INTERNAL FINANCIAL CONTROLS POLICY
[Under Section 134(5) (e) of the Companies Act, 2013]
INTRODUCTION
Section 134 (5) (e) of the Companies Act, 2013 requires, the Board of every Listed Company to lay down Internal Financial Control Policy to be followed by the Company which helps in ensuring the orderly and efficient conduct of its business, including adherence to Company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the Accounting records and timely preparation of reliable financial information.
It has been further added that in The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that:
(a) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) The directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
(c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
(d) The directors had prepared the annual accounts on a going concern basis; and
(f) The directors had devised proper systems to ensure compliance with the
Provisions of all applicable laws and those systems were adequate and operating effectively.
INTERNAL AUDIT
Provisions of the Section 138 of the Companies Act, 2013:
Company shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
COMPANY’S GOVERNANCE FRAMEWORK
Internal financial controls and risk management are the key elements of this frame work.
POLICY
The Company shall have defined organisation structure, policies, procedures, records and methods of reporting that are necessary to collectively ensure that the financial and non-financial operations of the Company is conducted in an orderly and efficient manner to achieve the Company’s objectives.
DEFINITIONS
"Audit Committee" means Committee of Board of Directors of the Company constituted under the provisions of the Companies Act, 2013 and the Listing agreement.
"Board of Directors" or “Board” in relation to a Company, means the collective body of Directors the Company. [Section 2(10) of the Companies Act, 2013]
“Books or Books of account” as per sub-section (12A) of Section 2 of Income Tax Act, 1961 means “Books or Books of account includes ledgers, day-books, cash books, account-books and other books, whether kept in written form or as print-outs of data stored in floppy, disc, tape or any other form of electro-magnetic data storage device.”
“Financial Statement” as per Section 2(40) of Companies Act, 2013 in relation to a Company means a Statement which includes --
• a balance sheet as at the end of the financial year;
• a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
• cash flow statement for the financial year;
• a statement of changes in equity, if applicable; and
• any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):
“Internal Financial Control” as per Section 134(5)(e) of Companies Act, 2013 means” the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguard of its assets, the prevention and detection of its frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.”
"Policy" means “Internal Financial Control Policy.
OBJECTIVES
The objectives of this Policy are;
• To mitigate risks and provide reasonable assurance that operations are efficient and effective, assets are safeguarded.
• Financial reporting is accurate and reliable.
• To ensure Company’s resources are used prudently and in an efficient, effective and economical manner.
• Resources of the Company are adequately managed through effective internal controls.
• A framework for an effective internal control system which conveys to managers that they are responsible for ensuring that internal controls are established, documented, maintained and adhered to across the Company’s and to all Employees that they are responsible for adhering to those internal controls.
• To ensure the propriety of transactions, information integrity, compliance with regulations and achievement of Company’s objectives through operational efficiency.
PROCEDURES ON INTERNAL FINANCIAL CONTROLS
PREAMBLE
Internal Financial Controls comprises the plan of the Company and all the co-ordinated methods and measures adopted by the Company in order to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to the prescribed managerial policies, prevention and detection of frauds & errors, accuracy and completeness of the accounting records and timely preparation of reliable financial information.
INTERNAL CONTROL POLICY
It is Company’s policy to develop an adequate system of internal control which will promote high level of compliance with Company’s policies and procedures and ensure compliance with statutory obligations. Managing Director/Director (Finance) are primarily responsible for implementing, maintaining the internal financial controls in order to assist the Board in carrying out its activities in an efficient and orderly manner to ensure adherence of the management policies, safeguarding of its assets, ensuring reliability of its records and statutory compliances.
For Effective Financial Control, The Board Of Directors And Senior Management Shall Ensure:
• Physical verification of inventories at reasonable intervals.
• Physical verification of all Fixed Assets at reasonable intervals.
• Adequate Internal Control procedures are at place for maintaining proper records in respect of sale/purchase of goods and services.
• All undisputed statutory dues including provident fund, Investor Education Protection Fund, Employee State Insurance, Income Tax, Sales Tax, Service Tax, Custom Duty, Excise Duty, Rates and Taxes and other statutory dues are paid within the prescribed time.
• Funds availed on short term basis are not used for long term investment.
• The funds raised through Public issue, Right issue, Preferential/Private placement shall be used for the purposes as stated in Prospectus/Offer Letter. The Company shall comply with all applicable Statutory Laws, Rules and Regulations
INTERNAL CONTROL FRAMEWORK
The Company shall create, maintain accounting records in Tally accounting package or any substitute and shall establish, review & manage control framework in the following operational areas:
• Sales & Receivables Management
• Tendering
• Purchase & Payables management
• Cash/bank transactions
• Employee payments & Records
• Taxes and duties / statutory dues
• Fixed assets
• Inventories
SALES AND RECEIVABLES MANAGEMNET:
• Any sales will be affected only against a purchase order on receipt of Purchase Order, it should be accepted against our offer and then countersigned by the director in charge and acknowledgement is to be sent in writing.
• Invoice generation should be system driven and online
• Invoice should be issued strictly as per preapproved sale orders
• After issue of invoice it should be counter checked by purchase department and then send the copy of invoice to a/c department with a copy of P.O/W.O
• Invoices raised on private customers should be acknowledges/receipted from the customer/customer representatives on delivery. In case of govt. related sales, receipted challans should be collected.
• Without valid invoice & gate pass, goods should not be allowed to leave the factory premises.
• Credit sales to private customers shall not be done without approval of director in charge. This type of credit sale will be discouraged.
• Review credit balance in customer account regularly and report to the management if inordinate delay in collecting the amount.
• Regular reporting and follow up on ageing accounts.
• Payment received in cheque/DD should be within 2 working days. In case of dishonor of cheque, it will be reported to the customer in writing immediately by the purchase depts. And steps to be taken for recovery of amount. A debit note is to be raised towards bank charges on dishonor of cheques.
• Bank guarantees and L/C expiry are to be reviewed from time to time. Steps are to be taken to close the B.G liability after expiry of validity period by Accounts. Dept.
• Statements of accounts of customers are to be sent for approval atleast twice in a financial year.
• Officer in charge of sales tax will monitor collection of sales tax from ‘C’/’F’ etc.
RISK FACTOR AND ITS MANAGEMENT:
The materials are to be supplied in time to avoid penalty
Credit sale
Note: Sufficient precautions have been taken to avoid above factors.
TENDERING
• On receipt of an enquiry, it will be thoroughly examined by committee comprising directors in charge, Engineer in charge of design and sales in charge. Depending on specification, drawing statement of cost of materials used is to be drawn and offer price is arrived. Other criteria like delivery schedules etc are also to be considered.
This draft offer is to be approved by the Managing Director before submission of offer. In case he is absent, offer may be submitted after discussion over phone and it should be placed before him after his return
• An authorized officer may go for negotiation if required and he can offer the negotiated price after discussing with MD/ Director.
• On receipt of confirmed order depending upon the delivery schedule steps must be taken for manufacture of the goods in time and as per specification.
• The floor in charge must be intimated in writing with specification, delivery schedule by the engineer (design). He will also inform purchase department to procure necessary raw materials after considering the available store.
• Purchase department will monitor and see that the goods is delivered in time and sales proceeds is received in time.
RISK FACTOR & ITS MANAGEMENT:
Designs and material costs are to be arrived at correctly before submission of offer in time.
PURCHASE AND PAYABLE MANAGEMENT
• The company should have an approved vendor list. New vendors should be strictly scrutinized and then enter in the approved list.
• Purchase order should be placed after calling for offers from the approved list.
• The placement of orders with terms and conditions will be scrutinized by a committee comprising of officer n charge, engineer in design & an authorized officer and/or Director (P)/Director (Accts).
• It is preferred to place purchase orders for all units and branches from H.O centrally.
• It is desirable to place purchase order with L/C and credit payments terms. In case of COD, steps should be taken to release payment in time. PDC payment terms are usually not encouraged.
• On receipt of materials, copies of invoice, challans etc should be forwarded to Accounts dept. with a copy of W.O and verification report mentioning storage/damages etc. if any.
• Payment of creditors will be done only after verification by Accounts Department and preparation of statement
• Timely payment to customers is to be ensured usually by RTGS/NEFT Other mode of payment is only made in case of local vendors.
• Vendor ledgers are to be reconciled on daily basis.
• Confirmation of balance in writing from all vendors is must for atleast once in a year.
• Sales tax from ‘C’ shall be issued after expiry of quarter. Proper records should be kept by officer in charge of sales tax.
CASH/BANK TRANSACTIONS:
• The cheque of different accounts of the company and payment through RTGS/NEFT are to be signed by two authorized persons.
• Any cash withdrawals are to be made against requisition and approval from authorized persons/directors for day to day transaction.
• All online payment is to be made through the current account at SBI, MIE Branch and Sri RK Biswal GM (Accts.) is authorized to do so. Limited funds are to be maintained in the said accounts and reconciliations are to be made twice in a week.
• Payment like TA, local purchases are to be made after getting signature in IOU and it is to be settled immediately. The IOU shouldn’t be pending beyond 30 days.
• The User ID and various authorities in Tally system is to be handled by GM (Finance) is any other person authorized by MD.
RISK FACTORS & MANAGEMENT:
Inorder to misappropriation of cash regular check up & withdrawal of cash is monitored by various authorities. Similarly for payment by cheque/RTGS/NEFT/Online payments are made only after preparation and verification of requisition or statement and thereafter payment is made through two directors.
EMPLOYEE: PAYMENTS AND RECORDS
• Accurate employee attendance, leave records, files pertaining to their appointments and other personal records etc will be kept by HRD department.
• They are to be governed by pre approved HR policies.
• Usually the payment to employees will be made directly to their bank account.
Any payment to the employees like salary, bonus, leave with pay etc will be prepared by HRD dept. and scrutinized by Accounts Department and then only payment is released. After proper authorization by concerned officer/Directors.
• All payroll control accounts are to be reviewed and reconciled atleast quarterly by Accounts In Charge.
TAXES AND DUTIES / STATUTORY DUES
• Remittance of statutory liabilities and filing of prescribed returns on or before due date is the primary responsibility of concerned accounts head. Compliance report for payment of taxes and returns in time should be collected quarterly from authorized persons.
• Tax ledger and control accounts are to be reconciled before remittance of taxes, duties based on the applicable laws and regulations.
• Advance income tax wherever applicable is to be calculated and paid in time
• Time to time monitor or review of all disputes in appeals before quasi judicial authority relating to all statutory compliance/ obligations
FIXED ASSETS
• Maintenance of an Asset Register in hard copy and in computer unit wise, with all relevant details is compulsory.
• Establish physical security protection measures like employment security guard, locks in suitable places etc. If possible establish security/surveillance cameras for enhancing protection measures.
• Appropriate insurance coverage for all types of assets to cover relevant perils associated with it and review insurance coverage details regularly
• Internal audit atleast once in a year for the Assets is to be done.
• Establish safeguarding measures to protect those assets from misuse.
INVENTORIES
• Stores areas for inventories shall be properly secured with proper security arrangements. It shall be regularly reviewed for improvement. It shall be properly organized and stored for smooth access for both verification and delivery.
• Inventories are to be properly classified on the basis of high value and low value inventories.
• Physical verification of inventories of high value type are to be made atleast twice and rest once a year.
Cross functional team should conduct the physical verification once in a year.
• Adequate insurance cover should be in place for all types of risks.
• Periodical review of obsolete, non moving inventories to design a plan for periodical disposal.
Risk Factors and its management:
• Though the obsolete stocks are mainly not utilized in this type of company unless orders for such type of transfer are received, steps are to be taken to review it from time to time so that this type of inventories will be reduced.
ALL APPLICABLE LAWS TO COMPANY AND QUARTERLY STATUTORY COMPLIANCES
S.K MOHANTY.A.M ACCOUNTS
Income Tax Act, 1961.
The Provisions of the Foreign Exchange Management Act.
P.K PATNAIK, CENTRAL EXCISE
The Central Excise Act, 1944.
Service Tax.
AJAYA KUMAR SATPATHY, DY MANAGER (A/CS)
The Central Sales Tax and Odisha Value Added Tax Act. 2004(VAT).
Entry Tax Act, 1999.
Professional Tax Act, 2000.
KRISHNA PANDA, COMPANY SECRETARY
Provisions related to unfair and restrictive trade practices of Monopolies and Restrictive Trade Practices Act, 1969.
The Companies Act, 2013.
Filing of charge with the Registrar of companies relating the borrowings from the Banks.
Compliance with the Stock Exchange Regulation with regard to transfer of Shares.
BIJAYA KUMAR MOHANTY, PERSONNEL OFFICER
Workmen’s Compensation Act, 1923.
Payment of Wages Act, 1936.
Industrial Employment (Standing Orders) Act, 1946.
Industrial Disputes, 1947.
Minimum Wages Act, 1948.
The employees Provident Fund & Miscellaneous Provisions Act, 1959.
Employment Exchange (Compulsory notification of Vacancies)
Payment of Bonus Act’ 1965.
Apprentice Act, 1961.
The Employees State Insurance Act, 1971.
Gratuity Act,1972
DEEPAK KUMAR DAS, DIRECTOR (FINANCE)
The Negotiable Instruments Act, 1881.
