Internal Audit has been gaining importance over the years. This has been due to:
a. Statutory requirements including recent ones through the Companies Act 2013, like mandatory appointment of an Internal Auditor in certain cases, importance for Internal Financial Controls (IFC) under the Directors’ Responsibility Statement, where Internal Auditor could be of significant assistance to the Audit Committee on IFC
b. Growing complexity in the way businesses are being conducted,
c. Limited feasibility for yearend Statutory Audit to cover all aspects desirable, and the need to rely on Internal Auditor’s Reports, and
d. Possibility for the Internal Auditor to review business processes in a more detailed manner, through continuous engagement, and being able to give recommendations for strengthening controls and fraud prevention.
Consequently scope for Internal Audit is also extending to many areas which were not covered earlier. Thus from Financial Operations like Accounts Payable, Cash and Bank, Revenue, Accounts Receivable, Payroll, Employee Reimbursements, Fixed Assets, and Financial Reporting, Internal Audit is extending to Operational areas and Other Processes like Human Resources, Administration and so on.
In this article, I am sharing my experiences on admin related processes and transactions.
1. Employee Bus Pass and failure to recover from Salary:
In an establishment with about 4,000 employees using company provided transport facility, admin issues bus passes and advises payroll section to include them in payroll master for bus pass recovery at the agreed rates. When internal audit picked up list of bus pass holders from admin and compared it with payroll recovery, significant gaps were noticed. On going into details, it came to light that from a particular month in the previous year, bus pass recovery for all new joinees was not effected due to a bug in the software, which crept in after some program amendment made. Retrospective recovery meant lacs of rupees!
2. Attendance Swipe for House Keeping Contract Workmen:
In one such large establishment, house-keeping contractor was to provide 140 workmen on daily basis, for work at various departments on miscellaneous house-keeping jobs. As such workmen were not on the rolls of the company, they were allowed at the security gate, without keeping any record. Internal Audit suggested attendance swipe, through finger print record, which is now available at low cost. Such a record showed that more than 100 workmen were not present on any day in the month, which could not be noticed as they were distributed over many departments. Such a record enabled huge recovery from the contractors, and company paying only for services received then onwards!
3. House Keeping Material Consumption being abnormal at a Location:
Indirect material consumption analysis report, comparing different locations of an organization showed abnormal consumption of Tissue Paper at on location, which was 4 times the rate of consumption in relation to the number of employees. Monthly expenditure was in lacs of rupees. No issue record was maintained for this item, as it did not pass through stores, and was dispersed to different toilets, from the security gate itself. On a surprise verification by audit department, at security, as supplies were being received, showed only sixty rolls were present in a box which was said to contain 100 rolls. Both vendor and the purchase assistant were associated with the organization for a long time!
4. Transport Contractor being paid on mileage basis:
For employee pick up and drop, dedicated vehicles were in use, where a rate per kilometer was agreed with the transport contractor. Driver for each vehicle submitted a daily log sheet with details of employees transported and mileage covered. The log sheet was amended to include running meter reading, once a day, as verified by security, and opening and closing readings for the month were to be included in the transport contractors’ invoice. Verification of these numbers meant reduction in mileage from then onwards, as much as 20% in the case of some vehicles!
5. Admin Employee collecting cheques on behalf of the Vendors:
Normally vendor cheques are sent by courier to the registered address of the vendor. In certain cases, an admin employee was asking accounts department to handover the cheques to him, who was in turn obtaining the vendors’ acknowledgement .Once a mail sent to such a vendor seeking some details like his PAN / TAN were returned.Sending an employee to the vendor’s location, accounts department noticed that such a vendor never existed there!
For more articles from me, please read my book Translating Operations into Money – Cases in Business Management, available for online purchase at notionpress.com, Amazon.in or Flipkart or visit www.operationstomoney.com.
Thank you for your attention.
Tulasi S Sastri
FCA., CISA.
CAclubindia
