Internal Audit of Cable Operators

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Presentation by Sandesh Mundra & &
Presentation by Sandesh Mundra
Associates, Chartered Accountants

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“Internal auditing is an independent, objective assurance
and consulting activity designed to add value and
improve an organization's 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 &

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 Identify Risks
 Find Better Ways and Best Practices
 Partner With You to Find Solutions
 Prevent Problems
 And our integrity is non-questionable


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Internal Audit
at GTPL

Operational Investment
Revenue
Expenditure related Other Areas
Leakage Audit
Audit Controls


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Operational
Exp Control

Pay Channel Lease Charges Cabling
Stores
Costs - Equipments Expenses


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 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.

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 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.


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 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.


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 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


PROCEDURE OF PURCHASE :-
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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
pending
2. MATERIAL REQUISITION MRF forms are received by purchase dept from We follow this process
FORM [ 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


PROCEDURE OF
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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 process
RECEIVED :- 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.

PROCEDURE OF STORE DEPT :-
PARTICULARES TO BE AS IS
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1. MATERIAL RECEIPT NOTE :-
Material Receipt Note is prepared by the
Store Dept for all the material received by it
on the basis of party's 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 .


4. PHYSICAL VERIFICATION :-

Every month a stores need to be selected
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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 :-

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 SOP needs to be framed for the service and
maintenance contracts.


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Controls on
Revenue Leakage

Primary & Equipment Lease
Set Top Boxes Advertisement Carriage Income
Secondary Points Income


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 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.


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 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


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 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.


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 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.


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 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.


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 Carriage Income :-

◦ Carriage pay channel agreement verified.
◦ Monthly carriage billing Vs agreement
◦ Advance income working verification on
monthly


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Investments

Review of Monitoring of
Periodic Audit of Material / Services
Agreements / Points purchased
Subs / JV supplied by GTPL
Documentation vs Revenue earned


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 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.


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Other Areas

Human Review of
Training to Statutory Insurance
Resource System Audit Banking
Staff Compliances Review
Audit Activities


Audit Area Normal Observation
Verification of New Joinee 1] Employee joining kit contains master data of employees, but details
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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. without
resign 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 register
register & 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 issued
Verification 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.


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 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


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 Stores
 Basics of Tally Software
 Accounting Practises
 Personal Taxation
 New Software implementation


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 Verification of statutory compliances.
 Checking the amounts of taxes worked out
and paid.
 Recommending documentation and system
improvements for better compliance with tax
laws


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 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


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 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.


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 Observation
 Risk involved / Implications
 Recommendation
 Compliance commitment &
Responsibility
 Time Limit for Compliance


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For e.g. Comment on Under-Insurance
Observation- 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 underinsurance

Recommendation  We would recommend enhancing the policy value by
Rs. 50 crores immediately.

Compliance received from  Assurance of policy limit enhancement from the date
concerned department of next renewal.

Implementation time limit  Date of next renewal i.e. 5th March, 2011


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• Follow-up
• Review corrective action
• Report to Audit Committee


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 We provide training
 Respond to policy
and technical
accounting
questions
 Offer suggestions
for improvement
 Advisory role
 Integrity remains
our core principle


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 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.


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 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.


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9426024975
sandeshmundra@smaca.in


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We are associates of


Internal Audit of Cable Operators

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