Case Study

Oiltech - an Oil & Gas company sponsored and awarded the prospects analysis projects for Geo-chemical analysis to a chemical analysis company M/s Chem Tech India. The companies entered into a written contract signed by Mr. Muttuswamy, CEO of M/s Chem Tech and by Mr. Rajeshwar Iyer the President of Oiltech. The jobs pertained to work required for NELP Blocks operated by Oiltech with other consortium partners. As per Minimum Work Program (MWP) of four JV Blocks under NELP, the Geo-Chemical Study was scheduled during the year 2007-08, which was also mentioned in the letter from the Oiltech written in the month of March-2007 to M/s Chem Tech India. As per MWP requirement of the NELP Block, the issuing of final report was to be submitted by March-2008 by Oiltech. In order to ensure proper maintenance, calibration and functioning of the state of art equipments, the chemical analysis company M/s Chem Tech India entered in an annual maintenance contract (AMC) with M/s Maintenance Pvt Ltd, Mumbai for maintenance of their equipments like Carbon Analyzer, TLC-FID analyzer, GC-MS-MS, PYGC-MS-MS etc on 11.02.2008 w.e.f. 01.01.2007 to 30.12.2010. The usage of equipments at M/s Chem Tech India along with their working status even after the expiry of the contract with Oiltech is as follows: Carbon Analyzer is used to study the organic matter reaches of the sediments determining total organic Carbon present in the sediments. TLC-FID analyzer is used for Group type compounds separation like saturated, aromatic, asphaltins and resins. TLC-FID analyzer is now unable to plot the peeks and is giving the concentration only since last ten months. GC-MS-MS which is used for analyzing saturated and aromatic compounds, coeluting compounds, diamondoids etc. has been calibrated with a standard, the date of which has expired three months back. PYGC-MS-MS is used for carrying out GC-MS-MS analysis directly on sediment samples and it saves the analyst from additional tasks of extraction and column chromatography processes. However, PY GC-MS MS could not be put to use for two months for lack of argon gas. Mr. R. K. Desai, I/c Labs of M/s Chem Tech India informed that the matter has already been brought to the knowledge of Mr. Muttuswamy, the CEO and further informed that PY GC-MS MS was non-functional due to shortage of pyroprobes and no samples could so far be analyzed since last four months even when the argon gas was now procured. This machine is still under warranty. As per the contract entered the payment to the AMC agency M/s Maintenance Pvt. Ltd, Mumbai is supposed to be done only after satisfactory job done is recorded by the users

i.e. M/s Chem Tech India. The AMC firm has not provided the services for the preventive maintenance as per schedule in the agreement as their service engineer has been suffering from swine flu. The contract states that in cases of delay / no service being rendered, the firm M/s Maintenance Pvt Ltd is liable for the liquidated damage at the rates stipulated in the agreement. Nevertheless out of oversight the payment was released against an invoice raised by the AMC Company for the entire period without any LD being deducted to M/s Maintenance Pvt Ltd. Mr. Muttuswamy opined that such instances do happen and cannot be avoided. He also informed that as M/s Maintenance Pvt. Ltd. is sisters concern of M/s Chem Tech India such payments and that too in laks hardly makes a difference. Meanwhile apart from the four projects for Geo-chemical Analysis sponsored and awarded by Oiltech for prospects analysis to the chemical analysis company, M/s Chem Tech India undertook another project in parallel to this current project which was awarded by Oiltech and this parallel project was pertaining to Blocks XYZ-2004/9 and XYZ-2004/9a. Although the above two projects were not awarded to the chemical analysis company M/s Chem Tech and were outsourced to some other company i.e. M/s EFG Chemicals International, but the same were taken as per the directions of Vice-president of the company M/s Chem Tech for benchmarking purposes only and which was a non-priority project. Due to certain reasons there was a delay in issuing of report by M/s Chem Tech India. Sampling, testing and interpretation were also delayed and could not be done as one machine was out of use for want of spares and another required calibration. Hence report was issued after the scheduled time as in the contract entered between Oiltech & Chem Tech India. The dates of issuing of Draft Report and Final Reports are given as below: NELP Block PQR STU VWX YZA Date of Draft Report March-2008 December-2008 August-2008 December-2008 Date of Final Report December-2008 March-2009 December-2008 March-2009

As an auditor you are required to come out with: 1. The observations / audit findings in respect of the case mentioned above. 2. The risks perceived / involved and 3. The recommendations 4. Your comments about the completeness of information collected by the auditor.

Observations / audit findings:

Risk:

Recommendation:

Comments about the completeness of information collected by the auditor: