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DEPARTMENT OF ACCOUNTING & INFORMATION SYSTEMS

BBA Program

INTERNSHIP REPORT ON

THE INTERNAL CONTROL SYSTEM OF

TITAS GAS TRANSMISSION & DISTRIBUTION CO LTD.

SUBMITTED TO

Md. Safayat Hossain

Lecturer

Department of Accounting & Information Systems

University of Dhaka

SUBMITTED BY

Alokananda Bhowmik

ID No. 15061

Department of Accounting & Information systems

University of Dhaka

DATE OF SUBMISSION: 25th February, 20

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LETTER OF TRANSMITTAL

Date: February 25, 2013

Md. Safayat Hossain

Lecturer

Department of Accounting & Information Systems

University of Dhaka.

Subject: Submission of Internship Report.

Respected Sir,

With great gratification, I am here with submitting my Internship Report on “The Internal Control System of Titas Gas T&D Co. Ltd.” that you have assigned me as an essential requirement of the internship program.

To prepare the report I collected what I believe to be most relevant information to make my report as analytical and reliable as possible. But it was an enormous task to present the data in the right way. I have concentrated my best effort to achieve the objectives of the report and hope that my endeavor will serve the purpose. I request you to excuse me for any mistake that may occur in the report despite of my best effort. I sincerely hope that you would consider my endeavor and will find this report satisfactory.

Thank you again for your support and patience.

Yours sincerely,

Alokananda Bhowmik

ID: 15061

Accounting & Information Systems

University of Dhaka.

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ACKNOWLEDGEMENT

Successful conclusion of any course requires support from various personnel and I was fortunate

to have that support, direction, and supervision in every aspect from my teacher, Titas officials

and friends.

First of all, I pay my gratitude to the omnipresent Almighty for enabling me to complete this

Internship Report within due course of time.

I am deeply indebted to my faculty Mr. Md. Safayat Hossain, Lecturer, Department of

Accounting & Information Systems, University of Dhaka for his whole-hearted supervision

during my organizational attachment period. My appreciation and gratefulness also goes to Mr.

Humayun Kabir Khan, manager of Accounts Section, as my organizational supervisor. It would

have been very difficult to prepare this report up to this mark without their guidance.

My gratitude goes to the entire Department of Accounting & Information systems of University

of Dhaka for arranging Internship Program that facilitates integration of theoretical knowledge

with real life situation.

I also show my utmost thankfulness to all the officials of Titas Gas T&D Co Ltd. The speed and

helpfulness of the officers really helped me in obtaining the necessary information in time. I

would also like to thank Mr. Md. Abdul Aziz khan, Managing Director of Titas Gas T&D Co.

Ltd. who made the door of Titas wide open for me and Mr. Sankar Kumar Das, Director

(Finance) for his kind concern and helpfulness during my stay at Titas.

And finally, words are very few to express my enormous humble thanks to my affectionate

parents for their prayers and supports that enabled me to conclude my internship program.

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EXECUTIVE SUMMARY

Titas Gas Transmission & Distribution Company Limited is the largest integrated natural gas

distributor in Bangladesh serving more than 15 million consumers in Dhaka and Mymensingh.

The company has more than 50 years of experience in operation and maintenance of gas

transmission and distribution system. Its activities also include planning, designing and

maintenance of pipelines for gas transmission. Titas operates in a region of the country that has a

rapidly growing demand for natural gas and power generation due to significant industrial

development.

Internal control systems is a topical issue following global fraudulent financial reporting and

accounting scandals in both developed and developing countries. A proactive preventive

approach to the problem requires a critical evaluation of existing internal control structures in

organizations to determine their capacity to ensure that the organization’s activities are carried

out in accordance with established goals, policies and procedures.

In this report, an attempt was made to know about the internal control system of Titas. There is

several global guidance setting bodies that provides general guideline to the professionals

regarding the internal control system. An endeavor was made to describe the internal control of

Titas according to those established guidelines and finally recommendations were made to the

inconsistencies that were noticed during the preparation of the report.

The report contains 4 chapters. In the introductory chapter, objectives, methodology and

limitations of the study were mentioned. The second chapter is based on literature review. It

contains the Internal Control frameworks recommended by various international guidance-

setting organizations like COSO and ICGN. In the third chapter, a historical overview of Titas

was given. Internal control system of Titas was also discussed in this chapter. In the fourth

chapter, an analytical evaluation was made regarding the presence of internal control in Titas and

various deficiencies therein were identified. Later recommendations for the remedial of the

problems identified were also given.

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TABLE OF CONTENTS

CHAPTERS TOPICS PAGE NO.

Chapter 1 Introduction

1.1 Background of the Report 1

1.2 Objectives of the Report 2

1.3 Methodology 3

1.4 Limitations 5

Chapter 2 Literature Review 6

2.1 Committee of Sponsoring

Organization (COSO)

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2.2 ICGN Framework 12

Chapter 3 Titas & Its Internal Control

System

3.1 History of Titas 13

3.2 Description of Control

Established by Titas

15

3.3 Evaluation of Internal Control

established by Titas

23

Chapter 4 Discussion & Findings

4.0 Discussions & Findings 30

4.1 Weaknesses 34

Recommendations 36

Conclusion 38

Reference 39

Appendix 41

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Acronyms

BGFCL: Bangladesh Gas Field Company Ltd.

CBA: Collective Bargaining Agreements

CG: Corporate Governance

COSO: Committee for sponsoring Organization

ERP: Enterprise Resource Planning

GTCL: Gas Transmission Company Ltd.

ICGN: International Corporate Governance Network

IOC: International Oil Company

T&D: Transmission & Distribution

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CHAPTER 1

INTRODUCTION

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1.0. Introduction

1.1. Background of the report

Natural gas contributes the lion’s share in our total energy sector. Exploration by the public

companies along with the foreign companies (IOCs) has established the existence of a significant

gas sources. Still the amount of extractable reserve of natural gas is uncertain and yet to

determine. Titas Gas Transmission & Distribution Co. Ltd. (from now on Titas) is the country’s

largest integrated gas company meeting 63 per cent of the total gas demand, serves in two most

populated and industrially flourished region of the country.

Titas is a government owned company which off-loaded its 25 per cent ownership in the share

market just 4 years ago. Still its operation is hugely controlled by the government due to the fact

that it is mostly state owned and that it deals with public resource. Better management of overall

functionality will be hampered if good and efficient internal control system is not present in any

entity. Internal control system is implied in every organizations and their nature is the same. But

the objectives they are intended to achieve will be mostly dependent on the nature and objectives

of the organization. In line with the common practice all over the world, Titas has its own

internal control which ensures that good corporate governance does prevail in the company.

This report is an essential requirement of the internship program for successful completion of

BBA course. Practical experiences along with the class-room experience make our learning

sustainable and implementable. For that purpose, the university authority has attached me to

Titas Gas T&D Co. Ltd and my supervisor assigned me to work on internal control system of

that company.

Internal control systems are essential to the success and endurance of any organization. They

keep the organization on the rails. This report discusses the internal control system of Titas

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which attempts to identify various control mechanisms, the problems therein, the reasons for

such inconsistencies and finally some recommendations were made to overcome the short-

comings of the system.

During my six weeks time at Titas, I worked in the Accounts Department under the Finance

Division. The Accounts department has four sections and I got the opportunity to overview the

activities of all the four sections. Most of the time, I worked with accounting related issues and

get introduced with the existing internal control system through my day to day work. Besides,

discussion with management of Titas put light into the issue and helped me to identify the major

control mechanisms.

Efficiency of operation is increased if a sound accounting mechanism is in place. In my six week

time at Titas, I learned that Titas has its own internal control system which is directed towards

better operational management, financial reporting and compliance with the rules & regulations.

And all these things make Titas to some extent different from the other government and non-

government organizations.

1.2. Objectives of the Paper

This paper evaluates the existing internal control systems of Titas directed towards the

management of the organizations. Specifically, the paper:

Ascertains whether internal control exists in the organization to ensure that it is running

in the intended direction

Examines whether such control is effective or otherwise and whether such control

systems comply with globally-accepted internal control mechanisms or the international

standards

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Attempts to identify the shortfall of the control system and tries to recommend some

remedies.

The objectives raise a vital question whether or not the existing internal control systems in Titas

are effective. This includes the following minor but inter-related questions:

What role should internal control system play in the management of Titas? Does

management of the company appreciate, understand, and clearly respond to this role?

What internal control systems are currently in use? Do they include all the expected

elements of internal control systems?

To get the answer of the above questions certain methods were adopted for the investigation. In

the later part of the paper, discussions were made on the selected methods and tried to justify

such selection.

1.3. Methodology

As the report pertains to describe the internal control system of Titas which is pervasive but is

not a very easy task to rules out in paper , this study tried to discuss the internal control based on

two frameworks-

Framework of the Committee of Sponsoring Organizations (COSO) of the Treadway

Commission &

The International Corporate Governance Network (ICGN) framework

In case of qualitative research, several research methods are available, such as- grounded theory,

ethnographic, phenomenology, case study etc. The study uses a case study method. The

justification is that the study investigates details of a real life phenomenon using multiple sources

of evidence. The sources of evidence are data collected through: interviews, observations, and

documentary analysis, extraction of data and information specific to an organization and use of

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confidential information tailored to suit the study. This method aims at the comprehensive

understanding of a single, distinctive case.

Earl Babbie (1998) supports the choice saying that whereas most research attempts to limit the

number of variables considered, the case study seeks to maximize them. Ultimately, the

researcher executing a case study typically seeks insights that will have a more generalized

applicability beyond a single case under study. In view of the fact that this study involves an

investigation of whether internal control systems established by Titas are effective, the case

study method is used.

Keeping the research approaches in mind, this study will go for deductive method where

relationships among different variables will be established and a structured method (in this case

the framework depicted in Figure 2) will be used.

To make this report more meaningful and presentable two sources of data were used widely. As-

Primary Data

Working in Titas as an internship student gave me the privilege of accessing different

organizational documents which is neither very much available on internet and different

publications nor people outside the organization could have access to them. Extensive

discussion with the managers and DGM of the accounts section opened up the broad way

of knowing their day to day operations as well as the details accounting procedure.

Secondary Data

The Annual reports of the company for the last five years and different publications of

Petrobangla and the Ministry of Finance made it possible to mention the latest data on

Titas. Besides, the publications of ICGN and the COSO framework served as the

principle secondary source of data.

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1.4. Limitations

Everything comes with a downside. This report is of no exception. While working on the report,

one thing that stood as an impediment is that there was absence of previous studies on the topic.

Though there are numbers of studies on the gas sector of the Bangladesh but no studies were

conducted on Titas. So, there was lack of scope of consulting the ideas of others.

Likewise, crucial information was collected directly from the company personnel. As there are

no publications from where necessary data could be obtained, interviewing and close group

discussions were often very painstaking. Use of subjective judgments while rating the control

variables can be counted as a limitation.

The study was based on my 6 weeks working experience at Titas. But six week time was not

enough for over viewing all the control activities of Titas. Another thing that could be counted as

a shortfall is that lack of experience of working in the related fields of this study.

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CHAPTER 2

LITERATURE REVIEW

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2.0. Literature Review

Internal control provides a means of assurance that corporate objectives are being achieved

(COSO framework, 2011). Though this report mainly focuses on the internal control system of

Titas but two other things must also be discussed along with this because internal control cannot

be well understood without understanding these two phenomenon.

The first thing is, Internal Audit function, which helps in evaluating the business processes and

procedures to assess the effectiveness of control systems and compliance thereof, highlights the

weaknesses in the internal control systems and recommends solutions to overcome the

weaknesses. It also enables the organization to improve operational efficiency and accuracy and

reliability of its financial data. Institute of Internal Auditors (IIA) is a guidance-setting body

which is audit profession's global voice, chief advocate, recognized authority, and principal

educator (Wikipedia).

The other thing is Corporate Governance which has become a buzz word in today’s corporate

world. Corporate governance (CG) is the system by which companies are directed and

controlled. In general, CG deals with laws, procedures, practices and implicit rules that

determine company’s ability to take managerial decisions vis-à-vis its claimants—in particular,

its shareholders, creditors, customers, the State and employees. However, a somewhat broader

definition would be to define CG as a set of mechanisms through which a single country or firms

within a country operates when ownership is separated from management ( Du, Hua, 2006).

Corporate governance therefore calls for three factors:

1. Transparency in decision-making;

2. Accountability which follows from transparency because responsibilities could be fixed

easily for actions taken or not taken, and;

3. The accountability is for the safeguarding the interests of the stakeholders and the

investors in the organization.

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The International Corporate Governance Network (ICGN) which was founded in 1995, is an

initiation of major institutional investors, represents investors, companies, financial

intermediaries, academics and other parties interested in the development of global corporate

governance practices.

2.1. Committee of Sponsoring Organization (COSO)

In response to widely publicized business failures in the USA in the late 1970s and mid-1980s,

the National Commission on Fraudulent Financial Reporting (the Treadway Commission) was

inaugurated to identify factors that caused fraudulent corporate financial reports and make

recommendations that resolve such issues. The recommendations directly addressed the

problems of weakness of internal controls and emphasized the importance of the control

environment, codes of ethical conduct, management reports on effectiveness of internal controls

and development of a common definition and framework of internal control. The evolutionary

process of developing a generally accepted definition and framework of internal control was

realized in 1992 with the publication of a landmark report on internal control: Internal Control -

Integrated Framework, referred to as “COSO” (Committee of Sponsoring Organization).

Hence, COSO provides the necessary guidelines for establishing internal control while IIA is a

guidance-setting body for internal audit professionals and ICGN is the global partner for

developing corporate governance practice around the world. In this section, the report will try to

describe the international standards of internal control which stand as a guide to the internal audit

professionals and corporate governance practice.

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The Institute of Internal Auditors defines internal control as follows:

“a process within an organization designed to provide reasonable assurance regarding the

following primary corporate objectives:

the reliability and integrity of information

compliance with policies, plans, procedures, laws and regulations

the safeguarding of assets

the economical and efficient use of resources

the accomplishment of established objectives and goals of operations or programs”

As mentioned before, COSO is a voluntary private sector organization established in USA. It is

dedicated to improving the quality of financial reporting through business ethics, effective

internal controls, and corporate governance. COSO was originally formed in 1985 to sponsor

the National Commission on Fraudulent Financial Reporting, an independent private sector

initiative. It is concerned with factors that can lead to fraudulent financial reporting. COSO has

developed principles of internal control. It defines internal control as follows:

Internal control is a process, affected by an entity’s board of directors, management and other

personnel, designed to provide reasonable assurance regarding the achievement of objectives in

the following categories:

Effectiveness and efficiency of operations

Reliability of financial reporting

Compliance with applicable laws and regulations

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It identifies the key concepts of internal control as follows:

Internal control is a process. It is a means to an end, not an end in itself.

Internal control is affected by people. It’s not merely policy manuals and forms, but

people at every level of an organization.

Internal control can be expected to provide only reasonable assurance, not absolute

assurance, to an entity’s management and board.

Internal control is geared to the achievement of objectives in one or more separate but

overlapping categories.

Components of internal control:

Control Environment

Risk Assessment

Control Activities

Information and Communication

Monitoring Activities

A direct relation exists among the objectives, which are what an entity strive to achieve,

components, which represent what is needed to achieve the objectives and the operating, legal

and other structural units within the entity.

The essential elements of an effective internal control system must be present and functioning

effectively for any internal control system to achieve organization’s objectives. According to

COSO, the control elements have the following characteristics or principles-

Five Principles relating to control environment:

1. The organization demonstrates a commitment to integrity and ethical values

2. The board of directors demonstrates independent independence of management and

exercises oversight for the development and performance of internal control

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3. Management establishes, with board oversight, structures, reporting lines and appropriate

authorities and responsibilities in the pursuit of objectives

4. The organization demonstrates a commitment to attract, develop and retain competent

individuals in alignment with objectives

5. The organization holds individuals accountable for their internal control responsibilities

in the pursuit of objectives.

Four principles regarding Risk assessment-

1. The organization specifies objectives with sufficient clarity to enable the identification

and assessment of risks relating to objectives

2. The organization identifies risks to the achievement of its objectives across the entity and

analyzes risks as a basis for determining how the risks should be managed

3. The organizations consider the potential for fraud in assessing risks to the achievement of

objectives

4. The organization identifies and assesses changes that could significantly impact the

system of internal control.

Three principles relating to control activities-

1. The organization selects and develops control activities that contribute to the mitigation

of risks to the achievement of objectives to acceptable level

2. The organization selects and develops general control activities over technology to

support the achievement of objectives

3. The organization deploys control activities as manifested in policies that establish what is

expected and in relevant procedures to affect the policies.

Three principles relating to information and communication-

1. The organization obtains or generates and uses relevant, quality information to support

the functioning of other components of internal control

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2. The organization internally communicates information, including objectives and

responsibilities for internal control, necessary to support the functioning of other

components of internal control

3. The organization communicates with external parties regarding matters affecting the

functioning of other components of internal control

Two principles relating to monitoring activities-

1. The organization selects, develops and performs ongoing and/or separate evaluations

whether the components of internal control are present and functioning.

2. The organizations evaluates and communicates internal control deficiencies in a timely

manner to those parties responsible for taking corrective action, including senior

management and the board of directors, as appropriate.

The COSO framework may be relevant to larger organizations, but inappropriate for small ones

due to costs and operational complexity. Management of small organizations may not need

formal internal controls for the reliability of the records and other information, because of their

personal involvement in the operations of the organization.

Another weakness of the COSO mechanism is failure to recognize Information Technology (IT)

as one of the major control components. IT is crucial to an internal control framework. Today,

organizations use IT for initiation, authorization, recording and processing of transactions. IT

ensures effectiveness of internal controls. However, COSO’s failure to recognize IT as a control

component motivated other bodies to design and develop frameworks to remedy the omission.

One such framework is the Control Objectives for Information and Related Technology (COBIT

1996, 1998, 2000, 2005, 2007). In this report, along with the five elements of the COSO

framework, the IT element of the COBIT framework will be taken into consideration.

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2.2. ICGN Framework

ICGN statements on global corporate governance rules out the various principles for good

corporate governance such as-

The corporate objectives of the corporation should be to optimize over time to time the returns to

its shareholders and the board should develop and implement a strategy which will improve the

equity value over the long term. Corporations should disclose relevant and material information

concerning the corporation on a timely basis and along with the financial information;

disclosures should be made on the ownership and voting rights of the company. The ICGN

supports the development and harmonization of the highest-quality international accounting and

financial reporting standards. The audit should be undertaken by independent external auditors

which will also be approved by the board or the appropriate authority.

Besides the general guidelines, ICGN also provides some guidance on issues like shareholders’

ownership, responsibilities and voting rights and remedies all are aimed to better practice in the

corporation to enhance the corporate governance of the concerned corporations.

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CHAPTER 3

TITAS

&

its INTERNAL CONTROL SYSTEM

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3.0. Titas & Its Internal Control System

3.1. Overview of Titas

Titas Gas Transmission & Distribution Co. Ltd., country’s significant provider of natural gas,

was established on November 20, 1964 following a significant gas discovery at Titas Gas Field

in 1962. The company began its commercial operation with the commissioning of gas supply to

Siddhirganj Thermal Power Station on April 28, 1968 after construction of 14 inch dia 58 mile

long Titas-Demra gas pipeline by the then East Pakistan Industrial Development Corporation.

At the beginning, 90% of its shares belonged to the then Pakistan Government and Pakistan Shell

Oil Company owned the rest. Till the liberation of the country, Titas had been able to supply gas

to two power stations, one fertilizer factory and about 2000 customers in other categories. After

liberation of the country the company was nationalized under the Presidential Order No.

2711972 and its overall activities has been placed under the supervision of Bangladesh Oil, Gas

& Mineral Resources (Petrobangla). Under the Nationalization Order of 1972, all the

government owned shares of the company were vested in the Government of Bangladesh (GOB).

In accordance with an agreement signed between Shell Oil Company and GOB on August 9,

1975, the ownership of the remaining 10% shares was transferred to the GOB through

Petrobangla in exchange for a lump-sum payment of £100,000. After the independence of

Bangladesh in 1971, the company started its journey as a company of Petrobangla with the

authorized and paid up capital of Tk. 1.78 crore.

Subsequently, the company’s Board was vested with full autonomy & exercises all financial

powers as per Company’s Act 1994 as stated in the government gazette notification no. dated 5

November, 2002. Recently, the company has been listed with Dhaka Stock Exchange on June 9,

2008 & with Chittagong Stock Exchange on June 19, 2008 under the direct listing rules of

Securities and Exchange Commission to offload 25 per cent of its shares in the stock market.

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Table 1: Titas at a glance:

Date of Incorporation November 20, 1964 Corporation Bangladesh Oil, Gas & Mineral Corporation (Petrobangla) Administrative Ministry Ministry of Power, Energy & Mineral Resources Franchise Area Greater Dhaka & greater Mymensingh Authorized Capital Tk. 2000 crore Paid up capital ( as of June 30, 2012)

Tk. 942.12 crore

Number of customers ( as on June 30, 2012)

Total 15,35,592

Market share in sales Sources of gas supply (fields) Manpower Listed with DSE Listed wiith CSE

63% Titas, Habiganj,Narsingdi, Kailashtila,Jalalabad,Bibiyana, Moulovi Bazar, Rashidpur,Bianibazar & Bangura gas field. 2,446 June 9, 2008 June 19, 2008

Titas Franchise Area

TFA includes-

Dhaka Metropolitan City

Greater Dhaka

- Narayanganj, Sonargaon, Rupganj, Araihazar

- Keraniganj, Munshiganj, Mirkadim

- Tongi, Savar, Dhamrai, Manikganj, Aricha, Gazipur, Sreepur

- Madhabdi, Narshingdi, Ghorashal

Greater Mymensingh

- Tangail, Mirzapur, Jamalpur, Sherpur, Tarakandi;

- Mymensingh, Netrokona, Bhaluka, Trishal, Gafargaon;

- Kishoregonj, Bhairab Bazar.

Brahmanbaria

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- Brahmanbaria, Ashuganj, Bhairab Bazar.

For enhancing operational efficiency and ensuring good maintenance, Titas divided its

franchising area into several zones and divisions. For example, Dhaka metropolitan city is sub-

divided into 13 zones.

3.2. Descriptions of Control Established by Titas

Internal control system is fundamental to the success and survival of organizations. It keeps the

organization on the rails. Corporate governance which has become a phenomenon across the

world can be strengthened by ensuring better control in the organization. With an efficient and

effective internal control placed in the organization, it is assumed that the overall performance of

the organization will improve.

Internal control is inherent in every organization. Though it is an abstract idea still it enhances

the likelihood of achieving the objectives of the organizations and adapt to changes in the

business or operating environment. Titas is a government company where day to day operation is

strictly controlled and the company is under the purview of the concerned ministry which

amounts to greater control than any other private companies.

Natural gas can spur the growth of development of any country. As we know, Titas is the sole

distributor of natural gas in country’s two most industrially flourished areas; the company plays

important socio-economic roles in its areas of operation. That’s why it must ensure better

performance by establishing and ensuring better internal control in the organization.

Like every other organizations, Titas has its own internal control placed within the entity so that

it can perform its operations effectively & efficiently, can ensure compliance with all the

required legal restrictions and can create more accountability among the employees. The effect

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of internal control is pervasive but in this report, the internal control employed in Titas will be

discussed from 3 aspects. The COSO framework discussed in the previous chapter also tried to

describe internal control in terms of these three aspects. And the report, as mentioned before, will

attempt to discuss the internal control in Titas according to the COSO framework.

Operational Control

Titas is the country’s major distributor of natural gas. The main objective of Titas is to supply

natural gas to customers of different categories under Titas Franchise area, thereby reducing

dependency on imported liquid fuel. Towards this end, the company has to construct, operate and

maintain pipelines, stations and associated facilities. It transmits natural gas from the gas

through national grid line and distributes the same to different consumers.

The operation of Titas may be represented as-

(i)

Figure 1: Operation of Titas

Procurement (Intake)

Exploration and Production activities are operated by three (3) state owned companies and four

International Oil Companies (IOC) under Production Sharing Contracts (PSC). Titas is solely a

trading concern. It buys gas from the gas fields and then sells it to different types of customers.

Operation

Distribution Transmission Procurement

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Transmission

Presently, Gas Transmission Company Ltd. (GTCL) has the responsibility to gradually establish

the national gas grid for the uninterrupted transportation of natural gas in a safe, reliable and

economic way. Titas pays GTCL wheeling charges or transmission charges for the amount of gas

transmitted through their lines.

But before the establishment of GTCL, the transmission activities were also undertaken by Titas

along with the distribution activities. Even now, a portion of gas lifted by BGFCL is transmitted

by Titas.

Distribution

Titas serves around 1.5 million customers of 8 different types in its franchise area. They include-

power, fertilizer, feed gas for CNG, captive power, industry, tea-estate, commercial & domestic.

To increase efficiency and effectiveness in the above mentioned operational activities, the

following internal controls are put in place-

The intake is controlled by the use of meter at both ends. Titas keeps track of the volume

of gas procured or purchased from different gas fields by establishing metering and valve

system. At the end of the month, the gas fields send bills to Titas for their payment. After

verifications of the bills, the company makes necessary arrangements for payment.

Likewise, meter is also used to measure the gas transmitted by GTCL. Titas pay GTCL

wheeling charges or transmission charges on the gas transmitted. That’s why GTCL also

requires to submit their bills to Titas which are paid after due verifications.

Besides, certification by a technical person will be required before payment is made.

Meters are used to measure the consumption of gas by different customers but domestic

consumption is still unmetered due to some technical weaknesses. The domestic

households pay at a uniform rate regardless of their uses. But the amount of gas

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consumed by the domestic users constitutes a small portion of the total consumptions and

this unmetered consumption is in no way financially hampering the company.

The meter readings from the gas fields, GTCL and different customers are sent to the

Central Database at the head-office and the accounts division.

The bills from the gas fields and the bills to the customers will constitute the accounts

payable and the accounts receivables. So, the meter readings will work as source data or

evidence data of the payables and receivables amounts.

Besides, there are Metering Department and Vigilance Department. The Metering

Department tests the accuracy of the meter reading and the Vigilance Department

inspects the yard of the customers for illegal gas connections.

Besides, Mobile Court has been established under the Mobile Court Act to search and

penalize illegal gas users and tempering of meters.

So, from the above discussions, it is evident that Titas use various internal control mechanisms

which will increase their effectiveness of operations. The specific target used to determine

whether a control is operating effectively is called the control objective. We can place the

Control objectives of Titas under several detailed categories to capture effectiveness-

Verifications: The amount of gas procured, transmitted and distributed will be measured

and verified with the help of meters and technical certifications.

Reasonableness: Amount of payables and receivables will have to appear reasonable

relative to the meter reading.

Compliance: Gas connections will be provided as per the decisions and approval of the

technical committee and upon the receipt of security deposits, otherwise it will be

considered as illegal connection and such customers will be charged with penalties. The

vigilance department will check such inconsistencies by paying a visit to the yard of the

customers.

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Financial reporting effectiveness

Titas has got such a recording procedure which is partly computerized and partly manual. When

companies around the world are opting for ERP software, there is still an absence of a central

computer system to bind the whole company into a single system. Still spreadsheet program such

as Microsoft Excel is used to make all the necessary statements. According to the requirement of

the Bangladesh Securities and Exchange Commission, Titas prepares quarterly reports before

preparing the annual reports.

Following control activities can be included (but are not limited to) to enhance reliability of

financial reporting-

Segregation of duties- Separating authorization, custody, and record keeping roles to

detect and prevent fraud or error by one person.

Authorization of transactions - Review of particular transactions by one or more

appropriate person(s). All the bills are approved by a person who is empowered to do so.

Retention of records - Maintaining documentation to substantiate transactions.

Supervision or monitoring of operations - Observation or review of ongoing

operational activity.

Physical verifications: Moveable assets are verified each year whereas immoveable

assets are verified once in every five years.

Budget- Budgets are used as a major financial control tool. There is a separate section

under the Finance division (Budget Section) who prepares budget for each year. The

budgets must be approved by the board of directors and the ministry. Before any payment

is made, every bill is verified to see if it was previously included in the budget. This can

put check to unauthorized expenditures.

32

Internal audit: There is an internal audit department who review and approves all the

transactions made within the company. Usually they perform post audit and pre-audit

review.

Pre-audit is done before payment (usually for amounts above tk. 500) is made to verify

authenticity and proper authorization.

Post-audit is the statutory audit. Each year the company engages a CA firm to perform

audit to find any fraud and defalcation. Post audit also ensures that all the transactions

were recorded properly while complying with all the accounting rules and company

policies and they reflect the true financial condition of the company. The government

also perform audit , done by the Directorate of Commercial Audit of the government to

find out fraud and misappropriation and to find out whether the company’s rules and

regulations were observed before each payment and receipt.

Top-level reviews: Top-level reviews include analysis of actual results versus

organizational goals or plans, periodic and regular operational reviews, metrics, and other

key performance indicators (KPIs). Besides, management review of reports comparing

actual performance versus plans, goals, and established objectives are placed in the

Management Report which is also prepared along with the financial reports.

Controls over information processing- A variety of control activities are used in

information processing. Examples include edit, checks of data entered, accounting for

transactions in numerical sequences, comparing file totals with control accounts, and

controlling access to data, files and programs.

Compliance with all the relevant laws, rules and regulations

Being enlisted in the stock market, Titas is needed to comply with some regulations which

companies in general are also needed to follow. At the same time, it needs to abide by some

special acts and regulations, as it is a government organization. Since Titas is the sole provider of

33

gas in its franchise area which creates the scope of practicing monopoly, strict compliance of

different acts and regulations is demanded by the regulatory bodies.

To govern the corporate environment in Titas, following legal measures are in practice:

Securities and Exchange Ordinance 1969

Securities and Exchange Commission Act 1993

Companies Act 1994

Gas marketing Policy 2004

Bangladesh Energy Regulatory Commission (BERC) Act 2003

Rules for Government Commercial Audit

Public Procurement Rules

However, to institutionalize the practice of corporate governance in Bangladesh, initiatives have

been taken by the Bangladesh Securities and Exchange Commission (BSEC). BSEC issued a

notification on Corporate Governance Guidelines (CG Guidelines) for the publicly listed

companies of Bangladesh under the power vested on the Commission by Section 2CC of the

Securities and Exchange Ordinance, 1969. The CG Guidelines were issued on a ‘comply or

explain’ basis, providing some ‘breathing space’ for the companies to implement on the basis of

their capabilities.

Titas has already complied with these BSEC notifications in its annual report of the FY 2011-12

and it is planning to undertake audit on Corporate Governance soon.

Besides, as we know, Titas is a company of Petrobangla which is under the Ministry of Power,

Energy & Mineral Resources Division, the company needs to follow all the decisions and

guidelines of the ministry and Petrobangla.

In case of determining the selling price of gas, Titas needs to comply with the policies of BERC

which is an independent and impartial regulatory commission for the energy sector.

34

Corporate Governance in Titas

As we know, Corporate Governance (CG) is the system by which companies are directed and

controlled. In general, CG deals with laws, procedures, practices and implicit rules that

determine company’s ability to take managerial decisions vis-à-vis its claimants—in particular,

its shareholders, creditors, customers, the State and employees.

All corporate governance systems revolve around four core principles: Fairness, accountability,

responsibility and transparency (Dr. Hua, 2006). And they govern the corporate government of

the organization.

In 2012, Bangladesh Securities & Exchange Commission has made an order that requires the

listed companies to prepare a notification on comply or explain basis. Titas has complied with

the BSEC guideline in the year 2011-12 and has included such issues as-

Soundness and efficiency of internal control

Appointment of head of internal audit

Suspected or presumed fraud or irregularity or material defect in the internal control

system

Internal audit services.

This indicates that Titas is opting for creating a corporate environment that will require much

more accountability, transparency and responsibility. But as Titas is mostly controlled by the

government (as the board of directors is consisted of government officials) there is a chance that

it may be treated as a government department and unit. As a result, unlike the private concern, it

may not have its board or management changed via a takeover or proxy contest, and cannot go

bankrupt. In addition, it has “free” equity and a very low cost of subsidized loans. Thus, the

incentives for board members and managers to maximize the value of the company and keep

costs in check are reduced.

Also there is a chance that accountability and performance may also be hindered by political

interference, poorly defined non-commercial objectives, and an absence of transparency. Strong

internal controls, good disclosure, independent boards of directors, and other CG tools can help

35

state -owned enterprises like Titas perform well and act in the best interests of citizens and other

shareholders.

3.3. Evaluation of Internal Control established by Titas

In the earlier section, internal control of Titas was discussed. This section of the report will try to

examine the effectiveness of existing internal control system of Titas so that we can know all the

components of internal control and the short-comings thereon. A similar type of study was

conducted by Angella Amudo and Eno L. Inanga on 2009 where they developed a conceptual

model that was used in evaluating the internal control systems in Public Sector Projects in

Uganda financed by the African Development Bank. This report will also use the model

developed by Amudo and Inanga to evaluate the control established by Titas.

Internal control is a process of integrated sets of activities originated by top personnel of an

organization and embedded within all the organization’s activities to achieve goals. This

comprises two sets of variables: dependent and independent. Influence of authority is the

cornerstone of independent variables that ensures that the independent variables function to

generate the outcome of the dependent variable.

Figure 2 shows the conceptual model components of dependent and independent variables.

The effectiveness of internal control is the dependent variable. This is achieved by the presence

and proper functioning of all the (predefined) independent variables in relation to each category

of the objectives. Proper functioning of independent variables provides reasonable assurance of

proper functioning of dependent variable.

36

That is-

Then the organization realizes preset objectives of efficient and effective operations, generation

of accurate, reliable and informative financial reports that comply with relevant legal and

regulatory requirements (note that there are 3 objectives mentioned in figure 2). The objectives

are overlapping. This means efficient and effective operations produces accurate, reliable and

informative financial reports that comply with applicable laws and regulations.

Figure 2: Conceptual model of internal control

Source: International Research Journal of Finance and Economics (2009)

Effectiveness of internal control (i.e. dependent variables) = ƒ (independent variables)

37

The objectives, depicting overlapping interrelationships are numbered 1, 2 and 3 in Figure 2- (1)

include efficiency and effectiveness of operations (2) accuracy and reliability of informative

financial reporting and (3) compliance with applicable laws, regulations, policies and procedures.

The independent variables determine the effectiveness of an internal control system. The

presence and proper functioning of all the components of the independent variables ensures

effectiveness of internal control system. This achieves each category of objectives 1, 2 and 3 in

Figure2.

The independent variables comprise major and minor components. Individual minor components

jointly provide for and form a specific major independent variable. The measurement of minor

independent variables locates any weaknesses existing in the major independent variables. The

major independent variables include:

Control environment

Risk assessment

Control activities

Information and communication

Monitoring

Information Technology

The minor independent variables include:

Authorization and approval procedures

Assignment of authority and responsibility

Accountability obligations

Segregation of duties

Limit of amount eligible to expend

Proper Documentation

Controls over access to resources

Presence of internal audit

Verification

Reconciliation

38

Review of operating performance

Supervision

Human resource policies and practices

A direct relationship exists between the outcomes of the dependent and the independent

variables. All the independent variables are relevant to each category of objectives. Internal

control processes (minor independent variables) affects the effectiveness of internal control

systems, which is subject to the organization’s determined objectives. All the independent

variables are interdependent but each has an impact on the effectiveness of internal control

systems.

Different approaches to the evaluation of effectiveness of internal controls are available. The

study uses the model in Figure 2. In this regard, controls evaluation is a step toward achieving

the study’s objectives once the questions under the study are answered. The questions under the

study are formulated to identify the existence or otherwise of each variable of internal control.

The conceptual model in Figure 2 identifies three objectives of the effectiveness of internal

control systems.

[*] The first is operational efficiency and effectiveness. Effectiveness relates to the quality of

controls over the achievement of specific management objectives, while efficiency addresses the

quality of controls yielding an optimum quantify of resource inputs to productive outputs. This

objective determines whether the organization is reasonably assured that no material

inefficiencies exist in the organization or the processes.

[*] The second objective related to the first one, is accuracy of financial reports and statements

produced. This objective emphasizes the adequacy and effectiveness of management controls

over the preparation of financial reports and ensuring reliability in external reporting.

[*] The third is the organizations’ compliance with applicable laws, regulations, policies and

procedures. This focuses on the adequacy and effectiveness of management controls that govern

39

adherence to external laws and regulations. This checks the correlation between the laws and

entity’s procedures and actual practice.

This study identifies the following six essential components of an effective internal control

system:

control environment,

risk assessment,

control activities,

information and communications,

monitoring and

information technology.

The model includes working relationships, which is taken into account to achieve effective

functioning of the six core control components.

These six control components are assessed before expressing opinion on the design and

effectiveness of the overall internal control systems. But this alone cannot identify the exact

weaknesses in the internal controls. To do this, core control components are broken down into

minor independent variables and those that fall under each of the major independent variables

identified. The control components instituted for management of these projects are measured

against the components identified in the benchmark.

In table 2 ( the table can be viewed in the appendix), each of the major independent variable of

the model is defined using several minor independent variables, which are used for rating the

effectiveness of controls in the projects, and locate internal control weaknesses. To understand

and apply the criteria to control components the analysis uses binary numbers of 0 and 1 as

ratings. A rating of 1 reflects a control component with control problem, while 0 rating signifies

a control component with no control problem.

Table 2 defines each major independent variable with a set of corresponding minor independent

variables, used as criteria for rating the effectiveness of controls in the projects. Each major

40

independent variable and their respective minor independent variables have to ensure

consistency in the evaluation process.

The assigned ratings (either 0 or 1) must match the predefined criteria of the minor independent

variables in Table 2 during evaluation. In the final evaluation, if controls provide reasonable

assurance that management objectives will be achieved, a 0 rating is assigned. A 1 rating is

recorded if controls do not provide such assurance. Use of judgments plays a significant role in

assigning these ratings. However, corrective recommendations indicate that there exists a

problem with the controls evaluated. The evaluation processes commences as shown in Table

3(see appendix).

The findings of this study is summarized in Table 4 that determines whether internal control

implemented by management works in line with the company objectives.

Table 4: Control Evaluation Table

Control Evaluation Table

Ratings Model’s Objectives

0: No Problem exists

1: Problem exists

Effectiveness &

efficiencies of

operations

Reliability of

financial reporting

Compliance with

laws, regulations,

policies &

procedures

Benc

hmar

k C

ontr

ol

Com

pone

nts

Control Environment 0 0 1

Risk Assessment 1 0 0

Control Activities 0 0 0

Information &

Communication

0 0 1

Monitoring 0 0 0

Information

Technology

1 0 0

Overall 0 0 0

Detailed analysis is done in previous section

41

Analysis and interpretation of the evaluation results in Table 4 generate interesting findings. As

we can notice, all the objectives of effectiveness of internal control amounts to zero i.e. no severe

control problem exist in the existing control system. But as we can see, some of the components

of internal control have resulted into 1 which indicates problem. As a result, the minor

independent variables indicating problem will require further clarification.

42

CHAPTER 4

DISCUSSIONS

&

FINDINGS

43

4.0. Discussions & Findings

4.1. Discussions & Findings

In the preceding chapters, the study discussed about the existing internal control system of Titas

and their implications. This system will steer Titas to achieve the objectives of operational

effectiveness & efficiency, accurate and reliable financial reporting while complying with

applicable laws, rules and regulations. The study examined management’s compliance with

established internal control mechanisms and identifies the variance between expectation and

reality.

The result of internal control evaluation of Titas reveals the following control activities-

Control over sales and purchases

Control over bank and cash balances

Control over inventory

Control over payroll

Monitoring the reporting activities

The internal control of Titas is described in chapter 3 and an evaluation is done on the

effectiveness of the control in chapter 4. The study identified some control components or

variables (in table 2) to measure the effectiveness of the control system. They are-

Control Environment

Organizational structure reflecting chain of command

Segregation of duty

Documented and updated human resource policies and procedures

Delegation of responsibilities and follow up action to get feedback on results of tasks

delegated

Integrity and ethical values are demonstrated.

44

Risk Assessment

Specific objectives with sufficient clarity

Identification of risks that affect achievement of the objectives

Criteria for ascertaining critical risks

Existence of mechanisms for mitigating critical operation risks.

Control Activities

Authorization of Transactions

Segregation of duties.

Verifications of transactions before making payments

Accurate recording of zonal receipts

Collections from the customers by the authorized banks are timely transferred to the

mother accounts

Key accounts records like bank, cashbooks, loans, accounts payables etc are reconciled

on a regular basis.

Bank guarantees are checked for renewal

There is control over access to resources

There is accountability of funds advanced to the employees

Management does review operations

Internal auditors are present

Procedures have been documented/ regularly updated in respective manual for example

finance, staff rules and regulations and operations manuals

Staffs are supervised while they carry out their schedule of duties.

Information and Communication

Key criteria for evaluating performance are identified, collected and communicated.

Reports on Internal audit and Corporate Governance is incorporated in the Annual

Report

Employees do understand their control responsibilities.

Complaints and disputes by suppliers are resolved in a timely manner.

45

Grievances of customers are properly addressed

Monitoring Activities

There are independent process checks or independent evaluations of controls activities on

ongoing basis.

Interim financial statements are prepared

Information Technology

IT system to monitor & supervise the zone offices and sales centers across the franchise

area is present.

Restriction of personnel in accessing all levels of different modules in computer

Integrated computer system exists that encompasses the whole company

Now, if we look at table 3, the internal control scenario of Titas will be clear to us. From the

discussions, following things can be found-

In the control environment, organizational structure does adequately reflect chain of

command, responsibilities are delegated and follow up action is made to get feedback on

results of performance of tasks delegated, human resource policies and procedures are

documented & being updated time to time.

In case of risk assessment, it was found that management has specified the objectives

with sufficient clarity. Risk assessments are not undertaken. However, operational risks

are not perceived as threat as Titas is the sole provider of gas in its franchise area & as it

is a government company.

No problems could be identified in the Control activities. It was found that transactions

are properly authorized, duties are segregated, stuffs are supervised, verifications of

transactions are done before making payments, zonal receipts are recorded accurately,

bank guarantees are checked for renewal and control over access to resources exists.

Besides, management does review operations and internal auditors are present.

46

Control in the information and communication component of internal control was also

satisfactory. Key criteria for evaluating performance are identified, collected and

communicated. Employees understand their control responsibilities, Complaints and

disputes by suppliers are also resolved in a timely manner.

Interim financial statements are prepared and there are process for evaluating that

controls activities on ongoing basis.

Information and technology component of internal control, however, was not found to be

satisfactory.

Now, the questions arise in the study, that were mentioned in the first chapter of the report along

with the objectives of the study, can be considered. Our first question was- what role internal

control of Titas should play. The COSO and other framework described in the conceptual

framework chapter answer the control mechanisms Titas may employ. The second query was on

the current internal control of the company. The current internal control practice of Titas was

also duly described in the third chapter of the report. The dependent and independent variables

identified and evaluated in table 2 and 3 , to measure the effectiveness of the existing control

mechanisms, may also help to understand the control in Titas.

It is to note that internal control is an implied concept which is inherent in every entity. But the

question is how effective that control is and how efficiently it is directing the organization in its

desired direction. As mentioned in the previous chapter, we have expressed the effectiveness of

internal control as the function of some independent major and minor variables. The minor

variables constituted 6 major components which also falls under 3 objectives we want to gain

through the internal control. So, achievement of control in the minor independent variables will

ultimately result in successful or effective attainment of the 3 key objectives.

According to the analysis showed in Table 3, there exists some control problems. Nonetheless

they do not pose any threat to the effectiveness of the internal control as in Table 4 the overall

score for all the key objectives are 0. Still, it is necessary to understand such inconsistencies.

This study will also try to focus on the variables identified with control problems.

47

4.2. Weaknesses

Weaknesses found during the study can be summarized as follows-

In the Control environment of Titas, work distribution among the mid-level personnel of

some divisions was found uneven. This is due to shortage of manpower in some

particular divisions.

Unethical practices in the zonal offices and sales offices are open secret. This includes

providing illegal connection of gas lines, providing connection without taking the

security deposit, unauthorized use of gas and so on. But these are mostly done by the

staffs with lower ethical values who are driven by their own self-interest and for which

the company should not be blamed of.

In the Risk Assessment component of control the analysis identified that the

management has not identified risks that affect achievement of the objectives and a

criteria for ascertaining which risks are more critical. The company is the sole provider of

gas in its franchise area. As a result, it kind of has a monopoly in its area of operation as

it does not have any competitors. Hence, chances of events which may pose significant

threat to its operations are very meager. It may be the cause why Titas does not undertake

any risk assessment procedures.

Some technical inefficiency may pose threat to the operation of the company. There is no

way to test the accuracy of the meter reading of the intake of gas from the supplying gas

fields and due to technical shortfall the accurate amount of gas supplied and received may

not be known. On the other hand, differentiating the national gas and the IOC gas is also

not possible. It could create problems in the pricing policy of the company.

We have noticed that Titas is trying to improve its control mechanisms. Proper

preparation and maintenance of records and statements are made by the company. But

still some matters will need further improvements. There exists two month’s time lag

48

regarding receiving the journals from the sales and zone offices and regarding

preparations of the reconciliation statements. This problem occurs because recording and

accounts preparation in the large part are still manual. It was also noticed that collections

by the authorized banks from the customers are not deposited to the mother accounts

timely and it often requires much persuasion by the company to ensure timely deposit by

the banks.

In the information and communication component of control, it was found that Titas

does not include any report on its internal control and corporate Governance in its annual

report.

In case of the monitoring activity of Titas it was found that supervision of metering

department and vigilance department is poor to check malpractice of the lower staff and

some other CBA leaders.

Titas is still working partly manual and partly computerized system in all its activities. It

uses different software for different component tasks but not any single software to

integrate the whole organization. Though the activities of the zonal offices are set by the

head office still their direct monitoring and supervision is not possible due to the lack of a

central integrated system.

49

Recommendations

In the earlier sections, the existing internal control systems in Titas have been described. Though

the overall control system is effective enough to achieve the objectives of the company, still

there were some minor inconsistencies which may hamper the efficiency of the company. In this

section, the study will try to provide some recommendations for the company so that it can

perform better and can bind the whole company with a dynamic internal control system.

Proper work distribution among mid-level management should be made for ensuring

better management of the company.

As domestic consumption is still unmetered, improved mechanisms should be introduced

to bring these households under the metering system so that Titas would be able to keep

track of all the gas it is distributing for the household consumptions. As a result, there

will be lack of opportunities for non-payment or illegal gas connections.

Exemplary punishment should be given to those staffs that are found guilty of

malpractice. It may reduce the rate of unethical practices.

The company certainly should make risk assessments even if any such risks are still not

evident.

Research programs should be undertaken that can help to identify problems in its

operational and control activities. Besides market analysis can also be done. With all

these initiatives, the company can certainly perform better and can make predictions

about the future performance and market scenarios.

Accuracy of the meter reading should be ensured. Technology can help in this regard.

More strict and accurate meter reading and inspections will be helpful in preserving

natural gas and preventing the misuses.

50

Technical mechanisms should be introduced to differentiate the gas intakes from the

national gas field and IOC fields. This will help to adopt better and more reasonable

pricing policy.

Audit on internal control should be undertaken & should also be included in the annual

report of the company.

More training facilities for the employees can be provided to keep them updated with the

practices which are followed by the energy sectors of the developed countries. This will

make them more efficient and better corporate governance can be ensured.

Mobile court should be more active. They should pay more frequent surprise visits to the

yard of the customers, detect illegal connections and tempering of meters and impose

them exemplary punishment. Besides, they should find out the Titas employees engaged

in illegal activities and should be brought under legal action to curb their corruption.

Activities of the CBA should be more controlled so that they cannot create undue

pressure on the company management for their personal interest.

ERP software can be introduced in the company. Use of technology will help the

company perform faster and better. It will also help to access real time data and will

ensure accuracy of data. As a result, more integration among the regional offices and the

head offices will be possible.

51

Conclusion Power and energy is critical to the socio-economic development of any country. Bangladesh is

not well endowed with most sources of energy. It has negligible resources of coal and oil, little

hydropower potential and nuclear power potential is beyond its reach. It is evident that gas sector

of our country is very crucial if we want to escalate to our desired status of “middle-income

country “ that we envisages to achieve within the year 2021; as nearly all of our industries,

commercial activities and power generation is dependent on the gas industry. Hence, Titas plays

an important role in the socio-economic environment of the country.

The financial and corporate strategy of a company is underpinned by effective internal systems

(Dejan 2011). The reliability of the internal control system, improved process of risk

management, and, above all, efficiency & effectiveness of the controls established must be

ensured. There are two terms that come automatically with internal control. They are- internal

audit and corporate governance. Internal audit helps to maintain the internal control mechanisms

that are already established in the company and ensure that they are effective. On the other hand,

the ultimate target of establishing internal control mechanisms is to attain a good corporate

governance practice in the company. So we can understand how these three are intertwined.

In this report, internal control system of Titas is described in the light of the international

standards of internal control or global practices. The control system has also been evaluated

using a conceptual model which showed that control is Titas is satisfactory enough. But still

there were some short-comings in the total system for which some recommendations have been

made.

As we know natural gas in not a renewable source of energy, it is very important that we put

check on any unauthorized use or wastage of this valuable natural resource. Titas, as they deal

with this resource, must keep this in their mind and should employ better control in their overall

activities as a natural gas distributor. In this regard, internal control system cannot be

compromised and there lies its significance.

52

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Company

54

APPENDIX

55

Table 2: Rating criteria for internal Control Appendix

Rating criteria for internal control components as defined by the Benchmark

Control Components Criteria for a 1 rating

Maj

or in

depe

nden

t var

iabl

es

Control

Environment

Minor independent variables

Organizational structure does not adequately reflect chain of command

Segregation of duty is not properly done Human resource policies and procedures not documented &

updated Responsibilities are delegated and no follow up action is made to

get feedback on results of performance of tasks delegated Does not demonstrates a commitment to integrity & ethical

values Risk

Assessment Management has not specified the objectives with sufficient

clarity Management has not identified risks that affect achievement of

the objectives. Management does not have a criteria for ascertainment of which

risks are most critical. Management has not put in place mechanisms for mitigation of

critical operating risks that may arise.

56

Control

Activities

Key control activities of the projects are not functioning as intended: Transactions are not authorized There is no segregation of duties. Verifications of transactions before making payments are not

done Zonal receipts are not recorded accurately on a timely basis Collections from the customers by the authorized banks are not

timely transferred to the mother accounts Key accounts records like bank, cashbooks, loans, accounts

payables etc are not reconciled on a regular basis. Bank guarantees are not checked for renewal There is no control over access to resources There is no accountability of funds advanced to the employees Management does not review operations Internal auditors are not present and where present there is

limitation in scope of their responsibilities by management. Procedures have not been documented/ regularly updated in

respective manual for example finance, staff rules and regulations and operations manuals

Staffs are not supervised while they carry out their schedule of duties.

Information

&

Communication

Key criteria for evaluating performance are not identified, collected and communicated.

Reports on Internal audit and Corporate Governance is not incorporated in the Annual Report

Employees do not understand their control responsibilities. Complaints and disputes by suppliers are not resolved in a

timely manner. Grievances of customers are not properly addressed

Monitoring

Activities There are no independent process checks or independent

evaluations of controls activities on ongoing basis. No interim financial statements are prepared

Information

Technology No IT system to monitor & supervise the zone offices and sales

centers across the franchise area. No restriction of personnel in accessing all levels of different

modules in computer No integrated computer system exists that encompasses the

whole company

57

Table 3: Evaluation Process Appendix

Control comp. Benchmark for rating internal control when a problem exists

Assessments of functioning of internal control components

Ratings of internal control components

Major independent

variable Control

Environment

Minor indept. Variables Minor indept. Variables 0 1

(a) Organizational structure does not adequately reflect chain of command

(a) 0

(b) Segregation of duty is not properly done

(b) Segregation of duties at some level of management was found to be unclear which was due to lack of number of personnel in that specific area

(b) 1

© Human resource policies and procedures not documented & updated

(c) 0

(d) Responsibilities are delegated and no follow up action is made to get feedback on results of performance of tasks

(d) 0

58

delegated (e) Does not demonstrates a commitment to integrity & ethical values

(e)Complaint regarding unethical practices by the lower level employees often is heard but which are often outside the purview of the management.

(e) 1

Major

independent

variable Risk

assessment

(a) Management has not specified the objectives with sufficient clarity

(a) 0

(b) Management has not identified risks that affect achievement of the objectives.

(b)There may be disagreements between the intake metering of the supplier gas fields of Titas and those of Titas and due to technical shortfall the amount of gas transferred may not be known accurately

(b) 1

(c )Management does not have a criteria for ascertainment of which risks are most critical.

(c)Risk assessments are not undertaken

(c) 1

(d)Management has not put in place mechanisms for mitigation of critical operating risks that may arise.

(d) As Titas is the sole provider of gas in its franchise area & it is a govt. company, operational risks are not perceived as threats.

(d) 1

Control

Activities

(a)Transactions are not authorized

(a) 0

(b)There is no segregation of duties.

(b) 0

© Verifications of transactions before making payments are not done

(c ) 0

(d)Zonal receipts are not recorded accurately on a timely basis

(d)0

(e)Collections from the customers by the authorized banks are not timely transferred to the mother accounts

(e) 0

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(f)Key accounts records like bank, cashbooks, loans, accounts payables etc are not reconciled on a regular basis.

(f) 0

(g)Bank guarantees are not checked for renewal

(g) 0

(h)There is no control over access to resources

(h) 0

(i)There is no accountability of funds advanced to the employees

(i) 0

(j)Management does not review operations

(j) 0

(k)Internal auditors are not present and where present there is limitation in scope of their responsibilities by management.

(k) 0

(l)Procedures have not been documented/ regularly updated in respective manual for example finance, staff rules and regulations and operations manuals

(l) 0

(m)Staffs are not supervised while they carry out their schedule of duties

(m) 0

Information & Communication

(a)Key criteria for evaluating performance are not identified, collected and communicated.

(a )0

(b)Reports on Internal audit and Corporate Governance is not incorporated in the Annual Report

(b)Though the annual reports provide for a sustainability report it does not provide Internal audit report or any report on Corporate Governance yet which the BSEC has asked for.

(a) 1

(c)Employees do not understand their control responsibilities.

(c ) 0

(d)Complaints and disputes by suppliers are not

(d ) 0

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resolved in a timely manner. (e)Grievances of customers are not properly addressed

(e) 0

Monitoring

Activities

(a)There are no independent process checks or independent evaluations of controls activities on ongoing basis.

(a ) 0

(b)No interim financial statements are prepared

(b ) 0

Information

Technology

(IT)

(a)No IT system to monitor & supervise the zone offices and sales centers across the franchise area

(a) 1

(b)No restriction of personnel in accessing all levels of different modules in computer

(b ) 0

(c )No integrated computer system exists that encompasses the whole company

( c) 1

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Titas Franchise Area Appendix

62

63