Internal Audit of Cable Operators

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This presentation discusses some of the key aspects in carrying out internal audit of the cable operators. Coverage of all areas is very important for a comprehensive audit.

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Internal Audit of Cable Operators

  1. 1. .in Presentation by Sandesh Mundra & & Presentation by Sandesh Mundra Associates, Chartered Accountants Associates, Chartered Accountants
  2. 2. .in“Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organizations operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. ”Definition by - The Institute of Internal Auditors Presentation by Sandesh Mundra & Associates, Chartered Accountants
  3. 3. .in Presentation by Sandesh Mundra & Associates, Chartered Accountants
  4. 4. .in Identify Risks Find Better Ways and Best Practices Partner With You to Find Solutions Prevent Problems And our integrity is non-questionable Presentation by Sandesh Mundra & Associates, Chartered Accountants
  5. 5. .in Internal Audit at GTPLOperational Investment RevenueExpenditure related Other Areas Leakage Audit Audit Controls Presentation by Sandesh Mundra & Associates, Chartered Accountants
  6. 6. .in Operational Exp ControlPay Channel Lease Charges Cabling Stores Costs - Equipments Expenses Presentation by Sandesh Mundra & Associates, Chartered Accountants
  7. 7. .in Pay channel Expenses :- ◦ Review of Pay channel contracts. ◦ Audit of pay channel billing verified with contract and month to month comparison of cost booked in each case. ◦ Guidance to staff in preparing reconciliations with Pay Channel creditors. ◦ Review of financial impact upon change in bouquet of any pay channel party. ◦ Analysis of Subscription Income Vs Pay channel Costs for areas on random basis. ◦ Review of incremental Pay Channel costs upon acquisition of a new network and vice versa. ◦ Analysis of impact that should be given in the Secondary point billing as a result of incremental costs. ◦ Review of expense booking for MIS purposes. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  8. 8. .in Lease Charges of Equipments :- ◦ Review of Invoices with the work order terms agreed with the supplier and review of ledger reconciliation with the party. ◦ Physical Inspection of Equipments taken on hire. ◦ Comparison of Cost Benefit Analysis in Rent vs Buy. ◦ Review of achievement of consistent performance of the equipments taken on hire. ◦ Planning the charge of Indirect taxes by the equipment providers in such a way as is beneficial to the organization. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  9. 9. .in Underground Cabling Work :- ◦ Aspects of UGC  Ducts  Cables  Labour for Laying the ducts and cables  Right of Way permission from AMC / Panchayat / Forest Authorities ◦ Physical verification of WIP Projects including material issued for the project. ◦ Contractor work order verification with the running account bills with special focus on the final bills for issues like material reconciliation, distance billed etc. ◦ Monitoring Target Project completion date vs Actual completion date and bringing any penal clauses to the notice of the management as per Work orders. ◦ Review of ancillary costs incurred for the project like Municipality taxes, deposits, sum paid towards ROW if any and verification with the government specified rules. ◦ Ensuring proper accounting of the projects in progress. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  10. 10. .in Analysis of cost per primary point in a particular area. Monitoring of cable issues upon acquisition of a new network. Review of Cost from accounting point of view – Capital vs Revenue Check on recovery if any to be made from JV / subsidiary for revenue expenditure Presentation by Sandesh Mundra & Associates, Chartered Accountants
  11. 11. .in Presentation by Sandesh Mundra & Associates, Chartered Accountants
  12. 12. PROCEDURE OF PURCHASE :- .in PARTICULARS TO BE AS IS [ System that normally exists at large MSO’s]1. SOP There should be a Purchase Policy. Management Approval to SOP is pending2. MATERIAL REQUISITION MRF forms are received by purchase dept from We follow this processFORM [ MRF ] :- the various dept. MRF from have been authorized by the concern HOD. Its should clearly mention the quantity required, Date of delivery and time and material specifications. All the purchase orders are issued as per the We follow this process MRF.3. QUOTATION :- Quotation taken by the Purchase Dept from the We follow this process in mot cases various supplier. Minimum three quotation should be obtain by the purchase dept from the market. For "A" Category type of material .4. COMPARISON SHEET :- Comparison sheet is prepared by the Purchase We follow this process. But, as per dept on the basis of Quotation received from case to case basis depending on price the three supplier. Purchase order is issue to the variation in market, material supplier who provide the material at lower rate availability Etc. than the others. Comparison sheet contain the following details. Price / Quality / Delivery Time / Payment Terms / Warranty / After Sales service Presentation by Sandesh Mundra & Associates, Chartered Accountants
  13. 13. PROCEDURE OF .in PURCHASE :- PARTICULARS TO BE AS IS [ System that normally exists at large MSO’s]5. PURCHASE ORDER :- All the purchase order are issue as per the Following the same process quotation received from the supplier. All the purchase order is duly authorised & the same is entered in tally by the Purchase dept.6. DELIVERY OF MATERIAL Materials are received by dept , as per the Following the same processRECEIVED :- terms & condition mentioned in Purchase Order.7. INVOICE :- Invoice of the supplier contain all the Following the same process details such as Ref of Purchase Order against which invoice issue ,Delivery note no, quantity etc.8. VENDOR DEVELOPMENT Most important part of any purchase Vendor Development is:- executive is to upgrade vendor master following strictly with new vendors which are selected for reasons like alternate supplier for critical items or under cost reduction strategies.9. PAYMENT TERMS :- All the payments are issued as per the Not following strictly, gave terms & condition fixed for better relation attention case to case and as per with the supplier. the emergency. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  14. 14. PROCEDURE OF STORE DEPT :- PARTICULARES TO BE AS IS .in 1. MATERIAL RECEIPT NOTE :- Material Receipt Note is prepared by the Store Dept for all the material received by it on the basis of partys delivery note. Delivery note must be authorised by the store dept on the basis of Purchase Order Existing as mentioned. against which material delivered by the supplier. Ref of PO must be mentioned in the delivery note. On the basis of Receipt note entry is made in the tally by store dept with proper authorisation. Done by technical Person , but not in all Separate person required for Quality Check. the cases. 2. MATERIAL ISSUE NOTE :- Material is issued by store dept on the basis of Material Requisition Note received from the various branch. Existing as mentioned. However during On the basis of Material Requisition Note new network acquisitons material gets , Material issue note / Gate pass is prepared issued without proper requisition forms. by the store dept. On the basis of MIN / GP entry is made in the tally by store dept.3. MATERIAL TRANSFER NOTE :- In case of Inter-Branch transfer, If Goods are issued or received from the branch then Prepared in tally. For documentation the Material Transfer Note is prepared duly same generated from tally & supported authorized by store Dept. by the MRN. Hard Copy / Email Confirmation required Receiving department send MRN by from receiving department courier to store dept . Presentation by Sandesh Mundra & Associates, Chartered Accountants
  15. 15. 4. PHYSICAL VERIFICATION :- Every month a stores need to be selected .in on sample basis for physical verification. All stores to be covered at the year end. Quarterly basis. Proper docuemntation to be maintained as Presently no documentation has been a proof of Physical verification. kept. Maker and Checker concept in stores verification Not followed. If there is any diff between the book Stocks & Physical stock , than appropriate adjustment entry to be passed in tally. Not followed. 5. SCRAP STOCK :- Scrap to be identified every year end and steps to be taken for realisation of money. In progress.6. EXCESS RECEIPT OF GOODS AGINST PO :- Tolerance Limits to be set by the stores department for accepting the material in As per decision taken by the purchase excess of PO quantity. department 7. STOCK AT STORE All the Materials lying at store should be stacked properly with labels. In progress. Space constraints 8. Report Every Branch has to submit report to HO, for passing revenue and capitalisation Inaccurate reports received under the entries against consumption. present system. 9. Software The software should contain provisions for all types of transactions and should have integrated modules of accounts and stores. Problems faced in existing software :- Presentation by Sandesh Mundra & Associates, Chartered Accountants
  16. 16. .in SOP needs to be framed for the service and maintenance contracts. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  17. 17. .in Controls on Revenue Leakage Primary & Equipment LeaseSet Top Boxes Advertisement Carriage Income Secondary Points Income Presentation by Sandesh Mundra & Associates, Chartered Accountants
  18. 18. .in Set Top Box :- ◦ Check on the Set top Boxes issued in the ground vs revenue generated. ◦ Identification of Outstanding number of Box operator wise and cross verification by enquiries at the ground level along with monthly Reconciliation with Branches. ◦ Physical verification of the boxes – One location every month. ◦ Assisting management in developing proper internal controls to be adopted for issuance of Set top Boxes. ◦ Ensuring proper systems to track the movement of the set top boxes sent for repair / maintenance. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  19. 19. .in Primary Point Sales :- ◦ Primary point physical verification on Sample basis area number of Connection. ◦ Advance billing working verified on monthly. ◦ Review of actual connections (collections) vs connections purchased in an acquisition. ◦ Audit of disconnections and the related documentation. ◦ Monitoring Receivables Ageing statement. ◦ Review of Internal controls Presentation by Sandesh Mundra & Associates, Chartered Accountants
  20. 20. .in MQ System Audit:- Master verification for all individual and area-wise LCO. New Master Creation - Document verification. MQ Vs Tally billing and Collection entry verification. Advance payment received from Customer or LCO, and their billing adjustment entry. Verification of audit trail for any data Correction for the past period Audit of Controls of late entry billing and collection. Audit of disconnections in the system. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  21. 21. .in Secondary Point Sales :- ◦ Secondary point operator contract verification ◦ Monthly sales billing verified Vs Contract ◦ Long time outstanding review. ◦ Monitoring the billing trend for major SP points and bringing to the notice of management, significant deviations if any. ◦ Advance billing verification and ensuring proper accounting treatment for the same. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  22. 22. .in Advertising / News income :- Advertising sales amounts verified with Invoice and release order linked to sales. Audit of cancelled release order. Release order amount and rate verified with invoice. Audit of discounts given in the Release orders. Verification of Authorized signature on voucher or bill and release order. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  23. 23. .in Carriage Income :- ◦ Carriage pay channel agreement verified. ◦ Monthly carriage billing Vs agreement ◦ Advance income working verification on monthly Presentation by Sandesh Mundra & Associates, Chartered Accountants
  24. 24. .in Investments Review of Monitoring ofPeriodic Audit of Material / Services Agreements / Points purchased Subs / JV supplied by GTPL Documentation vs Revenue earned Presentation by Sandesh Mundra & Associates, Chartered Accountants
  25. 25. .in Review of ◦ Billing and collections including Trend Analysis ◦ Capital Expenditure ◦ Profitability Ratios ◦ Statutory Compliances ◦ Identification of personal expenses if any of the partner ◦ Material Consumption ◦ Systems / Controls in place with a target to ensure uniformity with the systems in place at GTPL. ◦ Any other area as per management requirement. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  26. 26. .in Other Areas Human Review of Training to Statutory InsuranceResource System Audit Banking Staff Compliances Review Audit Activities Presentation by Sandesh Mundra & Associates, Chartered Accountants
  27. 27. Audit Area Normal Observation Verification of New Joinee 1] Employee joining kit contains master data of employees, but details .in Master data File such as Level, Function, Dept ,Designation not filled up by HR Dept in Emp joining kit. 2] In several cases, Medical certificate confirming physical fitness to all kind of work & Blood group documents are not found in the file during audit. 3] Appointment letter is not found in file during the audit. Verification of Full & Final of 1] Certain cases (3) observed where employees have left the org. withoutresign employee & document intimating the concern Dept Head. of Full & final. 2] Excess payment observed in case of Employees. Verification of Stationary Ref of Requisition form not mentioned in the stationery registerregister & Stationary demand form. In two cases excess issue of stat. found against Stationary Demand Form. Improper filling of Stationary demand form. Ideally there should be fixed days on which stationery should be issuedVerification of staff Loan given In many cases proof of loan not enclosed with loan application form to to employees prove the purpose. ESIC ESIC - Declaration forms for employees drawing salary more than 10K but Up to 15K are pending to be submitted. PF Due date of submission of Form 5/10 & revised 12A. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  28. 28. .in HR Department audit :- ◦ Monthly Salary Sheet working Verified with attendance, Leave and other HR Policy ◦ Improved monthly Vehicle report. ◦ PF/ESI/PT Statuary working Verified ◦ Joining or Resignation employee document verified ◦ Employee master verification ◦ Loan & Advance give to employee their document ◦ Increment related documents Presentation by Sandesh Mundra & Associates, Chartered Accountants
  29. 29. .in Stores Basics of Tally Software Accounting Practises Personal Taxation New Software implementation Presentation by Sandesh Mundra & Associates, Chartered Accountants
  30. 30. .in Verification of statutory compliances. Checking the amounts of taxes worked out and paid. Recommending documentation and system improvements for better compliance with tax laws Presentation by Sandesh Mundra & Associates, Chartered Accountants
  31. 31. .in Audit of Bank Charges Cross verification of interest charged by the bank Audit of Fixed Deposits Audit of cancelled cheques System improvements to ensure higher efficiency by savings in time. Monitoring Compliance of terms of sanction of Banking Limits Presentation by Sandesh Mundra & Associates, Chartered Accountants
  32. 32. .in System Audit ◦ Audit of Hardware ◦ Password related controls ◦ Monitoring backup systems for important data ◦ Review of soft data management by the employees of the organisation. ◦ Comments on data security ◦ Review of server management Insurance Review ◦ Monitoring due dates for insurance renewal ◦ Identification of uninsured / underinsured assets. ◦ Audit of Insurance claims made by the organisation and tracking the receipt. ◦ Comparative analysis of Insurance premium paid by the organisation with the prevailing rates of other insurers in the market. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  33. 33. .in Observation Risk involved / Implications Recommendation Compliance commitment & Responsibility Time Limit for Compliance Presentation by Sandesh Mundra & Associates, Chartered Accountants
  34. 34. .in For e.g. Comment on Under-InsuranceObservation- Insurance coverage for Stocks in godown found to be less by Rs. 50 crores.Implication/ risk  In case of any loss event, the insurance payout would be substantially reduced on account of underinsuranceRecommendation  We would recommend enhancing the policy value by Rs. 50 crores immediately.Compliance received from  Assurance of policy limit enhancement from the dateconcerned department of next renewal.Implementation time limit  Date of next renewal i.e. 5th March, 2011 Presentation by Sandesh Mundra & Associates, Chartered Accountants
  35. 35. .in• Follow-up• Review corrective action• Report to Audit Committee Presentation by Sandesh Mundra & & Presentation by Sandesh Mundra Associates, Chartered Accountants Associates, Chartered Accountants
  36. 36. .in  We provide training  Respond to policy and technical accounting questions  Offer suggestions for improvement  Advisory role  Integrity remains our core principle Presentation by Sandesh Mundra & Associates, Chartered Accountants
  37. 37. .in Process Documentation Management audit team would understand the process through internal documentation of particular department. Based on documentation and discussion, flow chart & SOP will be prepared based on which audit will be carried out. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  38. 38. .in At the completion of each audit year we shall send you a questionnaire We want you to rate our performance Were we professional, helpful, timely and did we add value? Please take the time to give us your feedback. Presentation by Sandesh Mundra & Associates, Chartered Accountants
  39. 39. .in 9426024975 sandeshmundra@smaca.in Presentation by Sandesh Mundra & & Presentation by Sandesh Mundra Associates, Chartered Accountants Associates, Chartered Accountants
  40. 40. .in We are associates of Presentation by Sandesh Mundra & Associates, Chartered Accountants

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