OIL INDIA LIMITED Internal Audit Report For the Quarter ......OIL INDIA LIMITED Internal Audit...

BATLIBOI & PUROHIT Chartered Accountants Continuation Sheet

1

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


2

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


3

� 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


4

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.


5

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.


6

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.


7

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


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.


8


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


Vendor Name: M/s. Vision Ispat Pvt. Ltd.

Tender No.: DIS9890P14/P5 dated: 21/05/2013


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.


9

Recommendation:


copy of the same may please be kept in the file..



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.


10

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.


11

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.


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.


12

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.


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


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


13

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.


14

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.


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


Material Description: Casing 5 ½”P-110


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.


15

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.


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


16



Vendor Name: M/s. Caterpillar Sarl Singapore

Tender No. SDG8101P13 Dt. 26/11/2012


Material: Diesel Engine


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.


17

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.


18


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


19



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


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.


20


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.



Vendor Name: M/s. Chabria Infotech Pvt. Ltd.

Tender No. SDI2574P14 Dt. 12/02/2014


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.


21



keeping of one copy of PBG in respective order folder will be maintained.

Recommendation:


copy of the same may please be kept in the file.



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


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.


22

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.


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.



Vendor Name: M/s. Oil Country Tubular Ltd..

Tender No.: SDG9814P13 dated: 13/05/2013


Material Description: 150 kms. Of 2.7/8” N-80 Tubing & Pup Joints


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.


23

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.


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.


24

Recommendation:

It may please be confirmed that Integrity Pact was received and if so a copy

of the same may please be filed.



Vendor Name: M/s. Steelsworth India

Tender No.: SDI1234P14 dated: 24/09/2013


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.


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.


25

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


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.


26

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.


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.



Vendor Name: M/s. Elcome Technologies Pvt. Ltd..

Tender No.: SDG8655P13P133/09 dated: 22/12/2012


Material Description: RTK DGPS & Combined Survey 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.


27

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.


Your observation has been forwarded to user department.

Recommendation:

Estimation should be calculated with certain accuracy.


28

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.


29

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


30

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


31

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


32

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.


Before the finalization of the Misc/Maint contracts for any particular

year/period in the pasts, it had always been reiterated from Civil


33

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.


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


34

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:


35

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.


36


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.


37

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.


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


38

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.


. 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


39

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.


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


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


41

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.


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


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.


43

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:


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


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.


45

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


46


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


47

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.


48

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


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


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


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


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


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


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,


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


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



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



14 Rangmala-1* TAJ under drilling** 2089

15 West Mechaki-1* MKA Under pruduction testing 5636


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


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


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.


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


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/-


Against the said order an appeal was filed by the Oil India Limited to



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



section 80 IC amounting to Rs. 11748715092/- and disallowing the


India directives Rs. 9,77,49,38,000/-



59






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.




section 80 IC amounting to Rs. 11495771017/- and disallowing the


60


India directives Rs. 19937481000/-







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:



section 80 IC amounting to Rs. 13237036602/-.




and its justifications with reference to various decided case laws. Order of

CIT (A) is still pending.







61






under section 80 IC was disallowed.













under section 80 IC was disallowed.









62












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.


63

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)






64


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


department

Hearing fixed for



09.07.2014


department

Hearing fixed for



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




65

09.07.2014


department

Hearing fixed for



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



09.07.2014

2007-08 Appeal before ITAT

by OIL

Hearing fixed for



09.07.2014

2008-09 Appeal before CIT

(A) by OIL

Hearing fixed for

25.03.2014 and order is

expected.


by OIL

Hearing fixed for



09.07.2014


by OIL

Hearing fixed for



09.07.2014


(A) by OIL

No Date of Hearing is

fixed.


(A) by OIL

No Date of Hearing is

fixed.


66


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


67

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.


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.


68

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


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


70

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.


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


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


73


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.


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.


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.


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


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


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.


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


78

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.


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


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


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.


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.


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.


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.


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.


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:


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


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


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.


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.


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.


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


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/- .


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.


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.


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.


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


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


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.


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


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%.


96

During the current period of audit we have observed that the above-

mentioned discrepancies have not been rectified yet.


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’.


97

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%)


@40%)


98

Sr. No



3 4070005281 Software for Basin

Modeling

Data processing

Machinery &

Computers (Dep.

@40%)


@40%)

4 4070005350 OFM Software Data processing

Machinery &

Computers (Dep.

@40%)


@40%)

5 4070005352 Scale Software Data processing

Machinery &

Computers (Dep.

@40%)


@40%)

6 4070005279 Saphir Software Data processing

Machinery &

Computers (Dep.

@40%)


@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%)



10 3000028748 Single Bed (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)



11 3000028749 Almirah (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)




99

Sr. No



12 3000028750 Dressing Table with

Stool (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)



13 3000028751 Sofa Set (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)



14 3000028752 TV Stand (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)



15 3000028753 News Paper Stand

(Used in Guest

House)

F/A- Furniture-

General (Dep.

@18.1%)



16 3000028754 Coffee Table with

Two Chairs (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)



17 3000028755 Six Seater Dinning

Table (Used in

Guest House)

F/A- Furniture-

General (Dep.

@18.1%)



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%)


@27.82%)

21 4010025173 Variable Speed

Angle Grinder (Used

in 3 shifts)

P&M- General (No

extra shift) (Dep.

@13.91%)


@27.82%)


100

Sr. No



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%)


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)


101

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.


102

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.


Not received

Recommendation:

System should be developed for recording these transactions.


103

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


104

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:


105

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


106

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)


107

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


108

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.


109

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


110

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.


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


111

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.


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.


112

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


113

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.


114

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.


115

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.


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).


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.


118

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.


Notifications are raised in the system against maintenance / service requests

to Civil, Electrical, Instrumentation, Field Engineering and Transport


119

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.


As recommended, completion date will be input in the SAP system after


120

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


121

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.


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.


122

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.


123

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.


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.


124

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.


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.


125

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.


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.


126

Material

Code

Description Quantity

as per

SAP

Actual

Quantity

Material

Value

(Rs.)

84400321 Rope Manila

(12mm)

175 kg 200 kg 53,662.03


(18mm)

601 kg 700 kg 1,72,019.17


(28mm)

1795 kg 1875 kg 4,97,428.88


(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



127


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.


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.

OIL INDIA LIMITED Internal Audit Report For the Quarter ......OIL INDIA LIMITED Internal Audit...

Documents

Transcript of OIL INDIA LIMITED Internal Audit Report For the Quarter ......OIL INDIA LIMITED Internal Audit...