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PROJECT ON EXPENSE BOOKING IN THE SERVICE & STORES SECTION OF THE F&A DEPARTMENT OF KOLAGHAT THERMAL POWER STATION (WBPDCL)

ABHIMANYU CHAKRABORTY ASSISTANT MANAGER (F&A)

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ContentsObjective Of The Project.....................................................................................................................3

Scope Of The Project...........................................................................................................................3

Methodology Of The Project..............................................................................................................3

Company Profile....................................................................................................................................4

Overview Of Kolaghat Thermal Power Station............................................................................6

Importance Of Services & Stores & Spares In Power Generation Company....................6

Major Heads Of Expenditure.............................................................................................................6

Processes.................................................................................................................................................7

Ordering Process...................................................................................................................................8

Processing Of Bills & Accounting...................................................................................................11

Payment Process.................................................................................................................................14

Internal Control....................................................................................................................................15

Conclusion.............................................................................................................................................16

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Objective Of The Project

This project shall document the process relating to the booking of expenditure in the service section & stores section of Finance & Accounts (F & A) Department of Kolaghat Thermal Power Station (The West Bengal Power Development Corporation Limited). The project shall provide a comprehensive study of the process right from tendering process to the release of payment for varied expenditure heads under the services and stores section.

The accounting of service as well as stores involves a lot of processes. As the services providers as well as the services provided to the Kolaghat Thermal Power Station are of diverse nature , accounting for it means considering the various taxation issues like service tax, works contract tax, income tax among others and adjustments for the same. This project shall document all the associated accounting procedures.

The payment of services as well as stores and spares are made by the local finance as well as the corporate office of WBPDCL depending on the payment terms. This project shall document how the payments are made.

Scope Of The Project

Having worked with Kolaghat Thermal Power Project since the past one year, I have had ample opportunities to learn and understand the processes of accounting in the organization. However, the overall process is complex and understanding it takes time. While I have endeavored to gather as much knowledge as possible, there is still a lot to learn. While preparing the project, I shall endeavor to prepare it in such a way that there are minimum errors. I shall try to provide as much a comprehensive study of the overall process as possible.

Methodology Of The Project

The project on Expense Booking in the Service & Stores Section of the F&A Department of Kolaghat Thermal Power Station (WBPDCL) is basically theoretical and the objective of the project is to analyze its importance in the near future. The Project preparation needed adoption of some methods. The methods are mentioned in below:

Collection of the copies of the bills & Registers of the F & A Department for research. Discussion with the respective officers of the F & A & other Departments for

understanding the processes. Searching the web for information regarding The West Bengal Power Development

Corporation Limited & Kolaghat Thermal Power Station. Collection of materials on direct & indirect taxation for research.

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Company Profile

The West Bengal Power Development Corporation Limited

The West Bengal Power Development Corporation Limited (WBPDCL), fully owned company of the Government of West Bengal, incorporated in July 1985, has achieved from zero to best bloom by the advent of new millennium. The main objective of the Company is to carry on the business of ‘Thermal Power Generation and Supply’, as enunciated in the Memorandum & Articles of Association of the Company.

The Authorized Share Capital of the Company is Rs 5000 crores divided into 50000000 equity shares of Rs 1000 each and the Paid-up Capital is Rs 4113.33 crores as on 31st March, 2013.The company has reported total revenue of Rs. 8131.85 crores & profit after tax of Rs 131.66 crores for the year ending 31st March, 2013.

The Corporation started with taking over of Kolaghat Thermal Power Project from WBSEB in 1985. At the time of its incorporation, there was only one 210 MW unit in operation at Kolaghat. Later five more units of 210 MW were added by the end of January 1993.During the period from 1999 to 2001; three (3) more units of 210MW capacity were installed by WBPDCL in national record time of 37 months. Subsequently in the year 2001 two more Power plants Bandel TPS and Santaldih TPS were also taken over by WBPDCL from WBSEB.WBPDCL works in tandem with West Bengal State Electricity Board (WBSEB) and Calcutta Electric Supply Corpora-tion (CESC)

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Running Power Stations :

Sl No.

Power Station Installed Capacity

1 Kolaghat Thermal Power Station(6 X 210 MW)

1260 MW

2 Bakreswar Thermal Power Station(5 X 210 MW)

1050 MW

3 Bandel Thermal Power Station(1 X 210 MW Unit + 4 X 60 MW)

450 MW

4 Santaldih Thermal Power Station(2X 250 MW)

500 MW

5 Sagardighi Thermal Power Station(2 X 300 MW)

600 MW

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Overview of Kolaghat Thermal Power Station

Out of the five plants of The West Bengal Power Development Corporation Limited, Kolaghat Thermal Power Station (KTPS) has the maximum installed capacity. The construction was started for Kolaghat Thermal Power Station was on the year of 1973. The first three Unit were lighted under Governance of WBSEB, but when the fourth, fifth and sixth unit were constructed, WBSEB faced a huge financial crisis & decided to apply for debt from IDBI Bank. According to IDBI Bank rules, loan was to be advanced only to those entities that are registered under Company Act 1956. For that reason K.T.P.S shifted its Power of Attorney to WBSEB to WBPDCL. So, the West Bengal Power Development Corporation Limited was formed in 1985 with Kolaghat Thermal Power Station in its fold and WBSEB handed over all assets and liabilities to WBPDCL in January, 1987. First meeting of the Board of Directors was held in the month of March, 1985.Later, as a part of reform in Power Sector, two other generating stations of WBSEB namely Bandel TPS and Santaldih TPS have been taken over by the WBPDCL. Bakreswar TPS in Birbhum is already in operation (Units-1 to 5) and 2units are already in operation at Sagardighi, Murshidabad and Santaldih TPS, Purulia.

Importance of Services & Stores & Spares in Power Generation Company

Service costs are the costs which keep the main production activity running in any organization by providing the effective auxiliary services. They ensure that all the primary function i.e. the generation of electricity in case of WBPDCL can be undertaken smoothly. Stores & Spares are an important aspect of any manufacturing industry & efficient management of the same is of considerable importance. It is imperative to ensure that the stores and spares are maintained at an optimum level to ensure that production activity can run uninterrupted. It is also important to ensure that excessive capital is not blocked at any given point of time because funds are crucial.

Major Heads of Expenditure

The heads of expenditure under services are of diverse nature. The expenditure heads are codified to ensure proper accounting & reporting.

The major heads of expenditure along with their respective codes are as follows:

Code Expenditure Head74101 R & M (Boiler Plant & Equipment)74103 R & M (Turbine Generator)

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74109 R & M (Auxiliaries)74115 R & M (CHP)71221 Oil Handling Charges71219 Other Coal Related Costs74160 Spl. Rep. (Overhauling)74171 R & M (Communication Equipment)74181 R&M ( Meter Testing Equipments)74301 R & M (Roads & Others)74411 R & M (Cooling Tower)74650 R & M (Jeep & Motors)74800 R & M (Office Equipment)75710 Hospital Expenses75720 Canteen Expenses75730 Education Expenses75760 Other Welfare Expenses76108 Safety & Security76140 Transport Charges76153 Printing & Stationery76190 Misc Expenses76191 Social Welfare Expenses74199 R & M (Other Misc Equipment)

The above list gives us a fair idea about the myriad services covered under the service accounting section of the F&A Department of Kolaghat Thermal Power Station. It is of relevance to mention here that the above list is only indicative & not exhaustive.

There are mainly two expenditure heads under the Stores & Supply Section of the F & A Department of Kolaghat Thermal Power Station, viz: Purchase & Renovation & Modernization.

ProcessesThe process of service as well as stores billing and expense booking flows from the ordering process for the service or material and culminates with the payment of bills to the vendors. The proper accounting of the expenditure under the respective heads as well the payment to the vendors against the bills is very essential for the financial reporting system to generate correct and reliable information for the management and other stakeholders. The flow of the process is illustrated in the following page.

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Ordering Process

The ordering procedure is kick started by the tendering process. The tenders may be of three categories viz; Proprietary Tender, Limited Tender, Open Tender. The tendering procedure is managed by the Stores & Purchase Department of Kolaghat Thermal Power Station. The first stage in the tendering process is initiated by the user Department by raising an indent of the requirement and forwarding the same to the Stores & Purchase Department It is worth mentioning here that if the order value is Rs 500000.00 ( Rupees Five Lacs only) and above administrative approval of the General Manager (Kolaghat Thermal Power Station) is required for taking further necessary action. The parties to whom the tender notice must be floated (in case of proprietary/limited tender are generally suggested by the user Department. The Stores & Purchase Department may also provide its suggestions in this regard. Both manual & E-Tendering processes are in effect at the Kolaghat Thermal Power Station currently.

In the case of Open Tender after obtaining the necessary administrative approval the Tender Advertisement is put forward for publication in the leading newspapers. In the case of proprietary/limited tender draft Request for Quotation (RFQ) is prepared by the Stores & Purchase Dept & forwarded to the user Department for checking & suggestions regarding any technical matter. Thereafter the Request for Quotation (RFQ) is floated to the parties inviting bids.

In case of Open Tender the bid documents consist of 3 (Three) parts viz: Earnest Money Deposit (EMD), Techno Commercial Bid & Price Bid. In the case of Limited Tender the bid documents may consist of all the 3 parts as mentioned above or may consist only 2 (Two) parts with the

Tendering & Vendor Selection Order Placement

Supervision / Inspection of work

/materials by the user department

Raising of Invoice by vendor & submission

Certification by the Controlling Officer

Routed through the HR & A/ S&P

Dept.to F&A Dept.

Processing of bills by the F&A Dept.

Booking of Expenses

Release of payment as per the payment

terms & fund allotment.

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exception of Earnest Money Deposit (EMD). The bid documents in case of Proprietary Tender consist of only 1 (One) part in which both the Techno Commercial Bid & Price Bid are merged.

After the submission of the bids the bid documents are opened for evaluation. In case of sufficient number of bids not being received the date for submission may be extended. It is worth mentioning here that during the opening of the bids a representative of the F & A Department must be mandatorily present.

After the evaluation of the bids and arriving at the L1 value negotiation for rationalizing the rates may be undertaken with the L1 bidder. It is to be mentioned here that during the negotiations also the F&A Department must be compulsorily represented.

After the finalization of the rates and other details regarding the order the Tender File is forwarded to the F & A Department for necessary finance vetting.

The ordering process is then culminated with the placement of the Purchase Oder or Service PO. The orders are generated through the ERP system in the Kola hat Thermal Power Station.

It may be mentioned here that E-tendering procedure has been recently introduced in Kolaghat Thermal Power Station & is in operation simultaneously with manual tendering.

An important matter to be considered in this process is that in some special circumstances if required post job ordering is also undertaken in the case of services. Another important aspect of ordering is that instead of a confirmatory order, LOI may be placed if all the quantitative matters regarding the job are not certain. It is later changed to confirmatory order after all the uncertainties are clarified.

The complete ordering process may be illustrated in a flowchart in the following page.

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Indent by the user department

Tender Value >₹500000 Yes

NoGeneral Manager Approval

Draft Request for Quotation preparation and forwarding to the user department for checking

Request for Quotation floated to vendor/s

Bid Submission by vendor/s

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Bid Opening

Evaluation of Bids

Negotiation with the bidder

Finance Vetting

Placement of Order

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Processing Of Bills & Accounting

In case of the service orders the supervision of the work is carried out by the controlling Department. The bills are prepared by the vendor & certified by the Controlling Officer. The Controlling Department thereafter forwards the bill to the HR & A Department for verification of the labour related rates and other admissible claims like Allowances, Hand Gloves, Bonus, PF, PF Administrative Charges, etc. It is to be mentioned here that the responsibility of verification of the above mentioned claims rests with the HR & A Department and the F & A Department undertakes only the verification of arithmetical accuracy in this regard. This matter has been decided vide Note sheet No: ********************************

After the necessary verification the bills are forwarded by the HR & A Department to the F & A Department. the F & A Department receives the bills and after appropriate allocation to the respective sections, bills are delegated for further processing by the Section In charge to the respective staff. It is worth mentioning that a separate register is maintained by the Service Bill Section of the F & A Department for recording the movement of the bills.

After the processing of the bills by the staff the bills are put up to the Section In charge for necessary checking & authorization. As the services are of diverse nature as well as the vendors a lot of taxation and other issues have to be considered for the processing of the bills. The major taxes to be dealt with are Income Tax (by the way of TDS), Works Contract Tax as well as Service Tax. The Service Order has to be thoroughly perused for the processing the bills as well as the latest taxation laws, rules, circulars, etc.

An important area to be considered in the processing of the service bills is the Service Tax. Service Tax is applicable with a lot of variations. The service tax rate in general is 12.36%, but if the service provided is in the nature of a works contract & is a repair & maintenance job then after abatement the rate to be charged is 8.652%.The rate will further change if the job falls under the category of original works. These matters require critical examination during the authorizing of bills. Another important issue to be considered is Reverse Charge of Service Tax in case the service provider is not a body corporate.

The various cases of reverse charge applicable in Service bills with the percentage breakup of the service tax portion is tabulated in the following page.

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Sl No

Name of Service Abated Value on Which Service Tax Payable

Percentage of service tax payable by service provider

Percentage of service tax payable by service receiver

Remarks

1 Services of Goods Transport Agency (GTA)

25% NIL 50% Person liable to pay freight for transportation shall be liable to pay service tax

2 Renting or Hiring of Motor Vehicle designated to carry passengers

40% NIL 100%

3 Supply of Manpower or Security Service

No Abatement

25% 75% Supply of manpower means supply of manpower temporary or otherwise to another person to work under his superintendence or control[Rule 2(g) of Service Tax Rules, inserted w.e.f.01.07.2012]

4 Service portion in Execution of Works Contract

40% 50% 50% Original Work(New Construction, Erection, Commissioning, Installation)

60% 50% 50% Works on Immovable Property (Maintenance, Repair, Finishing Services, Plastering, Floor & Wall Tilling, Installation of Electrical Fittings)

70% 50% 50% Works on Movable Property (Maintenance, Repair, Reconditioning, Restoration, Servicing of any goods)

The dual rates of abatement in case of Service portion in execution of works contract in case of movable & immovable property will be abolished and a uniform abated value of 70% will be taken for the service portion. This amendment will come into effect from 1st October, 2014.

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An important consideration in the processing of Service Bills is the nature of the person providing the service because based on that the rate for TDS has to be determined.

After authorization, the bills are forwarded to the cash section for payment. The process for payment is detailed later in the project.

The accounting for the service bills as well as the payment is undertaken by another officer of the F&A Department and not the Section In charge. After authorizing the bills and finalization of the Bills Register the Bills Register is taken by the respective officer for accounting through the computerized accounting system. Payments are also accounted for through the computerized accounting system.

The stores and supply bills are submitted by the parties to the Stores & Purchase Department who in turn forward the bills to the F & A Department. The F & A Department receives the bills and after appropriate allocation to the respective sections, bills are delegated for further processing by the Section In charge to the respective staff.

After the processing of the bills by the staff & entering the record of the processed bills in the Bill Register maintained for that purpose the bills are put up to the Section In charge for necessary checking & authorization. The taxation issues have to be carefully considered for the processing of the bills. A typical nature of the stores and supply bills is the verification whether the goods or materials billed have actually been received by the user Department. On the arrival of the goods at the stores a Materials Arrival Note (MAN) is prepared and after the inspection of the goods by the user Department a Goods Received Note (GRN) is prepared through the ERP system. The section in charge has to carefully consider these issues while authorizing the bills. After authorizing the bills they are forwarded to the cash section for payment. The process for payment is detailed later in the project.

The Section In charge of the stores and supply section of the F & A Department takes care of the accounting for the bills and payments relating to the said section through the computerized accounting system.

Payment Process

The payment terms are detailed in the service or purchase order and have to be followed accordingly. The paying authority designated in the order may be either the Deputy General Manager (F&A), Kolaghat Thermal Power Station or Corporate Office, Kolkata. The bills for which the paying authority is the Corporate Office is forwarded after authorization through proper channel to the Corporate Office, Kolkata.

In the case of the service bills there are two types of bills- perennial & non perennial. The perennial bills are paid by the 10th of every month. In case of the non perennial bills pending list is prepared by the F&A Department around the middle of every month & payments are allocated after the Fund Allotment meeting of the management including General Manager (KTPS), Deputy General Manager (F&A), Manager (F&A) among others. During the allotment meeting

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due consideration is given to the priority lists sent by the respective user Departments.

In the case of the stores & supply bills there are different types of payment terms as may be notified in the purchase order. There may be four types of payment terms viz; Against Goods Received Note (GRN), Against Proforma Invoice (PI), Through Bank & Cheque on Delivery (COD).The various payment terms are illustrated in a snapshot below.

Internal Control

Internal control is a process effected by plan management and otherpersonnel, and those charged with governance, and designed to provide reasonableassurance regarding the achievement of objectives in the reliability of financialreporting. Internal Check is a part of internal control process. It requires the arrangement of duties and responsibilities of the personnel in a business in such a way that the work done by one is automatically checked by another in the course of his work. It goes a long way to ensure reliability of the information generated by the accounting system of an organization.

In the service bills section internal check is inherent in many ways. The work done by the staff i.e. the processing of the bills & entering the bills in the Bills Register are checked thoroughly by the Section In charge before authorizing the bills. Thereafter the Supervising Officer to the Section In charge checks the bills & the Bills Register on a test check basis. Another effective internal check is that the accounting for the service bills section is undertaken by another officer of the F & A Department. It provides for an additional automatic check of the Bill Register. Also a Bill Register page calculation sheet is prepared and tallied with the computerized accounting reports for the finalization of the various statutory dues amounts.

Payment terms

Against Goods Received Note (GRN)

Payment to be made after the preparation

of GRN

Proforma Invoice(PI)

Payment to be made in advance against PI.

Through Bank

Payment will be made to the bank which in turnm will transmit it

to the vendor.

Cheque on Delivery

Payment is made on collection of the

materials.

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In case of the stores and supply bills section also the work done by the staff i.e. the processing of the bills & entering the bills in the Bills Register are checked thoroughly by the Section In charge before authorizing the bills. In addition the Supervising Officer to the Section In charge conducts the test check of bills & the Bill Register periodically.

Conclusion

The process of expense booking and the associated internal check in the service bills section and stores and supply section of the F & A Department of Kolaghat Thermal Power Station is detailed in the above project. Researching in detail the processes as illustrated above it appears that the process for accounting and associated internal controls are commensurate with the size and nature of the business and organization. However the following points may incite consideration for the further advancement of the processes-

The bills in the service section are still processed manually though ERP system is introduced since a considerable time in the plant. Efforts should be directed towards integrating the processing of the bills in the ERP framework by introducing the mechanism of Service Sheet.

The Quality Control certification mechanism should also be introduced in respect of service jobs.

The processing of the bills in stores and supply section should also be integrated in the ERP framework with the possibility of 4 (four) way matching. Under the present scenario only 2 (two) way matching is possible-order with GRN. Quality & Quantity checking should also be integrated in the ERP framework.

The above processed if implemented will go a long way in moving towards the paperless office concept that is increasingly becoming a standard in the corporate world as well as will work in reducing the possibility of errors and duplication of payments among others , if any in the accounting and payment process.