INTERNAL AUDIT REPORT FOR THE PERIOD APRIL TO JUNE-2013

We have conducted internal audit of Adarsh Capital Hotel Site for the above mentioned period and came
across certain internal control weaknesses and lapses during the course of the audit, which we are
highlighting in this report. The purposes of audit is independent examination and assessment on the
management controls and procedures by employing sampling techniques, spot checks, system appraisal
techniques and risk analysis, and thereafter examines and comment on material consumption, stocks,
material re-conciliation, major expenses and compliances.

The Scope of the internal audit was checking the efficiency & effectiveness of the internal controls and
verification of related records. Further we have given department wise recommendations for rectifying /
strengthening the same. We believe that the given recommendations shall improve the existing controls.

The data generated from various internal reports was collated and analyzed on various parameters;
subsequently explanations thereon get from site management. In carrying out the audit we have given
emphasis on introducing systems and procedures to enable the company carry on the operations in a
smooth way with better internal control systems. However the clerical errors which were rectified then
and there during the course of our audit and other matters, which in our opinion are not material, have
not been dealt with in this report.

During the course of our audit, we have covered the following areas for audit observations. These are the
preliminary audit observations and are subject matter of discussion with site officials & RO
management:-

1. Brief About Project

2. Cash Transactions
3. Bank Transactions
4. Bank Reconciliations Statements
5. Journal Transactions
6. Purchase Transactions (Direct & Through PO)
7. Work Order & Job Entry Sheet
8. Store Verification (Material In-Out, Issue, Transfer etc.)
9. Physical Material & Fixed Assets Verification
10. Contractors & Service Vendor Billing Reconciliation
11. Suppliers Billing Reconciliation
12. Client Billing & MIR Reconciliation Report
13. Labour Mustrolls & Form-11 with Time Keepers Records
14. Debtors/Creditors Ageing
15. Debit/ Credit Notes
16. Insurance & Safety Policy Verification
17. Taxation Matters (VAT, Service Tax, TDS, PT) Payments & Returns
18. Other Areas (Department-wise major issues)
1. BRIEF ABOUT PROJECT

Project – Adarsh Capital Hotel

 Client Name :- Adarsh Developers

 Project Co-coordinator:- Mr. Suresh Singh

 Project Value :-

Civil & Structural 432,478,657.07

Total Value 432,478,657.07

 Date of Commencement :-

As per LOI 15th April, 2010

As per schedule 15th April, 2010

 Date of Completion :-

As per LOI 15th August ,2011

As per schedule 30th September, 2013

 Brief Details :-

 This is a Hotel Building situated in Vasanthnagar, Bangalore.

 It contains 3 Basement+Ground+17 Upper Floors.
 It contains total 420 Rooms.
 Lift machine room and OHT in progress, rest all has been completed.

 Major Issue with Client :-

 NT items work order is to be finalized yet.

 Payment of RA Bills is pending from June month.
 RA bill for above terrace works is to be revised and differential amount is to be paid.
 To Achieve Project in time, because as per original LOI time has been lapsed; now schedule
has been revised to complete on time, but still target billing is not achieved by site officials.
 In Quality issues client claimed that there was no proper slab casting at some places and
some staircase were not in proper size & shape. The same has been pictured hereunder:-
 Cumulative Profitability Statement:-

Notes:-
1. In above figure June month bill amounting Rs. 61, 89, 890/- (RA Bill No. - 37) has not certified yet.
2. RA Bill- 36 (May, 2013) amounting Rs. 57, 79, 821/- has been certified with old rates, its needs to
be revised with new tax rates.
3. Depreciation of Fixed Assets, Interest cost of Capital deployed not taken.
4. Head Office Overheads is also not taken for this analysis.
5. Rental of Plant & Machinery has not been considered. If we considered the same also
(i.e. ` 23,995,071/- rental) then total cumulative profit would be . ` 51,290,547/- (i.e. 11%) till
date.

We have also compared the actual exp. with budgeted figure and found that increment in actual exp. is
due to material and Labour, which needs to control and proper care. The comparison summary is shown
hereunder for your reference:-

Comparison of Budgeted vs. Actual Expenses

Particulars Budget Actual Diff.
EHS & Establishment 5.80% 5.90% 0.10%
Labour 10.28% 18.77% 8.49%
Material 56.42% 72.43% 16.01%
Water/ Electricity/ Tool/ Plant 3.40% 2.65% -0.75%
Total 75.90% 99.75% -23.85%
Profit 24.10% 0.25%

Note: - As per site officials reason for hike in above mentioned expenses due to delay of project .
 Billing & Payment Status:-
  Work Done & RA Bill Progress:-

The project commenced in the month of April, 2010. The contract delivery period is 16 months, i.e. the
project is to be concluded by August, 2011.

There is a provision of LD (Penalty) in the contract, which has been already expired due to delay of
project and same has not been revised till date.

As we can see only 30% work has been done till 30 th June, 2013. It should be 91% as 14.5 months
lapsed out of 16 months as per original LOI, but now date of completion has been reschedule to
September, 2013, but in this regards we didn’t received copy of any written communication
confirming the acceptance of the same by client also.

We have made a summary of target billing to complete project on time: -

Note:- As per present scenario ,on the basis of current average per month billing total delay in
project would be 4 months from revised schedule date (i.e. it will complete on 31 st January, 2014).

 Summary Reconciliation Statements:-

Note: - Wastage in all materials are so high, that is not acceptable. RMC Reconciliation Report
given by site officials is wrong and for that we had informed to them for correction but till date we
get no response from site officials.

Note: - We have noticed that there is lack of proper coordination between store & billing officials,
because of this the data provided by both dept. doesn’t match and there is huge gap in it. Due to this
reconciliation statements prepared by billing persons were not proper. We have also noticed that all
the reconciliation (Except steel & RMC) has been prepared only after our asking for the same,
otherwise till date no reconciliation has been made for all these materials.

Further we would like to suggest that to remove this obstacle site project manager needs to take
proper action and follow-up, so that procedure could be operate in more smooth & better way.

Note: - We have not received proper details for PC vs. Client reconciliation statement. In this
situation we are unable to comment on this topic.

2. CASH TRANSACTIONS

We have verified the cash transactions with the help of cash vouchers and their respective supporting
attached therewith. We subsequently traced them into cash book and found the same to be in order.

Further some cash expenses which are directly paid at side level have been analyzed head wise as below:
We have verified the physical cash as on 19th August, 2013 with the book balance as on the date. The
Details of Physical cash with cash book is as under:

Amount Amount
Particulars
(`) (`)
Balance as per cash book 55,507.00
55,507.00
Less:-
IOU to Store Deptt. For Daily Exp. 13,582.00
Unbooked Cash Vouchers 8,855.00 22,437.00

Net Cash in Hand 33,070.00

Physical Cash on Verification 33,070.00
Variance Nil

3. BANK TRANSACTIONS

Bank Transactions are handled from regional office on consolidation basis for all sites and respective
vouchers with their supporting have been maintained at regional office.

4. BANK RECONCILIATION STATEMENTS

Bank Reconciliation Statement is prepared from regional office on consolidation basis for all sites at
regular interval. On verification we found that Bank Reconciliation Statement for various bank accounts
has been prepared up to June, 2013 and same has been proper match with bank balance.
5. JOURNAL TRANSACTIONS

We have verified the journal vouchers with necessary documents for the period under review and noticed
that rent payment for guest house is directly booked under bank book without JV, which is not proper. It
should be booked through JV on monthly basis, so that proper liability could be traced at the year end and
accordingly provision for the same could be made in books.

6. PURCHASE TRANSACTIONS (DIRECT & THROUGH P.O.)

We have verified the purchases made by site with the help of purchase orders, invoices and other related
documents. During the process of verification we found that there is proper system of purchase has been
established by company & same has been followed by site level officials, but some discrepancies have
been noticed during the course of audit. We subsequently traced them into NAV in order to ensure that all
the procedures will properly followed and found the same to be in order in next audit.

The details of purchases where PO has been issued after receiving of Purchase Invoices are annexed vide
Annexure-I.

Purchase orders pending for approval as on 12th August, 2013 are annexed vide Annexure-II.

On Verification we found that direct cash purchase was so much at site on daily basis, for which PO route
is required. The details of the cash purchase (more than ` 1000/-) are annexed vide Annexure-III.

We also found that while posting of direct purchase vouchers in NAV wrong cost center dimension has
been selected. The detail of the same are annexed vide Annexure-IV.

Further we checked that after receiving of material in store invoices has not been entered in NAV timely.
After invoice entry in NAV, approval has been required to post the same for payment but we noticed that
some invoices is still pending for approval from R.O. side & after approval same has also pending for
posting.

The details of Invoices pending for approval as on 12th August, 2013 are annexed vide Annexure-V.

The details of approved invoices pending for posting as on 12 th August, 2013 are annexed vide Annexure-
VI.

7. WORK ORDER & JOB ENTRY SHEETS

We have verified Work Order/JES prepared by regional officials for Adarsh Capital Hotel Site. On
Verification we found that terms and conditions mentioned in original LOI doesn’t match with NAV work
orders terms and conditions. We have also found that there were lots of clerical mistakes in work orders.

We also found that some other work orders were showing under pending for approval, which is closed
already and needs to be cancelled. The details of the same are hereunder:-
Further we found that some dummy JES created in 2010-11 & 2011-12 is still showing under pending for
approval & invoicing, which needs to be cancelled. The details of the same are hereunder:-

8. STORE VERFICATION (MATERIAL IN-OUT, ISSUE, TRANSFER ETC.)

We have verified the store records regarding material in-out, issue and transfer at site. On verification we
found that GRN/gate pass inward is proper recorded in Material Receipt Register.

We have verified the stock transfers (in-out) with the help of gate-pass and their respective indents. We
subsequently traced them into stock transfer register in order to ensure that all the transfer orders were
properly entered and found the some transfer note is still pending for posting.

On verification we found that items segregation into FA & Inventory is not proper. Many Items has
been shown under Inventory as well as FA also. These items needs to be segregate properly & should
be shown under 1 head (Either Inventory or FA), so that exact quantity of that material could be
matched.

9. PHYSICAL MATERIAL & FIXED ASSEST VERIFICATION

We have verified the stock lying at the Store of the site on 8th August, 2013 and matched with NAV Stock.
The details of stock are annexed vide Annexure-VII.
We have also verified the fixed assets lying at site on 6th August, 2013 and matched with NAV records. The
details of the same are annexed vide Annexure-VIII.

The details of Non-Moving & Scrapped items are shown hereunder:-

10. CONTRACTOR & SERVICE VENDORS BILLING RECONCILIATION

We have checked petty contractors and service vendor’s work-orders and invoices submitted to them and
found that same to be in order.

We did not get proper details for PC vs. Client billing reconciliation report. In this situation we are
unable to comment on this topic.

11. SUPPLIERS BILLING RECONCILIATION

We have checked that supplier’s reconciliation has been done at regional office level on consolidation
basis for major suppliers. Further we noticed that reconciliation has been done only for Cement, RMC &
Steel suppliers, for other suppliers balance has been not reconciled. We suggest to regional officials that
reconciliation should be done for all suppliers at regular interval, so that we can cross check our liability
with vender ledger and settle their balance accordingly.

The details of Total Unbooked Expenses up to the month of June are shown hereunder:-
12. CLIENT BILLING & MIR RECONCILIATION REPORT

We have checked RA Bills (RA-35, 36 & 37) submitted to client with supporting BOQ & Abstract and found
that RA Bill- 37 has not been certified yet. We also found that RA Bill- 36 has been certified with old rates
and its need to be revised. Payment against those RA Bills has not been received from client till date. The
summary of total certified bills up to date is annexed vide Annexure-IX.

We have checked Steel & RMC reconciliation reports for the period April to June, 2013 and found that
wastage were high in case of concrete. The Summary of the same is shown hereunder:-

Note: - Regarding RMC Reconciliation Report the data provided by site officials is not correct.
We have follow-up billing persons many times to rectify that, but no any details have been provided
by site officials till date.

We have also prepared a reconciliation statement for total receipt & consumption as on 30 th June, 2013 of
major accessories materials required at site for working. The summary of the same are shown
hereunder:-
13. LABOUR MUSTROLLS & FORM-11 WITH TIME KEEPER RECORDS

We have verified the Labour Mustrolls prepared by site officials & contractors (in case of supply labour)
and found the same to be in order. Further we have informed by RO officials that physical attendance of
laboures is taken 3 times in a day by time office at site, but we found that in real it’s taken only once. We
physically verified the laboures attendance records maintained by time-keeper at site office on 07 th
August, 2013. The details of the same are hereunder:-
Further we have noticed that labour thumb impression/signature were not matched with Form-2 vs.
Form-11/Mustrolls, due to this justification of wages payment is not possible. We suggested to time
officials to make a uniform method (Either thumb impression Or Signature) to avoid this type of
situations and if we want to improve this discrepancies in more better manner then we should collect
photograph of laboures at the time of joining for future reference.

14. DEBTORS/CREDITORS VERIFICATION

We have verified debtors balance as on date and found that some debtors have debit balance on account.
The details of the same are annexed vide Annexure-X.

We have verified creditors balance as on date. The details of the same are annexed vide Annexure-XI.

We have trace out some debtors/ creditors ledger balance, in which there is no movement form last 1
year. The details of same are shown hereunder:-
15. DEBIT/CREDIT NOTES

We have verified debit/credit notes issued by regional officials to various parties and found that some
debit notes are still pending for approval. The details of the same are annexed vide Annexure-XII.
16. INSURANCE & SAFETY POLICY VERIFICATION

We have verified CAR (Contract All Risk) and WC (Workmen Compensation) policies cover notes. On
verification we found that CAR policy covers 100% of Project Value and WC policy covers 150 employees
(Workers) of company. The details regarding policy no. , sum assured, premium paid & others are
annexed vide Annexure-XIII.

Further we have noticed that service tax paid on insurance premium amount has not been taken as tax
credit. The details of the same are hereunder:-

17. TAXATION MATTERS (VAT,SERVICE TAX, TDS & PT) PAYMENTS & RETURNS

Taxation Matters (VAT, Service Tax, TDS, and PT) is handled from regional office level. We have verified
VAT payments and returns attaching supporting documents filed with department and found same to be
in order. The Summary of VAT Report is annexed vide Annexure-XIV.

For service tax, TDS and PT related matters we have informed by regional officials that same is handled
from head office.

18. OTHER AREAS

Key Issues/Suggestions Department Wise

S.No. Department Key Issues & Suggestions

 Work Order terms & condition should be match with LOI and
Work-Order same should also be uploaded in NAV.
1.
 Pending/ Dummy Work Orders needs to be cancelled at regular
interval.
2. Accounts
 Party Ledger Entries (For Invoice payment) should apply in NAV
after payment, so that proper debtors ageing could be done.

 Expenses of March month should be booked in March only, or it

should be shown as payable in books, so that proper financial
position could be trace out.

 Material Suppliers Ledgers has been not reconciled by regional

 officials. It should be reconciled on regular interval so that proper
liability could be recognized.

 Billing dept. officials should streamline petty contractors to

submit monthly PC Bills till 10th of following month, so that
invoicing for the same could be done on timely.
3. Billing
 PC Bills should accept, only if given on proper Letter-head of
contractors.

 GRN & Invoices should be updated as soon as material is received

at site.

 PO (Described with particular brand material) should be match

with Material Received against that PO and in case of
discrepancies the same should be debited to party with
differential amount with proper debit note.

 Scrap/Repairable Stock & FA Report should prepare on Quarterly

basis by store dept.

 Monthly NAV Stock & FA should be physically verified by store

4. Store
dept. and should report for Non-Moving Material / Critical Urgent
material.

 Scrap disposal system is not proper, so for this store dept. should
prepare quarterly report for scrap material & send it to RO
officials, so that necessary action could be taken by RO for
dispose-off the same.

 Monthly Purchase Report should be completed till 15th of every

month (Including Approval of invoices/ Posting of Invoices), so
that VAT Report could generate properly on time in more
effective manner.

 Open Indent/GRN/PO/Work Order should be closed after a

reasonable period.
5. IT
 All Systems at site are slow & outdated and these took lots of
time to generate any report. Need to replace with new systems.

 Labour Report Format is varied from site to site and having not
6. HR
proper classification of laboures. Need to be revised from RO
level.