Audit Report (Q1 2016)

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Oman National Engineering & Investment Co. (SAOG) Internal Audit Report (1 st Quarter, 2016) Apr-2016 S. No IMPLEMENTATION IN PROCESS (PENDING AUDIT OBSERVATIONS) Recommendations 1 We noted that the company is penalized by the electricity companies for non-compliance as per clauses of the contracts every month. There are penalties for delay in billing, wrong calculation and lower standard of performance rate which are beingcharged. We recommend that company enforce strict measures by defining processes in place to ensure effective billing and compliance with all provisions of the said contracts and avoid penalty. 2 Negative Operational Cash Flow signifies a collections problem and also indicates that the current operational revenue is not sufficient to meet the current operational expenses of the Company. During the third quarter (July – Sept 2013), the company has a negative cash flow (from operations) of RO 3,396,059. As highlighted earlier also (Audit Report Q3, 2011, Point No. 4.1), this issue needs to be seriously addressed. 3 We have noticed that the Electricity companies (Majan, Mazoon & RAECO) do not pay the full amount invoiced to them. As per the contract, they are entitled to make adjustments for non performance. Over the last 2 years (2013 & 2014), the deductions adds up to the following:- From Majan = RO 286,481.826 From Mazoon = RO 543,847.870 From RAECO = RO 72,693.915 No explanation has been sought from them to ascertain and verify the clause under which it has been deducted. 4 We observed that there is a difference in the value of stock between stock register and general ledger (as on 30.09.2014):- Stock Register = RO 1,673,217.710 G. Ledger = RO 776,780.986 5 Clause 4.6 of the Billing Policy states that “If the consumer fails in making payment within 15 days of the notice period, the branch In-charge shall instruct the concerned staff at the branch to commence the disconnection process” We observed that in case of Dhofar region, the above disconnection process is not being followed for Govt accounts. Relevant Point Reference Q1 & Q2, 2012 Point No 3.3 Q3, 2013, Point (a) Q4, 2014 Point No. 1 Q4, 2014 Point No. 2 Q4, 2015 Point No. 2 Present status CEO has sent a letter to RAECO in April 2016 to resolve this issue at the earliest. The cash flow from operating activities as on 31.03.2016 is negative at RO 6.207 million. A dedicated staff to look into these matters is under process of being appointed. CEO has instructed the concerned departments to update the figures. Management is looking at alternate ways to handle this. Priority H H H H H - 7 -
Oman National Engineering & Investment Co. (SAOG) Internal Audit Report (1 st Quarter, 2016) Apr-2016 6 We observed conflict in the below mentioned clauses: Clause 2.2.4 (Policy number 2, page 7) of the Procurement policy states that “Any purchases above RO 20,000/- have to be made through the Tendering process as per the Company’s Tendering Policies and Procedures Manual. whereas Clause 2.1 (policy number 2,page 8) of the Procurement Tendering policy states that “It is the policy of the Company that any purchase of a value exceeding RO 15,000/- should be made through a tendering process” Q4, 2012 Point No. 3.3 To be taken for BOD approval in the forthcoming meeting M 7 We observed that the same item code is used for different items/ specification. For eg: Item code 2443 is used for cable tie 6”,cable tie 8”,cable tie 10” and cable tie 12” also. To have a better internal control, it is important that each item is assigned a unique and separate item code. 8 We have observed that No Limit has been fixed for the SMART cards issued to Staff members for Official work. The SMART card is reloaded as and when the request is received. Standard practice followed for SMART card is that a maximum amount is decided on the basis of the frequency and amount of day to day expenses from the card. Since a limit is not set and reloading done based on request, reconciliation of previous request and bills is not done while reloading. We also noted that PAID stamp was not put on SMART card slips. 9 While going through the Retention on Project Contracts, we observed that there are two cases in which the retention amount has been outstanding for more than 7 years. The two cases we observed are:- Job No. 455/MEW/2005 - Retention amount: RO 18,469.091 Job No. 464/OCC/2006 - Retention amount: RO 10,768.250 10 Following are our observations in Tendering cost estimation :- a) Cost under-estimation by Tendering. For example, in case of Tender No. 51/2012, 55/2012, 56/2012 & 113/2012, the salary of Project Manager and Engineer has not been taken into consideration. b) The basis of arriving at a figure which is filled in the tender could not be explained to us. Also, the supporting papers were not sufficient to show the same. (e.g tender nos. 56/2012, 55/2012, 113/2012, 138/2013, 51/2012) Q4, 2012 Point No. 3.6 Q3, 2013 Point No. (g) Q1, 2014 Point No. 8 Q3, 2014 Point No. 5 Coding of store items is still pending. HR will set up codes to identify loading with the respective expenses. Invoices have been raised and the amount is due to be received soon. Analysis between tendering cost and actual cost has been initiated and will be reviewed in the next quarter. M M M M c) The basis of Capital Expenditure on Portacabin, - 8 -
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