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BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
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OIL INDIA LIMITED
Internal Audit Report
For the Quarter ended on 31.03.2014
I N D E X
Chapter
No. Particulars Page
No.
1. EXECUTIVE SUMMARY 2 – 3
2. INTRODUCTION AND SCOPE OF WORK 4
3. MATERIAL DEPARTMENT 5 – 28
4. CIVIL ENGINEERING DEPARTMENT 29 – 46
5. GEOLOGICAL & RESERVOIR DEPARTMENT 47 – 55
6. FINANCE & ACCOUNTS DEPARTMENT 56 – 116
7. MORAN 117 – 127
ANNEXURE – A 128
ANNEXURE ( I – VII) 129 – 146
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CHAPTER – 1
EXECUTIVE SUMMERY
� MATERIAL DEPARTMENT:
Purchase Order No.: 7114412/SDI/P1 Dt.: 28/10/2013:
It was observed that 03 Vendors have expressed their interest for
participation and 02 parties were rejected on technical grounds. Bid of last
order supplier M/s V.K. Oils Ltd was technically accepted. The unit price
quoted by M/s. V.K. Oils Ltd. in their offer 4.40% higher than the unit price as
per last PO No. 7113778/SDI/P1 dated 04/05/2013 placed on them. M/s V.K.
Oils Ltd. regretted to reduce their quoted price. The price quoted by M/s.
V.K. Oils Ltd. was accepted as it was the only bidder eligible for procuring
Linseed Oil. Detailed observations are provided in Para No. 3.1.5
� CIVIL ENGINEERING DEPARTMENT:
During the verification of miscellaneous Civil Contracts and system of
allotment It was observed that rotation policy while awarding the contracts to
venders was not followed properly. 77 contractors have been given contract
work much frequently than other contractors out of total contractors (Nos.
962).
Further only 37 Vendors have been given substantially higher value work as
compared to the other Vendors. Therefore it is difficult to ascertain whether
the department is strictly following the rotation policy in all cases. Please
refer Para No. 4.2.3 for detailed observations.
It has been noted many times job are being carried out without notification or
requisition, normally the verbal requirement is given in the daily production
meeting and the civil department lines up contract without work order.
Detailed observations are provided in Para No. 4.2.4
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� FINANCE & ACCOUNTS DEPARTMENT:
a) Cost Allocation Section:
We have checked the practice adopted by OIL and found no budgetary
control system. In the absence of budgetary control system only statistically
report is done for variances arisen due to difference between plan and actual
cost. They have no controlling system on cost over budget in order to
minimize variances. Detailed observations are provided in Para No. 6.5.5
b) Government Levies Section:
During the audit we have come across non reconciliation of deference in
respect of contribution made for provident funds in following GL code
GL Code 203004 - OIL Staff Provident Fund – Rs. 5,28,705.30
GL Code 203003 - Oil India Employee Provident Fund – Rs. 6,51,250.26
GL code 203005 - Casual Labour – Rs. 7,40,570.98
Reconciliation of contribution made by OIL is to be carried out at the end of
every financial year. For detail observation please refer Para No. 6.1.11
OIL is availing CENVAT credit on one to one basis. However as per the
amended definition of input service w.e.f. 01-04-2011, input services
includes services used in relation to modernization, renovation or repairs of
a factory, premises of provider of output service or an office relating to such
factory or premises, advertisement or sales promotion, market research,
storage up to the place of removal, procurement of inputs, accounting,
auditing, financing, recruitment and quality control, coaching and training,
computer networking, credit rating, share registry, security, business
exhibition, legal services, inward transportation of inputs or capital goods
and outward transportation up to the place of removal.
It means one to one correlation is no more required for availing CENVAT
credit. Therefore, OIL could avail CENVAT credit of service tax paid in
relation to any above mentioned input services which have been used in
order to provide output services. Detailed observations are provided in
Para No. 6.1.23
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CHAPTER – 2
2.0.0 INTRODUCTION AND SCOPE OF WORK
This chapter deals with the introduction to OIL INDIA LIMITED and the
scope of work and methodology adopted by us to carry out the internal audit
in accordance with General terms and conditions and scope of work
specified in E-TENDER No.CDI2580L12. We are pleased to submit our
Report for the IVth quarter ended 31th March, 2014 on the outsourced audit
areas pertaining to fields operated from Duliajan, Assam.
2.1.0 COMPANY PROFILE
Oil India Limited traces and symbolizes the development and growth of
Indian petroleum industry. From the discovery of crude oil in the far east of
India at Digboi, Assam in 1889 to its present status as a fully integrated
upstream petroleum company, OIL has come far, crossing many milestones.
In 1981, OIL became a wholly-owned Government of India enterprise.
Today, OIL is a premier Indian National Oil Company engaged in the
business of exploration, development and production of crude oil and natural
gas, transportation of crude oil and production of LPG. OIL also provides
various E&P related services and holds 26% equity in Numaligarh Refinery
Limited. Additionally, OIL’s exploration activities are spread over onshore
areas of Ganga Valley and Mahanadi. OIL also has participating interest in
NELP exploration blocks in Mahanadi Offshore, Mumbai Deepwater, Krishna
Godavari Deepwater, etc. as well as various overseas projects in Libya,
Gabon, Iran, Nigeria and Sudan.
In a recent CRISIL-India Today survey, OIL was adjudged as one of the five
best major PSUs and one of three best energy sector PSUs in the country.
2.2.0 SCOPE OF WORK:
As per the aforesaid contract all the areas to be reviewed and reported upon
as per the scope of work assigned to us.
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CHAPTER – 3
3.0.0 MATERIAL DEPARTMENT
3.1.0 AWARD OF PURCHASE ORDERS AS PER THE TERMS OF APPROVAL
AND SCOPE OF WORK IN CONFORMITY WITH THE DELEGATION OF
POWERS.
Whether the Purchase Orders have been placed during the year are as
per the terms and conditions approved in the proposals.
We have checked the process of awarding of Purchase Orders during the
period 01.10.2013 to 31.03.2014. We have verified Purchase Orders as per
the Procedural Manual and Policy of the company and found the same to be
generally in order. Certain irregularities were noticed in some Purchase
Orders. These have been highlighted below:
3.1.1 Purchase Order No.: 7906498/SDI/P3 Dt.: 08/03/2014
Purchase Order Amount: INR 97,31,164.32
Vendor Name: M/s. NK Fire & Safety
Tender No.: SDI0818P14/P13 dated: 14/08/2013
Purchase Requisition No.: 1410037 dated 27/01/2013
Material Description: Fabrication for Fire Water Bowser
Tender Type: Single Stage Two Bid System
Purchase Requisition No. 1410037 Dt. 27/01/2013 was raised for Fabrication
for Fire Water Bowser with Chassis & Accessories ( Capital Normal ). . Total
value of PR (INR) 91,75,000.00. OIL invited Bids for supply of Fabrication of
Fire Water Bowser & Accessories through e-procurement under Single Stage
Two Bid System. Purchase Order after tendering process was awarded to
M/s. NK Fire & Safety.
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Observations:
E-Tender No. SDI9746P14/P13 dated 03/05/2013 (Single Stage Two Bid
System) was floated with B.C. date as 27/06/2013. On schedule date i.e.,
27/06/2013, technical bid was opened. However, the tender was
subsequently cancelled vide Proposal no CMM/LMP/3938 dated 16/07/2013
as user dept. vide technical evaluation report ref. FS/35/275/2013 dated
04/07/2013 informed that the detailed specification related to fabrication of
Fire Water Bowser was only uploaded in the e-tender portal & specification of
Fire Tender Chassis was not uploaded in the tender. Therefore, user
department advised to refloat the same.
Subsequently, E-Tender no. SDI0818P14/P13 dated 14/08/2013 was floated
under Single Stage Two Bid System with B.C. date 19/09/2013 . Attention of
all 7 vendors who had registered in earlier Tender no.SDI9746P14/P3 was
also drawn to above press tender.
The above two points does not clarify whether the specification of Fire
Tender Chassis was not uploaded in the e-tender due to system error or it
was the bidder’s error. Also, no details of steps taken to prevent such
instance in future is stated in order to prevent tender cost due to refloating of
tender and avoid delay in tendering process.
Management Comments:
In the instant case error occurred while uploading the technical specification
from PR to E-tender portal. This has happened because there are multiple
fields for entering the specification from PR to Tender. This is not because of
system error.
We have taken note of your observation and all precautionary measure will
be observed in future before releasing the tender in OILWEB.
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Recommendation:
It is recommended before releasing the tender in OIL Web the same should
be thoroughly checked whether all the specifications required by the user
have been incorporated in order to avoid delay in finalizing the contract and
consequent cost.
3.1.2 Purchase Order No.: 7114478/DIS/P1 Dt.: 10/12/2013
Purchase Order Amount: INR 46,76,991.22
Vendor Name: M/s. North Eastern Tubes Ltd.
Tender No.: DIS9690P14 dated: 26/04/2013
PR No.: 1215940 dt. 08/02/2013 &1215950 dt. 09/02/2013
Material Description: Line Pipe 1 & Line Pipe 2
Tender Type: Single Stage
PR No. 1215940 dt. 08/02/2013 & PR No. 1215950 dt. 09/02/2013 was
raised for procurement of Line Pipe 1 ( Stock Normal) & Line Pipe 2 (Stock
Normal), respectively.OIL invited Bids for procuring Line Pipe 1 & Line Pipe
2 under Single Bid System. PO after tendering process was awarded to M/s.
North Eastern Tubes Ltd.
Observations:
As per Par 7.0 of the General Terms & Conditions of the order, the
successful bidder shall furnish the Performance Security in the form of Bank
Guarantee within 30 days of the receipt of Letter of Award failing which OIL
reserves the right to cancel the order & forfeit the Bid Security.
In the given case, Performance Security related document was not found but
only mail dated 09/12/2013 was received from M/s. North Eastern Tubes
Corporation regarding submission of Bank Guarantee.
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Management Comments:
PBG received on 31.01.2014. We have noted your recommendation and
keeping of one copy of PBG in respective order folder will be maintained
Recommendations:
It may be confirmed whether the PBG as required has been received and the
copy of the same may please be kept in the file..
3.1.3 Purchase Order No.: 7114369/DIS/P5 Dt.: 05/11/2013
Purchase Order Amount: INR 30,55,630.20
Vendor Name: M/s. Vision Ispat Pvt. Ltd.
Tender No.: DIS9890P14/P5 dated: 21/05/2013
Purchase Requisition No.: 1216481 dated 09/05/2013
Material Description: TMT Steel Reinforcement Bar
Tender Type: Single Bid
PR No. 1216481 dated 09/05/2013 was raised for TMT Steel Reinforcement
Bar (Stock Normal). OIL invited bids for procuring TMT Steel Reinforcement
Bar under Single Bid System. PO after tendering process was awarded to
M/s. Vision Ispat Pvt. Ltd.
Observations:
. As per Par 7.0 of the General Terms & Conditions of the order, the
successful bidder shall furnish the Performance Security in the form of Bank
Guarantee within 30 days of the receipt of Letter of Award failing which OIL
reserves the right to cancel the order & forfeit the Bid Security.
In the given case, Performance Security related document was not found as
well as no reminders were found in the file.
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Recommendation:
It may be confirmed whether the PBG as required has been received and the
copy of the same may please be kept in the file..
Management Comments:
PBG received on 26.11.2013. We have noted your recommendation and
keeping of one copy of PBG in respective order folder will be maintained.
3.1.4 Purchase Order No.: 7509077/SDG/P9 Dt.: 27/01/2014
Purchase Order Amount: USD 91,800.00
Vendor Name: M/s. Oil Country Tubular Ltd.
Tender No. SDG9488P14 Dt. 05/11/2012
Purchase Requisition No:- 1611655 dated:-05/11/2012
Material: Conventional gas lift mandrels
Tender Type:- Single Stage Two Bid System
PR No. 1611655 dated 05/11/2012 was raised for Conventional gas lift
mandrels (Non-Stock Normal). OIL invited bids for procuring Conventional
gas lift mandrels under Single Stage Two Bid System. PO after tendering
process was awarded to M/s. Oil Country Tubular Ltd.
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Observations:
Open global e-tender were invited under Single Stage Two Bid System
through press advertisement with B.C. 03/07/2013 In response ,06 offers
were received out of them 02 bids namely, M/s.Sonal Enterprises, USA &
M/s. Weatherford Drilling & Production Services (India) Pvt. Ltd.,Vadodara
were technically not accepted . However, offers from the following 04 bidders
were found to be technically acceptable:-
(i) M/s. Parveen Industries Pvt. Ltd., Delhi (PIPL)
(ii) M/s. Oil Country Tubular Ltd., Hyderabad
(iii) M/s. United Drilling Tools Ltd., Noida
(iv) M/s. Botil Oil Tools Pvt. Ltd.,New Delhi
As per terms & conditions of the tender the bid security was to be submitted
in revised Annexure-VII.
However, bid of one of the bidder M/s. PIPL was rejected on commercial
grounds as the bid security was not submitted in the revised Annexure-VII.
In response to the rejection M/s. PIPL has given the following explanation
with respect to their bid rejection:-
i) As per the recent instructions, the Bid Security in the instant tenders was
required to be submitted in revised Annexure-VII. However, this change does
not find any mention in the main body of the e-tender ,which is normally
downloaded. It has been mentioned in an obscure place in OIL booklet 2005
for e-procurement ICB tender, which is more than 60 page document. It is
practically not possible for frequent bidders to go through voluminous
document each time.
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ii) The change in the Annexure-VII format has been introduced only in
respect of some and not for tenders (in case of services contract , it has not
yet been revised). Hence, this change in the format of Annexure-VII remained
unnoticed by vendors.
iii) It would have been more appropriate had OIL authorities made this
change in a “vendor friendly approach” by highlighting it in the main body of
concerned e-tenders (both in checklist (Annexure-III to e-tender-page11/11)
and under head BRC/BEC-(B) Commercial-2.0 page 8/11).
iv) In case of ONGC the minor deficiencies in bid security/bid bond/bank
guarantee/EMD are treated as curable defects. During technical scrutiny the
authorities obtain necessary clarifications from the bidders about these
aberrations. At the minimum OIL authorities could have made the
requirement of Annexure-VII for bid security a curable defect till this change
comes to the knowledge of the vendors and situation gets stabilized.
In response to the above query OIL has simply rejected their plea and
informed that they should have read the booklet and submitted the Bid Bond
in the prescribed format.
Management Comments:
i) It may please be noted that all the documents and files that are uploaded in
the e-tender portal by OIL collectively form the tender document, which also
includes the General Terms & Conditions. Moreover, the fact that there has
been a revision in bid bond format is highlighted clearly at many places.
ii) The change in bid bond format is effective for all Global tenders. Service
contracts do not fall in the purview of Materials Department.
iii) As mentioned in point no. (i), the fact has been highlighted clearly in many
places. Moreover, all other bidders who quoted against the tender were able
to go through the entire document and also submit bid bond as per the
revised format.
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iv) The bid was rejected as per to Bid Rejection Criteria. This issue was also
presented to IEMs by PIPL & OIL and as per their recommendation, rejection
of bid of PIPL by OIL cannot be said to be incorrect as it was not a curable
defect.
However, OIL has still taken various initiatives on this issue to educate / alert
the bidders. Many of the regular vendors have also been informed about the
revision of bid bond format.
Recommendation:
The basic objective of tendering process is to procure indented items timely
and at competitive rates. Hence, it may be in the interest of OIL to create an
environment in which maximum number of bidders are able to participate
successfully. It can only be done if a “Vendor Friendly Approach” s adopted
and rules and procedures are viewed from the perspective of all stake
holders.In view of perennial problem of inadequate on the concerned
authorities to make a consicious effort in the direction.
3.1.5 Purchase Order No.: 7114412/SDI/P1 Dt.: 28/10/2013
Purchase Order Amount: INR 2,74,27,947.71
Vendor Name: M/s. V.K. Oils Ltd.
Tender No. SDI8510P13 Dt. 07/01/2013
Purchase Requisition No:- 1215581 dated:- 19/11/2012
Material: Linseed Oil
Tender Type:- Single Stage Two Bid System
PR No. 1215581 dated 19/11//2012 was raised for procuring Linseed Oil of
Qty 2,16,000 L (Stock Normal). OIL invited bids under Single Stage Two Bid
System. PO after tendering process was awarded to M/s. V.K.Oils Ltd
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Observations:
E-tender was invited under Single Stage Two Bid System through press
advertisement as well as 12 parties were also invited to participate in the
tendering process with B.C. 28/02/2013 However, in response only ,03 offers
were received.
In verification of documents we have observed less interest of Vendors
because out of Vendor list maintained by OIL’s material Dept ,only 03
Vendors have expressed their interest for participation and 02 parties were
rejected on technical grounds.
It was further observed that the unit price quoted by M/s. V.K. Oils Ltd. in
their offer was 112.50 per litre is 4.40% higher than the unit price of
Rs.107.80 as per last PO No. 7113778/SDI/P1 dated 04/05/2013 placed on
them. M/s. V.K. Oils was requested to review their quoted price and match
the last order. In reply ,M/s. V.K. Oils Ltd. regretted to reduce their quoted
price. The price quotted by M/s. V.K. Oils Ltd. was accepted as it was the
only bidder eligible for procuring Linseed Oil.
It was also observed that in the last tender also only these 03 parties
participated and the same 02 parties were rejected for not submitting the
required documents.
Management’s Comments:
Press E-tender was floated and the advertisement was published in leading
newspapers, OIL websites and Govt. Portal. Attention of probable sources
was also drawn to the NIT to generate more response.
In this particular tender offers of the two bidders other than the successful
bidder (M/s V.K. Oils Ltd ) rejected as one of the bidders (M/s Somani Oil
Industries) had not submitted tender sample as per BRC criteria and the
tender sample submitted by the other bidder (M/s V.M.Oils Pvt. Ltd.) did not
pass laboratory test.
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In the previous tender for this item only two offers were received i.e. from M/s
V.K. Oils Ltd. & M/s V.M. Oils Pvt. Both of which were found to be techno
commercially acceptable. Regular order was placed on M/s V.K. Oils Ltd. and
one trial order was placed on M/s V.M Oils Pvt. Ltd.
Recommendation:
OIL should take appropriate action to learn reason for lack of response and
put efforts in updating Vendor’s list thus making the bid more competitive.
OIL should also contact these 02 rejected parties to know the reason why the
required documents are not submitted continuously in the two tenders by
them.
3.1.6 Purchase Order No.: 7202574/SDG/P1 Dt.: 31/10/2013
Purchase Order Amount: USD 6,65,900.00
Vendor Name: M/s. Hengyang Steel Tube Group International
Tender No.: SDG8580P13/01 dated: 28/03/2013
Purchase Requisition No.: 1215683 dated 28/03/2013
Material Description: Casing 5 ½”P-110
Tender Type: Single Stage Two Bid System
Purchase Requisition No. 1215683 Dt. 28/03/2013 was raised for Casing 5
½” P-110 ( Stock Normal ). . Total value of PR (INR) 5,17,86,000.00. OIL
invited e-tenders for supply of Casing 5 ½ “ P-110 . Purchase Order after
tendering process was awarded to M/s. Hengyang Steel Tube Co. Ltd.,
China.
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Observations:
Tender No. SDG8580P13/01 was floated for procurement of 25 kms of 5 ½ “
P-110 Casing. The B.C. date of the tender was 28/03/2013 which was
extended to 10/04/2013 due to shutdown of ERP system for technical
upgradation . The bid was further extended upto 24/04/2013 after obtaining
approval from competent authority vide proposal no.
MM/SDG8580P13/SKR/FS dated 10/04/2013 on receipt of request from 02
parties viz. M/s. Hengyang Steel Tube International Inc, China & M/s. Jiangsu
Chengde Steel Tube Share Co. Ltd. ,China. The bid was extended to
25/04/2013 due to Assam Bandh. The bid was further extended to
08/05/2013 on receipt of the request from M/s. Hengyang Steel Tube
International Inc, China . to comply with the tender requirements.
Management Comments:
Extension of Bid Closing date is done as per policy after obtaining approval
from competent authority. In this case the extension was done thrice due to
shutdown of ERP system, requests from two bidders and Bandh. ERP
system shutdown was due to planned upgradation of the system. Moreover,
OIL has no control over bandhs. The last extension of bid closing date
against this tender from 25.04.2013 to 08.05.2013 was done as per the
Purchase Manual guidelines on receipt of requests from two bidders.
Recommendation:
Efforts should be made to avoid frequent extension of Bid Closing date
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3.1.7 Purchase Order No.: 7950825/SDG/P8 Dt.: 18/12/2013
Purchase Order Amount: USD 6,02,640.00
Vendor Name: M/s. Caterpillar Sarl Singapore
Tender No. SDG8101P13 Dt. 26/11/2012
Purchase Requisition No:- 1409144 dated:- 07/06/2012
Material: Diesel Engine
Tender Type:- Single Stage Two Bid System
PR No. 1409144 dated 07/06//2012 was raised for procuring Diesel Engine
as a replacement of Cummins Engine (Capital Normal). OIL invited bids for
procuring Diesel Engine under Single Stage Two Bid System. PO after
tendering process was awarded to M/s.Caterpillar Sarl Singapore.
Observations:
As per Para 7.33.1 of Purchase Manual Bid Closing Date of the enquiries are
required to be extended under following conditions:-
i) When there is no response -B C date is extended by two weeks .
ii) When there is change in terms of the tender - BC date is extended by two
weeks with concurrence of Head-Materials.
iii) When adequate time is not left for submission of bids by the parties after
receipt of clarification on tender specifications,etc, BC date shall be
extended by two weeks for indigenous tenders and three weeks for
global tenders with concurrence of Head- Materials.
iv) In the receipt of single offer against limited as well as global/press tender
, the bid closing date should be extended by two weeks to generate more
competition , but bidder whose offer has already been received should not
be allowed to revise their offer.
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v) When requests are received from two or more parties before the BC date it
is extended by two weeks with the concurrence of Head- Materials.
vi) When request is received from regular supplier of the item ,before BC date
,the BC date shall be extended by two weeks with the concurrence of
Head-Materials.
vii) In case of technical problem in the Server/ERP(SRM) system for E-
Tender , the BC date shall be extended by one week with the concurrence
of Head-Materials.
In case of any other reasons not specified above, where need for
consideration of bid opening date is envisaged ,Head-Materials should put up
a proposal to GM(S) for approval.
In the given case the bid closing date stipulated was 27/02/2013 which was
extended to 03/04/2013 due to SRM ERP upgradation as SRM ERP i.e., by
34 days as against I week as mentioned above for system problem. Without
giving any reason for extension of 34 days.
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Management Comments:
The bid closing date stipulated in the above Tender was 27.02.2013 and last
date of receipt of Application for Tender participation was 20.02.2013. Till
26/02/2013 ( i.e. one day prior to closing) only one party i.e. M/s. TIPL,
Kolkata had purchased Tender documents and one of the prospective
bidders M/s. Cummins India Pvt. Ltd. raised some queries and requested for
extension of bid closing date.
Head – ERP vide reference no. ERP/UPG-circlr-01 dated 23.02.2013
intimated regarding shut down of ERP system for technical upgrade data
migration. It was planned that , SRM (E-Tender) would go through a
planned shutdown to carry out data migration from 2nd March to 17th March,
2013 (16 days). Head – ERP also mentioned that all published e-tenders
which were to be opened during the period had to be postponed and no e-
tender could be published during that period. Above shutdown plan was
subsequently revised to 06.03.2013 to 21.03.2013.
View above, to have better participation and competition (there was poor
response as only one party purchased the tender document ) and to
streamline the subsequent processes like authorization to vendors,
submission of offers by bidders etc. after restoration of the ERP /SRM
systems , it was felt necessary to extend Bid Closing date against the tender
upto 3rd April, 2013.
It was not a technical problem of ERP/SRM system. The above was due to
planned upgradation of the systems.
Recommendation:
It is recommended that BC date should be extended according to the
provisions of Purchase Manual
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3.1.8 Purchase Order No.: 7950820/SDG/P8 Dt.: 02/12/2013
Purchase Order Amount: USD 2,67,000.00
Vendor Name: M/s. Gulf Boi Analytical
Tender No. SDG9068P14 Dt. 26/02/2013
PRNo:- 1409771 & 1410091 dated:- 12/11/2012 & 31/01/2013
Material: Gas Chromatograph Mass Spectrometer
Tender Type:- Single Stage Two Bid System
PR No. 1409771 & 1410091 dated 12/11//2012 & 31/01/2013 was raised for
procuring Gas Chromatograph Mass Spectrometer (Capital Normal). OIL
invited bids for procuring Gas Chromatograph Mass Spectrometer under
Single Stage Two Bid System. PO after tendering process was awarded to
M/s. Gulf Bio Analytical.
Observations:
Open Global E-Tender was invited under Single Stage Two Bid System vide
OIL’s NIT No. SDG9068P14/08 of 26/02/2013 through press advertisement
published in national newspaper during the month of April,2013 .The same
tender was published in the website additional attention of 18 bidders was
also drawn to OIL NIT.
However, only following 02 parties responded :-
i) M/s. Thermo Fisher Scientific India Pvt. Ltd., Kolkata
ii) M/s. Hydrocarbon Solutions (India) Pvt. Ltd., Bangalore
M/s. Hydrocarbon Solutions had mentioned in their quotation that in the event
of an order for the local supply and installation/commissioning , order to be
placed on them and for the imported items , order to be placed on their
parent company M/s. Gulf Bio Analytical , Dubai.
Finally, the PO was awarded to M/s. Gulf Bio Analytical at a total cost of
Rs.1.66 crores against estimated value of Rs. 2.48 crores resulting in
difference in cost of Rs.81.50 lacs.
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Management Comments:
We are advising the user department to note the observations.
Recommendation:
OIL should make estimates on reasonable basis to avoid huge differences in
estimated cost and actual PO cost.
3.1.9 Purchase Order No.: 7906529/SDI/P4 Dt.: 26/03/2014
Purchase Order Amount: INR 1,29,42,700.00
Vendor Name: M/s. Chabria Infotech Pvt. Ltd.
Tender No. SDI2574P14 Dt. 12/02/2014
Purchase Requisition No:- 1411723 dated:- 06/02/2014
Material: Micrsoft Software
Tender Type:- Single Stage Composite Bid System
PR No. 1411723 dated 06/02/2014 was raised for procuring Miicrosoft
Software (Capital Normal). OIL invited bids for procuring Microsoft Software
under Single Stage Composite Bid System. PO after tendering process was
awarded to M/s Chabria Infotech Pvt. Ltd.
Observations:
As per Par 7.0 of the General Terms & Conditions of the order, the
Performance Security Clause the successful bidder shall furnish the
Performance Security in the form enclosed (Annexure V) herewith within 30
days of the receipt of Letter of Order failing which OIL reserves the right to
cancel the order & forfeit the Bid Security
In the given case, Performance Security related document was not found as
well as no reminders were found in the file.
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Management Comments:
PBG received on 01.04.2014. We have noted your recommendation and
keeping of one copy of PBG in respective order folder will be maintained.
Recommendation:
It may be confirmed whether the PBG as required has been received and the
copy of the same may please be kept in the file.
3.1.10 Purchase Order No.: 7114866/SDG/P1 Dt.: 08/03/2014
Purchase Order Amount: INR 1,62,45,907.20
Vendor Name: M/s. Jindal (India) Ltd.
Tender No.: SDG9175P13/01 dated: 15/03/2013
Purchase Requisition No.: 1215977 dated: 09/02/2013
Material Description: 6” Line Pipe Steel
Tender Type: Single Stage Two Bid System
Purchase Requisition No. 1215977 Dt. 09/02/2013 was raised for 6” Line
Pipe Steel ( Stock Normal ). Total value of PR (INR) 1,65,59,040.00. OIL
invited e-tenders for supply 6” Line Pipe Steel Purchase Order after
tendering process was awarded to M/s. Jindal (India) Ltd..
Observations:
Global E-Tender No. SDG9814P14 under Single Stage Two Bid System was
invited through OIL’s portal. The press advertisement was published in
prominent national dailies as confirmed by PR Department .Tender was also
available in OIL’s Website and could be accessed for view by any bidder
through Guest Log In. Additionally, attention was drawn to known prospective
bidders by fax messages.
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On BC date 19/06/2013 offers from following four parties were received and
their technical bids were opened:-
i) M/s. Jindal (India) Ltd., New Delhi
ii) M/s. Jindal Industries Ltd., New Delhi
iii) M/s. Jindal Pipes Ltd., New Delhi
iv) M/s. Welspun Corp. Ltd., New Delhi
As per BRC, Integrity Pact is applicable against this tender and if any bid not
accompained by Integrity Pact duly signed (digitally) by the bidder, it shall be
rejected straightway. However, on file inspection copy of the Integrity Pact of
M/s. Jindal Pipes Ltd, New Delhi. was not found in the file and bid was not
rejected as per BRC.
Management Comments:
Party has submitted Integrity pact which is also available in e-portal.
Recommendation:
It may please be confirmed that Integrity Pact was received and if so a copy
of the same may please be filed.
3.1.11 Purchase Order No.: 7114889/SDG/P1 Dt.: 14/03/2014
Purchase Order Amount: USD 14,93,439.12
Vendor Name: M/s. Oil Country Tubular Ltd..
Tender No.: SDG9814P13 dated: 13/05/2013
Purchase Requisition No.: 1216216 dated: 21/03/2013
Material Description: 150 kms. Of 2.7/8” N-80 Tubing & Pup Joints
Tender Type: Single Stage Two Bid System
Purchase Requisition No. 1216216 Dt. 21/03/2013 was raised for 150 kms. of
2.7/8” N-80 Tubing & Pup Joints ( Stock Normal ). Total value of PR (INR)
10,08,74,188.60. OIL invited e-tenders for the same under Single Stage Two
Bid System. Purchase Order after tendering process was awarded to M/s.
Oil Country Tubular Ltd.
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Observations:
Global E-Tender No. SDG9814P14 under Single Stage Two Bid System was
invited through OIL’s portal. The press advertisement was published in
prominent national dailies as confirmed by PR Department . Additionally,
attention was drawn to known prospective bidders as per Vendor’s list
through fax messages
On BC date 07/08//2013 offers from following nine parties were received and
their technical bids were opened:-
i) M/s.Hengyang Steel Tube Group International, China
ii) M/s. ISMT Limited , Pune
iii) M/s. Iteco Oilfield Supply Me Fze ,UAE
iv) M/s. Jiang Su Chengde Steel Tube Share Co. Ltd. , China
v) M/s. Kirtanlal International DMCC, UAE
vi ) M/s. Maharashtra Seamless Ltd., Gurgaon
vii) M/s. Oil Country Tubular Ltd., Hyderabad
viii) M/s.RNA International Marketing Pte. Ltd, Singapore
ix) M/s. Shangdong Kerui Petroleum Equipment, China
As per BRC Integrity Pact is applicable against this tender and if any bid not
accompained by Integrity Pact Proforma duly signed ( digitally) by the bidder
it shall be rejected straightway. However, on file inspection the copy of
Integrity Pact of M/s. Maharashtra Seamless Ltd, Gurgaon. was not found in
the file and their bid was not rejected.
Management Comments:
The copies of Integrity Pact of all the techno-commercially acceptable bidders
are kept in the file. However, during handling of the file at different stages,
some document may be misplaced. Nevertheless, party has submitted
Integrity pact which is also available in e-portal.
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Recommendation:
It may please be confirmed that Integrity Pact was received and if so a copy
of the same may please be filed.
3.1.12 Purchase Order No.: 7906445/SDI/P2 Dt.: 29/01/2014
Purchase Order Amount: INR 31,87,800.00
Vendor Name: M/s. Steelsworth India
Tender No.: SDI1234P14 dated: 24/09/2013
Purchase Requisition No.: 1410263 dated: 15/03/2013
Material Description: Chemical Storage Tank
Tender Type: Single ( Composite) Bid
Purchase Requisition No. 1410263 Dt. 15/03/2013 was raised for ( Capital
Normal ). Total value of PR (INR) 28,80,000.00 OIL invited Bids for supply of
Chemical Storage Tank through e-procurement site under SINGLE BID
SYSTEM. Purchase Order after tendering process was awarded to M/s.
Steelsworth India..
Observations:
The party has not submitted bid bond guarantee as required by tender as
they have claimed to be SSI Unit. However,on verification of the file it was
observed that NSIC Certificate of M/s. Steelsworth India was not found.and
party was exempted from submitting Bid Security.
Management Comments:
Party uploaded valid NSIC certificate in the system in their technical bid
against this E-Tender. Technical evaluation was carried out based on their
submitted/uploaded technical bid in the system. We have noted your
suggestion and one copy of NSIC certificate down loading from the system
will be kept in the respective file.
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Recommendation:
It may please be confirmed that party has valid NSIC Certificate and in future
due care should be taken before opening the technical bids that all the
required documents are submitted .If the party is having valid NSIC
Certificate copy may please be kept in the file.
3.1.13 Purchase Order No.: 7508781/DID/L6 Dt.: 24/10/2013
Purchase Order Amount: INR 287167.60 (Nomination Case)
Vendor Name: M/s. Sachin Sales & Service Pvt. Ltd.
Tender No.: DID0354L14/L6 dated: 29/06/2013
Purchase Requisition No.: 1612886 dated: 19/06/2013
Material Description: Spares for Stamford Alternators
Tender Type: Single Bid
Purchase Requisition No. 1612886 Dt. 19/06/2013 was raised for Spares for
Stamford Alternators (Non-Stock Normal). Total value of PR (INR)
287167.60. OIL invited Bids for supply of Spares for Stamford Alternators
under Single Bid System .Purchase Order after tendering process was
awarded to M/s. Sachin Sales & Service Pvt. Ltd.
Observations:
As per BRC, in case of an authorized dealer of the required item, dealership
certificate should have to be furnished along with the offer otherwise offer will
not be considered for evaluation. However, M/s.Sachin Sales and Service
Pvt. Ltd., Tinsukhia had provided dealership certificate of M/s. Cummins India
Ltd. whereas their quoted items are Stamford Make. Therefore, M/s. Sachin
Sales and Service Pvt. Ltd. was also requested to provide the necessary
dealership certificate as required and the same was not submitted.
It is not understood that when the dealership certificate is submitted for M/s.
Cummins India Ltd. ,how the contract has been awarded for the supply of
Spares for Stamford Alternators.
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Recommendation:
It is recommended that before considering the award of contract all
necessary documents as required by the BRC Clause to be obtained .It may
please be confirmed whether M/s. Sachin Sale and Service Pvt. Ltd. are
dealer of Spares for Stamford Alternators. If so, the required dealership
certificate may please be obtained and kept in the file.
Management Comments:
M/s Sachin Sales & Service Pvt. Ltd. are the authorized dealer for providing
after market for all the products manufactured and marketed by Cummins for
our operational area.
They are also authorized to supply & support SGT (Stanford) alternator
coupled with Cummins engines.
This has reference to letter CSS/AS/DLR-CERT/SACHIN:2013 dated
01.10.2013 received from Cummins India Limited and kept in file.
3.1.14 Purchase Order No.: 7906455/SDG/P9 Dt.: 07/02/2014
Purchase Order Amount: INR 1,25,13,156.00
Vendor Name: M/s. Elcome Technologies Pvt. Ltd..
Tender No.: SDG8655P13P133/09 dated: 22/12/2012
Purchase Requisition No.: 1409438 dated: 03/09/2012
Material Description: RTK DGPS & Combined Survey System
Tender Type: Single Stage Two Bid System
Purchase Requisition No. 1409438 Dt. 03/09/2012 was raised for RTK DGPS
& Combined Survey System (Capital Normal). Total value of PR (INR)
2,39,99,750.00. OIL invited Bids for supply of RTK DGPS & Combined
Survey System under SINGLE STAGE TWO BID SYSTEM. Purchase Order
after tendering process was awarded to M/s. Elcome Technologies Pvt.. Ltd.
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Observations:
Open Global Tenders were invited under Single Stage Two Bid System vide
OIL’s NIT No. SDG8655P13/09 dated 22/12/2012 through press
advertisement during the month of February,2013.The requirement was also
published in the Govt. & OIL’s Web Site . Attention of known parties was also
drawn to OIL’s NIT.
The original bid closing date was 03/04/2013 which was further extended to
17/04/2013 then to 08/05/2013 then to 28/05/2013 due to change in certain
technical parameter. Further the Bid Closing Date was extended to
12/06/2013 due to request from the bidders namely M/s. Aimil Ltd, Kolkata &
M/s. Elcome Technologies Pvt. Ltd., Kolkata
The Bid Closing Date was further extended to 26/06/2013 due to poor
response ( single offer).
However, it was also observed that the Tender No. SDG7836P11/09 dated
26/04/2010 for the similar item was cancelled due to poor response.
It is also observed that against PR Value of Rs.2,39,99,750.00 the PO has
been awarded for Rs. 1,25,13,156.00 which shows that estimates are not
worked out scientifically.
Management Comments:
Your observation has been forwarded to user department.
Recommendation:
Estimation should be calculated with certain accuracy.
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3.2.0 Checking of Effectiveness of Internal Control System of P2P Services
(Procurement to Payment):
We have checked the process of awarding of Purchase Orders during the
period 01.10.2013 to 31.03.2014 and verified application of internal control
system and found to be in order in most cases. Further we have found that
management has tried to minimize irregularities raised in our previous audit
report on Material Department like timely submission of Integrity Pact,
Performance Bank Guarantee and other related documents.
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CHAPTER – 4
4.0.0 CIVIL ENGINEERING DEPARTMENT
4.1.0 Handling of indents from other departments for services
4.1.1 Brief Overview :
The Civil Engineering Department is a service department of Oil India Ltd.
Indents are being received from the users / user departments for various
repairs, renovation and construction work. The estimation of cost of the
work is done and depending upon the value of the work, the work is either
allotted through Miscellaneous Maintenance / Civil Contracts or awarded
through the process of tendering. As per DOP ,work can be awarded to
contractors by the Civil Engineering Department as under:-
Up to Rs.0.50 Lakhs By Chief Engineer(Civil),
>Rs.0.50 but<Rs2.00lakhs by HOD(Civil),DGM level,
>Rs.2.00lakhs but <Rs3.0 lakhs by GM(C&L),
>Rs.3.00Lakhs but<Rs.5 lakhs by RCE,
>Rs.5lakhs but less thanRs.25.00 lakhs through limited tender,
>Rs. 25lakhs <Rs.50 lakhs through Press tender, and
Beyond Rs. 50 lakhs E tendering.
4.1.2 Observations :
The Civil Engineering Department receives indents from user / user
departments. Here user means occupants of bungalows / quarters, guest
houses, schools, Zaloni Club, Oil Market shop owners, etc. It was noted
that the civil department receives indents in three different formats
from user / user departments. Indents were being raised either through
SAP (as Notification) or through physical memos (or hand written
application addressed to the HOD or concerned Sectional Head/Chief
Engineer) or through a form available on the oilweb portal (known as Civil
Job Requisition). However, for the notifications created through SAP for
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any operational related job pertaining to Civil Engineering, the same has to
be routed through the concerned HOD of the indenting department. In case
of extreme operational urgency pertaining to E & P activities, verbal
request / requirement over phone are entertained. In case of verbal
request, though no specific records are maintained. We are of the view that
this is not a healthy practice. The indent must be raised either manually or
in the system to have a better control on the activities. If it is not possible to
raise the indent immediately it can be issued after the requirement is
conveyed before awarding the contract. After receipt of the indent/
requirement PR is raised by civil department and material is issued on the
basis of Material Gate Pass and Material Reservation. The movement of
the goods from the go-downs is recorded in the Material Control Sheet
prepared against the particular job and also in the materials issue registers
being kept with the respective go-down in charge.
Management’s Comment:
In the Township Maintenance sections, indents are received from
occupant of the B'lows for carrying out the various maintenance works
through typed letters, handwritten memos, notifications created in SAP,
Civil Requisition Forms available in OILWEB and also over telephone
exclusively received and recorded only for the Gas/water supply &
plumbing related, minor carpentry related jobs i.e. repairing of door locks,
hinges, door closures and wooden fittings etc.
In the Fields Sections for carrying out the E&P/ field operational jobs, SAP
created notifications routed through the concerned HODs are only
accepted. However, sometimes due to extreme operational urgencies of
works pertaining to work-over activities/jobs at the drilling locations etc.,
verbal advices were entertained and later recorded in PRs created against
such jobs and notifications are collected for their regularization.
Materials issued from the departmental stores/go downs against proper
and approved material reservations and gate passes only under the strict
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monitoring of the go down in-charge. However, the quarry materials e.g.
stones, sand, bricks, gravels, earth are always taken on ‘contractors
supply’ scope and later payments are made to them through the respective
items of works adopted the schedule of rates available in the system.
4.2.0 Miscellaneous Civil Contracts and system of allotment including
record keeping
Brief Overview :
Miscellaneous Civil Contracts or Miscellaneous Maintenance Contracts
(MMC) are mainly undertaken to perform small jobs. Small jobs include
township maintenance, maintenance of industrial assets
(buildings/installations/industrial structures), miscellaneous civil jobs for
E&P activities, work over & production set ups and civil maintenance jobs
valuing less than Rs. 5 Lakhs. For the purpose of carrying out such jobs,
Miscellaneous Maintenance Contracts (MMC) are entered in to with the
contractors. Three types of MMCs are in operations
1. Road maintenance-by A,B,C category of contractors,
2. Building Maint. & repairing-by A, B,C category of contractors.
3. Building maint.& repairing(minor) -by D category of contractors.
The classes of contractor i.e. A, B, C and D are decided by the Contracts
Department, which manages the award of contracts through Limited or
press or E tendering.
In all such cases the material such as cement, TMT bar, paints, glass,
locks, etc. are issued by the company based on the estimates prepared by
the civil engineers. A notification (job requisition created by the indenting
department) is generated in the system by the user which includes the
chargeable departmental cost centre for the booking the necessary civil
work expenditure to be incurred while carrying out the required job. After
the notification is approved by the Head-Civil/CEC (TM), a PR is generated
by the Civil Department and in case the value of the job is less than Rs. 5
Lakhs, the work is awarded to the empanelled contractor on rotational
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basis and PO/Work Order is generated through SAP. A material
reservation is generated for the cost centre and accounts code/cost
element against the nature of the expenditure is mapped to the respective
cost centre as mentioned in the Notification/PR. On issue of material the
account codes which are mapped with cost centre are debited irrespective
of the fact whether the material is fully consumed or not. The concerned
civil engineer keeps a manual control over the material by keeping material
control sheet by verifying the unconsumed material. In case the material
consumed is less than the material issued a goods return note is prepared
for taking back the unconsumed material. In case the contractor does not
return the material the recovery at the rates specified in the work order,
which is generally double the rate at which it was issued, is recovered
through service entry.
Observations :
4.2.1 It was noted that the company has a huge base of vendors which is much
higher than the actual requirement. This should be rationalized and
Whole of the material is shown as consumed at the time of Issue,
irrespective of whether the same has been actually consumed. At the
year end an inventory should be taken for such unconsumed stock keeping
in to materiality aspect and consumption should be reversed. It is
recommended that based on the goods return note or delivery report,
which is normally raised to return back the unused materials to the Civil
Engineering Department against any particular job, the returned materials’
stock has to be credited in the respective Storage Location/Godown by
raising a Goods Receipt Note in SAP for the regularization of the balance
stock.
Management’s Comment:
Before the finalization of the Misc/Maint contracts for any particular
year/period in the pasts, it had always been reiterated from Civil
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Engineering Department to restrict the number of contractors to an
optimum level i.e. maximum of 600 nos as against the existing strength of
more than 1000 contractors for an effective control. However, no significant
measures/initiatives from the concerned authority had been witnessed in
the previous occasions of finalization of the contracts.
Regarding the goods movement of the materials issued to the contractors
are strictly monitored by the store keepers and security and controls will be
more tightened once the CCTV surveillance system in the department will
be installed in the coming months. In case of the recording/updating of the
reversed stock of the materials returned to the Civil Engineering
Department due to the unconsumed/excess issue/unused reasons,
circulars will be issued time to time to the concerned engineers/sectional
heads describing about the system modalities/SAP process suggested by
you in your observation made vide the above para no.: 4.2.1.
4.2.2 Classification of vendors has been defined by the Company under A,B,C
and D CATEGORY on the basis of specific credentials of assets held in
terms of man and machines. The number of vendors in each class exceeds
actual requirements and the gap between vendors available and vendors
required is substantial. There is no system of vendor evaluation where
ranking / grading / classification is based on past performance, timely
execution / completion of job, quality of job performed, etc.
Management’s Comment:
Vendors are empanelled by the Contracts Department in different
Zones/Areas and work and the jobs are allotted to them by the concerned
sectional heads entirely on ‘rotation basis’ within the respective zone
against the various job requisitions received from different
users/departments. The job rotation is always done by a committee
formed/constituted by the concerned sectional head of the respective
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sections by considering/checking various factors like value of work done,
past performances, capability/potential of the vendor for executing any
urgent big nature job in less time (as often required by the users/indentors),
early response time, machinery available, criminal/disciplinary/behavioral
records etc. However, a robust, transparent and efficient Vendor Rating
system shall have to be brought in place. Contracts and ERP Departments
shall have to initiate the necessary Vendor Rating System in consultation
with the Civil Engineering Department
4.2.3 The work is awarded to only those contractors who are empanelled.
However such empanelment was done long back say 15 to 20 years back
and thereafter it has not been reviewed.
The Civil Engineering Department has zone-wise list of empanelled
vendors. Different jobs are allotted to them on rotation basis. Though no
formal committee is formed, in most of the cases, after consulting with
other engineers, sectional head allot the work to vendors on rotational
basis in such a manner that jobs are awarded to all them in more or less
equal proportion. In case of urgency and emergency, work is allotted to
vendors after due consideration is given to their past performances.
However certain discrepancies were noted in this regard. While analyzing
the data extracted through SAP for the period April 2013 - March 2014 it
was noted that a number of vendors were given substantially larger value
jobs as compared to others. Also a number of vendors were provided jobs
much more frequently as compared to others.
Details of the same are provided below:
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1) Job wise (Number of Jobs) break-up of Vendors :
No. of Jobs Allotted to Contractor No. of Contractors
0-10 580
11-20 305
21-30 49
31-40 18
41-50 5
>50 5
Grand Total 962
As can be seen from the above table 77 contractors have been given
contract work much frequently than other contractors.
2) Value wise break up of Jobs allotted :
Value of Work Number of Contractors
00 to 05 Lacs 503
05 to 10 Lacs 368
10 to 15 Lacs 54
15 to 20 Lacs 22
20 to 25 Lacs 8
25 to 30 Lacs 7
Grand Total 962
As can be seen from the above table 37 Vendors have been given
substantially higher value work as compared to the other Vendors.
From the above table it can be ascertained that though majority of the work
orders have been allotted as per the policy however from the above two
tables it is difficult to ascertain whether the department is strictly
following the rotation policy in all cases.
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Management’s Comment:
The allotment process of misc. /maint. works to the contractors is always
being carried out by a committee henceforth constituted in the respective
zones/sections. The committees in the respective zones always
devise/follow their own policy of work allotment based on several aspects
e.g. the urgency of the work, past performance & availability of resources
with vendors, amount of jobs available for distribution, nos of vendors
available at the time of allotment, value of work etc. However, the ‘class of
vendor’ always plays an important role during work allotment as the
vendors with superior classes preferably get the high valued jobs. The
single value of work as estimated in the PRs vary from ` 1000.00 - `
500,000.00. However, sometimes it is observed that, most of the
misc./maint jobs requisitioned against notifications/memos/applications etc.
are petty in nature and hence a single contractor is often allotted with more
nos of such petty nature/small valued jobs by combining all the notifications
under one single PR to enhance the overall work order value or to make it
uniform/comparable with the value of work allotted to the other the vendors
,obtain the work of a relatively high value job. To understand the situation
better, lets assume for an instance, if vendor “X” is being allotted a small
valued job of worth ` 10,000.00 and vendor “Y” is being allotted a job of
worth ` 100,000.00, then vendor ‘X’ needs to allotted with more nos of
small valued jobs to make his/her cumulative works to be done value
uniform or equitable with the value of works to be done by Vendor “Y”. Also
please note that the chances of availing high value work (>` 100,000.00)
for allotment are always very rare & occasional. The works executed value
by the various vendors, if compared within different sections/zones, also
vary widely. This is because against some sections/zones the no. of
vendors is very high but job volume is less, whereas against some
sections/zones the no. of vendors are very less but volume of work is high.
The list of vendors against various zones is being finalized by Contracts
Department at the time of the finalization / award of Misc/Maint. Contracts.
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4.2.4 It has been noted many times job are being carried out without notification
or requisition particularly in case of jobs required by drilling/production
departments. It has been informed that in these cases the normally the
verbal requirement is given in the daily production meeting and the civil
department line up contract without work order. It is noted that in most
cases the PR/work order is generated after the Job is over and also the
service is created after completion. In our view the requisition should be
generated either in the system or manually by the user department instead
of verbal instruction.
Management’s Comment:
Necessary actions have already been initiated at our end and advices have
been disseminated through the respective forums to avoid the verbal
advices and post-facto receipt of the notifications. However, our request to
you to kindly forward this issue to the competent authority to seek their
advice on relaxing/waiving us in few cases to receive verbal advices for job
execution to sustain extreme operational pressure
4.3.0 Housing Maintenance System & Budget
Brief Overview :
The Housing maintenance section is responsible for miscellaneous repairs
and maintenance in the township, repairing of roads and offices and the
industrial area in and around Duliajan. Mostly MMC's are formed in order to
carry out house maintenance work.
Observation :
4.3.1 The Township Maintenance Section of the Civil Engineering Department
receives indents from user / user departments. Here user means
occupants of bungalows / quarters, guest houses, schools, Zaloni Club, Oil
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offices, playgrounds etc. The section receives indents in three different
formats from user / user departments. Indents were being raised either
through SAP (Notification) or through physical memos (Hand Written) or
through a form available on the oilweb portal (Civil Job Requisition). Only
in the cases of Gas/Water requests/problems reported by the occupants or
users, verbal requests are entertained due to the urgency and keeping in
view of promptly attending the HSE related matters; but materials are
issued purely on the basis of Material Gate Pass/Material Reservation only.
Management’s Comment:
. Indents are received from the occupants/users of the B'lows for carrying
out various maintenance works through computer typed letters/ hand
written memos/notifications/civil requisition format available in OILWEB
and also over phone for Gas, water supply, plumbing and other small
miscellaneous maintenance jobs related to carpentry e.g. repairing of
locks, door closure, hinges, door fixing etc. However, necessary discussion
will be made with the concerned sectional heads to look at the pros & cons
of making it compulsory for the users to submit their respective
complaints/reported jobs/requests etc. through a single format i.e. SAP
created notification only for better control, record or tracing of the
lost/misplaced reports at our end.
4.3.2 In case of housing maintenance, some of the materials are issued on
company’s account. Materials that are issued on company’s account are
cement, TMT bar, paints, glass, locks, etc. Labours and quarry materials
i.e. bricks, stones, sand, gravel etc. apart from those which are issued on
company’s account are provided by the contractor , for which payment will
made to him in the SES created after the completion of the job.
Before execution of job by the contractor, concerned engineers at the
Township Maintenance Section prepares Estimation Sheet for those
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materials which are not issued on company’s account and Control Sheet
for those materials which are issued on company’s account. The material
control sheets are periodically updated as soon as any material is issued
from the company’s go-down during the progress of the work and later the
detailed control sheet is enclosed alongwith the SES after the completion
of the job. The quantity of the materials to be taken on ‘Contractor’s supply’
viz. the quarry materials are estimated while preparing the PR and then
subsequently as the job gets over , the payment is paid to the contractor on
actual basis. In this way, the concerned engineer has a control over
material used by the contractor, be it from company’s store house or
contractor’s supply materials. For quality check, quantity verification,
measurement of work after the completion of the job, the company
engineers do frequent site visits. Once a job gets over, the Township
Maintenance section of the Civil Engineering Department collects the
signed job completion certificate from the concerned user/occupant against
the satisfactory completion of the job he has earlier requisitioned in any of
the written format as mentioned above. After receiving the job completion
certificate only, the bills are processed.
Management’s Comment:
All the standard procedures are followed in the department as described
above in the observations made by you in the above para no.: 4.3.2
4.4.0 SYSTEM OF BUDGETING
Brief Overview
The Company has a system of preparing and processing its own Capital
Expenditure budgets, Special revenue budgets and revenue budgets on
annual basis .However, for making roads or construction of new buildings
for other departments, the Civil Engineering Department prepares the
detailed civil estimate based on the prevailing SOR rates to arrive at the
total project value on the request of the user departments and the same
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40
were then incorporated in their respective budget proposals to obtain the
necessary budget for carrying out the job. The budgets of the Civil
Engineering Department are then passed through a set flow of
authorization and entered in the SAP system with the help of the Planning
and F&A Department and once approved by the competent authority, the
WBSE (Work Breakdown Structure), Cost Planning, Loading of Budget and
releasing of the WBSEs are done in the system before using the same for
incorporation in the PR. However no budgetary control is there in the
system particularly in case of controlling the expenditures (Cost Centres)
against the Annual Revenue budgets prepared for their inclusion the
MAPPING OF COST CENTRE. The Civil Engineering Department
prepares Budgeted Expenditure/Revenue Expenditure annually for the
expenditures to be incurred against their various cost centres in the
said/upcoming fiscal year based on the patterns of expenditure incurred in
the previous years. Also, after receiving the tentative expenditure to be
incurred against the various Civil Jobs of misc./maint. nature to be carried
out the various other department at their own places of work and against
their cost centre, the Civil Engineering Department checks/modifies the
estimates of the expenditures proposed before submitting the same in the
Annual BE. Since, there is no budgetary control for capping of expenditure
currently available in the system of MAPPING OF COST CENTRE done
after loading/proposing the Annual Revenue Budgets, the control of
expenditures incurred against the cost centres could not be properly
achieved and wide gaps are observed (+/-) in most of the circumstances
while reviewing the actual Vs budgeted expenditures on quarterly/half
yearly basis. Hence, a capping/ceiling of the expenditure loading in the
cost centre has to be made.
Observations:
4.4.1 Capital and special revenue budgets:
Extensive delays were noted in case of passing of Capital Expenditure
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and Special Revenue Budgets. It was also noted that in most cases
though capital expenditure and special revenue were proposed for a
particular financial year, the eventual expenditure is incurred one or
more years after the proposed FY. In case of capital/Special revenue
budget it has been observed that the work order is being issued through
tendering only. After the approval of any specific budget, if any additional
budget amount is required due to any modification is proposed/revision of
specification/revision of quotation due to unprecedented price escalation
etc. are to required to be done, the additional budget/supplementary
budget sanction with adequate justification is proposed and subsequently
the same is duly approved by the authority as per DOP is loaded in the
system against the same budget head before issuing work order.
However, the comparison of actual with budget in the system cannot been
done in the system as budget is proposed in one year and actual are
available in the subsequent year when there may not be any budget.
Management’s Comment:
As per the observation made about the delay in approval of the budgets
and its implications of ‘incurring the cost in different years’, derived due to
the late approval etc. may be put in place/ addressed before the
appropriate authority please. We, as a budget creator, always prepare and
submit our needed budget proposals giving adequate requirement
justification within the stipulated time frame provided to us by the Planning
Department except and unless a very few special sanction proposals
prepared in the middle of the year or after the stipulated period due to
extreme unavoidable urgency. The issue of late receipt of the budget
approval should therefore be addressed to the appropriate authority
please. However, for annual revenue budget expenditure for cost centre
expenditures, the capping was already suggested to the F&A Department
in the previous years. As per the current information received from them,
the capping will soon be implemented from the current FY. The designing
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42
of the model/software application is under process with a consultant as
intimated to us by them. However, you may raise this issue with F&A
Department for introducing capping.
4.4.2 Budgetary Control:
Budgetary control should be implemented in the system. Whereby there
will be control over expenditure and also timely completion of jobs and also
the effective comparison of actual expenditure with budgeted expenditure.
Further the efforts should be made for budget approval well before the
financial year. It is further suggested that while making the revised budget,
the work not carried out in earlier year, the same should again be proposed
fresh.
Management Reply
As recommended by you, proposing of fresh budgets in a subsequent year
against the non-receipt of any such budgets’ approval in the preceding
year, however may not be possible to carry out at our end due to many
operational complexities. As per the existing practice of the company, in
case of delayed approval of any budget or if the budget cannot be
approved in the proposed year, it goes to or carries over to the next two
corresponding years without requiring any fresh budget proposals for the
same from the user’s end. However, beyond the period of these two years,
fresh proposals were advised by the management for the approval.
Therefore, you are hereby advised to take up the matter with the
management please.
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4.5.0 Work Measurement & Payment Procedure to vendors :
Observation :
Work measurements are taken up by the departmental junior engineers or
additional engineers or civil engineers or senior civil engineers. All these
measurements are kept in a running measurement book. Measurements
are taken up not only before the work commences but also after
completion of work so that the payment can only be made for the actual
work done at site, may be different from the work estimated earlier.
Purchase Requisition is raised on the basis of which the Purchase Order /
Work Order is issued to contractor. Then Service Estimation Sheet (SES)
is raised in the SAP by the concerned junior engineer. For SES, unit rates
are already given as it is earlier entered in the respective PR by adopting
the updated Schedule Of Rates of Civil item of work, available in SAP
database. Measurement is then fed in SAP and accordingly based on the
unit rates of the Civil item of works estimated earlier for the particular job ,
the total SES amount is determined by the system against the quantity
entered obtained during the measurement of work. On the basis of
authenticated and released copy of SES, it is forwarded to F & A
Department, by ‘Bill Tracking’ in SAP; payment is subsequently released
by the F & A department to the concerned vendor.
4.6.0 Pending Work Orders:
Observation:
On verification of execution of work orders by the Civil Engineering
Department, we came across the fact that status of many Work Orders
were marked as ‘yet to be delivered’ in SAP system since 2005. Year-
wise details of work orders marked as yet to be delivered in SAP are as
under:
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
44
Sr. No. Document Date Year No. of Work Orders
Marked as “yet to be
delivered”
1 2010-11 2
2 2011-12 15
3 2012-13 18
4 2013-14 20
TOTAL 55
It is observed that most of the cases SES has been created but not
released. The reasons for the same may please be ascertained and
necessary action for their release or cancellation may please be taken.
Thereafter wherever the work is complete or further work against the WO
,the same may please be closed in the system. The department should
identify all completed work orders and close them in SAP. The present
status of all above stated work orders is given in Annexure –I
Management’s Comment:
The work orders mentioned above are open may be due to the cancellation
or termination of the job for several reasons or due to the pending release
of the SES/WO by the concerned sectional heads. Though the number of
the work orders is very less as per the observation made in the para no.
4.5.0; circulars will be issued to the various sectional heads requesting
them to do the check/review/close/delete the work orders according their
respective requirement for the regularization in the system.
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4.7.0 Notifications raised on the Civil Engineering Department were not
closed in SAP
Civil Engineering Department is a service department of the Company.
Whenever any user department wants to carry out any civil work, then such
user department raises notification through SAP and forwarded to the Civil
Engineering Department for the needful action.
We observed that many notifications raised by the department were still
open in SAP. The reason is either work was not done / competed against
such notifications or work was completed but notification was not closed in
SAP. The notifications raised from 2005 onward are still open in SAP. The
details are given below :-
Year Open (count)
2005-06 108
2006-07 673
2007-08 862
2008-09 24
2009-10 1155
2010-11 4430
2011-12 5111
2012-13 5016
2013-14 3915
TOTAL 21294
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Management’s Comment:
Prompt action initiated following the Audit observation made last year and
hence the said exercise is already in process; the necessary SAP
transactions and user manual circulated to all officers/engineers by
downloading the screen shots on process to be followed in SAP towards
the closing of notifications in system against the completed jobs. However,
review of the exercise will be done on regular basis/quarterly basis for the
adherence of the policy by the respective sections
Recommendation:
All the notifications which are not required may please be closed in the
system
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CHAPTER – 5
5.0.0 GEOLOGICAL & RESERVOIR DEPARTMENT
5.1.0 To check the time cycle of data interpretation to location release.
We have verified the time cycle of data interpretation to location release of the
Company as on 31st March 2014 and observed the following:
Processed seismic data is sent by the Geophysics department (Processing
Centre) to G&R department based on the following: -
1) The seismic data is primarily acquired and processed based on requirement
planned by Geological & Reservoir Department.
2) Processed Seismic Data is in SEGY format
3) The Seismic Data may be either 2D & 3D Seismic
The Exploration Group working at Team Centre integrates the seismic data with
well data and other geoscientific data if required; then analyzes & interprets the
data. After generation of a subsurface model, prospects are generated &
Drilling Proposal is sent for approval to Director (E&D) at Noida. We have
verified the time taken for drilling of locations after obtaining its release. . It was
observed that time taken from proposal date to release date varied between 2
to 8 months & sometimes it takes more than a year. The details of same are
given in the Annexure -II.
This was discussed with GM(G&R) who explained that since process includes
review of the proposal by the Approving Authority and various clarifications as
well as additional details may have to be sought from the proposing group , the
time may vary from few months to a year in cases. Depending on the volume of
data interpreted and the area/field considered for proposing of the locations, the
reviewing and approval period varies.
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STATUS OF RELEASED DRILLING LOCATIONS:
Exploratory Development Total
(i) Released locations available for drilling
(A-Category) 34 17 51
Breakup of (i)
above
Land Released / Available 18 15 33
Civil Work Completed 06 08 14
Land not released 15 03 18
(ii) Released
locations
uncertain for
drilling
Under LA Act (Land Not
Obtained) 10 02 12
Forest De-Reservation 02 04 06
Litigation/ Other Problems 00 00 00
Inner Circle of Chabua Airport 00 00 00
TOTAL RELEASED LOCATIONS (i) + (ii) 46 23 69
Management’s Comments:
The Processing Centre of Geophysics Department and TEAM Centre are located
next to each other, so a question of delay does not arise. Therefore there is no
delay in handing over of the data once processing is completed.
The above list of “Status of Released Drilling Locations” is not relevant to the
above comment. This list pertains to the status of released locations available for
drilling as on 31.03.2014. The appropriate list submitted by G&R Deptt. may be
referred.
Recommendation:
We suggest that collection of data from Geophysics department should be done
faster so that delays can be avoided. Also proposals sent for approval take too
long which should be avoided. Various locations have been released by the Noida
office more than 5 to 7 years back, but location preparatory work has not yet
commenced and also land has not been acquired The list of such locations is
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
49
given below. We suggest that same should be done on a priority basis.
5.2.0 To check the work over operation plans, work over operations and cost and
activity volume analysis.
Work Over Operations includes
-ANALYSIS AND IDENTIFICATION OF SICK WELLS FOR WORKOVER
-ASSESS THE OIL/GAS POTENTIAL LIKELY TO BE RETRIEVED
-WORKOUT REMEDIAL MEASURES TO BE TAKEN
-COORDINATE AND MONITOR THE PROGRESS OF W/O OPERATION
-REVIEW W/O OPERATION ON WEEKLY BASIS AND MONITOR ACTION
TAKEN
-CARRYOUT THE COST-BENEFIT ANALYSIS OF THE W/O OPERATIONS.
-ENSURE SOUND COMPLETION OF THE WELL AND ITS REVIVAL.
-MONITOR WELL POTENTIAL RETRIEVED AFTER WORKOVER
The annual plans of work over operation are indicated as total number of wells to
be considered for work over operation in a year and decided by Geological
Department. In the year 2013-14, 150 wells have been targeted for over work
operations against which work over jobs have been carried out in 130 wells
(approx.87%). It has been observed that in the financial year 2013-14 work
achievement could not be achieved as per plan by the Company. The details of
Workover Plans and Achievement are given below:
No of Jobs Potential Retrieval
(as on 31.03.2014)
Incremental Cum
contribution
Head Target for
2013-14
Pro
rata
target
till date
Actual Achievement
of Prorata
Target
(%)
Annual
Target
Actual
Achieveme
nt (%)
On stream
Production
Oil 1000 klpd
1243 klpd
923 klpd 207854 kls
Gas 1.45
MMScmd
0.722
MMScmd
0.677
MMScmd
83.050mmscum
Total 150 150 130.5 87%
It was also observed that during the last financial year a number of wells were shut
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50
in due poor inflow or due to high water cut. The break-up of wells awaiting testing
and shut-in wells due to no inflow or due to high water cut as on 31.03.2014 are
as follows:
Year Awaiting Testing Shut-in due to no inflow Shut-in due to high water cut
2013-2014 8 wells 31 wells 24 wells
We have verified shut down details from the work over operation carried out by the
Company on day to day basis and found that shut downs are almost 14.25% of the
Working Hours. The shut down details from 01-04-2013 to 31.03.2014 are given
below:-
Shut-down details:
Outfit Total
Workin
g
Hour
Department / Section Total
S/D
Hour
%age
S/D Drlg/RB/C
mtg
D(T/S) Tpt Che
m
Prod WL
D/
SLB
Elec
t
Civil G&R misc
Contract
or
Band
h/
Misc
OIL 87048 388 411 1129 146 2332 523 2 498 24 20 2988 3942 12403 14.25%
The status of Work Over Operation wells completed during the period from
01.04.2013 to 31.03.2014 is given in the Annexure –III
It was observed that there is no well wise budget available for work over
operations as planned. It was explained that the budget is given by the Head
Office on yearly basis and not well wise and as a result the comparison of the
actual cost with budgeted cost cannot be done. Further whatever budget has been
worked out only for the primary services and not for allocated services whereas
the actual include all.
Oil India Ltd calculates discovery of new reserves on the basis of the Proved (1P),
Proved plus Probable (2P) and Proved Plus Probable plus Possible (3P) for
Estimate based on the March 2007 Reserves Definitions jointly promulgated by
the Society of Petroleum Engineers (SPE) / World Petroleum Council (WPC) /
American Association of Petroleum Geologist (AAPG) / Society of Petroleum
Evaluation Engineers (SPEE) and referred to as the SPE PRMS.
We have reviewed the statement of new discoveries made during 2013-14
prepared by the G&R Department & found that reporting of new discoveries has
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
51
been done as per the above mentioned norms. The details of discoveries made
during 2013-14 are given below :
Period Well Name
Field Name
Depth Oil In-place (MMSKL) Gas in-place (MMSCM)
(m) 1P 2P 3P
1st
Quarter
SLG001 WSF 3829 0.5056 0.9477 1.1815 17.6944 33.1688 41.3534
SKL003 KLN 3578 0.0556 0.1113 0.1298 11.12 22.26 25.96
2nd
Quarter
NHK610 CSF 2571 - - -- 446.8357 597.1952 747.554
3rd
Quarter
NHK405 Gr.Jrn 2877 ---- --- --- 155.4612 185.0441 214.6269
4th
Quarter
NHK614 Gr.Jrn 2860 1.2272 1.2272 1.2272 153.40 153.40 153.40
Technical Discovery with Contingent Resource (2C)
Period Well Name
Field Depth (M)
STOIIP (MMSKL)
GIIP (MMSCM) O+OEG (MMSKL)
2
nd
Quarter
Barua Nagar-3
WSF 4305 Barail Sand
0.4152 103.8026 O.5190
4254-Barail Sand
0.2642 66.0586 0.3303
4056-Tipam sand 0.3218 80.4520 0.4023
It was observed that new discovery was based on the basis of SPE norms.
However, we have also verified Accretion to Hydrocarbon Reserves during the
year 2013-14. The accretion to 2P oil and gas recoverable volumes in Assam
and Arunachal Pradesh due to drilling of exploratory and development wells
during the year 2013-14 is below :-
ACCRETION TO RESERVES DURING 2013-14
The Accretion to recoverable reserve (O+OEG) under 2P category for 2013-14
from OIL’s operational areas in Assam and Arunachal Pradesh are as
follows
Area/Block Accretion (2P)
MMSKL MMT
Assam & Arunachal Pradesh 8.27 7.31
Pre-NELP JV block AAP-ON-94/1,
Dirok, Assam
0.58 0.51
Total 8.85 7.82
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52
PRODUCTION CONTRIBUTION :
Crude Oil Production Potential from Drilling Wells
Target Achievement
(KLPD) (KLPD) %
Crude Oil
Production
Potential
Exploratory 60 219 365
Development 1285 905 70.428
Total 1345 1124 83.569
Management’s Comments:
The difference between Shut-in wells and Shut-down hours of a workover
operation should be pronounced.
Recommendation:
In order to have a better control over the cost and to know the reasons for any
abnormal expenses a well wise budget should be prepared and it should
include cost of all direct and indirect service. Wherever possible, during the
shutdown period the rig may be utilized for another nearby location.
5.3.0 To check, if any interpretation or any other geological data interpretation,
work over operation or reservoir related jobs has been carried out by
Oil’s in house resources with or with financial consideration.
We have verified the Well-Wise Daily Geological Report for Drilling Wells and
Work over wells as on 31st March 2104 and found that there are a total of 19
locations where drilling is being carried out by the Company and out of the
same, in 4 locations drilling job is being done through outside agency and in
the other 15 places drilling is done in-house. We have also reviewed the Well-
wise Daily report for Work over wells, there are total 19 workover outfits out of
which 4 are chartered hired and 3 outfits are utilized for water disposal wells,
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53
Well logging and production set up. It was observed that in many locations
various difficulties were encountered while carrying out the operations. The
same are given in Annexure -IV
We have also verified the status report of Wells Drilled/ Completed during the
year 2013-14. The details are given below:
WELLS DRILLED/COMPLETED DURING THE YEAR 2013-14
Sl
No. Well No. Loc.
Type
of
Well
Status as on 01.04.2014 Depth
1 Talap-4 TZ-1
Exp
lora
tory
Abandoned well due to poor
hydrocarbon prospect# 5289
2 Baruanagar-3 BE
To undergo further testing by work over
outfit 4375
3 Murkongselek-2 MSC
Abandoned well due to poor
hydrocarbon prospect 4597
4 Sologuri-1 DIBC Under Production 3962
5
S. Kathaloni-3 HVX Initially in production, presently shut in
due to construction of new flow line 3710
6 NHK-608 HVY
To undergo further testing by work over
outfit 2913
7 Bismile-1 TAC
Abandoned well due to poor
hydrocarbon prospect 3766
8 Bhogpara-18 DIBI Under Production 3869
9 Batuya-1* MFF under drilling** 3529
10 NHK-616* NLB Under pruduction testing 3000
11 NHK-610 HVJ Under Production 2984
12 NHK-613 (J-bend) HVK Waiting for w/o outfit for gravel pack job 2994
13 Borhapjan-6 BHA
Abandoned well due to poor
hydrocarbon prospect 3343
14 Rangmala-1* TAJ under drilling** 2089
15 West Mechaki-1* MKA Under pruduction testing 5636
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54
16 Makum-47 HWU-H
Develo
pm
ent
Under production 3891
17 Makum-48 HWS-H Under production 3620
18 Bhogpara-17 DIBE Under production 3866
19 Jorajan-48 DGU Under production# 3235
20 Makum- 49 HUS Under production 2911
21 NHK-609 HVN Under production 2656
22 NHK-612* NKX Under production testing 3244
23 Bhogpara-19* DIAZ under drilling** 337
24 Shalmari-39 DGS Under production 3465
25 Makum-50
HUW
Initially in production, shut in due to
ceasing of flow# 2905
26 Makum-51*
HWD-H
2nd pilot hole may be drilled after the
drilling & testing results of Loc. HUU 3400
27 Makum-53 HVF-H Under production 3693
28 NHK-614 NLE Under production 3233
29 S. Tinali-3* DGV under drilling** 2050
30 NHK-615* NLG Under production testing 3256
31 Chabua-19
HUP
To undergo further testing of gas
prospects by work over outfit 3582
32 Kamkhat-9 (J-bend)* HSW under drilling** 590
33 Baghjan-17 BGF Under production 4037
34 Makum-52 HWT-H Under production 3885
35 Baghjan- 19 (J- Bend)* BGQ under drilling** 1540
36 Baghjan-18 (J-bend) BGN Under production 4089
37 NHK-611 HWE-H Under production 3446
38 Makum-54* HWQ-H Waiting for horizontal service 1805
*Well not completed
**Depths drilled until 01.04.2014
#Well completed in more than one hole
Recommendations:
We suggest that necessary action should be taken for those locations where
drilling has been temporarily abandoned and also for the shut in wells so that
the production can be achieved up to the target level or above the target level
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
55
5.4.0 To verify that minor repairs are handled on a timely basis at the site by
appropriate staff.
We have reviewed the statement prepared by the concerned department and
found that minor repairs are being handled on timely basis at the site by
appropriate staff.
5.5.0 To verify that the analysis of feasibility of Equipment maintenance is
done by comparing equipment’s original cost with the cost of
maintenance.
We have verified the original cost of software purchased by the Oil India Ltd
with the Invoices and cost of the software maintenances based on the contract
entered by the Oil India Ltd with the vendor i.e. M/s. Schlumberger Solution
Pvt. Ltd vide contract no. CONT/GL/GEOL/282/11-Annual maintenances
contract (AMC) for Hardware & Geoframe software installed at Team Centre of
OIL at Duliajan. The comparison of AMC prices of last 2 years with the AMC of
software in Team centre for the period 2007-11 is given in the Annexure -V
It was observed that Company has purchased the software from M/s.
Schlumberger Solution Pvt. Ltd. Hence the maintenance of the software is to
be done from the same company. It was observed that maintenance cost in
both the years is in the range of 17-18% of the current List price of the
equipment However in term of absolute amount the software maintenance has
gone up from US$ 1038828 in 2007-11 to US$ 1228797.This was discussed
and it was explained that AMC is normally on the basis of current List price and
there was increase in the list price compared to previous AMC period.
Recommendations:
The maintenance cost of the equipment should be controlled and efforts may
be made to negotiate the rates with the party on the basis of last list price as
OIL has continued the AMC for so many years with the same party
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
56
CHAPTER – 6
6.0.0. FINANCE & ACCOUNTS
6.1.0 GOVERNMENT LEVIES
Scope of work:- 100%
Corporate Income Tax
6.1.1 Compliance with the TDS/TCS requirements including timely filing of
TDS/TCS returns
We checked the deduction and payment of TDS on Contractor (under
section 194C of Income tax Act 1961), Commission and Brokerage (under
section 194H), Rent (under section194I), Professional fees (under section
194J), foreign payment (u/s 195) and found correct. All the TDS amounts
were credited to the central government before the due date.
6.1.2 Checking of estimate of quarterly advance tax.
We verified the calculation of quarterly advance tax and cross tallied the
same with the SAP accounts and found it correct. It was observed that the
deduction under section 80IC of Income Tax Act 1961 is in dispute with the
department under various assessment years thus the same was not
considered while estimating the Advance Tax liability.
6.1.3 Checking of correctness of amount of deduction claimed under
Chapter VI-A of the Income Tax Act.
The company is claiming the deductions under 80IB for the assessment
year 2003-04 and 2004-05 and under section 80IC from the assessment
years 2005-06 onwards. The deductions claimed were disallowed by the
assessing officer and were disputed with various appellate authorities.
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57
6.1.4 Review of status of pending cases
Assessment year wise review of pending cases are as under:
Assessment Year : 2004 – 05
Notice for demand was received by OIL on 09.12.2005 from the Assistant
Commissioner of Income tax disallowing the deduction claimed by OIL
under section 80 IB amounting to Rs. 171,79,78,604/- and also disallowing
the write off loans given to wholly owned subsidiary M/S Luit India Inc
amounting to Rs. 31,55,03,414/-
Appeal by Oil India to CIT (Appeals)
Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 09.01.2006, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Order of CIT (Appeals)
On 29.02.2008 CIT (A) passed on order, in which the deduction claimed
under section 80 IB was allowed to the appellant.
Appeal by department against order of CIT (A)
On 13.05.2008, department has filed an appeal before the appellate
Tribunal against the order of CIT (Appeals). However the tribunal has
dismissed in liminie as the necessary approval required from the committee
of dispute was not obtained by the department. Later on approval was given
in COD meeting held on 30.12.2008 and Department has filed MA to
restore the original appeal. Next date of hearing has been fixed on
09.07.2014.
Assessment Year 2005-06
Notice of demand was received on 06.12.2007 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
58
section 80 IC amounting to Rs. 369,60,15,777/- and disallowing the
discounts given to the Oil Marketing Companies (OMC's) as per the govt of
India directives Rs. 74,58,87,000/-
Appeal by Oil India to CIT (Appeals)
Against the said order an appeal was filed by the Oil India Limited to
Commissioner (Appeals) on 28.12.2007, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Notice from Commissioner of IT
On 21.12.2009 commissioner of income tax, Dibrugarh has issued a show
cause notice under section 263 for AY 2005-06, to show cause as to why
the assessment order passed under section 143(3) for AY 2005-06
Submission of Justification by OIL
On 18.01.2010
Revision Order passed by Commissioner of Income Tax
on 22.03.2010 revision order was passed against Oil India Ltd.
Appeal against the order of the Commissioner to the Appellate
Tribunal was made on 19.04.2010. Next date of hearing has been fixed
on 09.07.2014.
Assessment year 2006-07
Notice of demand was received on 06.12.2007 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 11748715092/- and disallowing the
discounts given to the Oil Marketing Companies (OMC's) as per the govt of
India directives Rs. 9,77,49,38,000/-
Appeal by Oil India to CIT (Appeals)
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Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 28.12.2007, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Order of CIT (Appeals)
On 29.02.2008 CIT (A) passed on order, in which the deduction claimed
under section 80 IC and deduction of discounts given to OMC's were
allowed to the appellant
Appeal by department against order of CIT (A)
On 13.05.2008, department has filed an appeal before the appellate
Tribunal against the order of CIT (Appeals). However the tribunal has
dismissed in liminie as the necessary approval required from the committee
of dispute was not obtained by the department. Later on approval was given
in COD meeting held on 30.12.2008 & 27.08.2009. Department has filed
MA to restore the original appeal. Next date of hearing has been fixed on
09.07.2014.
Notice from Commissioner of IT
On 21.12.2009 commissioner of income tax, Dibrugarh has issued a show
cause notice under section 263 for AY 2006-07, to show cause as to why
the assessment order passed under section 143(3) for AY 2006-07
Submission of Justification by OIL
On 18.01.2010
Revision Order passed by Commissioner of Income Tax
on 22.03.2010 revision order was passed against Oil India Ltd.
Assessment Year 2007-08
Notice of demand was received on 20.10.2008 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 11495771017/- and disallowing the
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discounts given to the Oil Marketing Companies (OMC's) as per the govt of
India directives Rs. 19937481000/-
Appeal by Oil India to CIT (Appeals)
Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 10.11.2008, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Order of CIT (Appeals)
On 23.04.2010 CIT (A) passed on order, in which the deduction claimed
under section 80 IC was disallowed and deduction of discounts given to
OMC's were allowed to the appellant.
Appeal against the order of CIT (Appeals) the to the Appellate Tribunal
was made on 02.06.2010. Next hearing in ITAT is fixed on 09.07.2014.
Assessment Year 2008-09:
Notice of demand was received on 13.04.2010 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 13237036602/-.
Appeal by Oil India to CIT (Appeals)
Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 10.05.2010, submitting the ground of appeal
and its justifications with reference to various decided case laws. Order of
CIT (A) is still pending.
Assessment Year 2009-10
Notice of demand was received on 13.09.2011 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 19219312265/-.
Appeal by Oil India to CIT (Appeals)
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Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 10.10.2011, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Order of CIT (Appeals)
On 28.02.2013 CIT (A) passed on order, in which the deduction claimed
under section 80 IC was disallowed.
Appeal against the order of CIT (Appeals) the to the Appellate Tribunal
was made on 27.05.2013. Next hearing in ITAT is fixed on 09.07.2014.
Assessment Year 2010-11
Notice of demand was received on 26.09.2012 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 18667704350/-.
Appeal by Oil India to CIT (Appeals)
Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 25.10.2012, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Order of CIT (Appeals)
On 11.11.2013 CIT (A) passed on order, in which the deduction claimed
under section 80 IC was disallowed.
Appeal against the order of CIT (Appeals) the to the Appellate Tribunal
was made on 07.01.2014. Next hearing in ITAT is fixed on 09.07.2014.
Assessment Year 2011-12:
Notice of demand was received on 11.03.2013 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 15720231395/-.
Appeal by Oil India to CIT (Appeals)
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Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 08.04.2013, submitting the ground of appeal
and its justifications with reference to various decided case laws.
Assessment Year 2012-13:
Notice of demand was received on 08.01.2014 from the Assistant
Commissioner of Income tax disallowing the deduction claimed under
section 80 IC amounting to Rs. 15684765528/-.
Appeal by Oil India to CIT (Appeals)
Against the said order an appeal was filled by the Oil India Limited to
Commissioner (Appeals) on 05.02.2014, submitting the ground of appeal
and its justifications with reference to various decided case laws.
6.1.5 Whether all permissible deductions/ exemption available to E&P
company have been claimed.
In our opinion the company is availing all the deductions / exemptions
available to E&P company however it would be in the interest of the
company to obtain an expert opinion in this regard.
6.1.6 Verify the estimated taxable income for the purpose of payment of
Advance Tax
Statutory requirement is to Pay 75% of the tax calculated on the estimated
total income of the company on or before 15th December 2013 as 3rd
instalment of advance tax. Advance tax of Rs 475.00 Crores was paid on
14.12.2013.
In the 4th quarter 100% tax payment on the estimated total income is to be
paid on or before 15th March 2014. Oil India Limited has paid the 4th
instalment of Rs. 360.00 Crores on 15.03.2014.
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Calculation of estimated total income is done taking into account various
assumptions and past trends. On verification of computation sheet we
observed that the tax calculated on the estimated total income for the 3rd
and 4th quarter were Rs. 413.14 & 343.72 Crores. Management has made
reasonable assumptions to arrive at the estimated total income.
6.1.7 Verify the status of pending assessments and reason there for.
Details of pending assessment orders are given below:
Assessment
Year
Reasons
2003-04 80-IB allowed by CIT (A) was disputed by the
department.
2004-05 80-IB allowed by CIT (A) was disputed by the
department.
2005-06 80-IC claim and Discount as net of sales, allowed by
CIT (A) was disputed by the department
80-IC disallowed based on the order of CIT under
section 263.
CIT, Dibrugarh has reviewed the AO under section 263.
2006-07 80-IC claim and Discount as net of sales, allowed by
CIT (A) was disputed by the department
80-IC disallowed based on the order of CIT under
section 263
CIT, Dibrugarh has reviewed the AO under section 263
2007-08 80-IC disallowed by CIT (A)
2008-09 80-IC disallowed in order under section 143(3)
2009-10 80-IC disallowed by CIT (A)
2010-11 80-IC disallowed by CIT (A)
2011-12 80-IC disallowed in order under section 143(3)
2012-13 80-IC disallowed in order under section 143(3)
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Management’s Comment:
The status given above is correct which is in addition to the disallowances
quantified at Para No 3.1.10 of this Audit Report amounting to Rs.149.18
Crore.
All the appeals up to AY 2010-11, except AY 2008-09 are pending before
Hon’ble ITAT, Kolkata bench and it is expected that the same will be
disposed off in year 2014-15.
6.1.8 Verify the status of appeals, if any, filed before appropriate authorities.
Details of appeals filed before various authorities are as under:
Assessment Year Pending Before Last Hearing Date
2003-04 Appeal in ITAT by
department
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
2004-05 Appeal in ITAT by
department
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
2005-06 Appeal in ITAT by
department
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
Review order under
section 263
Appeal pending before
ITAT against order of
CIT(A)
Review order under
section 263
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
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09.07.2014
2006-07 Appeal in ITAT by
department
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
Review order under
section 263
Appeal pending before
ITAT against order of
CIT(A)
Review order under
section 263
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
2007-08 Appeal before ITAT
by OIL
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
2008-09 Appeal before CIT
(A) by OIL
Hearing fixed for
25.03.2014 and order is
expected.
2009-10 Appeal before ITAT
by OIL
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
2010-11 Appeal before ITAT
by OIL
Hearing fixed for
29.01.2014 was adjourned
and next date of hearing
09.07.2014
2011-12 Appeal before CIT
(A) by OIL
No Date of Hearing is
fixed.
2012-13 Appeal before CIT
(A) by OIL
No Date of Hearing is
fixed.
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Management’s Comment:
Guwahati ITAT has the jurisdiction over the company. However, the same
is not a regular bench resulting into pendency of cases for long.
To get it disposed off early, the Company has requested the Hon’ble VP-
ITAT, Kolkata Zone to transfer our cases to any regular bench. Our plea
was accepted and ordered to be heard at Kolkata ITAT, being a regular
bench. The next date of hearing is fixed for 09/07/2014.
6.1.9 Review the action in hand / pending against unfavourable decisions of
the Tax Authorities at various level.
Final decision regarding disallowances in respect of deduction u/s 80-IB &
80-IC are still pending for disposal at various appropriate authorities details
regarding same has been mentioned in earlier para.
Further on verification of GL 900001, we have found book entry of
Rs. 10,04,03,974.34/-. The same is a reconciliation entry of tax on Taxable
Income between book entry and assessment as agreed with the AO. Net
impact of above reconciliation is reduction of tax expenditure.
Apart from disallowances related to Deduction u/s 80-IB & 80-IC following
amounts are also in dispute before CIT (A):
AY Particulars Amount (Rs in
crores)
Tax (Rs in
crores)
2008-09 Disallowance u/s 42 of survey Expenses in
PEL area
7.56 2.57
2011-12 Disallowances u/s 14A 3.87 1.28
Disallowances of Abandonment Liability u/s
42
141.01 46.84
2012-13 MWP added back 217.59 70.60
Disallowances of Abandonment Liability u/s
42
38.34 12.44
Cenvat credit adjustment u/s 145 not allowed 40.52 13.15
Disallowances u/s 14A 7.09 2.30
TOTAL AMOUNT IN DISPUTE 455.98 149.18
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Amount shown above is in dispute and order is still pending for disposal
before CIT (A). On asking, we have been informed by management that all
demand raised was paid but based on justification taken by the OIL is that
demand either to be deleted or substantially reduced accordingly no entry
for provision has been made. Further decision is pending for disposal
before CIT (A) so entry will be made when it will be decided by
commissioner of Income Tax (Appeals). Till disposal, the same amount Rs.
149.18 will be shown as contingent liability in notes to accounts for FY
2013-14. Approval for above mentioned adjustment and dispute has also
been taken.
Management’s Comments:
The dispute other than 80-IB and 80-IC has not been given tax impact in
the books on the ground that seems to be sufficient to get the relief from
either CIT(A) or at best ITAT.
The major portion relates to Add back of Provisions against MWP and
Disallowances of claim u/s 42 for Well Abandonment cost. It may be noted
that the agreement entered by the Company with Central Govt covers all
type of expenditure and accordingly the same has been claimed. A note to
this effect is also given in the annual accounts of FY 2013-14 vide Note
31.10(e).
6.1.10 Verify timely TDS Recovery & Deposit under all applicable sections of
Income Tax.
Yes, we verified payment wise invoices and challans and found that all TDS
amount has been recovered in time and deposited on or before due dates.
Further we have verified TDS returns and found them to be filed on time.
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Timely Payment of Statutory dues under labour Laws wrt-
6.1.11 Checking of deduction and deposit of EPF and SPF wrt reconciliation
of liability of EPF and SPF as per wage type reporter and liability as
per SAP.
Employee contribution is deducted on monthly basis when the payroll is run
at the end of the month. The liabilities in respect of EPF and SPF are routed
through 7 different accounts mentioned below:
1. Stat. Liab – Casual Labour - GL Code 203005
2. Stat. Liab – Oil Staff Pension Fund – GL Code 203004
3. Stat. Liab – Oil India Employees Pension Fund – GL Code 203003
4. Stat. Liab – Oil India Pension Fund Deduction Listed WCL – GL Code
202290
5. Stat. Liab – Oil India Pension Fund – GL Code – 203001
6. Stat. Liab – Oil India Employees New Pension Funds – GL Code 203002
7. Stat. Liab – Oil India Gratuity Fund – GL Code 203000
In the above mentioned last 3 GL’s deals with the receivable and payable
from the independent funds established by Oil India for the settlement of
employees in respect of Pension and Gratuity.
For the purpose of contribution, first four accounts are used. The liabilities in
respect of Employees and employer contribution are discharged by
contributing to the funds established by OIL before the due date.
Deduction and Contribution of Oil Staff PF – GL Code 203004 and Oil
India Employees PF – GL Code 203003
Liabilities for the payment of Employees and Employer contribution are
created under two GL codes 203003 and 203004 by SAP when the payroll
of the month was run. Whereas the payments of the same was made by the
PF Section on the basis of liabilities generated. On verification we found that
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69
there are some differences between the Liabilities created by SAP through
Payroll Posting and Automatic Payment Proposal.
On discussing the matter with the concerned officer, we have been informed
that due to rounding off the figure APP amount stands greater than actual
liability created in SAP. It has been also informed that annually at the time of
closing of accounts this reconciliation was carried out. We have found that till
now no reconciliation was done.
Following are the un-reconciled differences:
GL Code 203003 - Oil India Employee Provident Fund
(Amount in Rs.)
Month Credit in SAP Actual Payment made Difference
April’13 14,26,35,606.85 14,30,00,000.00 3,64,393.15
May’13 14,88,19,266.42 14,89,00,000.00 80,733.58
June’13 14,46,09,230.77 14,47,00,000.00 90,769.23
July ‘13 14,87,69,480.18 14,88,00,000.00 30,519.82
August’13 15,65,09,051.93 15,66,00,000.00 90,948.07
September’13 15,56,29,453.79 15,57,00,000.00 70,546.21
October’13 16,20,28,205.48 16,21,00,000.00 71,794.52
November’13 16,05,30,821.07 16,06,00,000.00 69,178.93
December’13 16,10,04,658.71 16,11,00,000.00 95,341.29
January’14 16,90,72,907.10 16,91,00,000.00 27,092.90
February’14 16,79,75,674.29 16,80,00,000.00 24,325.71
March’14 16,69,86,274.97 16,72,00,000.00 2,13,725.03
TOTAL 6,51,250.26
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GL Code 203004 - OIL Staff Provident Fund
(Amount in Rs.)
Month Credit in SAP Actual Payment made Difference
April’13 6,30,87,008.94 6,31,00,000.00 62,991.06
May’13 6,46,54,086.72 6,50,00,000.00 3,45,913.28
June’13 6,32,04,862.19 6,33,00,000.00 95,137.81
July’13 6,44,16,091.69 6,45,00,000.00 83,908.31
August’13 6,47,04,943.71 6,48,00,000.00 95,056.29
September’13 6,46,81,111.13 6,47,00,000.00 18,888.87
October’13 6,72,16,774.78 6,73,00,000.00 83,225.22
November’13 6,63,93,279.20 6,64,00,000.00 6,720.80
December’13 6,59,84,430.45 6,60,00,000.00 15,569.55
January’14 6,71,95,375.88 6,72,00,000.00 4,624.12
February’14 6,91,81,768.52 6,92,00,000.00 18,231.48
March’14 6,88,55,648.21 6,89,00,000.00 44,351.79
TOTAL 5,28,705.30
From the above it is clear that amount credited into account of PF trust is
greater than actual liability created in SAP and differences arising here are
because of rounding off. On questioning to officer we have been informed
that reconciliation is carried out at the end of financial year and balance
amount, if any, is taken as refund from PF trust.
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71
Deduction and Contribution of Casual Labour GL code 203005 and Oil
India Provident Fund Deduction Listed WCL 202290.
For determining the liability in respect of the above mentioned accounts,
wage type reporter was not used. Contribution is to be deposited to the
funds on the basis of liabilities created in the respective accounts.
In respect of PF deduction for casual labour fixed amount of Rs. 10.00 lacs
is deposited and at the end of the financial year reconciliation is carried out
for amount deposited and actual liabilities created. On verification of same
we have come across no reconciliation has been carried out yet.
Further in respect of Provident Fund Deduction under WCL we have found
delay in contribution depositing in some cases.
Detail for same has been tabulated below:
GL code 203005 - Casual Labour
(Amount in Rs.)
Month Liability created in
SAP
Actual Payment made Difference
April’13 8,80,907.98 10,00,000.00 1,19,092.02
May’13 9,03,700.40 10,00,000.00 96,299.60
June’13 8,72,520.00 10,00,000.00 1,27,480.00
July’13 9,18,954.40 10,00,000.00 81,045.60
August’13 9,01,120.58 10,00,000.00 98,879.42
September’13 9,01,266.00 10,00,000.00 98,734.00
October’13 9,55,080.00 10,00,000.00 44,920.00
November’13 9,07,834.00 10,00,000.00 92,166.00
December’13 9,37,366.00 10,00,000.00 62,634.00
January’14 9,79,228.39 10,00,000.00 20,771.61
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72
February’14 8,90,082.78 10,00,000.00 1,09,917.22
March’14 9,64,796.47 10,00,000.00 35,203.53
Total 7,40,570.98
GL code 202290 - Oil India Pension Fund Deduction Listed WCL
Statutory requirement for depositing PF is within 15 days from the end of
month for which contribution pertains. Further PF Act allows grace period
of 05 days to employer to deposit contribution after due date. Accordingly
contribution deposited on 20th day of next month for the previous month’s
contribution shall not to be treated as delay in depositing. Likewise in
above table contribution for May’2013 was deposited after grace period
and delayed by 09 days.
Month Due Date Depositing Date
(Actual)
Delay
(In days)
April-13 15.05.13 17.05.13 02
May-13 15.06.13 24.06.13 09
June-13 15.07.13 20.07.13 05
July-13 15.08.13 20.08.13 05
August-13 15.09.13 20.09.13 05
September-13 15.10.13 19.10.13 04
October-13 15.11.13 19.11.13 04
November-13 15.12.13 13.12.13 No delay
December-13 15.01.14 17.01.14 02
January-14 15.02.14 20.02.14 05
February-14 15.03.14 20.03.14 05
March-14 15.04.14 19.04.14 04
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Management’s Comments:
The above mentioned difference is a minor difference and it is reconciled
every year end. The difference amount is paid to the OIL subsequently
after reconciliation. This difference is occurred because the credit of casual
labour contribution & the contribution of the executive who are in
deputation is taken lumsum basis during the year and it is reconciled at the
yearend. At present all the three accounts are reconciled.
Recommendation:
It is clear that differences amounting Rs.19,20,526.54 have not been
reconciled during the period of audit which cause block of fund and loss of
interest. Management should arrange system to reconcile differences on
monthly or quarterly basis.
6.1.12 Deduction and deposit of Professional Tax.
We have checked deduction and depositing of Professional Tax as per
applicability of Professional tax in Assam state and found them to be in
order. We have gone through month wise payment challan regarding
deposition of Professional Tax and found tax was deposited within
prescribed time limit (within 15th day from the end of month for which Salary
pertains).
Service Tax
6.1.13 Verify Registration
(a) Separate Registration for each premise
Or
Centralized Registration has been obtained
(b) For multiple services is there single Registration?
(c) Whether STC code based on PAN has been obtained.
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74
Oil India Limited has opted for the Centralized registration for all the
premises. OIL has obtained a single registration for 12 services for its 5
premises. STC code of OIL was AAACO2352CST007 which was based on
its PAN.
6.1.14 Billing / Invoicing
Does the bills or invoice are serially numbered and contained the
following?
Yes the bills or invoices are serially numbered and contain all the
particulars as required by the service tax law like name, address and
Service tax registration number of the service provider, range officer office
address, name and address of the buyer, date of raising invoice,
description and value of taxable service, the amount of service tax and
education cess, secondary & higher education cess charged on such
service tax, breakup of the amount charged towards the service, authorized
signature, PAN, Goods Transporting vehicle number, etc.
6.1.15 Taxability of output services
Whether the activities attract service tax?
Output service of transport of goods by pipeline, maintenance or repair
service, survey and exploration of mineral, transport of goods by road,
testing inspection and certification, Scientific & technical consultancy,
clearing services, consulting engineer, Internet communication services
and Business support services are taxable services which attract service
tax.
6.1.16 Valuation of output services
Arrive at the correct value of taxable service
We verified the valuation of certain services and found that the valuation of
services for the purpose of levying Service tax was done by Oil India Ltd.
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
75
on the basis of invoice amount. The total consideration for the provision of
services is received in monetary terms thus the valuation adopted by the
OIL was correct as per clause (i) of sub-section (1) of section 67 of chapter
V of the Finance Act 1994.
Payment:
6.1.17 Has the tax been paid at the appropriate rate under the Act along with
Education & Higher Education Cess?
Yes, the payment of Service Tax, Education Cess and Higher Education
Cess are made as per the rates mentioned under the Act.
6.1.18 Does the Company paid service tax on freight against consignment
after availing abatement?
Yes, whenever a freight payment transaction is entered in the SAP it
automatically shows the liability of Service Tax after deducting the
abatement i.e. 75%.
6.1.19 Whether payment of service tax is being made on account of import
of services.
Yes, on some occasions when there is no permanent establishment of the
foreign seller exist in India OIL has to make the payment of such service
tax in the capacity of deemed service provider.
Management’s Comments:
OIL has paid service tax in case of import of service where no PE of foreign
service provider exists in India
6.1.20 Has the tax been deposited within 5th of the following month?
As per service Tax Rules, 1994 the due date for payment of service tax is
5th of the month immediately following the respective month and in case of
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
76
e-payment, by 6th of the month immediately following the respective month.
However payment for the month of March is required to be made by 31st
March itself.
In verification of challan we have come across some cases where service
tax has been paid after due date.
Month Due
Date of
Payment
Date of
Payment
Delay in
No. of
Days
Challan No. Service
Tax
(In Rs)
Jun-13 06.07.13 19.10.13 105 00053471910201300302 1,434
Nov-13 06.12.13 17.12.13 11 00053471712201300049 42,024
Dec-13 06.01.14 13.01.14 7 00053471301201400370 3,59,56,785
Mar-13 31.03.14 11.04.14 11 00053471104201401295 3,29,306
Mar-13 31.03.14 11.04.14 11 00053471104201401185 12,835
TOTAL 3,63,42,384
Management’s Comment:
We have taken note of your observations and assure you that in future, we
will endeavor to deposit the service tax within the due date.
Recommendation:
Amount of service tax is required to be paid on or before due date in order
to avoid interest/penalty. In the month of December’13 service tax of Rs.
3,59,56,785.00 has been paid on 13.01.2014, resulting delay by 07 days
would attract heavy amount of Interest at the rate of 18% pa
6.1.21 Has adjustment of excess tax been done whenever excess tax has
been paid?
Service tax is paid on the basis of liabilities standing as on the last day of
the previous month, thus there is no incidence of excess payment of
service tax.
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77
6.1.22 Has interest at appropriate rate been paid on delayed payments?
Report thereof
Has appropriate penalty been paid (Sec.76)? Report thereof
As per Section 75 of Finance Act, 1994, every person who fails to pay
service tax or any part thereof, which he is liable to pay under Section 68 of
the Act, within the stipulated time, is required to pay interest on such
amount for the period of delay.
As per Notification No.14/2011-ST, dated 01-03-2011 rate of interest
applicable on delayed payment of service tax is 18% p.a.
In verification of challan we have come across some cases where service
tax has been paid after due date on which interest on delayed payment of
service tax is applicable but same has not been paid till the date of filing of
service tax return Form ST-3.
In the following cases interest is payable for delayed payment of service
tax.
** Interest payable: Amount of service tax payable*18%*no. of days delayed/365
Further Dept at it own discretion may impose penalty for late payment of
service tax in addition to interest u/s 76 of Finance Act, 1994. We have
found that no notice imposing penalty has been served to OIL by dept. till
now.
Month Due
Date of
Payment
Date of
Payment
Delay
in No.
of
Days
Challan No. Service Tax
(In Rs)
**Interest
Payable
(In Rs)
Jun-13 06.07.13 19.10.13 105 00053471910201300302 1,434 75
Nov-13 06.12.13 17.12.13 11 00053471712201300049 42,024 228
Dec-13 06.01.14 13.01.14 7 00053471301201400370 3,59,56,785 1,24,125
Mar-13 31.03.14 11.04.14 11 00053471104201401295 3,29,306 1,787
Mar-13 31.03.14 11.04.14 11 00053471104201401185 12,835 70
TOTAL 3,63,42,384 1,26,285
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Recommendations:
Management should ensure that service tax is to be paid within due date
and in case of delayed payment it should be paid along with interest so as
to avoid penalty.
Management’s Comments:
We have noted your recommendations. Further, OIL has deposited interest
on delayed payment of service tax of Rs 1787/- and Rs 70/- (copy of
challan enclosed). The remaining three amount of interest due is being
deposited.
6.1.23 Has Cenvat Credit for service tax paid on input services been taken
into account while paying output service tax?
The eligibility to take the CENVAT credit was disputed by the department
by considering the crude oil as exempted excisable goods for the purpose
of CENVAT credit rules. In the opinion of company’s tax advisors though
there is an order passed by the commissioner in the case of Oil India
Limited holding that crude as dutiable and not an exempted product
however as per the existing law as laid down by CESTAT in the case of
Mahindra & Mahindra the said appeal of department is likely to be allowed
by setting aside the order of commissioner.
Thus the advisors have considered OIL as a manufacturer of exempted
goods and a provider of taxable service. They have suggested to take the
credit of CENVAT credit as per rule 6(1) by opting for the option of taking
credit to proportionate to the turnover of revenue from transportation of
others crude as against the turnover from the sale of own crude by
following the procedure and method prescribed under rule 6(3A).
They have also suggested the company to take full CENVAT credit on
capital goods commonly used in relation to both exempted and taxable
activities.
During the period from April 2013 to March 2014, Oil India has paid the
service tax through bank account after considering the CENVAT credit of
input services specifically used for providing services of transport of oil by
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79
pipeline, which clearly indicated that OIL is availing CENVAT credit on one
to one basis.
However as per the amended definition of input service w.e.f. 01-04-2011,
input services includes services used in relation to modernisation,
renovation or repairs of a factory, premises of provider of output service or
an office relating to such factory or premises, advertisement or sales
promotion, market research, storage up to the place of removal,
procurement of inputs, accounting, auditing, financing, recruitment and
quality control, coaching and training, computer networking, credit rating,
share registry, security, business exhibition, legal services, inward
transportation of inputs or capital goods and outward transportation up to
the place of removal.
It means CENVAT credit of service tax paid in relation to above mentioned
services can be taken for output services. One to one correlation is no
more required for availing CENVAT credit.
Therefore, OIL could avail CENVAT credit of service tax paid in relation to
any above mentioned input services which have been used in order to
provide output services
Management’s Comments:
We are rendering mainly one output service i.e. “Transportation through
pipeline” and if we look at the definition of inclusive part of the input
service, it is specifically mentioned that “Input services which has been
used in order to provide output service.” In our view, the services listed in
the above para which has been used for Crude exploration activities are
not at all used for transportation through pipeline activity.
It may please be noted further that Cenvat Credit of eligible input services
received for pipeline activity has been availed at the time of discharging
service tax liability on transportation through pipeline.
However, your observation has been referred to our Indirect tax consultant
to give their views.
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80
Recommendation:
Management should take appropriate action in order to avail correct
CENVAT credit after taking consultation accordingly.
6.1.24 Are proper books of accounts maintained as prescribed in Rules
(Rule-5)
Yes, proper books of accounts as required under the Service Tax Rules
are maintained.
6.1.25 Has a proper Return been submitted half yearly as prescribed in Rule
7?
Yes, We have verified the return submitted for the half year ended on 30th
September 2013 and for the half year ended on 31st March 2014 and found
that the returns were timely submitted as per the rules framed in this
regard. However some errors were found in challan details in return filed
for the half year ended on 31st March 2014 for which revised return is
required to be submitted within 90 days from date of filing of original return
and same is yet to be filed.
Management’s Comments:
The revised return will be filed within the due date.
6.1.26 Has the Return been submitted within 25th of the following month of
the particular half year?
Service tax return for the half year April-September 2013 was filled by the
company on 19.10.2013 and Service tax return for the half year October-
March 2014 was filled by the company on 25.04.2014.
6.1.27 Are the returns finally or provisionally assessed?
Oil India has not opted for any provisional assessment of Service Tax
which requires the final assessment. Service Tax is paid by adopting self
assessment procedures.
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81
6.2.0 SALES PROCESSING
6.2.1 To verify billing is done on the basis of various documentations.
Observations:
We checked the following documents for billing of products (Crude oil,
Natural Gas, Condensate and LPG) and no discrepancies were observed
except otherwise stated in specific clauses of this report.
i) Weekly Provisional Invoices / Monthly Final Invoices.
ii) Delivery Tickets / Joint Measurement Certificates / Sample Reports etc.
to the extent available at Dullajan Head Quarter.
iii) Price / Rate maintained in the system.
iv) MOU/Agreement with Party to the extent made available to us.
6.2.2 To verify price maintained in the system for a given billing period is
correct.
Observations:
i) Price maintained in the system for crude oil sales was calculated as per
directives from Ministry of Petroleum and Natural Gas (MoP&NG),
Government of India, vide letter no. P-20012/11/2006-PP dated 1st May,
2009. As per the said directives, crude oil sales price was calculated on
‘New Benchmark pricing of Assam crude Oil for North-East Refineries’
based on the latest available crude oil assay, as suggested by M/S Pervin &
Gertz Inc, with effect from 01.04.2008.
However, no sales agreement (COSA) has been entered into with the
refineries in that respect.
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82
MOU with NRL and IOCL was last signed on 09.04.2003 and
07.04.2003 respectively which as per Applicability clause was applicable for
a period upto 31.03.2004 until unless replaced by COSA.
ii) Price for condensate sales is to be calculated as per Clause 2.0 of PART-II
of the sales agreement with the parties. As per the said agreement, the
basic sale price for condensate per M.T. shall be fixed as per declared
average Reuters price (PLATT’s rate) for C 5 – C 6 (Naphtha SGP) to be
multiplied by a factor ( 37560 / 32866.11) which will be basic sale price of
the condensate, Ex-LPG plant of OIL, Duliajan, PLATT’s rate is declared on
USD / BBL + CESS for Mine Product under OIDB Act (Rs. 4500.00) +
NCCD (Rs.50.00) + Educational Cess on NCCD.
iii) In respect of Natural gas and LPG, we have verified prices in the system
with respect to relevant documents/Government’s circulars and found it in
order.
Management’s comments:
Initiatives have already been taken by the Management for entering into
Crude Oil Sales Agreement (COSA) with customers and the matter is in
advance stage and being handled by Corporate Office at present. For
GSPA (Gas Sale & Purchase Agreement), Planning Department has
already initiated the job for pending cases and recently has signed MOU
with M/s AGCL (Assam Gas Company Limited) for supply of Natural Gas.
COTA (Crude Oil Transport Agreement) with ONGC is already in final stage
except for some minor issues
Recommendation:
Sales agreement needs to be entered into with the parties for sale of
different products at an earliest, wherever the same was not entered into,
specifying the sales price/rate as applicable for sales billing.
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83
6.2.3 To verify that defaulting debtors are tracked and system of recovery is
in place.
Observations:
It was observed that bill wise details of party ledger accounts are prepared
and age wise analysis of outstanding amounts in respect of each party is
carried out for tracking of defaulting debtors. In respect of system of
recovery, it was observed that reconciliation of outstanding balances with
refineries and other parties is carried out on quarterly basis and balance
confirmation certificates from parties are generally obtained every quarter.
However, on scrutiny of debtors’ ledger accounts as on 31st March, 2014, it
was observed that the present system of recovery needs to be more
strengthened and constant follow up is required for recovery of old dues
lying outstanding for a significant period. We have listed out some debtors
which are lying outstanding for more than a year and no provision was
made thereon:
S. No. Name of Customer Product
1. Hotel Mayuri Natural Gas
2. United Bank of India Natural Gas
3. LTPS Natural Gas
4. Canoro Resources Limited BD Transportation
5. Canoro Resources Ltd., New Delhi Transportation
6. HPCL- Mittal Energy Ltd. Transportation
Further we have found that debtors which have been lying outstanding for
more than 03-04 years due to dispute on unpaid taxes were written off
during this year. Following debtors are lying outstanding for more than 06
months and provision also created thereon but either recovery mechanism
should be strengthened or debtors to be written off:
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
84
Customer Name Reason for Outstanding Amount Period
IOCL (AOD) Outstanding due to
Unprocessed Stock
1,07,68,570.00 Since 2005-06
IOCL (GHT) Outstanding due to
Unprocessed Stock
1,43,55,293.00 Since
01.04.2012
IOCL-NGas (AOD) Calorific value dispute 24,10,840.00 Since 2010-11
ONGC- Crude
Transportation
(Moran)
Bills for services
outstanding
89,71,569.00 Since 2006-07
TOTAL 3,65,06,299.00
Management’s comments:
The balances which have been pointed out by audit as above are disputed
balances against which adequate provision has been created in the books.
OIL is continuously following up the matter with the Customers for payment
/ settlement of dispute.
Moreover, there is a regular system of following up with Customers
whoever fails to pay by the due date. Adequate provisions are taken against
the outstanding debtors’ balance which remains unpaid for more than 3
years in spite of regular follow-ups.
Recommendation:
Working capital remains blocked for a long period due to non recovery of
debts, which may ultimately lead to writing off of the debtors balance in long
run. Debtors’ collection system should be further strengthened in order to
recover old outstanding more than six months.
6.2.4 To verify if there is penalty/interest clause in the contract and the
same is followed.
Observations:
i) In respect of Crude Oil sales to Refineries, as no agreement has been
entered into for Crude off take and sale (COSA) in the light of the new
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
85
benchmark price with effect from 01.04.2008, therefore, checking of
compliance of penalty/interest clause could not be carried out by us.
ii) In respect of Natural gas, penalty/interest clause is verified from the
Agreements / MOUs to the extent made available to us and it was observed
that debit note is issued to customer for recover interest charged on delay
payment made by customer.
iii) In respect of Condensate gas, penalty/interest clause was verified from the
agreements and it has been observed that the clause has been followed.
iv) In respect of LPG, Last MOU with IOCL was signed on 13.08.1985
thereafter no Sales Agreement was entered. Further, in verification, we
have found that Draft Sales agreement is ready at OIL’s side and same is in
line to be signed by Both Parties. But in existing MOU penalty/interest
clause was not mentioned with IOCL, Digboi. Therefore interest/ penalty
could not be checked.
Management’s comments:
Initiatives have already been taken by the Management for entering into
Crude Oil Sales Agreement (COSA) with customers and the matter is in
advance stage and being handled by Corporate Office at present. For
GSPA (Gas Sale & Purchase Agreement), Planning Department has
already initiated the job for pending cases and recently has signed MOU
with M/s AGCL (Assam Gas Company Limited) for supply of Natural Gas.
COTA (Crude Oil Transport Agreement) with ONGC is already in final stage
except for some minor issues.
Recommendation:
It is recommended that management should take strong step towards
entering into Sales agreement with parties. Old MOU or agreements should
be renewed immediately in order to add interest / penalty clause wherever it
is not included.
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
86
6.2.5 To verify penalty recovered by Refineries towards water content in
crude supply is proper as per the contract/MOU conditions and
adequate follow up action is taken by the process owner
Observations:
We have verified penalty charged by the refineries towards water content in
monthly crude supply with respect to the information available from pipeline
division and observed that recovery is made as per MOU signed on
07.04.2003, between Oil India Limited and Indian Oil Corporation Ltd.
6.2.6 To verify that royalty rates are as per government norms.
Petroleum Planning & Analysis Cell (PPAC) notifies the discount rate on
provisional basis for every quarter and the same is revised after the end of
the relevant quarter. In some cases PPAC declares that the final discount
rate for a quarter shall be applicable for the next quarter. Hence, the
payment made is as per government gives the rates.
6.2.7 To verify if royalty is paid as per government schedules.
The royalty payment is to be made on monthly basis and shall be paid by
the last day of the month succeeding the period in respect of which it is
payable. All the payments are made on time.
6.2.8 To verify over and under absorption of royalty payments made to the
state government.
Payment of royalty is paid after considering provisional discount given by
during the Period. After receiving exact/ correct rate of discount at the end
of quarter, royalty payment is to be adjusted accordingly. We have verified
over and under absorption of royalty payment and found them to be in
order.
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87
6.2.9 To verify and report if interest liability for delayed payment is
calculated and paid.
We observed that the royalty for the period has been paid on time. Hence,
there is no interest liability for late payment.
6.2.10 To verify that invoices are raised against all fulfilled orders.
We verified invoices with respect to list of orders/delivery statements during
the period under review and observed that invoices are raised against all
fulfilled orders.
6.2.12 To verify billing of compensation charges / bottling charges as per the
contract in case of LPG sales.
During the period under review it was observed that LPGs are sold
exclusively to M/s Indian Oil Corporation Limited (IOCL-AOD, Digboi). An
agreement for the LPG sale was entered into with the parties with effect
from 13th August, 1985 and shall remain in force as long as IOCL is
authorized by Government of India to market the LPG ex-OIL plant at
Duliajan. According to Clause 3.1 of that agreement, OIL shall arrange to
deliver LPG by filling the cylinder placed at Duliajan plant by IOCL or by
filling tank trucks, skid tanks etc., for transport of bulk LPG. The price of the
LPG supplies and the charges for filling in cylinder or in bulk in trucks,
tanks, etc. shall be the rate / rates as approved by the Government of India
from time to time. We verified the sales invoices for LPG compensation /
bottling charges and observed that billing has been done @ Rs.1100/-per
M.T. on cylinder filling only. A letter dated, April 2, 2005, from Deputy
Finance Manager-Marketing, Indian Oil Corporation Limited (AOD) has
been received by the Company as a request to consider that rate for
settlement of LPG filling charges with effect from April, 2002. It was
mentioned in the letter that an agreement was signed between M/s Indian
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88
Oil Corporation Limited and another Oil Sector PSU, wherein it was agreed
that the filling charges would be settled @ Rs.1100/- per M.T. for 14.2 Kg
as well as 19 Kg Cylinder. No Government’s approval was available for the
rate mentioned in the letter.
As working of cost incurred by OIL’s LPG filling department on bottling
could not be made available to us as same is under process and some
entries still to be passed on for FY 2013-14. Therefore we have taken Cost
Audit Report for the Financial Year 2012-13 as base for cost of filling of
LPG cylinder which has enabled us to compute loss on bottling charges.
Detail of loss incurred by OIL on filling of LPG cylinder:
1. Total Qty in cylinder sold during
April’13 to December’13
13874.2236 MT
2. Bottling Charges recovered from IOCL Rs. 1100.00 per MT
3. Cost of filling of LPG cylinder as per
Cost Audit report for FY 2012-13
Rs. 2811.33 per MT
4. Loss / Difference (2811.33-1100.00) Rs. 1711.33 per MT
5. Total Loss on filling of LPG cylinder
for the period from Apr’13 to Dec’13
Rs. 237.43 Lakhs
From the above table it has been concluded that cost incurred by OIL on
bottling of LPG is much higher than actual amount recovered from IOCL.
Further, we have obtained Price Build-up of Domestic LPG (subsidized)
issued by PPAC latest for 2014 which shows bottling charges of Rs.
2723.94 per MT thus its clear seen that cost of bottling charges incurred by
the Company at the present scenario is much higher due to increase in cost
and market inflation than the rate paid by IOCL. Cost of bottling charges
mentioned by PPAC in its circular stands much higher in compare to price
repaid by IOCL for same. On the basis of that loss incurred by OIL arrives
at Rs. 876.06/MT and total quantities produced by OIL from 01.04.2013 to
31.12.2013 is 13874.2236 MT, accordingly total loss incurred by OIL during
this period comes out Rs. 1,21,54,652.33/- .
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
89
A letter No. A/Cs/50/75(A)/336/2010-11 dated 29.11.2010 was issued to
The Executive Director of Indian Oil Corporation stating ‘Renewal of LPG
Sale Agreement and LPG Bottling charge’. It is mentioned in the terms of
agreements that filling rate should be a per Government directives.
Therefore rate / price / cost determined in circular issued by PPAC should
be base and rate to be paid accordingly. IOCL has been requested to
discuss on rate revision and enter into new agreement, however, no
revision in rate has been done till date.
Management’s comments:
The process of renewing the existing LPG sale agreement with IOC-AOD
has already been initiated wherein OIL has put forward its views for
revising Bottling Charge from Rs. 1100 to the price worked out by PPAC
through Price Build Up process and which is recovered by IOC-AOD.
Discussion is going on and the revised agreement is likely to be signed
shortly.
Recommendation:
As OIL is only PSU supplier of LPG for IOCL in this region, so accordingly
steps should be taken and pressure to be put into by holding high level
meeting with IOCL’s official for revision the rate of bottling charges by
amending the LPG Sale Agreement at earliest to avoid financial loss to the
Company for under billing of compensation charges / bottling charges to
IOCL, AOD.
It is also recommended to search for other buyer (i.e. BPCL, HPCL etc.) for
LPG, if possible.
6.2.12 To verify billing of shortfall in the minimum guaranteed quantity of
off-take of Gas.
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90
We checked billing for minimum guaranteed quantity of off-take of Gas and
found it in order.
As per Clause -10.3 of the Condensate sales agreement, purchaser agrees
to uplift minimum 80% of the monthly allotted quantity for 6 months on
calendar year basis. Billing for any shortfall of that minimum guaranteed
quantity of upliftment (MGU) will have to be made for such shortfall in lifting
of products for six months and the same will have to be paid by the
purchaser within 15 days from date of billing.
We have verified party wise upliftment of condensate as per their
agreement with OIL. We have come across that MGU clause is being
properly compliance with two parties out of four during period of
01.04.2013 to 31.03.2014. Further we have verified that supply of
condensate to two parties viz. M/s Arunachal Resign Products and M/s
Keepsafe Traders Pvt. Ltd. have been terminated on ground of non
compliance with agreement clauses.
6.2.13 To verify Excise Duty is collected and paid for LPG sales to IOCL.
As per Clause-4.4.1 of the sales agreement with Indian Oil Corporation
Limited (IOCL-AOD),excise duty and any other levies and imposts
chargeable upon and arising out of delivery and sale of LPG as per the
ruling rates fixed under the applicable statutes (of State and/or Central
Government) shall be borne by IOCL. At present excise duty is levied only
on industrial sales there is no excise duty on LPG Domestic sales. Since
OIL India is engaged only in Domestic sales of LPG, there is no question of
charging excise duty.
6.2.14 To verify transportation bills for crude oil transportation has been
raised as per the agreed terms with Refineries.
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91
It was observed that transportation bills for crude oil transportation have
been raised based on committee report formed for the fixation of TPT
(Tariff Rate) as per meeting held at MOP&NG on 23.08.2012.
6.2.15 To verify transportation bills have been timely raised and collection
have been made on due dates.
It has been observed that composite bills have been raised for crude oil
sales and transportation of crude oil in accordance with the following
defined schedule.
Weekly provisional invoices based on previous month crude price along
with transportation charges are raised on crude oil delivered during 1st, 2nd
and 3rd week on 7th, 15th and 22nd of each month. The final bill in respect of
above provisional bills after adjustment of discount, conversion rate along
with last week delivery of the month are raised by 7th of the month following
the month of delivery based on monthly calculated price of the Assam
crude oil.
It was observed that collection is being made regularly.
6.2.16 To verify whether there are valid agreements with concerned parties
for sale of Crude Oil/Natural Gas/LPG and sales are made according
to the said agreements. Also to verify whether relevant clause of MGQ
of sales are incorporated by the agreements and abide by.
Observations:
i) It was observed that in some cases sales are made according to the old
agreement / memorandum of Understanding with the parties, which have
been expired since long period.
In case of MOU with AGCL- MPSSA for sale of natural Gas clause of
MGQ has not been incorporated and No MOU/ GSPA has been
entered into with IOC (AOD) for supply for Natural Gas.
As mentioned above that MOU with IOCL & NRL for supply of crude oil
was entered in 2003 thereafter no COSA has been entered with parties
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92
and sales bills are raised as per provision of MOU.
ii) In respect of LPG also agreement with IOCL has not been renewed since it
was made in 1985, resultant various issues on cost of bottling charges.
Recommendations:
Valid agreements / MOU with concerned parties for sale of Crude Oil /
Natural Gas should be made with relevant clause of MGQ / MGU,
wherever applicable at the earliest to avoid any discrepancies in sales
billing and future dispute on debtors’ recovery.
Agreement to supply of LPG with IOCL should be renewed as soon as
possible. OIL has been incurring loss on bottling charges since long back
therefore to restrain financial loss steps should be taken and mechanism to
cover-up all losses to be carried out.
6.2.17 To verify if aged debtors analysis is reviewed at the various billing /
collection locations.
On scrutiny of individual debtors file It was observed that age debtors’
analysis is reviewed on quarterly basis at the various billing/collection
locations.
6.2.18 To verify if direct marketing of gas is in line with the Government
Policy.
The Ministry of Petroleum and Natural Gas (MOP & NG) has introduced
two types of pricing of natural gas viz. Administered Price Mechanism
(APM) and Non-Administered Pricing Mechanism (Non-APM) through Price
Notification No. L-12015/5/04-GP(i) dated 20.06.2005 and revised on
31.05.2010 through letter No. L-12015/8/10-GP. MOP&NG has published
the basis of defining Non-APM gas in its web as follows:
“Subject to the determination of producer price, based on
recommendations of Tariff commission, any additional gas as well as future
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93
production of gas from new fields to be developed in future by ONGC/OIL
will be sold at market related price in the context of NELP (New Exploration
Licensing Policy) provisions”. We have verified sale of natural gas through
APM and NON-APM price mechanism and have found the same in order.
6.2.19 To verify if written agreement for sale of gas covers the terms of
payment, delivery and assurance.
We verified written agreements to the extent made available to us for sale
of natural gas, condensate and LPG with various parties and observed that
agreements cover the terms of payment, delivery and assurance.
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94
6.3.0 FIXED ASSETS
6.3.1 To verify necessary supporting documents in respect of addition to
fixed assets to ensure that all the additions to the fixed assets have
been correctly and timely recorded and classified.
Practice Adopted
The Finance department runs the list of CWIP in SAP and sends the same to
the respective user departments at the end of every quarter. The user
departments identifies whether the assets have been commissioned and
sends a CWIP status report along with a job closing advice for assets that
have been commissioned during that quarter.
Based on the job closing advice received from the user departments the
finance department capitalizes the fixed assets.
Observations:
i) In respect of any fixed assets that have been procured the respective
physical copies of PO’s or Invoices are maintained by the materials
department and in respect of construction of Civil structures the respective
work orders or Invoices have been maintained with the Civil Department.
The Finance department only maintains Job Closing Advices received from
the respective user department and capitalizes assets based on such job
closing advice.
ii) During audit we have found following discrepancy relating to addition to the
fixed assets which have been rectified by Finance department immediately.
As per Job Closing Advice Ref. DTS/J-1/19 dated 13.01.2014, Asset
Description- Diesel Engine, Asset No. 4060020070 received from user
department, there were 10 no. of assets as per Job Closing Advice of which
only 6 no. of assets were transferred to fixed assets and 4 no. of assets
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95
remains in W.B.S.
We have informed Finance department immediately and they have rectified
immediately and made transfer to fixed assets from W.B.S.
iii) During audit we have found following discrepancy relating to timely recording
of fixed assets which have been rectified by management immediately.
As per Job Closing Advice Ref. R&D/20A/113/2014 dated 14.03.2014, Asset
Description- Portable Water Analyzer with Accessories, Asset no.
4010025241 received from user department, date of commissioning of asset
as per Job Closing Advice was 09.12.2013 and date of commissioning of
asset recorded by Finance department was 05.08.2013.
We have informed Finance department immediately and they have rectified
immediately and changed date of commissioning as per Job Closing Advice
from user department.
Asset Classes defined in SAP:
In our earlier report, the following discrepancies were reported by us
regarding asset classes defined in SAP.
1. As per schedule XIV of the Companies Act 1956, Electrical machinery,
X- ray & electro-therapeutic apparatus & accessories thereto, medical,
diagnostic equipments, namely, Cat-scan, Ultrasound Machines, ECG
Monitors etc. are to be depreciated @ 20 % and surgical Instruments
are to be depreciated @ 13.91 %.
However we observed that no distinction has been made between the
above two categories of assets related to medical department.
2. As per schedule XIV of the Companies Act 1956, projecting equipment
of film exhibiting concerns is to be depreciated at the rate of 20%.
However it was noted that projecting equipment used by the Company
is also classified under an asset class with a depreciation rate of 20%.
BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet
96
During the current period of audit we have observed that the above-
mentioned discrepancies have not been rectified yet.
Management’s Comment:
Not received
Recommendations:
Management should ensure that updating of records of Fixed Assets as well
as their classification in system should be done on timely basis as they have
been updated on our scrutiny. Steps should be taken in order to expedite the
process.
6.3.2 To verify that no depreciation is charged on the fully depreciated
assets.
The asset balances as on 31st March 2014 were verified through the OARP
transaction code and no assets having negative balance were noted.
6.3.3 To verify that all assets are recorded on timely basis to avail
depreciation benefit.
Observations:
The commissioning of assets is done on the basis of the commissioning date
mentioned in the Job closing advice received from respective user
departments.
The job closing advices of all major additions during the year were verified
and it was ascertained that all additions have been capitalized on the date of
commissioning as mentioned in the ‘Job Closing Advice’.
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6.3.4 To verify correctness of assets classification and the corresponding
rate of depreciation.
Observations:
The asset classifications and the rate of depreciation in SAP were verified
with the respective classifications and rates provided in Schedule 14 of the
Companies Act.
It was noted that there were no internal guidelines for classification of assets
due to which there are possibilities that there may not be uniformity in
classification once the person involved in such exercise moves to another
section.
It was also noted that the JCA’s obtained from the respective user
departments provided only a one line description of the asset which makes it
difficult to identify the use and purpose of the equipment and thus makes
classification difficult.
On verification the following discrepancies were noted which have been
rectified by Finance department immediately:
Sr. No
Asset No. Description Asset was classified under
Asset now classified under
1 4070005273 SDI CGM Editor
Software
Data processing
Machinery &
Computers (Dep.
@40%)
Intangible Assets (Dep.
@40%)
2 4070005277 Geographical
Information System
Software
Data processing
Machinery &
Computers (Dep.
@40%)
Intangible Assets (Dep.
@40%)
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Sr. No
Asset No. Description Asset was classified under
Asset now classified under
3 4070005281 Software for Basin
Modeling
Data processing
Machinery &
Computers (Dep.
@40%)
Intangible Assets (Dep.
@40%)
4 4070005350 OFM Software Data processing
Machinery &
Computers (Dep.
@40%)
Intangible Assets (Dep.
@40%)
5 4070005352 Scale Software Data processing
Machinery &
Computers (Dep.
@40%)
Intangible Assets (Dep.
@40%)
6 4070005279 Saphir Software Data processing
Machinery &
Computers (Dep.
@40%)
Intangible Assets (Dep.
@40%)
7 4060020068
&
4060020069
Rotary Substitute
(Used in drilling
below ground)
P&M-Drilling
Equipment (Dep.
@30%)
P&M-Below Ground (Dep.
@100%)
8 3000028746 Study Table (Used
in Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
9 3000028747 Study Chair (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
10 3000028748 Single Bed (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
11 3000028749 Almirah (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
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Sr. No
Asset No. Description Asset was classified under
Asset now classified under
12 3000028750 Dressing Table with
Stool (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
13 3000028751 Sofa Set (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
14 3000028752 TV Stand (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
15 3000028753 News Paper Stand
(Used in Guest
House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
16 3000028754 Coffee Table with
Two Chairs (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
17 3000028755 Six Seater Dinning
Table (Used in
Guest House)
F/A- Furniture-
General (Dep.
@18.1%)
F/A- Furniture- Welfare
centre (Dep. @25.88%)
18 4120002577
to
4120002581
Solar Genset with
Security Hut
P&M- Prime Movers &
Pumps (Dep.
@13.91%)
P&M- Ele. Mach, Ele.
Fittings, Switch Gears etc.
(Dep. @13.91)
19 4010025190
&
4010025191
Rectifier type
Welding Machine
(Used in 3 shifts)
P&M- General (No
extra shift) (Dep.
@13.91%)
P&M- (extra shift) (Dep.
@27.82%)
20 4010025187 Welding Machine
(Used in 3 shifts)
P&M- General (No
extra shift) (Dep.
@13.91%)
P&M- (extra shift) (Dep.
@27.82%)
21 4010025173 Variable Speed
Angle Grinder (Used
in 3 shifts)
P&M- General (No
extra shift) (Dep.
@13.91%)
P&M- (extra shift) (Dep.
@27.82%)
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Sr. No
Asset No. Description Asset was classified under
Asset now classified under
22 4010025124 Cement Dust
Collector (Used for
Drilling)
P&M- General (No
extra shift) (Dep.
@13.91%)
P&M- Drilling Equipments
(Dep. @30%)
23 4120002561
to
4120002566
63 KVA Generating
Set
P&M- Prime Movers &
Pumps (Dep.
@13.91%)
P&M- Ele. Mach, Ele.
Fittings, Switch Gears etc.
(Dep. @13.91)
In our earlier report, the following discrepancies regarding classification of
assets were reported by us which have not been rectified yet.
Asset No Description Presently classified
under
Asset should have been
classified under
4070004530 to
4070004537
Computer
Software
Data processing
Machinery & Computers
(Dep. @ 40% )
Intangible Assets
(Dep.@40%)
Management’s comments:
Please refer Annexure- A
6.3.5 To review the physical verification of fixed assets done by the
departments and the year end certificates issued by the departments
to this effect. Report of any deficiency report on the status of
superscription of the assets number on the fixed assets.
During the period of our audit of fourth Quarter, we observed that the
status on physical verification of fixed assets was updated by the user
department in SAP system and the same has been found to be in order.
6.3.6 To review and report on status of long pending CWIPs (above two
years)
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Observations:
Status of long pending CWIPs (above two years) could not be reviewed
effectively as Finance department has intimated to user department but
user department has not sent the report on status of long pending CWIP
during the period when the audit for the fourth quarter was conducted.
6.3.7 To identify whether the projects are on schedule and comparison of
the Amount Budgeted and the Amount in CWIP as on 31st March
2014.
Observations:
Till the date of audit for the fourth quarter was conducted user department
has not sent the report on project schedule and the Budgeted Amount and
the Amount in CWIP as on 31st March 2014.
6.3.8 To verify if correct depreciation rates are charged on the assets.
Observations:
The depreciation rates of each class of assets have been defined in SAP.
The depreciation on assets that have been entered in such classifications
is calculated automatically based on the depreciation rates defined in the
SAP masters.
In our earlier report, the following discrepancies were reported by us
regarding depreciation rates defined in SAP.
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It was noted that depreciation rates entered for a few asset classifications
were not as per Schedule XIV of the Companies Act.
1. As per schedule XIV of the Companies Act 1956, Electrical machinery,
X-ray & electro-therapeutic apparatus & accessories thereto,medical,
diagnostic equipments, namely, Cat-scan, Ultrasound Machines, ECG
Monitors etc. are to be depreciated @ 20 % and surgical Instruments are
to be depreciated @ 13.91 %.
2. As per schedule XIV of the Companies Act 1956, projecting equipment
of film exhibiting concerns is to be depreciated at the rate of 20%.
However it was noted that projecting equipment used by the Company is
also classified under an asset class with a depreciation rate of 20%.
6.3.9 To verify that there is a proper system of recording the movement of
assets from one department/location to another department/location.
Observations:
It was noted that the location of assets were not being entered in SAP.
Hence transfer of assets from one location to other are not recorded in
SAP.
However the department in which the asset is present is entered in SAP.
No entries in the SAP have been made for departmental transfer of assets
during the year. Further any physical verification report on shortage /
excess has not been made available to us till the time of audit.
Management’s Comment:
Not received
Recommendation:
System should be developed for recording these transactions.
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6.4.0 CARO COMPLIANCES:
6.4.1 Review of Compliances with CARO requirements pertaining to the
Audit areas covered.
Majority of the areas are covered under CARO are dealt with by the
corporate office at Delhi, the areas which under CARO which relate to
areas covered by our scope of work includes the following:
A) Fixed Assets
B) Inventories
C) Government Dues
A) Fixed Assets:
1a. whether the company is maintaining proper records showing full
particulars including qualitative details and situation of fixed assets
The Asset register is maintained in SAP and was extracted through the
OARP transaction code. It was noted that the fixed Asset register contains
the following details,
Description of the Asset
Classification
Quantity
Details of Acquisition value, accumulated depreciation and Book value of
the individual assets.
Date of capitalization
Department to which the asset belongs.
It was however noted that the location of all assets have not been entered
in SAP. On discussions with the personnel of the finance department it was
understood that the activity of identifying locations of every individual asset
and entering the same in SAP is in process.
Since the location of assets is not maintained in SAP, the annual exercise
of physical verification of assets would be difficult and inadequate.
1b. Whether the fixed assets have been physically verified by the
management at reasonable intervals, whether any material
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discrepancies were noticed on such verification and if so whether the
same have been properly dealt with in the books of account.
As per the policy of company and information provided to us by the
management, physical verification of assets are carried out by the
concerned user department in a phased manner to cover all the items over
a period of 5 years and a report of such physical verification is duly
submitted to the Internal Audit Department.
Since user department is concerned with the custody as well as physical
verification of fixed assets, it results in lack of internal control over such
assets.
During the period of our audit of fourth Quarter, we observed that the status
on physical verification of fixed assets was updated by the user department
in SAP system and same was found to be in order.
1c. if a substantial part of fixed assets have been disposed off
during the year, whether it has affected the going concern
No such substantial disposals of fixed assets were noted during the year
which would affect the going concern.
B) Inventories Verification:
2a. “Whether physical verification of inventory has been
conducted at reasonable intervals by the management.”
As per the present system, it was observed that a list of items with high
values, medium values and low values, for the purpose of physical
verification, is generated from SAP system.
It is observed that the valuation is categorized in the following groups:
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S
No.
Categories Classifications
1. High Value Value of an individual item equal to or more than
Rs. 5 lakhs
2. Medium Value Value of an individual item, more than Rs. 1 lakh
but less than 5 lakhs.
3. Low Value Value of an individual item less than Rs. 1 lakh.
As per the policy of company and information provided to us by the
management, physical verification of inventories are carried out by the
concerned user department and the certificates of the same is furnished to
the Internal Audit Department.
During the period of our audit of the fourth Quarter, the physical verification
reports from the concerned user departments were received (except listed
below) by the internal audit department and no discrepancy in between
actual quantity and quantity shown in SAP was found in the report.
Physical verification reports have not been received from following user
departments till the date of our audit:
S. No. User Department
1. Drilling
2. Field Engineering
3. Electrical
4. Instrumentation
5. Transport
6. Geophysics
7. Civil Engineering
8. Production Oil
9. Production Project
11. Fire Service
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2b. “Are the procedures of physical verification of inventory
followed by the management reasonable and adequate in relation to
the size of the company and the nature of its business? If not, the
inadequacies in such procedures should be reported.”
It was understood from the explanation received from the concerned user
departments that the physical verification of inventories is an ongoing
process and such physical verification exercises are regularly conducted by
the store in charge of the respective departments.
However it was noted that some stocks were not consumed by concerned
user departments and lying in material store for more than 10 years.
Material Department issued letters to concerned user departments asking
reasons for non moving stocks but no reply was received from following
user departments till the date of our audit:
S. No. User Department
1. Production Oil
2. Production Gas
3. Production LPG
4. Civil Engineering
5. EPA Digboi
C) Government Dues
Please refer Chapter 6, para No. 6.1.0 (and points therein)
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6.5.0 COST ALLOCATION
6.5.1 Practice adopted by Oil India Limited for preparing cost statements.
Background:
Oil India Limited has various functions in line which further sub-divided in
cost groups and cost centers. All costs are recorded geographical area
wise and cost center/project wise for products, services and activities in
which the company is engaged. Cost centers are created based on
nature of job performed by the centers which are grouped under main
function cost centers and services and overhead cost centers. Cost
accumulated at cost center or group of cost center level reflects the cost
of products, services or activities. Temporary cost objects created for the
projects of capital and revenue are settled to the final cost object by
capitalization or charged to cost of the relevant product, service or
activity as the case may be. To ascertain cost allocation, OIL’s
operations/ functions need to be covered up. Cost centers are grouped in
cost functions, which consist of main functions in line with the activities of
the Company, and support services and overheads as:
1) Business Development
2) Corporate functions
3) Drilling operations
4) Geology & Geophysics operations
5) Production operation
- Production-Oil
- Production-Gas
6) Renewal Energy
7) Research & Development
8) Service Department
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These all cost groups are further divided into sub-groups and sub –
groups consisting of various cost centers on the basis of functions /
requirement of user department.
Complete hierarchy of cost groups, sub-groups and their respective cost
centers can be viewed by using T-code “KSBB” in the SAP system.
6.5.2 Disclosure regarding accounting, allocation and absorption of
overheads:
All cost are primarily booked under respective cost elements for various
cost centres, project and order cost objects. Projects and order cost
objects are periodically settled to cost of the product, services or
activities to which those relate or capitalized. Cost of service and
overhead costs centers are allocated to main products, service or
activities and capital projects based on general principles of cost
accounting to accumulate the cost of production of main products,
service and activities and Project cost.
Cost of unsuccessful exploratory wells, Geological and Geophysics
Expenditures, Research and Development Expenditures and
Administrative Expenditure which are directly expensed off in the
statement of Profit & Loss in the year of incidence, are apportioned
amongst the products, activities and services as equitable and applicable
on the basis of their cost of production or operation before apportionment
of such cost.
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Scope covered under Audit:
6.5.3 Review SKF (Strategic Key Figures) and other allocation basis of
each cost centre.
We have verified SKF (Strategic Key Figures) and reviewed the process
in which cost is allocated to cost centers on the basis of receiver’s SKF
and found them to be in order.
Allocation of cost is done sequence wise as cost cycle runs. T-code
KSU3 is used to view cost cycle run and cost assessment cycles run
during the Closing of the Accounts. Initially Cost Cycle Name “N_EGS9”
is run in system with objective of assessment of engineering and general
services cost allocation to receivers. This cost cycle covers primarily
water, electricity, township, security, administration, personnel, safety &
environment, civil, finance and accounts. These all costs are common for
industry; accordingly their allocation is done on the basis of receiver’s
SKF. These common costs are allocated to all groups (receivers) as
secondary cost in their cost centers.
After engineering and general services cost, Cost cycle “A_DPS” (Drilling
and Production Services cost) is used, which is run in four different
phases namely A_DPS1, A_DPS2, A_DPS3 and A_DPS4.
Cost cycle “A_DPS1” is run to allocate all controlling office overheads of
cost centers like chief engineer (Production Oil & Gas, Drilling, Well
Logging, and Technical services to concerned receivers.
Objective of cost cycle A_DPS2 is assessment of drilling and Production
services – Gas compressors cost to various receivers like OCS. After
running EGS9, A_DPS1 and A_DPS2; “A_DPS3” is run to allocate cost
of Drilling and Work over Rig Maintenance to drilling and work over wells.
For allocation of Drilling services (apart from used in A_DPS3) like well
logging, mud supply, drilling crew, chemicals cost to drilling and work
over wells Cost cycle “A_DPS4” is run.
Cost charged in the respective cost centers are further allocated / applied
to concerned receivers on the basis of SKF and after successful
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allocation zero value to be left for allocation, we have verified the same
process and found them to be in order. General services are allocated on
the basis of SKF where some cost is allocated / applied to respective
cost centers without being allocated to other centers as these are either
related/ dedicated cost or cost incurred only for concerned user.
6.5.4 To review Cost audit report.
Observations:
Audit of Cost records for Financial Year 2013-14 is to be started after
finalization of accounts, therefore review of same could not to possible.
We have verified the cost audit report for the Financial Year 2012-14 and
found no qualifications raised by the Cost Auditor. Further cost
statements have been reviewed by us and found them to be in
compliance with Cost Accounting Standards.
Further There is no major change in cost accounting policy during the
period having significant effect.
Management’s Comments:
As per tentative programme, Cost Audit for the year 203-14 will be
finalized by 31st August, 2014. Any change in cost accounting policy or
any matter there of shall be incorporated in final cost accounting records.
6.5.5 Checking of effectiveness of control system of Revenue budgeting
business process of OIL.
Observations:
OIL generally follows the principle of ‘Zero Base Budgeting’ to prepare
budget for capital items as well as for revenue items. Comparison
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between cumulative actual with budget in respect of capital items and
periodical comparison in respect of revenue items are continuously done
either by individual or by the system. Depending upon the function/
activity, cost centre or group of cost centers are treated as responsibility
centre for this purpose and based on their responsibility budget are
prepared by users
On the basis of practice followed by OIL, we have checked the system
and could not avail effectiveness as no budgetary control system. In
absence of budgetary control system only statistically report is done for
variances arisen due to difference between plan and actual cost. They
have no controlling system on cost over budget in order to minimize
variances. As such no major variance was found but implementation of
Budgetary controlling system will lead to enhanced effectiveness.
On asking about system implementation we have been informed that
Management has recently implemented New Module in SAP name “Fund
Management” (FM – module) and same has been effectively
implemented w.e.f. 01.04.2014 with object to improvise effectiveness of
control system of Revenue Budgeting. Further new budget proposal has
been approved by Management in which proposal of value above Rs.
2.50 crores for capital and Rs. 1.00 crores for special revenue should not
be entered in to the system until approval is accorded by appropriate
authorities as per DOP provision.
Management’s Comments:
After go live of Funds Management (FM) module in March 2014, it was
decided to have a moderate control over budgeted amount with system
generated warning messages when actual expenditure reaches a certain
level of the budget amount or when it crosses the budget amount. After
streamlining of all other issues relating to budgetary control process,
restrictions of actual expenditure over budget through system will be
implemented.
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Recommendation:
Budgetary control system is next step after implementing Budget policy
for major expenses in order to prevent expenditure over plan cost and
non utilization fund. Actual cost should not go beyond its approved
budgeted fund, and if it is required due to circumstances then policy of
supplementary budget should be adopted.
6.5.6 To analyze cost centre wise reports, variance analysis in terms of
actual cost vis-à-vis budget and allocation of costs. Cost benefits
analysis of each major process/ activity/ job.
Observations:
To view cost center wise reports, T-code “KSBB” is used. We have
reviewed cost centers wise report and found no major variances in terms
of actual cost and budget thereon.
Further we have verified that cost benefit analysis is done project wise
and properly implemented by management. Any proposal which value is
above Rs. 2.50 crores for Capital and Rs. 1.00 crores for Special
Revenue need to be gone under first cost benefit analysis. Proposal is
accorded by Management only after justification accompanied by cost
benefit / return of investment analysis supported by latest budgetary
quotation wherever applicable.
6.5.7 To Check the major expenses under each Cost centre and
justification thereof.
Observations:
We have examined the major expenses under each cost centers. We
have found that major expenses booked by user departments under
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respective cost centers were supported by approved plan / budget cost
over there. Further we have come across practice adopted by OIL and
found that proposals of major expenditures are effectively gone under
LMC and CBC for approval supported by Justifications on the basis of
purpose, Cost benefit / return of Investment analysis. Further we have
been informed that recently OIL has implemented budgetary control
Module namely “Fund Management” (FM- Module) in order to make
internal control system more effective and efficient. This module will
prevent spending over approved budget and minimize variances thereon.
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6.6.0 PROVISIONING:
6.6.1 Accounting Practice:
Provision is provided as per Accounting Standards and Guidance notes
recommended / issued by Institute of Chartered Accountants of India.
6.6.2 Verification:
We have verified following line items for which payment has not been made
upto 31.03.2014 but provision for liability was require to be made.
1. All contractual cost for works executed upto 31.03.2014 where bills
not raised by contractor based on estimate from user function.
2. All contractual cost for works executed upto 31.03.2014 for bills in
hand and bills with user department.
3. Provision for comprehensive list of SES Raised upto cut off date i.e.
before cost cycle run. Instances were found during limited review
where SES was not getting captured in the report. Comprehensive
list to be covered.
4. Security Contracts -CISF Cost, list of security contracts from admin
function and provision towards unbilled services up to the period
31.03.2014
5. GIT provision entry for LC Payments (both revenue and capital) upto
31.03.2014 including customs duty, freight and port charges.
6. Legal /Professional consultants bills for service up to 31.03.2014.For
legal fees, input to be taken from Legal Department, Land
Department, ER department & Personnel Department. Tax
consultants engaged by F&A function to be taken from Taxation Cell.
7. Regular contractual engagements (retired employees)/Retainers
Doctors/Contractual Player/Advertisement bills/Printing & Stationery
bills etc.
8. CSR provision based on list from PR Department.
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9. Hotel bills - list was taken from admin for hotels engaged, all bills up
to 31.03.2014, in case of non submission of bills for March'14,
estimate based on latest available bills to be considered for provision
purpose.
10. Employee Medical expenses bills-Comprehensive of unprocessed
bills lying with admin department, OIL Medical and F&A Department
for provision purpose.
11. Employee Tour Bills -Domestic and Foreign.
12. Telephone bills- all telephone bills up to 31.03.2014.
13. Employee Training expenses liability to be taken.
14. Zaloni Club / Duliajan Club liability to be taken .Bills up to 31.03.2014
to be followed up with respective treasurer.
15. Land Provision - Surface Compensation etc.
16. Actuarial Provision-Pension, Gratuity, Leave Encashment, Long
Service award, Post Retirement Medical Benefit.
17. New pension fund liability.(14% differential).
18. Ex Gratia to Pre 81 employees.
Observations:
i) In case of Provision for CSR It has been observed that CSR provisions are
being made based on committed amount which may be incurred in future. In
our view provision should be made on actual work carried out for which no
payment has been made. Carrying forward of the committed amount should
be controlled through budgeting process.
ii) In case of Employee Tour (Domestic) no advance is given to Employee
instead reimbursement is made on production of bills. Accordingly it was not
possible to carry out estimation for those tour expenses for which Claims
were not submitted by employees themselves upto March’2014. Therefore
Management has provided provision of amount equal to claims submitted by
employees.
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116
Recommendations:
CSR provision being a new concept, this may pleased be discussed with
Statutory Auditors and other Corporate Entities for practice being followed
by them.
It is recommended to consult Statutory Auditor for adopting appropriate
practice to provide provision of Employee Tour (Domestic).
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117
CHAPTER – 7
7.0.0 MORAN
7.1.0 Collection of Oil
7.1.1 To verify if the daily production reports are being maintained on
regular basis for the wells vis-à-vis entry in SAP system.
Observations:
It was noted that the production department at Moran has maintained daily
records of the receipt of crude and formation water. The receipt of crude was
noted to be recorded well wise. Regular entries into SAP were also made by
the department. No discrepancies in this regard were noted.
7.1.2 To verify actual production meets planned targets on quarterly basis.
Observations:
We have been informed that the planned targets have been prepared for the
company as a whole and not for a particular well or area wise.
Details of achievement of the same have been listed below.
Particulars Achievement
Delivery of oil from CTF 169730.954 MT
Planned volume has not been prepared by management for area wise
accordingly it is not possible to comment on target production meeting
actually production level.
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7.2.0 Water Injection Scheme
7.2.1 To verify pilferage / losses of water during transmission.
Observations:
No pilferage or loss of water during transmission was noted at Moran OCS.
The OCS tracks the pressure of suction from the water sources regularly to
identify pilferage of water.
7.2.2 To check whether the preventive and regular maintenance plans in
place and executed and monitored effectively and timely.
Observations:
It was noted that notifications are issued for preventive maintenance of all
instruments of Moran OCS. This is carried out by instrumentation
department and same procedure is followed by Electrical Department once
in a year. For maintenance of Water Formation Pump is carried out by
contractor in period of every three months.
Time Cycle Controller has been installed for the purpose of maximization of
oil output for which maintenance is carried out by Instrumentation
Department based on notifications generated in the system. However job
completion date is not entered into system only report is being submitted by
Instrumentation Department which has been verified by us. This system has
been introduced recently because before there was no Time Cycle
Controller.
Management’s comments:
Notifications are raised in the system against maintenance / service requests
to Civil, Electrical, Instrumentation, Field Engineering and Transport
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sections. After completion of the job, the respective section enter the
completion time and other details in the system and close the notification.
However, as pointed out, it is observed that some of these notifications have
not been closed, although the jobs in most of the cases have been
completed. We have already taken up steps for closing these outstanding
notifications.
Recommendation:
It is recommended that time completion date should also be entered into
system.
7.2.3 To verify that minor repairs are handled on a timely basis at the site by
appropriate staff.
Observations:
The SAP system can be used effectively in tracking down whether repairs
have been made on timely basis.
It was noted that only a few notifications were closed in the SAP system.
Other notifications, though physically completed, were stated to be either
outstanding or in process in the SAP system.
Details of the outstanding notifications in SAP have been tabulated in
Annexure – VI.
Recommendation:
It is recommended that the date of completion of the maintenance work be
input in SAP system as it would help in identifying delays and would also
help in assessing the efficiency of the field engineering department.
Management’s comments:
As recommended, completion date will be input in the SAP system after
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completion of the notifications raised against maintenance jobs
7.2.4 To verify that adequate spares are maintained at the site to facilitate
spares for repairs.
Observations:
It was noted that Moran OCS is maintaining spares only for Water formation
Disposal Pump. All the necessary spares required for maintenance are
maintained by Field Engineering Department.
7.2.5 To verify that replacements of equipments are undertaken timely
before the specified life expires.
Observations:
We have been informed that there is no policy regarding replacement of
equipments used for a substantial period of time further, equipments are
replaced as and when they breakdown.
However it has been informed that policy has been formed to replace the
equipment based on the life span, economical repairs, unavailability of
spares / equipments. The policy is in the finalization stage.
Further it was noted that 05 (Nos.) Water formation tanks are scrapped but
not yet removed from the books and Water Clearing Plant was informed for
write off.
Recommendation:
It is recommended that a detailed policy regarding replacement of crucial
equipment should be laid down and expected life of the equipment should
be determined as it will help to mitigate the risk of any accidental break down
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and also ensure optimum productivity.
Removal of scarped Water Formation Tanks from fixed assets register is to
be expedited and Water Clearing Plant is to be written off immediately.
Management’s comments:
Equipment Replacement policy will be implemented once it is adopted by
the Company. In the meantime, equipment are replaced on the basis of
several factors like cost effectiveness of carrying out repairs vis-a-vis
replacement, criticality of the equipment availability of spares, OEM’s
recommendation of expected life etc.
Regarding damaged Formation Water Tanks and FW clarification Plant at
OCS-1, Moran, action has already been taken for writing off.
7.3.0 General verification
Civil (Moran)
7.3.1 Vendor Evaluation
Observations:
Vendor classes have been defined by the company on the basis of specific
credentials of assets held in terms of man and machines. The number of
vendors in each class exceeds actual requirements and the gap between
vendors available and vendors required is substantial. No vendor evaluation
is done (documented) taking into consideration the past performance of the
vendors viz. quality of work, timely completion etc due to which basis of
selection of a particular contractor is not clear in certain cases since the
same is on nomination basis.
Recommendation:
It is recommended that vendors be evaluated and only vendors meeting all
the required standards be considered at the time of contract allocation.
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Other vendors not meeting the required standards may be allotted work
which may not be time bound or which may be of lesser importance.
7.3.2 House Maintenance system.
Observations:
Though a set authorization flow is being maintained by the civil department,
the internal controls with regards to the activities of the HM section were
inadequate and weak. It was noted that the department had not maintained
any policies with regards to Housing Maintenance. Though there was a
verbal understanding amongst all engineers as to what jobs (repairs &
renovations) employees and executives were entitled under the companies
account and what work would be chargeable to the employee/executive
himself, there was no detailed documented policy stating what work is
entitled for a employee/executive of a particular class or grade.
Since no detailed policies are formed in this regard there is a possibility that
some work would be wrongly authorized unintentionally / intentionally. Since
the volume of transactions in housing maintenance is quite large, after the
fact detection of the work done would be impractical and hence any job that
has been so wrongly authorized would be undetected and this would add to
the cost burden of the company
Recommendation:
Firstly a detailed policy of jobs which particular class or grade of employees
and executives are entitled to must be defined. The indents should be raised
by the user departments (Admin, ER etc) after taking into consideration the
policy formed in this regard. The possibility of wrongly authorizing any job
unintentionally would decrease due to framing of such policies.
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As the volume of transactions is large under housing maintenance it would
be very difficult and impractical to make efforts to track down any repairs or
renovation work which would have been wrongly authorized. Since after the
fact detection in such cases is not possible, the SAP system must be utilized
in this regard.
All employee grades and classes must be defined in the system.
The nature of work that the respective grade or class of employees is eligible
for must also be defined in the system.
The job work value entitlement for each grade and class of employees may
also be defined in the system.
While preparing the PR, the employee grade, the nature of work & the
estimated value of the work must be made mandatory fields.
In case the combination entered is invalid or beyond limits the SAP system
would refuse to generate the PR.
Accordingly non entitled work may be controlled through SAP.
Management’s comments:
Not received
7.3.3 Physical stock taking done on 13.05.2014.
Observations:
A physical stock check of the inventory maintained by the civil department at
Moran was undertaken on 13.05.2014. Differences were noted between the
quantities mentioned in SAP and actual quantities. Details of the same have
been provided below.
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Material
Code
Description Quantity as
per SAP
Actual
Quantity
Material Value
(Rs.)
99027919 RCC Septic tank 34 Nos. 18 Nos. 1,79,611.95
99067608 Multilayer Plastic Tarpaulin 13662 M2 0 10,87,656.49
99044477 Reinforced Barbed Tape (RBT)
Fencing
805 M 0 6,91,613.16
As can be noticed with regard to material code 99027919, the quantities
mentioned in SAP were higher than the actual quantities.
The stocks of Multilayer Plastic Tarpaulin (99067608) and Reinforced
Barbed Tape (RBT) fencing (99044477) were not found there.
Management’s comments:
Not received
Recommendation:
It is recommended to have proper system control to meet out discrepancies
in between actual quantities and quantities recorded in the SAP.
7.4.0 Central Tank Farm (Moran)
7.4.1 Percentage of BS&W in crude oil.
Observations:
It was noted that the BS&W % of the crude stored in Moran was not in high
quantity. Water contents were found less in quantity in compare to figures (in
%) quantified in last time reporting.
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The BS&W % of the various deliveries to the pump station from April 2013 to
March 2014 and the penalty amount is mentioned in Annexure- VII. Penalty
amount is deducted from gross receipt from customer. Accordingly penalty
amount is not paid by OIL in real manner; it is deducted by customer at the
time of making payment to OIL. OIL receives net amount on its sale of crude
oil (Gross amount less Penalty for BS&W%). Amount of penalty which bills
have been lying outstanding till the time of audit have not been deducted /
paid.
Management’s comments:
Issue of outstanding bills / penalty is not looked after by Moran Field.
7.5.0 Materials (Moran)
7.5.1 Controls with regard to procurement of materials.
Observations:
It was noted that the Materials section at Moran could procure materials
amounting to a maximum of Rs 10,000/- per item per PO. The materials
procured during the period April’13 to March’14 by the materials section at
Moran were checked. No irregularities in this regard were noted.
7.5.2 Physical stock taking done on 15.05.2014.
Observations:
A physical stock check of the inventory maintained by the materials
department at Moran was undertaken on 15.05.2014. The stock check
sample consisted of items valuing in excess of Rs 50,000/-. Differences
were noted between the quantities mentioned in SAP and actual quantities.
Details of the same have been provided below.
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Material
Code
Description Quantity
as per
SAP
Actual
Quantity
Material
Value
(Rs.)
84400321 Rope Manila
(12mm)
175 kg 200 kg 53,662.03
84400354 Rope Manila
(18mm)
601 kg 700 kg 1,72,019.17
84400401 Rope Manila
(28mm)
1795 kg 1875 kg 4,97,428.88
84400434 Rope Manila
(36mm)
420 kg 840 kg 1,19,956.03
85011287 Chemical (Octyl
Alcohol)
420 kg 740 kg 60,880.46
85040117 Viscosifier 600 kg 3700 kg 1,62,385.73
85040458 Sulphonated
Ashphalt
150 Bags 208 Bags 1,45,870.53
85043961 XCD Biopolymer 125 kg 1900 kg 98,273.46
85050019 Chemicals- Barytes 106.5 MT 195 MT 10,42,147.21
85051593 Chemicals-
Spotting Fluid
3350 Ltr. 3500 Ltr. 3,09,918.45
85052062 Chemicals-
Carboxy Methyl
Cellulose
550 kg 2000 kg 53,439.68
85052528 Cellophones
Flakes
2665 kg 2000 kg 3,94,574.16
85053054 Chemicals-
Fluoboric Acid
800 kg 900 kg 87,298.74
85054536 Chemical- Acid
Corrosion Inhibitor
700 ltr. 650 ltr. 1,84,310.05
85070166 Lubricants 4395 ltr. 4960 ltr. 3,36,591.24
85100161 Lubricants 3330 ltr. 2940 ltr. 2,91,905.82
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85100775 Lubricants 2080 ltr. 1680 ltr. 1,84,465.57
85320013 Bitumen 5260.33
kg
6200 kg 2,87,804.85
85320057 Bitumen 5975.33
kg
5104 kg 3,41,669.22
85570143 Miscellaneous
Safety Item-
Gloves
1084 PAA 1270
PAA
72,347.79
From the above table differences have been noted in between actual
quantities and quantities mentioned in SAP. Either GRN has not been
prepared at time of material receiving or posting has not been done at the
time of material issue.
Management’s Comment:
Not received
Recommendation:
Steps should be taken in respect of timely recording of material into system.
Though there is no indication of mis-utilization in this regard there is a
possibility of mis-utilization as no controls in respect of such difference have
been arisen during verification. Therefore it may please be noted that entries
are required to be made in system in respect of GRN as well as material
issue.