1. CEP /Parikrama
Institute of Internal Auditors, India – Bombay Chapter
Date: 27th April, 2013
By: Amit Shah
Internal Audit - Construction of Real Estate Properties

2. Internal
Audit

4. Definition
Integrated control is a
management process
designed to achieve
Effectiveness and
efficiency of operations
Reliable financial reporting
Compliance with laws and
regulations
Objectives Relating to effective and
efficient use of the entity’s
resources
Relating to preparation of
reliable published financial
statements
Relating to entity’s
compliance with
applicable laws and
regulations
What is Internal Control?
Slide # 4

5. • Control environment: Tone of an organization
• Risk assessment: It includes identification of internal and external vulnerable areas
of the entity
• Control activities: It includes policies and procedures which ensure that the actions
identified by management as necessary to address risks to achievement of the
entity's objectives are effectively carried out
• Information and communication: Information to be identified, captured and
communicated in a form and timeframe that enables people to carry out their
responsibilities
• Monitoring: A process that assess the quality of the system’s performance over a
time.
Components of Internal Control
Slide # 5

6. Control
Environment
Risk
Assessment
Control
Activities
Information and
Communication
Monitoring
Effectiveness
and Efficiency
of Operation
Financial
Reporting
Compliances
For Procurement to Payment Process
COSO Methodology
Slide # 6

7. About Construction Business
Slide # 7

8. Demand of power and energy is changing the direction of construction
Existing infrastructure is seen as inadequate to support growing
urbanization, population growth and changing demographics
Procurement and Supply chain play a critical role in future success
Cost reduction remains on the agenda
IT needs to set up a level
Forces Shaping
the Industry
Drive for Greater
Efficiency
Source: Survey by KPMG in 2012
Slide # 8

9. History of Indian Construction Industry
• In India, construction has accounted for around 40% of the development investment during
the past 50 years.
• Around 16% of the nation’s working populations depends on construction for its livelihood
• The Indian construction industry comprises 200 firms in the corporate sector
• In addition to these firms, there are about 2,00,000 Class A contractors and thousands of
small contractors and sub contractors
Started in
1950’s in India
(Developing
Country
Concept)
Government
Role in
Development
Set up of
National
Industrial
Development
Corporation
(NIDC)
IRCON, NBCC,
RITES, Etc.
1960s GOI
encouraged
Foreign
Collaborations
Source: ICAI Technical Guide and wikipediaSlide # 9

10. Brief and Generalized Process in Construction Business
Slide # 10

11. Market Study and Land
Identification
Land Approvals
Market Research &
Product Feasibility
Land Acquisition
Product & Design BriefDesign Development
Master Cost Budget and
Cost Estimation
Regulatory Approvals
Next PageProcurementSelection of ContractorProject Planning
Construction Activities
Construction of Real Estate Business (End to End Project)
Slide # 11

12. Project Launch Sales and Marketing Construction Activities On Site Safety Measures
Materials Quality ReviewLabour ManagementSales Product LaunchSales Agreements
Possession of Asset
Receipt in Finance and
Accounts
Collection of MoneyRevenue Recognition
Construction of Real Estate Business (End to End Project)
Slide # 12

13. Sample Cost Sheet of Construction Projects
Sr
No
Description
Total
Development
Budget
Total Work
Order Issued
Budget
Utilised
Invoiced and
Certified till
date
Yet to be
Invoiced
Paid till date
Paid till date
(as a
percentage of
invoiced and
certified)
A Land Cost
B Hard Costs
- -
#DIV/0!
- - -
0%
C Soft Costs
- -
#DIV/0!
- - -
0%
D Finance Costs
- -
#DIV/0!
- - -
0%
E Brokerage Cost
- -
#DIV/0!
- - -
0%
TOTAL
Slide # 13

14. Land Cost:
Soil Investigation Work
Acquisition of Land
Brokerage for Land Acquired
Professional Fees paid on Land
Acquisition
Civil & Hard Cost:
Material Cost
Excavation Cost
Project site office
Landscaping work
Irrigation work
Temporary Electrical, drainage, water,
roads, etc.
Sample Flat Cost
Labour Work Cost
Security Cost
Soft Cost:
Professional Consultant Cost
Structural consultant Cost
Architectural Cost
Master Plan Consultant
Pollution Board and Environmental
Clearance
Government Approval for Land, Fire,
excavation, etc.
Legal consultants
Marketing and Advertisement Cost
Admin and Accounts
Finance Cost:
Bank Charges
Interest on Loan
Brokerage Cost
Brokerage Fees to Brokers
Cost Sheet of Construction Projects
Slide # 14

15. Key Risks in Construction Business
Slide # 15

16. Key Risks in Construction Business
• Mismatch of liquidity
• Inadequate project planning, monitoring and execution leading to time and cost
overrun
• Revenue recognition
• Non compliance with regulatory requirements
• Fraud and integrity issues – Local procurement, contract hiring, cash dealings, etc.
• Non tracking /recognition of price escalation, claims, variation in works contract
• Human safety risk
Slide # 16

17. Slide # 17

18. The recent construction mishap at Mumbra-Shilphata of 7-storeyed
building which was built with inferior materials and which flouted all
construction engineering norms was built in record time of 2months.
Death toll – 74 people, which include maximum from the age bracket of
16~20.
Monitoring quality of construction materials like curing of cement blocks,
testing steel strength, Concrete batch mixing process, all should be done
religiously to avoid any compromises.
Undertaking Peer Review of Architectural Designs & Value Engineering is
recommended.
Risk of Avoiding Risks
Slide # 18

19. Specific Areas of Internal Audit in Construction of Real Estate Business
Slide # 19

20. Land Clearance Verification
• Title deed /certificate of title of the land – Legal documents which proves the ownership of the
land
• Encumbrance certificate – Any liability or charges created on any property in terms of any
security which is not discharged as on date. This is a legal document issued by registering
authority
• Measurement of property
• Sales Agreement – Agreement between buyer and seller
• Property registration – Registration at sub registrar or sub district magistrate
• Stamp Duty – Legal document gets evidentiary value and is admitted as evidence in courts.
• Changing the title in village office – 7/12 or Namantran (changing the name in the records of
gram panchayat)
Slide # 20

21. Approvals from local authorities
• Building plan that complies with National Building Code of India, 2005 issued by BIS and adopted
by infrastructure department, municipal administrators, public bodies and private agencies
• Layout approval
• Basic amenities
• No Objection Certificate – Water and Pollution Board
• Completion certificate
• Occupancy certificate
• Approval from conversion of land, if necessary
Slide # 21

22. Contractor Selection Process
 RFQ Floating and Tendering process
 Evaluation criteria and related documentation (Technical Bid and Financial Fid)
 Bank guarantee details
 Value of tender
 Specification of requirement
 Delivery schedule
 Mobilisation and retention details
 Safety, health and Environment
 Details of products used / services catered at other prime sites, past experience details.
 Correspondence details
 Market knowledge about vendor performance, etc.
 Contract agreements - terms and conditions
Please suggest the view on Internal Audit point of view… and analysis can be
done on the same.
Slide # 22

23. Case 1 – RA Bill Audit
Background of the Company: The Company is into construction of Morden township in the
remote area of Mumbai. The company has appointed a contractor who in-turn will help the
company in constructing the buildings as per the design. The company has entered into an
agreement at a rate of Rs XXX per sq. ft. for constructing the building as per the design and
plan prepared and mutually agreed.
Current Situation: The contractor has submitted an invoice i.e. RA Bill number 23rd to the
company of Rs XX Cr. till the period of August, 2012.
The company had supplied material worth Rs XX Cr on behalf of contractor.
Please suggest the view on Internal Audit point of view… and analysis can be done on the
same.
Slide # 23

24. Few of the Analysis:
• Check the agreement and analyse whether the bill is as per the milestone define in the
agreement
• Check the rate from agreement and area from the field book. Area completed in the field
book (Measurement Book) should be the same as per the BOQ and Invoice
• Quality certificate should be checked / No defect certificate should be checked
• Physical measurement of cubic meter completed by the contractor on independent basis and
compare the same with invoice quantity and BOQ
• All the deduction (as mentioned in the agreement) should be checked
Case 1 – RA Bill Audit
Slide # 24

25. The Company has entered in contract with ABC Earth Movers (Vendor) for the execution of infra projects. For
various infra works, cost estimates or BOQs are prepared which are approved and accepted in its LOE.
 Facts: While verifying RA bill -1, we have observed the following issues –
a. Quantities mentioned in the BOQ are exceeding in the actual bill.
b. No approvals are sought for such excess quantities billed.
 Such extra quantities billed to the company has led to a cost hike of Rs xx Lakhs in first RA bill itself.
Approvals and work orders for excess quantities billed are not executed by the company and there is no
management justification provided for excess quantity.
Detailed computation attached:
Sr.No. as
per R.A.
Bill
Description Unit Rate (`.)
Qty as
per
BOQ
Qty
Actual Billed
Excess Qty. Amount (`)
1
Excavation in all types of soil up to any
depth including soft murum by
mechanical means as well as ….
Cum Xxx 5000 12720.27 7720.27 xxx
3
Same as item no.1 above, but in Hard
Rock by Controlled Blasting.
Cum Xxx 5000 Xxx xxxXxx
7
Same as item no.1 above, but in Hard
Rock by Poclain with needle rock
breaker….
Cum xxx 5000 xxx Xxx xxx
Total xxxx
Case 1 – RA Bill Audit
Slide # 25

26. On review of contractor’s Running Account (R.A.) bill # xx, it was found that the Total Quantity (Area of
Construction) fixed as per Agreement with the contractor for Building A1 was not matching with one item billed to
the company.
The Total Area fixed as per Agreement for Building A1 is – 81,022 sq. ft.. However the area billed to the company
was 87,513 sq. ft.
The said error in the total area of construction has resulted in an excess billing of Rs.xxx/- to the company.
The Detailed computation is as follows –
It was further observed that, in spite of mismatch of the quantities in the RA bill which resulted for an excess
billing of Rs.1.86 lakh, the project manager & contractor officials had approved the bill.
Description Rate
Total Quantity (sq. ft.)
Qty.
Excess amount
billed (Rs.)As per
Agreement
Actual
billed
Difference
Finishing works
Tiling against
material Xxx 81,022 87,513 6,491 3.50% Xxxx
Case 1 – RA Bill Audit
Slide # 26

27. Procurement Audit Scope of Work
 Purchase order authorizations comply with Authority Limits
 Design and Operating Effectiveness of automated application controls related to authorization
and payment run
 Segregation of Duties for procurement ordering and payment authorization / service receipt
 Emergency procurements are Review of Requisitioning & Purchasing Process and Reporting
 Material receipt documentation (GRN, TC, DC, Weigh Slip, etc.)
 Reviewing operational effectiveness and ensuring requisitions are approved on a timely basis
 Review of Payments Processing & recording of Cash Disbursements
Slide # 27

28. Procurement Observation:
Background: Singapore based private equity player had invested 60% of money and formed a SPV for
construction of modern township project along with local real estate player. The project was managed by the
contractor which was selected by SPV company (Indian Company). The procurement was the prime
responsibility of contractor. Following trend was observed.
• On review of Steel & other work orders issued, we observed that in case of Xx transactions aggregating to
₹xx Crore, the contracts were awarded without
• Inviting quotations
• preparing comparative statements (CST).
• There was no gate inward entry of such materials
• Invoices have been processed without proper documentation like GRN, Test Certificates, Weigh slips,
etc.
• The trend was shown in few common vendors where not frequent purchase was made by the contractor.
• The trend was shown in the same month when there was a money infusion by the private equity players
• We reviewed the consumption pattern of steel from BOQ and found that the contractor had used excess
steel in the construction activities than mentioned in BOQ.
Procurement Audit - Observation
Slide # 28

29. Quality of Materials
Steel: Bureau of Indian Standards (BIS) – Structural Steel
General requirements relating a supply of structural steel
shall conform IS 8910
Chemical Test:
Mechanical Test:
Tensile Test: One tensile test shall be made from the finished
product for every 40 tonnes or part thereof
Bend Test: One bend test for every 20 tonnes of material or
part thereof
Slide # 29

30. Quality of Materials
Cement: Bureau of Indian Standards (BIS)
Slide # 30

31. Quality of Materials
Fly Ash Lime Bricks: Bureau of Indian Standards (BIS)
Slide # 31

32.  Review the physical stock take, verification and its reconciliation with books
 Review the inventory valuation
 Review store transactions
 Review compliance with the inventory planning
 Review consumption of materials viz a viz work completion and compare the actual
consumption with standard consumption (wherever possible)
 Review inventory ageing
 Scrap generation and record maintenance process
Inventory Management Internal Audit Scope
Please suggest the view on Internal Audit point of view… and analysis can
be done on the same.
Slide # 32

33. Background: Audit of construction of Hydro Electric Power Plant Project
• Total steel consumed during the period from April to Sept. 12 was 5,373 MT. However, The steel
scrap sold during the same period and closing stock available at site was approximately 36 MT
which is 0.68% of material consumed for that period.
• We referred Indian Standard Code under CWC (Central Water Commission) guideline, (2nd
revised addition, Page No. 5) for River Valley Projects which states that steel scrap generation
should be 2.5% of steel consumed. So, it should come to 134 MT as per the working.
• We further analysed the scrap sales ledger and found that all the scrap sold was in cash and the
company had not invited multiple bids and defined approval mechanism.
Observation Scrap Management
Slide # 33

34. • Point of consumption not defined. This mean valuation is done only for stock lying at
stores and stocks lying at site is neither valued nor considered as a part of consumption.
• Valuation of scrap stock is not considered
• Actual vs. standard consumption of Steel, Cement and other key materials
• Quantity difference in steel issued by stores and steel received by the site contractors
• Improper material storage /security of materials
Key Observation for Inventory Management
Slide # 34

35.  Review of sales agreement and KYC documentation
 Broker appointment process
 Customer receipt and its booking
 Cash collection and its accounting
 Customer feedback and complaints
 Debtors ledger scrutiny and un realized debtors
Please suggest the view on Internal Audit point of view… and analysis can
be done on the same.
Sales Process Internal Audit Scope
Slide # 35

36. Background: Audit of Township of approximate Rs 300 Cr. project
• As per Maharashtra Ownership Flats Act, 1963, if builder /company fails to provide flat on scheduled
date (which is mentioned in the agreement), he (builder /company) will be liable to pay 9% interest
on the amount which have been collected from the client. There is a provision of grace period of 6
months which is allowed by the Act.
• On review of flat sale agreements, it was observed that flat completion date from construction date
is 18 months, i.e. completion by July 2012, with a grace period of 6 months, extending possession to
client date as 31st December 2012.
• As on March, 2013 the company had not completed the buildings number A1 & A2. Total approx.
price for A1 & A2 collected till date is ₹ xx Cr & ₹ xx Cr respectively and Interest for delay of 3
months from December, 2012 to March, 2013 will be ₹xx Cr @ 9% per annum
MOFA Act, 1963 on possession of flats
Slide # 36

37. Cancellation and Refund
• As per Maharashtra Ownership Flats Act, 1963, the builder /company can not charge processing
fees for cancellation of flat. However, on review of the sales agreement, the company has put
clause on cancellation of flat which states that there would be 5% processing charge levied on the
customer if they cancel the flat. This indicates non compliance with the Act.
• 25 Instances of cancellations were observed during the audit period out of which in two instances
processing fees of flat cancellation have been collected.
• In 2 instances (A1-101 & A2-102) amounting to ₹ xxx Lacs, the amount was refunded 2 & 9 days
prior to actual cancellation date
Slide # 37

38. • The management of the company has set minimum net sale price as ₹ 3,180 per sq.ft. as a pro-
forma price.
• On review of pro-forma versus actual sales, we observed that there was an average downward
difference of ₹ 35.14 per sq.ft as on 31st March 2012, which does not include discounts.
• Also, it was observed that the price has been consistently lower than the targeted sales price set
by the management, for the period September 2011 to March 2012 as per the below table*:
Month Gross price
per sq ft
Sq ft sold Gross price
per sq ft
Difference Rate Difference Amount
Sep-11 3,180.29 - NO SALE
Oct-11 3,180.29 22,331.00 3,141.52 (38.77) (865,861.82)
Nov-11 xxx xxx xxx xxx xxx
Dec-11 xxx xxx xxx xxx xxx
Jan-12 xxx xxx xxx xxx xxx
Feb-12 xxx xxx xxx xxx xxx
Mar-12 xxx xxx xxx xxx xxx
Total Loss xxxx
Loss as against Pro-forma Sales Price
Slide # 38

39. • Absence of existing address proof of customers and out of which, there is an outstanding
amount for more than 75% of such cases
• Brokerage analysis (Preferred broker, broker empanelment, maximum brokerage, etc.)
• Discount analysis
• Debtors outstanding analysis
• KYC / debarred entity verification
Sales Process – Other IA Observations
Slide # 39

40. • Building & other construction Workers (Regulation of Employment and Conditions of Service)
Act, 1996 (BOCWA)
• Building and Other Construction Workers (Regulation of Employment and Conditions of
Service) Central Rules, 1998 (BOCWR)
• Petroleum Act, 1934 (PA)
• Petroleum Rules, 2002 (PR)
• Explosives Act, 1884 (EA)
• Explosives Rules, 1983 (ER)
• Gas Cylinder Rules, 1981 (GCR)
• Static & Mobile Pressure Vessels (Unfired) Rules, 1981 (SMPVR)
• Electricity Act, 2003 (EA)
• Indian Electricity Rules, 1956 (ER)
• The workman compensation Act, 1923
• The ESIC Act and Rule
• Contract Labour (Regulation and Abolition) Central Rule, 1971
• The Child Labour (Prohibition and Regulation) Rules, 1988
• Safety norms provided by BIS
Key Safety Regulations
Slide # 40

44. • Child labour working on site
• Labor working on the edge of the building were not wearing safety harness
• Females, working on the edge of 5th and 6th floors, were observed without wearing safety
helmets
• Garbage chute was not available
• Insufficient and inadequate first aid boxes
• The company should have Ambulance Van in case if there are more than 500 labors are
working on the site.
• It was observed that safety net had a gap of at least 2 feet from the side of the walls, which can
be a safety breach in case of fall of any man or material
• The signboards at the site were mostly in English language which cannot be understood by
labors at site.
• No training calendar available on safety, important training like firefighting and falling from
height was not done
Other Observations on Safety
Slide # 44

45. Summary of Delay as on 31st March, 2012 - Building Wise
Building
Name
Handing
over to
Contractor
Scheduled
start of
work
Actual
start of
work
Scheduled
completion of
latest activity
Actual
completion of
latest activity
Total
Delay as
of today
Accountability
Delay in
Handing Over
of site
attributable to
Company
Delay Attributable to
non availability of
steel, late issuance
of drawings, bad
cash flow, etc.
Net Delay
attributable
to contractor
A1 17-Feb-11 30-Dec-10 17-Feb-11 15-Nov-11 30-Mar-12 xxx xxx xxx xxx
A2 17-Feb-11 30-Dec-10 17-Feb-11 17-Aug-11 27-Mar-12 xxx xxx xxx xxx
A3 11-Aug-10 06-Sep-10 11-Aug-10 23-Jul-11 19-Feb-12 xxx xxx xxx xxx
A4 10-Jun-11 20-Jan-11 10-Jun-11 01-Jun-11 14-Mar-12 xxx xxx xxx xxx
A5 08-Oct-10 17-Oct-10 08-Oct-10 2-Aug-11 14-Mar-12 xxx xxx xxx xxx
A6 08-Oct-10 30-Oct-10 08-Oct-10 28-Aug-11 17-Mar-12 xxx xxx xxx xxx
A7 16-Oct-10 17-Nov-10 16-Oct-10 05-Sep-11 23-Feb-12 xxx xxx xxx xxx
A8 17-Feb-11 20-Dec-10 17-Feb-11 20-Jul-11 01-Mar-12 xxx xxx xxx xxx
A9 05-Nov-11 20-Jan-11
yet to be identified xxx xxx xxx xxx
A10 05-Nov-11 20-Jan-11
Total xxx xxx xxx xxx
Reasons for Delay:
No. Reasons
1 Delay on account of late handing over of site
2 Delay on account of non availability of steel
3 Delay on account of late issuance of drawings
4 Delay on account of shortage of cement:
5
Delay on account of late clearing of area for carrying out the
excavation work
6 Delay on account of shortage of manpower
7 Delay on account of bad cash flow
8 Delay on account of hindrances
Scheduled Completion
Date
November,
2011
New Completion Date March, 2013
Delay in Days xxxx
Delay from Contractor
Delay from Company
Project Management – IA Observation
Slide # 45

46. AS 7 – Revenue Recognition of Construction Contracts
YEAR
I
YEAR
II
YEAR
III
Initial amount of revenue
agreed in contract
9000 9000 9000
Contract Costs incurred
upto the reporting date
2093 6168 8200
Contract costs to complete 5957 2032 0
Total Estimated costs 8050 8200 8200
Stage of Completion 26% 74% 100%
The stage of completion of contract can be determined
• The proportion that contract costs incurred for work performed upto the reporting
date bear to the estimated total contract costs; or
• Surveys of work performed; or
• Completion of a physical proportion of the contract work.Slide # 46

47. Upto
Reporting date
Recognised in
prior year
Recognised in
current year
Year I
Revenue (9000 x 0.26) 2340 2340
Expenses (8050 x 0.26) 2093 2093
Profit 247 247
Upto
Reporting date
Recognised in
prior year
Recognised in
current year
Year II
Revenue (9000 x 0.74) 6660 2340 4320
Expenses (8200 x 0.74) 6068 2093 3975
Profit 740 247 345
Upto
Reporting date
Recognised in
prior year
Recognised in
current year
Year III
Revenue (9000 x 1.00) 9000 6660 2340
Expenses (8200 x 1.00) 8200 6068 2132
Profit 1000 740 208
AS 7 – Revenue Recognition of Construction Contracts

48. Other Standard Internal Audit Areas
Slide # 48

49. Scope Area Check Point
Cash & Bank
 Physical verification of cash
 Cash payment - supporting and authorization
 Bank payment - supporting and authorization
 Bank reconciliation statement
 Review of the Cash flow forecasting process and working capital
management
 Monitoring of cash movements (sources and application of cash) /
Review cash flow statement
Fixed Assets
 Fixed Assets Acquisition, capitalization, transfer and disposal process
 Review the actual expenditure against the capital expenditure budget
and plans.
 Segregation of Duties for procurement ordering and payment
authorization / service receipt
 Review the payment as per the progressive payment and retention
terms
 Physical verification of fixed assets (on sample basis)
Standard Scope of Internal Audit in Construction Business
Slide # 49

50. Scope Area Check Point
Accounting
Software &
System
 Adequacy of Accounting Software in light of the volume and nature of
transactions and business.
 Back up procedure.
 Security Features.
 Various MIS reports embedded therein.
availability of log recording the audit trail of changes and deletion made
in the Vouchers after the close of daily day book
 Any other issue, which needs to be reported.
Books of Accounts
 Review of period end adjustments, closing entries, recording of
outstanding and accruals
 Review of book closure process and controls & cut-off procedures
 Review of revenues and expenses matching criteria
 Review of Balance sheet and Profit and Loss Accounts
 Compliance with accounting standards and other financial reporting
frameworks
Standard Scope of Internal Audit in Construction Business
Slide # 50

51. Scope Area Check Point
Human Resource
& Payroll
 Review of payroll computations by re-performance
 Monthly variance in payroll amounts is checked to identify month to
month variations
 Controls over Full and Final settlement
 Review of statutory payments and government dues i.e. PF, ESIC,
Payment of bonus act, Labour act, etc.
 Review compliances with the HR policies
 Headcount reconciliation between HR & Payroll
 Employee joining and leaving process
Safety, Health &
Environment
Management
 Review audit plan and scheduling of SHE audits
 Review implementation effectiveness of recommendations given by the
SHE auditors
 Define and monitor KPIs for SHE auditors
 Review number of hazardous events / accidents occurred in the plants
and root causes for the same
Standard Scope of Internal Audit in Construction Business
Slide # 51

52. Scope Area Check Point
Legal and
Compliance
Management
 Understand the existing compliance framework to tax legislations and
Employment Laws
 Evaluate strategic tax planning Decisions and related tax exemption
requirements
 Review ongoing compliance to regulations
Identify penalties (and financial implications), if any, for non-
compliances
Insurance
 Review insurance policies and its coverage
 Verify that the value of Inventory and Cash balance in hand/Transit
should not exceed the insured amount at any time
 Verify whether the policy is renewed before expiry
 Check whether proper claim is made with insurance company in case of
loss to asset
 Insurance policy selection process
Standard Scope of Internal Audit in Construction Business
Slide # 52

53. Reporting of Internal Audit
Slide # 53

54. Area
Total
Observation
Management
Comments
Received
Accepted
Not Accepted
/ Require
Discussion
Implementation
Timelines Given
Review of Insurance 5 5 5 0
After Management
Approval
Review of Safety, Health & Environment xx xx xx 1
11 Points
Implemented
Contractor Selection Review xx xx xx 1 Not Given
Review of RA Bills / Payment to
Contractors
xx xx xx 1
Fixed Asset Review xx xx xx 1
2 points
implemented
Cash & Bank Review xx xx xx 0
2 points
implemented
Labour Compliance Review xx xx xx 0 Response Awaited
Accounts & System xx xx xx 1 Not Given
Sales & Marketing xx xx xx 4 Require Discussion
Book Closure Process xx xx xx 0 Not Given
Project Execution Review xx xx xx 0 Not Given
Admin Expense xx xx xx 0 Not Given
Information Technology Review xx xx xx 0 Not Given
Total xx xx xx 9
Overall Summary
High Risk
Observations
Slide # 54

55. Root Cause Analysis
Major Root Cause Analysis
No. of
Observation
% H M L
People
Expectation Setting and Awareness xx 16% 9 3 0
Poor implementation of defined / not defined job
responsibility
xx 23% 16 1 0
Process
Absence of defined control procedures xx 22% 14 2 0
Absence of effective monitoring procedures xx 12% 6 3 0
Operational ineffectiveness xx 23% 7 6 4
Technology Technology inefficiency and awareness xx 3% 0 2 0
Slide # 55

56. Generalized Root Causes
Expectation Setting and Awareness
Poor implementation of defined / not
defined job responsibility
Absence of defined control
procedures
• Inadequate FAR
• Non display of certificates and extracts
as per regulatory requirements
• Absence of exhaustive vendor master
list
• Absence of agreement MIS tracker
• Tracker for retention money deduction
not maintained adequately
• Child labour found at site
• Safety harness not given to labourers
• Processing of Steel invoices & Air
Condition Invoices without proper
documentation
• Aged advances to vendors
• Pro-forma vs actual sales price
• Insurance risk assessment not
done
• Fixed Assets Policy not defined
• Absence of maker checker in
BRS
• No policy on cancellation of
flats
• Absence of standard operating
procedures
Absence of effective monitoring
procedures
Operational ineffectiveness
Technology inefficiency and
awareness
• Expiry of agreements for admin work
• Revision of completion date not
submitted to Insurance company
• Project delay
• Periodic physical verification not done
• Un-reconciled difference in BRS
• Stale cheques more than 6 months
• Cheque bounce charges not recovered
from client
• Refund before cancellation
• Ledger created with head "unknown"
• Absence of ERP
• Accounting system not blocked
after book closure
1 2 3
4 5 6
Slide # 56

57. Way Ahead
Root Causes Way Ahead Deadline Responsibility
Expectation Setting
and Awareness
Operational
Ineffectiveness
Topical & Awareness creation sessions from experts
Developing policies / guidelines / standard operating procedures
Defining KRA and KPI
Poor implementation
of defined / not
defined job
responsibility
Defining job responsiblities
Performance linkage with remuneration
Accountability needs to be set for each process
Absence of defined
control procedures
Defining proper control and compliance framework
Compliance control self assessment
Absence of effective
monitoring
procedures
Pre-audit of transactions
Quarterly internal audit
Technology
inefficiency and
awareness
An effective ERP System
1
2
3
4
5
6
Slide # 57

58. Thank You
Slide # 58