Assurance & Cost Control Report

Audit Area : Review of Surface Facility Management Process

Company Name : Essar Oil & Gas Exploration & Production Ltd. (EOGEPL)
Audit Period : FY 2017 - 2018
Version : Draft
Report No. EOGEPL/IA/2017-18/Infra/006
Dated : 24th August, 2018

Distribution List:

To:
Mr. Nilesh Kamat : Head - Facilities

CC:
Mr. Vilas Tawde
Mr. Gopal Srinivasan
Mr. C.D. Narayanswamy
Mr. Rajesh Gupta
: CEO & MD, EOGEPL
: Chief Finance Officer, EOGEPL
: Chief Operating Officer, EOGEPL
: Head – Group Assurance & Cost Control
Auditor’s Note:

The current review has been conducted as per the Internal Audit plan. Accordingly, findings and recommendations
regarding the adequacy and effectiveness of the internal controls of the areas reviewed have been documented.

The review has been performed based on documents, data and information shared by the auditee, stakeholders
and process owners. The audit is relied on the information provided and has not independently verified the factual
accuracy and completeness of this information. However, efforts have been made to cross verify the facts by
physical site visits, document verifications, reviewing the samples gathered from the actual work in consultation
with the auditee. The procedures are generally based on the concept of selective testing of the data and are,
therefore, subject to the limitation that material errors, fraud and other illegal acts having a direct and material
financial impact, if they exist, may not be detected.

In submitting the report, we wish to emphasize that internal control is a process, affected by the Board of the
Company, Senior Management and other employees, and designed to provide reasonable assurance that risks,
including fraud risks, are properly managed to ensure the achievement of the organization’s financial, operational
and regulatory compliance objectives.

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 Contents
Audit Information ...................................................................................................... 3
Overview & Details .................................................................................................4-5
Detailed Audit Report ............................................................................................... 6
A. Aged Inventory & Inventory Movement .....................................................6-8
B. Planning Weaknesses in Capital Intensified Facilities ............................8-11
C. Material & Scrap Control Weakness .........................................................11-13
D. Process Gaps .................................................................................................13-14

Observation Priority .................................................................................................................. 15

Observation Category................................................................................................................ 16

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 Audit Information
Scope & Objective

Scope

Review undertaken of Infrastructure Management Process (Surface Facilities, Pipeline and SCADA system) of Essar Oil &
Gas Exploration and Production Limited (EOGEPL) related to Coal Bed Methane (CBM) project at Durgapur for the Financial
Year (FY) 2017-2018. The review covered the followings:

 Review of Policies, SOPs and Manuals.

 Review of planning and actual works with cost impacts.
 Utilization of facilities and other resources.
 Budgeted v/s actual spend analysis and cost savings.
 Review of risk identification, risk mitigation and annual contracts.
 Vendor performance evaluation and impact on cost.
 Compliances to various norms and guidelines.

Objective

The objective of the review is to ascertain and ensure appropriateness and adequacy in Infrastructure Management process in
compliance to Policies / SOP and effectiveness of prevalent internal control mechanism.

Audit Approach
 Discussion with the key management on scope of audit to be carried out.
 Relevant documents and related data collected for carrying out the review effectively.
 Fieldwork through process walk through to gain understanding, document and data review.
 Identify risks and evaluate related controls.
 Identify gaps and key concerns and incorporated in the draft report for management response.
 Discuss findings with management and agree on action plan.

Key Dates
Draft Report Issue 24th August 2018
Management Response
Audit Team
Auditors Mr. Dheeraj Paroch (Sr. Manager – Internal Audit)
Mr. Jatin Thakkar (Consultant – Internal Audit)

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 Overview & Details
Introduction & Background:

Infrastructure Management Process primarily supports the operations in a multifaceted way by establishing all the systems
for safe and controlled operations and for the efficient & cost effective functioning of the organization.

The main processes under Infrastructure Management covered under this audit report are

 Surface Facilities provides support by establishing a set of systems and equipment on surface to extract,
control, process and transport gas and water in a controlled, safe and efficient way.

 Pipe Line provides support by laying and maintaining pipeline for transportation of gas and produced
water from the wells / well pads to the designated locations and gas supply to customers.

 SCADA System provides support by establishing automated control system for recording of real time
information with high efficiency & accuracy from the designated locations for better organizational control,
efficiency and cost optimization.

Work Executed in FY 2017-18:

Following work has been executed by these three business process (Surface Facility, Pipe Line and SCADA) during FY 17-18:

 GGS-03 commissioned – 0.4 MMSCMD Capacity.

 GGS-04 commissioned – 0.4 MMSCMD Capacity
 Installation & Piping work for 2 nos. of compressor at GGS-05.
 Testing & Commissioning of MCS solar compressor 1 & 2.—1.5 x 2 MMSCMD.
 Installation, Testing & Commissioning of Propane 1 & 2 – 49 x 2 MT.
 Installation & commissioning of well site SCADA system for 225 wells.
 Pipeline laying & Commissioning from CGS to GGS-04 for GEECL pipeline connectivity with EOGEPL for
gas supply to matix fertilizer.
 13,690 Mtr infield pipeline laying from well site to GGS.
 1,000 Mtr pipeline laying for new customer connectivity.
 Pipeline O & M for 300 KM network

Budget Provision

The annual budget for Infrastructure Management (Surface Facility, Pipeline & SCADA) is tabulated as below.
Budget FY 17-18
Particular
(INR)
Capex SF & EPC 44,23,24,456

Opex Manpower etc. 90,00,000

Total Surface Facilities (A) 45,13,24,456

Capex Pipeline Laying 9,30,41,192

Opex Pipeline O&M 9,25,000

Total Pipeline (B) 9,39,66,192

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 Capex Capex SCADA 4,09,99,412
Opex Opex SCADA -
Total SCADA (C) 4,09,99,412

Total A+B+C 58,62,90,060

List of Valid Contracts with value and validity

Valid Contracts during FY 17-18, total contract value and the work value during FY 17-18 for three business processes (Surface
Facility, Pipeline & SCADA) is tabulated as below.

Value of Total Work

No. of Valid Value of Valid Work Value during
Performed under these Details
Contacts Contract FY 17-18
contacts till 31 Mar. 2018

36 Contracts ₹ 222.46 Crore ₹ 145.72 Crore ₹ 32.04* Crore Work Value FY

17-18.xlsx

* Including Provisional Invoice Value

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 Detailed Audit Report
A. Aged inventory & Inventory Movement

Observation Category Financial, Strategic & Operational Priority High

I. Synopsis of Department Inventory as on 30 June 2018

Value of available inventory (Surface Facility, Pipeline & SCADA) as on 30 June 2018 is INR 52.45 Crore as tabulated below.

Total Inventory Details

Department
(INR Crore)

Surface Facility 44.83

Pipeline 7.62
Inventory.xlsx
SCADA -
Total (in INR Crore) 52.45

Ageing – Surface Facility Stock (₹ 44.83 Crore) Ageing – Pipeline Stock (₹ 7.62 Crore)
> 5 Years 2 - 5 Years
₹ 10.57 Crore < 1 Year ₹ 2.17 Crore
(24%) ₹ 0.74 Crore (28%)
(2%)

> 5 Years
2 - 5 Years 1 - 2 Years ₹ 2.08 Crore
₹ 31.05 Crore ₹ 2.79 Crore (27%)
(69%) (37%)

1 - 2 Years
₹ 2.47 Crore < 1 Year
(5%) ₹ 0.59 Crore
(8%)

Observations

a) Out of the total department (Surface Facility, Pipeline & SCADA) inventory of INR 52.45 Crore as on 30 June 2018,
inventory worth INR 45.87 Crore (90%) is aged more than 2 years. Department wise inventory ageing is tabulated as
below.

Ageing
(INR Crore) Total Value
Department
(INR Crore)
< 1 Year 1 – 2 Year 2 – 5 Year > 5 Years

Surface Facility 0.74 2.47 31.05 10.57 44.83

Pipeline 0.59 2.79 2.17 2.08 7.62
SCADA - - - - -
Total (in INR Crore) 1.32 5.26 33.22 12.65 52.45

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 b) Department control is found very poor as no action plan is available for the aged inventory.

c) While reviewing the purchases, it is noted that 165 materials worth INR 5.96 Crore purchased during 1 April 2017 to
30 June 2018 for which opening stock was INR 5.66 Crore. 60% of the stock is consumed during this period and
balance 40% amounting to INR 4.53 Crore is available as detailed below.

Purchase
Opening Value Balance Value
during Audit Total Consumption Details
Description 1 April 2017 30 June 2018
Period
A B C=A+B D E=C-D

₹ 5.66 Crore ₹ 5.96 Crore* ₹ 11.62 Crore ₹ 7.09 Crore* ₹ 4.53* Crore
166 Materials Purchase Detail 166
49% 51% 100% 61% 39% Material.xlsx

* Excludes Propane Purchase of INR 6.71 Crore & its consumption.

d) Out of the 165 materials purchased during 1 April 2017 to 30 June 2018, 112 materials are replenished with purchase
of additional quantity worth INR 2.32 Crore. Only 32% of the total is consumed during this period leaving a balance
of 68% amounting to INR 3.13 Crore as detailed below.

Purchase
Opening Value Balance Value
during Audit Total Consumption Details
Description 1 April 2017 30 June 2018
Period
A B C=A+B D E=C-D

₹ 2.25 Crore ₹ 2.32 Crore ₹ 4.57 Crore ₹ 1.44 Crore ₹ 3.13 Crore
112 Materials Replenished 112
49% 51% 100% 32% 68% Materials.xlsx

e) It is also observed that out of total 165 materials purchased, during the period from 1 April 2017 to 30 June 2018, 43
materials worth INR 1.34 Crore is purchased for which there was no opening stock. Out of which stock worth INR
0.72 Crore (53%) is consumed during this period, leaving a balance of INR 0.63 Crore (47%).

Purchase
Opening Value Balance Value
during Audit Total Consumption Details
Description 1 April 2017 30 June 2018
Period
A B C=A+B D E=C-D

₹ 0.00 Crore ₹ 1.34* Crore ₹ 1.34* Crore ₹ 0.72* Crore ₹ 0.63* Crore
43 Materials New 43
0% 100% 100% 53% 47% Materials.xlsx

* Excludes Propane purchase of INR 6.71 Crore & consumption

f) The cost implication looking into the ageing is substantial considering cost of capital @ 12% per annum and
Inventory carrying & risk (obsolescence, damage, pilferage etc.) cost @ 10% per annum.

Risk/Impact

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  Financial loss on account of weak control, capital blockage, increased cost of capital, inventory carrying &
insurance cost.

Recommendation

 Formulate consumption / disposal plan for the aged/non-moving inventory.

 Identify ways to utilize non-moving inventory in upcoming operations, if disposal is difficult.
 Implement system of inventory control with assignment of responsibility and meticulous planning before new
purchases.
 Prepare proper action plan for the available inventory.

Management Response with action plan and target date

Procurement of the material is based on the ABP and production targets and basis of design. With time, ABP had changed
many times resulting in piling up of Inventory.

Details are as follows.

Pipeline and Facility as per FDP was designed for 3.5 MMSCMD gas production and for 290 wells initially. With 08+1 GGS
& 1 MCS.
Pipeline Inventory
Initially well facility and infield line sizing was considered for one well per pad later on due to the non-availability of land
/Habitat / Geological challenges /forest land etc. The plan was revised to multiwells/pad resulting in revision of pipeline
sizing as well as well facility drastically.

For example smaller dia. pipeline which was procured to cater single well volume is not sufficient to cater multi wells
volume.

08 +1 GGS/1 MCS Facility.

We have procured 35 compressors of 0.1 MMSCMD capacity each to cater all 3.5 MSCMD gas. Utilization/breakup of
compressors are as follows.
GGS1: 04
GGS2 : 05
GGS3 :04
GGS4 :04
GGS 5: 04 ( 2 operational + 2 Installed)
Total 21 Compressors were used in GGS. In addition to that 2 compressors converted from 1 Bar to 15 Bar with 0.1
MMSCMD capacity to 0.2 MMSCMD capacity to compress 15 bar to 35 Bar. This arrangement was done based on the
Matix Fertilizer’s requirement to start their Pre-commissioning activities and testing. With this modifications in
Compressors, project has saved capex cost as modification option was cheaper option than going for a new purchase.
Total saving: approximate 1.5 MMUSD.

06 compressors which were lying at Vendor’s place (USA) were sold back at same price resulting in cost saving of 5 Million
USD.

Other 05 Compressors which are lying at warehouse as a part of old inventory shall be used in due course based on
production ramp up to 2.3 MMSCMD. .Hence this inventory of 31 Crs. will be utilized by 2019-20.

Considering the standby option of 20%, all these 29 compressors would cater to 2.3 MMSCMD compression.

Water Pipeline:

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 HDPE pipeline is also designed based on the RO locations and WTP of 10 MLD capacity. Centralized WTP warranted
changing the location twice. 10 MLD WTP could not materialize even after placement of PO. In addition to this RO sizing
also getting revised due to significant variation in TDS across field as well as changes in produced water volume according
to the revised deviated wells. Available inventory may be used in upcoming well infield network.

Responsibility Target Date

B. Planning Weaknesses while setting up Capital Intensified Facility

Observation Category Financial, Strategic & Operational Priority High

II. Planning Weaknesses in Capital Intensified Facility (Propane Facility) and huge cost implications / obligations

Propane facility has been set up for mixing propane with CBM to increase gas supply to Matix fertilizers. The total cost
incurred is approximately INR 12.71 Crore (Capex + Opex) and is having no value addition to the Company. The cost detail
is tabulated below:
Capex
Contract Value Work Value
PO No. & Date Contractor Description
(INR) (INR)
46/1685 Toyo
Engineering Services 8,04,288 8,04,288
Dated 7 Jun. 2017 Engineering
46/1699 Installation, Commissioning,
50,09,572 50,09,572
dated 3 Jul. 2017 Transportation & Risk Analysis
Globe Gas
42/0846
Supply portion 3,30,71,242 3,30,71,242
dated 3 Jul. 2017
46/1802 CBM Construction
EPPC 8,99,91,902 1,55,54,196
dated 15 Jul. 2017 (Propane Civil work)
Total (in INR Crore) 12,88,77,004 5,44,39,298*
* Excluding land cost, misc. small works done by Sopan & others.

Opex
Contract Value Invoiced Amount
PO No. & Date Contractor Description
(INR) (INR)
46/1718 Aggreko Energy Hiring of 1375 KVA GG set for
4,18,19,200 38,70,400*
dated 5 Sep. 2017 Rental India Propane Facility
46/1709
Globe Gas O&M 79,29,600 13,77,572
dated 22 Aug. 2017
42/0851 Indianoil
Supply of Propane 11,18,10,076 6,74,84,731#
dated 15 Jul. 2017 Petronas Pvt. Ltd.
Total (in INR Crore) 16,15,58,876 7,27,32,703
* Complete Advance, # Including advance payment of ~ INR 3.77 Lakh

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 Chronology of events and Current Status of Propane facility

Date Event

7 June 2017 Order for Propane Engineering Service awarded to M/s Toyo Engineering.

3 July 2017 First order for setting-up propane facility awarded to M/s Globe Gas.

22 August 2017 O&M Contract for Propane Facility awarded to M/s Globe Gas.

20 September 2017 Propane facility 1 commissioned.

20 September 2017 First consignment of Propane received from M/s Indianoil Petronas.

7 October 2017 Propane facility 2 commissioned.

20 November 2017 Last consignment of Propane received from M/s Indianoil Petronas.

1 December 2017 O&M services for Propane Facility of M/s Globe Gas dehired.

Current Status The facility is shut down / non-operational since then.

Observations

1) Planning & Risk Assessment:

 During the review of propane facility, it is observed that the planning and risk assessment for setting up capital
intensified facility is very poor. The facility, which was commissioned on war footing and high cost, is used only for 2
months (Propane-1, 60 days and Propane-2, 43 days) and is non-operational since then. Audit could not find any future
utilization / exit plan.

 As this facility is non-operational and is not adding any value to the project; the total cost ~ INR 12.71 Crore (INR 5.44
Crore Capex + INR 7.27 Crore Opex) incurred is a loss to the Company.

2) Un-planned hiring leading to huge financial loss / obligation:

During the review, it is observed that 2 high capacity (1375 KVA) Gas Generators (GG) from M/s Aggreko for operating the
Propane Facility were hired on the following terms.

a) Monthly rental of INR 19.35 Lakh (INR 8.20 Lakh plus 18% GST each set).
b) Advance rental of 2 months amounting to INR 38.70 Lakh was to be paid before mobilization.
c) Lock-in period of 18 months without any exit clause in the contract.

 It was very surprising to note that the GGs were delivered in March 2018 and the mobilization advance of INR 38.70
Lakh was released in two parts on 9 February and 1 March 2018, when the facility was non-operational since 20
November 2017. No justification is available for mobilizing the GGs in March 2018, when the facility was non-
operational since end of November 2017. Although it is important to note that the facility, when operational, was being
operated at less capacity with 500KVA DG set and these GGs were required for operating the facility at full capacity.

 No approval as per DOA for release of advance payment of INR 38.70 Lakh could be located. However, an approval
vide Approval Note # AN/DGP/2017-18/118 dated 19 August 2017 is secured for award of Contract, where the
requirement of advance is mentioned.

 Lock in period of 18 months in contract leading to a total obligation of INR 4.20 Crore is agreed with the supplier.

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  No action plan is available regarding the use of supplied GG sets in near future. This has led to blockage of capital of
INR 38.70 Lakh (advance paid) and a total obligation of INR 4.20 Crore as tabulated below.

Total Value
Particular Unit Rate Quantity UOM
(INR)
GG Rental 8,20,000 18 Months 1,47,60,000

Commissioning & Decommissioning 80,000 2 Times 1,60,000

Operations Charges 1,60,000 18 Months 28,80,000

Total for 1 set 1,78,00,000

Total for 2 sets 3,56,00,000

GST @ 18% 64,08,000

Total Obligation for 2 sets with GST for 18 Months in INR 4,20,08,000

3) Recovery of advance from IPPL:

Propane Gas was being purchased from M/s Indianoil Petronas and advance payments were being made for each
consignment of propane. An advance of INR 3.77 Lakh is pending with the supplier since November 2017 which is still to
be recovered.

Risk/Impact

 Financial loss on account of blockage of capital.

Recommendation

 Proper feasibility study/due diligence must be done before setting-up capital intensified facilities.
 Requirement & utilization of resources and services is to be planned meticulously with provision of exits in case
of no requirement in future.
 It is recommended that legal opinion on the current contract should be taken for finding out any possibility of
contract termination in spite of lock in clause.
 Proper process for recovery of vendor advances.

Management Response with action plan and target date

Propane Facility
Basis of Propane Facility.
Our production was around 9.5 to 9.9 MMSCMD during Jan 2017 to June 2017 and we used to flare Gas of around 0.45 to
0.5 MMSCMD resulting in a loss of around INR 30 Cr/month. In order to cut down the flaring and supplying 1.2
MMSCMD gas to Matix, Propane was introduced to offset 0.14 to 0.15 MMSCMD of CBM gas. This idea was the game
changer in achieving zero flaring for the first time and we could supply entire gas to Matix Fertilizer from 1 st Sept 2017.
Matix Fertilizer commissioned their plant and started manufacturing Urea in the month of Oct 2017.
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 Hence if we look holistically, means converting losing volume of gas for flaring into selling of the quantum of gas by
adding MMBTU with the help of propane.

Tangible Benefits.
Total savings = Flaring of 0.5 MMSCMD gas /45 days equivalent to 45 Cr Vs spending of 12.7 Cr ( Capex + Opex) on
Propane.
Total saving: 45 Cr – 12.7 Cr = 32.3 Cr.

Non-tangible Benefit:
1) Saved asset from going into NPA as Matix Could start their plant by Oct 2017 (contractual obligation of supply
gas to Matix).
2) We have also established ourselves 1 MMSCMD produced field.

GG sets were planned to power and operate Propane facility 1 & 2 as this was the only economical and reliable option as
against costly diesel and unreliable State Electricity power.
 Cost of Gas 1scm = 20 INR.
 Equivalent of Diesel =INR 65.
 State electricity Board: Non reliability. Almost 15 to 25 Trips /month.

Period of 18 months was decided based on the Production forecast and requirement of Matix Fertilizer. Rental was the
best suitable option wrt to Lead time and Capex involved.
 Capital cost of 1 x 2 GG set = 10 Cr.
 Lead time of Delivery = 6 to 7 Months.

Responsibility Target Date

C. Material & Scrap Control Weakness

Observation Category Financial Priority High

III. Material & Scrap Control Weakness in reference to the work performed by Contractors

During the audit, it is noted that the following contractors perform multiple works including fabrication etc. for the Company
and the material for such works is supplied either directly or from Warehouse after authorization to their respective yards.

Total work
Work Value
Contract Value under the
PO No. & Date Valid till Contractor Description FY 17-18
(INR) Contract
(INR)
(INR)
46/1191 Fabrication &
31.03.2018 Sopan 1,51,32,747 80,52,273 8,29,828
Dated 18.06.2014 Erection Work
42/0652
31.03.2018 Sopan Material for SF 5,32,63,478 3,72,35,137 1,04,27,295
Dated 18.06.2014

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 46/0857 Well Surface Facility
31.12.2017 S-Mark 12,44,98,498 11,04,93,922 16,05,812
Dated 06.12.2012 Work
46/1208 Well Surface Facility
31.12.2017 Dynamic 1,85,76,690 1,82,84,680 16,37,725
Dated 19.01.2015 Work
42/0665 Material Supply for
31.12.2017 Dynamic 53,47,885 50,18,821 -
Dated 19.01.2015 Well-sites
42/0706 Surface Facility
30.06.2017 ERPL 38,13,19,651 38,17,52,003 2,47,44,760
Dated 04.07.2015 Material
42/0904
31.03.2018 EPCC Onshore Supply 5,98,53,283 1,33,97,113*
Dated 01.07.2017

Total (in INR Crore) 65,79,92,233 57,42,33,950* 5,26,42,535

* Provisional value included

Observations:

 During the review, it is observed that the control over material supplied to these contractor’s is poor and record of
regular physical verification of stock is not available.

 All the above Contractor’s yard except M/s Sopan is vacated during Q1 of FY 18-19 and the balance material is
transferred to Company’s warehouse in Gopalpur. During reconciliation of the stock transferred from ERPL/EPCC,
a difference in inventory is noticed as tabulated below.

Value as per Transferred Stock

Particular Materials Difference Details
Books* Value
Correct Items 556 ₹ 5,30,41,734 ₹ 5,30,41,734 ₹ 0.00
Shortage 634 ₹ 2,10,21,785 ₹ 1,06,21,437 ₹ 1,04,00,348
Excess 36 ₹ 69,90,648 ₹ 1,26,26,246 ₹ (56,35,599) EPIL Stock
Report.xlsx
Total 1226 ₹ 8,10,54,167 ₹ 7,62,89,417
* as on 25 April 2018, the date of start of shifting material from this yard.

 556 Materials (45% of total) worth value INR 5.30 Crore (65% of value) matched correctly with the books.
 634 Materials (52% of total) worth value INR 2.10 Crore (26% of value) showed shortage of ~50% amounting
to INR 1.04 Crore.
 36 Materials (3% of total) worth value INR 0.70 Crore (9% of value) showed excess stock of ~80%
amounting to INR 0.56 Crore.

Explanation from the auditee on the above is requested.

 During stock transfer, ERPL/EPCC has submitted a list of 253 materials worth INR 3.01 Crore claiming that the same
were consumed and the bill for the same is to be raised. These items are not part of the inventory sheet.

 The reason of transfer of such material while vacating the yard is to be clarified.
 On physical transfer, 69 materials amounting to INR 1.61 Crore were located. Based on available records we
are not in position to match details of stock consumed and this needs to be clarified.

EPIL Billing
Material.xlsx

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  The record of scrap generated also is not available. However, during the physical verification of EPIL Yard in February
2018, a pile of scrap was noticed by the audit, which is not transferred while vacating Contractor’s yard. No approval
/ justification on leaving the scrap could be located.

 The scrap from other Contractor’s yard also could not be ascertained in absence of relevant information and details.

Risk/Impact

 Financial loss on account of blockage of capital.

Recommendation

 Implement system of strict control over stock issued to the Contractor’s with regular physical verifications and
confirmations.
 Implement system of in-house recording of all consumptions and strict control on Contractor’s performance. These
records must be compared with the Contractor’s invoices before approval for payment for correctness.
 Implement system of strict control on actual utilization and scrap. All scrap generated must be transferred to
Company’s warehouse regularly.

Management Response with action plan and target date

Responsibility Target Date

D. Process Gaps

Observation Category Operational & Financial Priority High

IV. Process Gaps

1. Record Keeping:

 Proper System of Record Keeping & record maintaining is to be implemented with focus on storage of critical
permissions and information.

2. Job Feasibility Analysis:

 As the works of Infra are capital intensified, hence a system of high value job feasibility must be implemented.
 Job feasibility analysis/report must focus primarily on advantages and disadvantages, long terms and short
terms risks and costs, risk analysis and mitigation plans, cost economics and utilization/exit plans.

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 3. Job Planning & Estimation:

 Proper system of job planning and estimation must be implemented.

4. Work monitoring/reporting sheets:

 Documented work monitoring process must be implemented.

 These records must be referred for better control, progress evaluation and invoice approval.

5. Performance / Progress Evaluation:

 In-house system of performance and work evaluation must be implemented at departmental level.
 This evaluation must compare the progress with cost in reference to the estimates and budgets.
 System of analyzing the performance of works executed and qualified the warranty period to be implemented.

6. Invoicing process:

 Implement system of obtaining all supporting with the invoices including certified DPRs and other related
documents.
 All supporting must be thoroughly checked at department level and compare with in-house reports for
correctness before approval.
 Daily attendance and work progress must be strictly maintained for all service contracts.

7. Used Inventory Control:

 Implement process to record, monitor, control and transfer all used but reusable stock retrieved from different
locations.

Infra department is one of the key department for the organization and is involved in multiple activities to support the
operations for smooth & safe functioning. Most of the works undertaken by the department are very critical in nature and
involve huge cost also.

Risk/Impact

 Weak control leads to various risks & financial loss.

Recommendation

 Implement system of monthly cost analysis etc. for better control/evaluation.


 Implement system of strict control and follow all standard business practices for better control and reporting.
 Implement system of regular analysis, cost and work, for better control and performance evaluation.

Management Response with action plan and target date

Noted and will be followed.

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 Responsibility
Observation Priority
Rating Definition
The observations represent a serious lack of
internal controls and have had or could have a
significant impact on either of the following -
financial results, compliance, assets, reputation or
business operations if not attended to immediately.
The Internal Audit Head may consider additional
High
factors that could lead to a High rating - Fraud
indicators, audit recommendations not
implemented, etc.) leading to this judgment.
Executive management attention and immediate
corrective actions are mandatory.
The observation represents (either in isolation or in
combination with other aspects) important
weaknesses in the internal control environment.
These have affected or could affect financial
results, compliance, assets or business operations.
Medium
Timely management actions should be taken to
correct the identified control weaknesses failing
which these could become bigger issues. These are
cases where some compensating controls exist
with need for further enhancement.
Does not represent a major control gap or one
which is not material in the context of the process
and overall operations. Management should
Low
address the gaps by procedural improvements and
clean up actions.
Confidential
Target Date
Criteria
 Materiality of the error in terms of % of revenue,
operating profit, net assets, net worth, gross
margins)
 Statutory non-compliances with potential to
hamper operations
 Major process lapses leading to unauthorized
transactions ( value as above)
 No process improvement initiatives underway
to address the control gap
 Identified ‘fraud’, defalcation, ’teaming and
lading’
 Ethical violations / Reputational Risk
 Lack of monitoring controls
 Materiality of the error in terms of % of revenue,
operating profit, net assets, net worth, gross
margins)
 IT general controls are weak
 Time lag in implementation of agreed actions
 Process improvement initiatives underway
which would address the control design gap
 Monitoring controls exist but require further
enhancement
 ‘Nice to haves’ and Residual issues not falling
under “HIGH” and/or “MEDIUM”.
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 Observation Category

Strategic Strategic risk is the current and prospective impact on earnings or capital arising from adverse
business decisions, improper implementation of decisions, or lack of responsiveness to industry
changes.

Operational Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events.

Compliance Compliance risk is the current and prospective risk to earnings or capital arising from violations of,
or non-conformance with, laws, rules, regulations, prescribed practices, internal policies, and
procedures, or ethical standards.

Financial Financial risk is regarded as probability of adverse financial consequences occurrence in the form
of income and capital loss in the situation of uncertain conditions of enterprise financial activity
realization.

Information Information technology risk is the risk arising from degree of dependence on the IT systems and
the materiality of the resources controlled by the system
Technology

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