SWASA :: PROFESSIONAL ENLIGHTENMENT

1. SWASA :: PROFESSIONAL ENLIGHTENMENT 10th January 2019 swasa@sunca.in

2. Internal Financial Controls (IFC) Presented by M Chaithanya Varma swasa@sunca.in

3. About Internal Controls Over Financial Reporting (ICFR) • As per sec. 134 of the companies Act, 2013, The term “Internal financial control “ means the polices and procedures adopt by the company for ensuring :-  • Efficiency and effectiveness in Operations of its business adherence to company’s policies • Safeguarding of assets • Prevention and detection of fraud and error • Accuracy and completeness of Accounting records • Timely preparation of reliableFinancial information swasa@sunca.in

4. ICFR: Regulatory mandate under Companies Act 2013 Relevant Clause Sections 143(3)(i) Auditor report Requirement The auditor’s report should also state whether the company has adequate IFC system in places and operating effectively of such control.  Applicability Listed/unlisted companies Relevant Clause Section 134(5)(e) Director’s responsibilities statement Requirement In the case of listed company, the director’s responsibility in the states that directors, have laid down IFC to be follow by the company and that such control are adequate and operating effectively. Applicability Listed swasa@sunca.in

5. Contd… Relevant Clause Companies Rule 8(5)(Viii) of companies (Accounts) Rule 2014 Requirements Requires the Board of Director’s report of all the companies to state the details in respect of adequacy of internal financial controls with reference to the “financial statements” only. Applicability All Companies Relevant Clause  Sections 177 Audit committee Requirements  Audit committee call for comments of auditor about internal control systems before their submission to board and may also discuss any related issue with internal and statutory auditor and the management of the company Applicability  Listed/unlisted companies having audit committee  swasa@sunca.in

6. Contd… Relevant Clause Section.149(8) and Schedule VI Independent director  Requirements  The Independent director should satisfy themselves on their integrity of financial information and ensure that financial control and the system of the risk management are robust and defensible. Applicability Listed/unlisted companies having Independent Director swasa@sunca.in

7. Objective Primary objective of IFC to identify opportunities for improvement, and to draw up recommendations and good practices that can use as a benchmark to develop or strengthen their internal control systems and enhance the reliability of their financial statements. swasa@sunca.in

8. Initiative towards IFC ? • Streamline/ Standardising controls • Enhancing the government framework • Reduce Potential Fraud • Enhanced oversight over business operations by the management and the board • Defines clear accountability and transparency • Controls automation swasa@sunca.in

9. Framework for IFC • Control Environment • Risk Assessment • Control Activities • Information & Communication • Monitoring swasa@sunca.in

10. Internal Control over Financial Reporting (ICFR) Internal Control over Financial Reporting (ICFR): • It covers those controls which are elements of Financial Reporting i.e. of balance sheet, profit and loss accounts. • ICFR processes like order to cash, procurement to pay, Human Resource, Inventory Management cover risks only to the extend having direct or indirect impact on financial reporting. • ICFR majorly ensures controls which provide reasonable assurance that financial statement are free from material misstatements. swasa@sunca.in

11. Contd… Internal Financial Control (IFC) • IFC in addition to ICFR, covers controls which ensure efficient and effective functions of business, controls which safeguard assets and ensure compliance of policies. swasa@sunca.in

12. Process division for IFC 1. Procure to Pay 2. Order to Cash 3. Fixed Assets 4. Financial Statements control procedures 5. Human Resource swasa@sunca.in

13. Components of RCM In every process the following is assessed • Sub-process • Risk Description • Control /Financial Statement Assertion - Existence or Occurrence/ Completeness/ Valuation or Allocation/ Rights & Obligations/ Presentation & Disclosure, Anti-Fraud Controls, Safeguarding of Assets • Fraud risk (Y)/(N) • Entity Control • Key control / Non-Key control • Type of control (Manual / Automated) • Nature of control (Preventive / Detective) • Frequency • Control Owner • Impact - Financial Reporting / Operational • Test strategy / Documents examined swasa@sunca.in

14. CONTD… 13. Control operating effectively? (Yes / No) 14. Areas of Improvement / control recommended 1. Management response to recommendation swasa@sunca.in

15. Example for Procure to Pay (P2P) swasa@sunca.in

16. Effectiveness of Controls ensured by • Segregation of duties : : No one person can bypass the system. Duties are segregated with in the department. • Eg : Risk : Large purchase orders are split into smaller values to circumvent the authority matrix • Controls : SAP is enabled to send auto-emails/reminders to Commercial head incase within 7days multiple PO for Same Material raised. • Maker – Checker mechanism : SSC is implemented in each process as checker. • Eg : Risk : Incorrect details captured in vendor database • Control : New vendor creation goes through the maker checker mechanism. • Vendor creation request is raised by the user department along with Vendor registration form. swasa@sunca.in

17. Flow of Material code Creation and Purchase Request release Mechanism • Purchase Requisition will be raised by User. • PR should be approved though SAP. Before Approval stores person will check the availability of Material. If material not available Check for Material code • If material is available • Cancel the PR Requirement will be fulfilled PR Approval.docx Once stores person released PR it will be approved by User HOD. Then an SAP alert will be triggered to Commercial team. SSC will get a alert mail and SSC team will approve after checking accounting classifications and grouping If new material he will create a material code swasa@sunca.in

18. While Delivery of material once material reached factory Gate entry will be made which is based on PO (System control) Once PO is Released order will be placed to vendor and he will deliver material to respective plant After gate pass goods will move into factory and GRN will be generated. GRN can’t be generated unless gate pass num entered Flow of GRN, Invoice booking and Payment of liability SSC team after receiving the invoice from plant they will post invoice and liability will be booked • There is another check is implemented GRN can’t be more than PO in Quantity • Once GRN is over invoice will be handed over to finance team. • Finance will scan the invoice and will be sent to SSC • Once it approved it will uploaded into bank site and there are two checks are implemented, if ID;s approved then Payment will be made to vendor • SSC team will initiate the payment proposal and it will approved at various levels • Once liability is booked SSC payable team will daily run due report in that respective liability will be captured by displaying the advance already paid. swasa@sunca.in

19. Thank You swasa@sunca.in