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Kesoram Industries Limited –

We Make It Basant Nagar
Work… Internal Audit Report – Mar’22 –
May’22

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Contents
Particulars Slide No

Audit Scope

Risk Rating Criteria 3

Risk Control Matrix (RCM) Control testing 4-5

Executive Summary 6-8

Detailed Observations 9-28

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 Criteria for Classifying Observations

Risk Rating Criteria

Senior management needs to strengthen
Critical internal controls and / or develop and implement
key policies and processes Root cause legend
Design deficiency D
Non-compliances to business processes/policies
Major
and requires management corrective action Operating
O
ineffectiveness
Policies and processes defined and documented Statutory Non-
Moderate S
but with procedural lapses/control gaps Compliance
Non compliance to non-critical
Minor policies/processes and which have no financial
impact

Statutory non-compliances are not rated

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RCM Control Testing

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Risk Control Matrix Summary
Controls
No. of Controls Controls not
Area Location Remarks
controls tested passed implemen
ted
Basant
Inventory 18 16 16 2
Nagar
Control No. PPE-C-01 against risk (PPE-R-01) cannot be
Fixed Basant
17 16 14 2 tested since capex budget is not provided for the audit
Assets nagar
period.
Executive Summary

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Executive Summary
Observation
Sl. Point Slide Risk legend
Area Observation
No. No. No. Rating
D O S
Hooks used for loading/ unloading of ammonium nitrate
1 Inventory 1.1 10 Minor a
bags
2 Inventory Difference in book stock vs physical stock of PP bags 1.2 11 Minor a
Discrepancies of Purchase order w.r.t delivery of item
3 Inventory 1.3 13 Moderate a
due to be received beyond requested delivery date (R’)
4 Inventory Delay in raising of PO from requested date (R’) 1.4 14 Moderate a
Raw materials and spares & consumables stored in
5 Inventory 1.5 15 Moderate a
open area exposed to water and rust (R’)
Minimum stock of inventory not maintained in line with
6 Inventory 1.6 16 Minor a
SOP (R’)
7 Fixed Assets Approved Capex Budget is not in place 2.1 18 Moderate a
Noted instances wherein items required to be expensed
8 Fixed Assets 2.2 21 Moderate a
off were capitalised.

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Executive Summary
Observation
Poin Slid legend
Sl. Risk
Area Observation t e
No. Rating
No. No. D O S

Fixed Excess/short depreciation on account of deviation from

9 2.3 20 Moderate a
Assets depreciation policy
Fixed
10 Incorrect vehicle numbers updated in FAR (R’) 2.4 22 Moderate a
Assets
Fixed Transfer of ownership from company to employee is pending
11 2.5 23 Minor a
Assets for cars transferred under Own Your Car Scheme (R’)
Fixed Pending traffic challans to be cleared for company owned
12 2.6 24 Minor a
Assets vehicles (R’)
Fixed Absence of CCTV Surveillance for Main Stores & Stock yard
14 3.1 26
Assets (P)
Noted instances wherein Stores & Spares items are
15 Inventory purchased and nil consumption of the same throughout the 3.2 27
year (F)

(F) Implies Factual Reporting

(P) implies Process Improvement
(R’) implies Repeated Observation

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 Inventory

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Inventory Minor
Observations D O  S Implication
1.1 Hooks used for loading/ unloading of • May lead to spillage of ammonium nitrate in
ammonium nitrate bags: the factory premises.

Noted that ammonium nitrate bags are labelled to Root Cause(s)

avoid hooks for the purpose of loading/ unloading
of such bags. • Ineffective review over handling of
However, upon physical verification conducted on ammonium nitrate.
Recommendatio
23rd June’2022, it was noted that metal hook marks n(s)
were evidenced on ammonium nitrate bags. • To avoid using metal hooks for loading/
unloading of ammonium nitrate.
However, the ammonium nitrate bags have labels
Management
for not using metal hooks for the loading/unloading
Response
of bags. We observe that some of the Ammonium Nitrate
bags outer cover was lightly damaged on the top
corner. This may be because of hook. The inner
cover was found intact. So no Spillage has taken
place due to that. Anyhow, we have informed
this to the supplier of ammonium nitrate for
taking care while handling Ammonium Nitrate
during loading in to the truck at their end.
Person responsible: Head - Mines
Timeline: NA
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Inventory Minor
Observations D O  S Implication
1.2 Difference in book stock vs physical stock • Over statement of inventory of PP bags.
of PP bags:

Upon physical verification of PP Bags conducted on Root Cause(s)

22/06/2022 at 2:00PM, it was noted that physical
stock of PP bags was in excess of the stock as per
ERP by 2,393. Recommendatio
n(s)
• To reconcile the differences and have a
periodic check.

Management
Response
The excess quantity is considered in Inventory as
on 30.06.22

Person responsible: Head of Packing Plant

Timeline: Closed

Auditor’s Comments: Details of such

adjustments are yet to be received.

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Repeated Observations

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Inventory Moderate
Observations D O  S Implication
1.3 Discrepancies of Purchase order: • Delay in receipt of goods may result in
disruption of operations.
Noted 312 instances wherein items are yet to be
delivered beyond the requested delivery date
amounting to Rs. 5.24 Crores. Root Cause(s)
• Lack of follow up with vendors for timely
For more details refer Annexure : receipt of Stores and Spares.
Recommendatio
n(s)
• Proper follow up mechanism has to be placed
to avoid such instances.

Management
Response
Most of the items are received or in pipeline to
receive the materials. Apart from this the other
category of short left over qty to be closed PO's
and rejected materials which are to be replaced
by the vendors.
Person responsible: Head - Procurement
Timeline: On- going

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Inventory Moderate
Observations D O S Implication
1.4 Delay in raising of PO from request • Delay in raising the PO may lead to non
date: completion of work on time by the user
department.
Noted 409 instances wherein there exists a delay
in raising of Purchase order (PO) from the date of
Root Cause(s)
raising the Purchase requisition (PR), such delay
ranges from 91-397 days (PO value aggregates to • Weak monitoring over follow up procedure
Rs. 3.42 Crores) over pending purchase requests.

Recommendatio
For more details refer Annexure:
n(s)
• To develop an SOP specifying the timelines for
validity of PR within which PO has to be raised
Microsoft Excel
Worksheet
or PR gets lapsed.
Management
Response
As per the business priorities PO's have been
released following all the procedures.
Person responsible: Head - Procurement
Timeline: On - going

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Inventory Moderate
Observations D O S Implication
1.5 Raw materials and spares & • RM and Spares may not fulfill the usage as
consumables stored in open area they were exposed to moisture.
On Physical Verification of Raw Material (RM) and • Unseasonal rains might damage the
Stores & Spares, Noted that: inventory.
Root Cause(s)
• Review over maintenance & storage of Raw
1. Raw Materials-Coal were stored in Open area
Material and spares found inadequate.
and exposed to water during Physical
Verification Recommendatio
For more details refer Annexures: n(s)
• To ensure that All Raw materials and Spares &
WhatsApp Image 2022-06-22 at 11.15.55 AM.jpeg WhatsApp Video 2022-06-25 at 6.07.54 PM.mp4 WhatsApp Video 2022-06-25 at 6.08.17 PM.mp4
Consumables to be stored in Closed area or
under Sheds to avoid all possible losses.
2. Spares & Consumables were stored in Open Management
area and exposed to rust. Response
For more details refer Annexures: Person responsible: Head – Stores
1656147589588.jpg 1656147589603.jpg 1656147589635.jpg Timeline:

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Inventory Minor
Observations D O  S Implication
• May disrupt the production schedule.
1.6 Issues vis-à-vis SOP on maintenance of • Non-compliance with SOP for minimum stock
Buffer stock / minimum stock level of for raw material to be maintained.
inventory
Root Cause(s)
a) Per SOP KC/QC/SOP-44, minimum stock of raw • Non-compliance with SOP.
material is required to be maintained. However,
on our verification, noted that there is no Recommendatio
minimum stock level being maintained on few n(s)
days. • To adhere to SOP and maintain buffer stock
adequately.
b) Noted that the existing SOP KC/QC/SOP-44 for
maintenance of minimum stock levels for raw Management
material does not cover the safety stock Response
required for Coal , Fly ash & Husk. We are maintaining the stock ensuring there is
no disruption for production and we are trying
For more details refer Annexures: and improving our stock level.
Microsoft Excel 44.Material Stocks.pdf
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Worksheet Worksheet
Person responsible: Head - Procurement
Timeline: On - going

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 Fixed Assets

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Fixed Assets Moderate
Observations D O S Implication
2.1 Approved Capex Budget is not in place • Overall picture with respect to acquisition of
fixed assets cannot be ascertained to ensure
Per RCM Risk Number PPE-R-01, " Capital
effective planning.
expenditure budget is approved by designated
personnel in the beginning of the year. Any
purchase of capex item is done only with the Root Cause(s)
approval of designated SOA hierarchy." • Capex planning being done only on need
basis.
Noted that Capex budget was neither prepared Recommendatio
nor approved for the FY 2022-23. n(s)
• To prepare and maintain capex budget in line
with the requirements of RCM, being an ideal
practice.
Management
Response
Capex approval is being taken from Head Office
on case to case basis.

Person Responsible : Head - Finance

Timeline : NA

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Fixed Assets Moderate
Observations D O S Implication
2.2 Noted instances wherein items • Over statement of assets.
required to be expensed off were • Under statement of expenses.
capitalised:

Upon verification, it was noted that 200 cement

bags (PPC/ BIRLA SHAKTI/ PPC/ HDPE) were issued Root Cause(s)
to Civil Department for Home Consumption. • Lack of proper review on classification of
However, out of the 200 cement bags issued, 100 expenditure.
cement bags were utilised for the construction of Recommendatio
Deer Park compound wall and the remaining 100 n(s)
were utilised for Home Consumption. • The record expenditure post review of the
nature of expense incurred from the user
We have noted that the capitalization of cement department.
Management
bags utilized towards the construction of the Deer Response
Park wall quantify to 200 cement bags, instead of Updated register provided.
100 cement bags which was actually consumed.

For details, refer

self annexure:
39100-CWIP.xlsx
consumption.pdf
WhatsApp Image 2022-06-28 at 4.37.57 PM.jpeg Person Responsible : Head - Finance
Timeline : Closed

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Fixed Assets Moderate
Observations D  O S Implication(s)
2.3 Excess/short depreciation on account of • Excess /short depreciation calculated which results
deviation from depreciation policy: in inaccurate profit/loss.

As per RCM Risk Number PPE-R-11, "Depreciation Root Cause(s)

policies are defined in accordance with the • Non compliance of RCM
applicable accounting standards and the relevant
laws and regulations. Depreciation on all fixed assets
is calculated in accordance with these policies." Recommendatio
n(s)
Per para 55 of Ind AS 16, Property, Plant & Equipment, • To Formulate a depreciation policy which is in
"Depreciation of an asset begins when it is consensus with Ind AS and RCM.
available for use, i.e., when it is in the location
and condition necessary for it to be capable of Management
operating in the manner intended by Response
management". As suggested by Your team during H1,19-20, we have
implemented same procedure as followed at Sedam
However, it was noted that depreciation for the assets to keep both units uniformity.
purchased or capitalized is being calculated based on
the date on which the asset is being put to use during
the month, i.e., if used for more than 15 days then Person Responsible : Head - Finance
depreciation will be charged for the entire month, Timeline :
otherwise there will be no depreciation charged. Auditor Comment: Current practices not in line with
RCM.
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Repeated Observations

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Fixed Assets Repeated Observation Moderate
Observations D O S Implication
2.4 Incorrect vehicle numbers updated in • It may lead to loss of track on vehicles owned
Fixed Assets Register (FAR) by us.

Noted 7 instances wherein same vehicle number

Root Cause(s)
has been updated for multiple vehicles and led to
duplication in FAR. • Improper maintenance of vehicle numbers in
FAR.
For details, refer annexure: Recommendatio
n(s)
• Proper review mechanism should be placed to
avoid duplication of vehicle numbers.

Management
Response
Updated in FAR.

Person Responsible : Head - Finance

Timeline :Closed

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Fixed Assets Repeated Observation Minor
Observations D O  S Implication
2.5 Transfer of ownership from company to • In case of any violations or legal proceedings
employee is pending for cars transferred against vehicle, company will become liable rather
under Own Your Car Scheme: than the employee.
Root Cause(s)
On our verification, noted 1 instance where
• Lack of proper follow up with respect to transfer of
ownership of vehicle (TS02EN1989), is not
transferred from the company to the employee ownership.
Recommendatio
upon completion of term of employment, further
n(s)
the full & final settlement of employee is also • Proper review mechanism should be placed for
closed. transfer of vehicles at the earliest.

However the Chasis number / Engine number of

such vehicle was not provided to ensure the actual Management
transfer of ownership. Further the transfer Response
Out of 2 Cases, Hanumanth Rao's Car not sold - Informed to
documents were not provided for such sale. audit team. 2nd case Venkat narayan applied for name
change with RTO.

Person Responsible : Head - Finance

Timeline : 15th July’2022

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Fixed Assets Repeated Observation Minor
Observations D O S Implication
2.6 Pending traffic challans to be cleared for • Vehicles may be seized during
company owned vehicles : commute/transportation.
Root Cause(s)
On verification through Telangana State Electronic
traffic –challan portal, identified 7 instances with • Lack of timely review over pending traffic challans
pending challans amounting to Rs. 4,785/-. Recommendatio
n(s)
• To ensure compliance with traffic rules and timely
For details, refer annexure: payment of challans.
Management
Response
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Paid

Person Responsible : Head - Finance

Timeline : Closed

Auditor’s Remarks: Dues cleared upon

notification.

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 Process Improvements &
Factual Reporting

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Fixed Assets
Process
Improvement
3.1 Absence of CCTV Surveillance for Main Stores & Stock yard

On Verification, Noted that main stores along with Stock Yard is not equipped with CCTV Surveillance
facility resulting in risk of uncontrolled movement of stores & spares and consumables.

Recommendation:
To install effective CCTV surveillance facility at Main Stores

Management Response:
Stores is just adjutant to Factory main gate which is provided with CCTV. Hence, CCTV requirement at
stores is not required.
Would request to share the benefit analysis on installation of CCTV

Person Responsible : Head Security

Timeline : NA

Auditor’s Comment: Risk of unauthorized movement of stores items and personnel cannot be
monitored and controlled. In order to ensure better security and being an ideal norm, team personnel
being monitored creates awareness and better accountability.

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Inventory
Factual
Implication
Reporting
3.2 Noted instances wherein Stores & Spares • Leads to excess procurement, thus increasing
items are purchased and nil consumption of the cost to the company
the same throughout the year: • Leads to blockage of working capital
• May lead to incurring of excess carrying cost
Noted in case of 15 instances of Stores & spares
materials which are in stock for a period exceeding Recommendatio
one year and are further procured during the year, n(s)
such purchase amounts to Rs. 2.04 Lakhs. • To ensure stock in inventory is consumed or
However there was no consumption recorded started utilization before procurement of new
against these items. quantities.
Management
For more details refer Annexure: Response
All these instances are general consumables
ordered as per need basis.
Microsoft Excel Person responsible: Head - Stores
Worksheet

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For more information, contact:

Thank You
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