

Conducts Ongoing and/or Separate Evaluations Communication of Deficiencies to Management Email is used as a form of communication to update about the deficiencies as and when it occurs to the line manager

Evaluates and Communicates Deficiencies Reports deficiencies to senior management In monthly review meetings the deficiencies in productions and sales are shared by the business unit heads

Evaluates and Communicates Deficiencies Monitors corrective actions Finished goods stock went up high in 2011 when most of the snacks customers were not lifting their stock

Roles & Responsibilities Board of Directors : Governance, guidance & oversight Management : GM is the owner Internal Auditors: evaluate & monitor Other personnel :information and communication

Limitations of Internal Control Judgement. Breakdowns. Management override.

Collusion. Costs Versus Benefits.