Connecting BSNL Employees / Subscribers 4 Growth of BSNL: How to convert BSNL into a world class organisation (Part-3)

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How to convert BSNL into a world class organisation (Part-3)

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Some people may think of audit as something carried out because of legal or administrative compulsions without any value addition capability to organisation’s processes. But the truth is – audit is a technique of managerial control over the affairs of the organisation. It can increase efficiency and prevent mismanagement, wastage and loss. In this article a commonsense approach attempt is made to understand how various audits BSNL can be used to its advantage.

Our perception or notion of audit – Generally in BSNL, we dislike audits; think that they ask too much; auditors don’t understand our practical difficulties; it hampers our day-to-day activities; other important activities are held up due to this non-value adding activity; so many man-days are used up just due to different audits; Accounts Officers think that Engineering Officers are not co-operating to comply with or replying to audit observations/qualifications; too many audits often overlapping each other; there are instances of auditors blackmailing our officers; nobody is really interested in audit paras – audit Paras remain un-cleared year after year, everything id done just in papers, no real effect on working of the organisation.

The truth: There may be some truth in the above position, but only to a smaller extent; the fault lies with us to a greater extent.  Actually, we don’t understand audit properly. We lack the required knowledge and ability to do the work, thus we commit/repeat mistakes. Our faulty system makes us helpless and compromise unwillingly. Our biggest failure is our lack of preparedness and to plan things; of course, within the constraints of time & resources.

Audit is not the same as investigation –The scope of audit is much less than investigation, say criminal investigation. For example, an audit of financial statement of a company results into a report by an auditor which contains (among other things) an opinion of the auditor regarding the truth & fairness of the financial statements. He does not certify the financial statement’s absolute correctness. Audit gives only a reasonable assurance, not absolute assurance. However, the scope & objective of CAG audit is different. It goes into the propriety & regularity of transactions, actions & decisions.

Audit is everybody’s business – If anybody thinks that audit is only concerned with Accounts personnel, a re-look at the following few line may change the perception. Let’s take CAG - P&T Audit and Audit Report, which we fear / dislike the most. What is the scope of P&T Audit? What information is available in P&T audit reports?

Works – to see whether -
·         The Project Estimates are justified (especially economic justification); [1]
·         The Detailed Estimates prepared under the Project Estimates are justified (especially economic justification); [1]
·         The works has been carried out properly as can be verified from documents; [2]
·         The payments to contractors are proper; etc.
[1] A huge amount of money is spent on works under P/Es or D/Es. Proper planning at the estimate preparation stage, efficient execution of the project, and correct payment to contractors can reduce wastage and bring value for money.

[2] An auditor cannot personally witness the work. One person having exclusive control over works and documents may manipulate both. But when many persons are involved and one person’s work is automatically checked by another, the chance of fraud is relatively less, unless some collusion exists. So, some assurance is derived from audit if the documents are found in order during audit.
                Cash – to see whether -
·         All cash received is properly accounted for;
·         Employees’ salary, claims etc. are correctly paid, i.e. paid timely and no over/ under payments;
                Revenue – to see whether -
·         There is no leakage of revenue;
·         All services are billed correctly;
·         All billed amounts are collected efficiently;
·         The quantum/value of services generated as per technical data is matching with that shown by accounting data; and the gap in the two is properly explained.

This is something which interests everybody – whether executive or non-executive – Accounts & Finance executive or Engineering Executive – at all levels of management.

Audit as a tool of control – Is the audit report which speaks about the entire above not an important tool for the Management to have an overall control over the affairs of the organisation? It is tool of control in the hands of an AO/SDE as well as a tool for the CMD/ Directors. An AO can find out where still something went wrong or possibly can go wrong in spite of his all-out efforts. The CMD can get more information and assurance from the interaction with the auditor during audit or from the auditor’s report for a year than he can get from the pages of MIS reports through out the whole year. If a manager won’t read & use audit report as a control tool, he has to obtain such information otherwise to assess the performance and have control over affairs of the organisation.

BSNL Management may make it compulsory that audit reports of field unit office must be read & analysed by GM, DGM (planning), DGM (Finance & Accounts)/ IFA in a meeting at unit level. They must analyze the root causes, not simply put the responsibility on lower-level officers. The proceedings (including the steps & initiatives proposed) must be recorded in minutes.

Let’s first take a look at the different types of audits conducted in BSNL before going further.

Types of Audits
Statutory Audit of Financial Statements
By CA at BSNL Corporate Office
Compilation of branch audit reports
Statutory Brach Audit of BSNL Circles
Branch Auditor comes to SSAs/PAUs
Supplementary / Test Audit
By CAG of India
At higher levels -  Optional for CAG
Regularity / Performance Audit
Efficiency/Propriety Audit
By P&T Audit Wing of CAG at SSA levels 25-35 days every year in each SSA/PAUs
Balance Sheet Audit by CAG
At SSA level – not a regular feature, only some selected SSAs are taken up for audit
USO Audit
By CA – Yearly
Auditing the AGR, LF and Spectrum Charges
By engaging the existing Branch Auditors – Quarterly
Tax Audit
By CA under Income Tax Act, 1961- at Corporate Office level, due to data requirements Auditors also come to SSA /PAU – compilation first at Circle Office and then at Corporate Office level
Service Tax Audit
By Audit Wing of Deptt. of Central Excise, Customs & Service Tax, under EA-2000 – at SSA level
Audit of CENVAT Credit
Certainly coming soon
Cost Audit
Under Companies Act, 1956. May be ordered by Central Govt. in future for Telecom Industry
Internal Audit
By Chartered Accountant – at SSA level & Circle Office level
Internal Check
In-house internal Audit/Check of BSNL
Information System Audit, ISO Quality Audit,  Audit by TRAI for Accounting Separation or any other matter
May come in future

CA                          -               Chartered Accountant
PAUs                     -               Primary Accounting Unit, i.e. where there is a D.D.O. or AO (Cash)
CAG                       -               The Comptroller & Auditor General of India
CENVAT              -               Central Value Added Tax

Some problems and their solutions

·         BSNL staffs have a notion that the Branch Auditors/ Internal Auditors don’t have good knowledge of BSNL operations. Auditors and their staff ask many elementary questions; don’t have a basic understanding of BSNL accounting system and, therefore, it takes a lot of time to explain them the basic things. If we think about the total time consumed by all the SSAs/PAUs all over India in acquainting the auditors about BSNL operations & systems, we can realize that considerable valuable time of BSNL officers can be saved and the auditors’ time can be employed more effectively.
·         Some SSA repeat the same mistakes which have already occurred in other SSAs in past and pointed out by auditor in past.
·         BSNL staffs have inadequate knowledge of the accounting, legal, auditing framework under which the accounting/ auditing work is carried out and therefore become unhappy with the auditor’s questions and method of work.

·         We need to understand that the auditor audits many types of industries – manufacturing, service, trading, banking, insurance, oil & gas – different  types of organisational forms – Company, Co-op Society, statutory corporations etc,. – Thus, he can’t be an expert in the operations of each and every organisations; he is not supposed to be an expert in BSNL affairs. But he has to acquire adequate knowledge of business to be able to perform his duties; and this can be delivered to him in a centralized manner.

·         We may have discussions with all the auditors just at circle office level after their appointment and before they send their staff to field units. We may give the Branch/ Internal auditors some orientation training about BSNL’s operations, services, system of work, accounting etc. The said exercise may take just 2 days at one place, but it can save 100 - 200 man-days for the circle as a whole.

·         After a basic understanding/ knowledge of the BSNL’s business, the auditor’s can plan the audit better. At the meeting or orientation programme, we may convince – with why? & How? – the auditor about our strong areas wherein the auditor need not doubt much; thus, it may save time & efforts on the part of BSNL officers.

·         We can learn from each other’s mistakes/experiences. After completion of audit, some JAOs/ AOs/ IFA of all SSAs may meet at RTTC and discuss about the accounts, audit and method of work, problems and solutions. Some of the internal/ branch auditors may be requested to join in the discussions (some honorarium may be paid to auditors). It just takes 2 days.

·         Mistakes, difficulties, findings, innovations, solutions of all SSAs may be compiled to prepare some sort of educational material and circulated to all SSAs with advice to discuss and for future guidance. Presently, compilation of auditor’s objections is made to seek rectification / reply/ explanation from SSAs and each SSA just sees the portion relating to it.

·         BSNL staffs may be educated about the accounting, legal, auditing framework under which the accounting/ auditing work is carried out. A background material may be prepared by BSNL covering the subject matter as follows:

·         What is the BSNL’s reporting & disclosure requirement under the Companies Act and other relevant legislations;
·         What is the BSNL’s reporting & disclosure requirements as per the Accounting Standards;
·         What is the Auditor’s reporting requirements as per Companies Act and Auditing Standards.

This will remove doubts and unhappiness among accounts officers and they can understand why the auditor is particular about or insisting on an issue.

Poor service of Internal Auditors – They take fees for one SSA/PAU ranging from Rs.30, 000 -100,000/- per annum. There are about 700 units all over India. Detailed guidelines exist regarding their scope of work, No. of staff, Staff qualification etc. But the minimum number of days they have to work is not specified. If the quantum of fees could be determined depending upon the work load, the minimum no. of man-days of work could have been specified. In its absence, Internal Auditors are not doing their work properly; we may say not even 30% of what is expected. [Please read the BSNL guidelines]

Disregarding the guidelines on evaluation/marking of auditors, evaluation is not done objectively, without fear, favour or sympathy. The CAO / IFA who are not involved thoroughly in work assume monopoly power on auditor’s evaluation. Thus, the real picture remains hidden to higher level management.

Internal Auditors have to justify their fee. They must bring semi-qualified staff as per agreement.

Minimum – maximum number of man-days may be specified by BSNL and included in agreement. Internal Auditor’s evaluation report and report on adherence to agreement must be separately made by each JAO, AO and CAO. The IFA has to give a final report based on separate reports; no sole powers to IFA.

It may seem to suggest distrust on IFA. But that is the truth. In many cases, there are gross violations of BSNL guidelines. If we can’t utilize the Internal Auditor’s services, better to stop it; huge amounts will be saved.

Overlapping Audit / Duplication of work – Often the area of focus of CAG P&T audit and BSNL in-house audit overlaps. They examine same records; ask similar questions with the same objective in mind. In some cases, it is beneficial that some important areas be checked twice, but in other cases it is duplication or wastage of time & efforts.

We may segregate the areas of work of internal auditor (CA), in-house internal audit keeping in view the scope of work of Branch Audit and CAG P&T Audit. The scope of later type audits can’t be decided by BSNL, but BSNL can redesign its own audit as per its requirement. If we could impress upon the CAG P&T Audit office regarding the auditing exercise already in place, they may also consider narrowing down some of their areas of audit. The aim is maximum coverage of auditing areas and removal of duplication or overlaps.

Lack of knowledge of accounts personnel – There can be 4 reasons for bad work –
1.       Lack of knowledge;
2.       Unwillingness (cheating);
3.       Mismanagement;
4.       Corruptions & frauds.

Most difficult to tackle is ‘corruptions & frauds’, but much easier to overcome is ‘lack of knowledge’. Many audit objections are due to our ignorance or inadequate knowledge for doing the work.

Using knowledge base of auditors for training our staff – Internal auditors and past branch auditors can be requested for sharing their experience with, suggest solutions, give training to our officers. They may be invited as visiting faculty to RTTC.

Learning from audit reports – BSNL may prepare summaries of different audit reports – CAG Audit, Statutory Branch Audit, Internal Audit, Tax Audit and Service Tax Audit – of different units all over India. These summaries along with suggested actions (where possible) may be circulated to Heads of Office and their IFAs for study. Going one step forward, they may be required to assure the Management that they are taking steps to avoid same mistakes; not simply by marking the copy to AO, then to JAO.
 Management should at least circulate the Annual Accounts, Auditor’s Report and Director’s Report in a book form to all field units. This may be discussed/ analysed in officers’ meeting in each unit.

Facing & fighting the fear of audit – many officers fear audit. Some higher level account officers go on leave during audit. Some accounts officer surrender before the audit party and try to draw sympathy. During audit working styles become wild; work schedule become hectic; a panic spreads. This hampers other essential routine work, such as –

·         Customer Care & Customer grievance redressing;
·         Bill checking & passing for payments;
·         Employees’ Claims, Medical Claims processing, etc

Learning to Love Audit – If we enhance our knowledge, take preventive steps not to repeat mistakes, remain prepared to face the audit, plan for the approaching audit, we may get a clean audit report. This will give us confidence & self-satisfaction; No penalty; No fine; No reminder from Circle Office, Corporate Office; No pursuance with audit party to accept the reply, explanation etc. More time will be available for other valuable works. For Example – If we make tax payment correctly, first of all, we avoid penalty. The reliefs we get from replying to audit objections, explaining to higher officers in meeting, related correspondence etc. are all secondary benefits. The aim is if we take care for perfection at the first instance, subsequent troubles can be avoided.

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