PROPOSAL FOR INTERNAL AUDIT

ZENOTECH LABORATORIES LTD., (ZLL)

HYDERABAD

MALHOTRA RAJIV & CO (MRC) CHARTERED ACCOUNTANTS 454, TOWER B2, SPAZE ITECH PARK, SECTOR 49, SOHNA ROAD GURGAON122001 +91-988404808 0124-4036462

INDEX

S. NO. 1. 2. 3. 4. 5. 6.

PARTICULARS Objective of the Internal Audit Scope and limitation Responsibility Matrix Service Delivery Framework Reporting Commercials

PAGE NO. 3 3 4 4 4 5

1. OBJECTIVE Of THE INTERNAL AUDIT: To review the internal control system as a service to the organization. It objectively examines, evaluates and reports on the adequacy of key controls and ensuring implementation of adequate control environment and governance. 2. SCOPE & LIMITATION: 2.1 Scope of the work: Internal audit will have the following broad components Audit of primary and subsidiary records i.e. cash book, bank and cash, vouchers, journal vouchers, invoices, suppliers ledgers, fixed assets registers, sundry debtors and creditors etc. Inventory audit (includes periodic physical verification two times a year). Review of systems and procedures and internal control across various departments to ascertain their continued adequacy, effectiveness and efficiency. Detailed scope document in annexure A. Management desires that scope of internal audit is extended to cover designing and implementation of a Management Information System (MIS).We will be pleased to implement the same per requirement of the management.

2.2 Scope Restriction: Fields of internal audit and internal control are distinct. Any system of internal audit presupposes the existence of system of proper and effective internal checks. Internal Checks is the responsibility of the line supervisors in all departments. The appraisal of these internal checks will be one of the functions of internal audit. If there is any issue involved is complex, requiring detailed analysis and research, a ' separ te scope and fee for the assignment will be discussed and mutually agreed with the client, before the start of the assignment. We would normally propose issuing a separate statement of work for any such substantial advisory work. The scope of work outlined above is based on our understanding as discussed in the aforesaid background. If there is a change in facts/our understanding, our scope of work shall necessitate appropriate changes. We will rely upon management representations, records produced and information provided by the management and other concerned personnel of the company. MRC is not in any manner responsible to any party who is relying on the report except the management of ZLL.

3. RESPONSIBILITY MATRIX: The activity based responsibility matrix for the above mentioned process is tabulate as under: S. No 1. Activity Policies & Procedures Delegation of Authority) (Including Responsible ZLL
Remarks

2. 3. 4.

Review of Effectiveness in the control Check the effectiveness in the control Reporting

ZLL MRC MRC

Company will Provide its policies and procedures (SOPs) for various departments (Including DOA) the supervision of the Under Management Will do checks according to companys policies and procedures (SOPs) Will give monthly and a Quarterly Report to CEO/Head Finance.

4. SERVICE DELIVERY FRAMEWORK: 4.1 Team Structure ZLL and MRC respectively establish a Single point of contact (SPOC) from their end that they represent and interact to get the things delivered as per the objectives of this proposal. Based on the discussion and workload, MRC will allocate the resources under the SPOC to achieve the purpose of the assignment. 4.2 WORK LOCATION The entire back office activity will be executed from MRC premises at Hyderabad. The field work will be done at the clients at Factory Location in Turkpally. Upon their visit to the office, Client will provide the necessary infrastructure such as seating area workstation etc in their premises to that audit team to perform their job efficiently. 5. REPORTING There will be two types of Reports i.e.Monthly and Quarterly.

6.1 Monthly Report:

It is for Management Review, Primarily the coverage will the procedural aspects including all Bank and cash transactions, sales, purchases, journal vouchers, statutory compliances,related party transactions, forex transactions. Any special report required by the management.

6.2 Quarterly Report:

It is a report for Audit Committee, covering all the significant observations, especially the policy deviations in the Monthly Reports of the quarter and comparison with the previous quarter. It also covers any specific/special areas as per the observa tions or recommendations of 4

the Audit Committee. Frequency of Audit will be Monthly & Quarterly. 5.1 Quarterly Report: It is a report for management, covering all the significant observations especially the policy deviations and comparison with the previous quarter including Analysis Review Documents. It also covers any specific /special areas as per the observation or recommendation of the audit committee.

6. COMMERCIALS: 6.1 Quarterly Fee The quarterly fee for the audit is of Rs 45,000 per quarter. (Plus Service Tax) and no other reimbursement of any kind will be given over and above this amount of Rs 45000/- per quarter. The fees for the quarter will accrue & become due only on successful submission of the report for the quarter. 6.2 Billing Methodology We raise the quarterly service bill by the following month after quarter end. Annexure A: Monthly Audit Report Dates Remarks
7 of the following month 9th to 16th of the following month
th

S.No 1.

Activity
Quarterly input/Books Closure

2.

Field Work

3.

First Draft Report with Audit Observations Comments/ Explanations by Mgt Final Report

20th of the following month after month Ends 25th of the following month after month Ends 30th of the following month after month Ends

4. 5.

An Intimation in Advance shall be send by ZLL READY FOR FIELD WORK to MRC A Team of Audit staff will be deployed at Factory Work as per the Standard Audit Program for Quarter. Scope will be agreed with the management. Draft report will be delivered for the internal review by the Management and Comments/ Explanations Memorandum of Comments/ Explanations from the Management Final Print Report will be issued highlighting key issues/weaknesses observed during the quarter.

Responsibility ZLL

MRC

MRC

ZLL

MRC

Quarterly Audit Work 1 Quarterly Closure input/ Books 7th of the following month after Quarter Ends An Intimation in Advance ZLL shall be send by ZLL READY FOR FIELD WORK to MRC 6

Field Work

9th to 20th of the following month after Quarter Ends

A Team of Audit staff will be MRC deployed at Factory Work as per the Standard Audit Program for Quarter. Scope will be agreed with the management. Draft report will be delivered MRC for the internal review by the Management and Comments/ Explanations Memorandum of Comments/ Explanations from the Management ZLL

First Draft Report with 25th of the Audit following month Observations after Quarter Ends Comments/ Explanations by Mgt 27th of the following month after Quarter Ends 30th of the following month after Quarter Ends

Final Report

Final Print Report will be MRC issued highlighting key issues/weaknesses observed during the quarter.

Should further discussions be required, management will duly inform MRC.

Quarterly Audit Committee(AC) Meeting 1 Advance intimation/Notice of AC Attending AC Meeting As per the Notice of the AC Meeting Mgt Schedule On the date of AC Meeting Within 10 working days after the date of AC meeting As per the Agenda in relation to Internal Audit Based on the Audit Committee Observations/ Recommendations, ATRs shall be prepared to present in next quarter AC meeting ZLL

ZLL MRC ZLL MRC

&

Review of the Minutes of AC & Preparation Action Taken Reports(ATR)

&

Note: Assumptions: 1. Month is considering as Calendar Month 2. Factory Holidays and Public Holidays to be adjusted to the above schedule dates.