Website- www.catusharmakkar.

com

K&Y
Ram & Shyam Chawalwaala Limited

Internal Audit Report

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Team Member : ak Reviewed By:-
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Mohini Mr. Pyarelal
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Sonu
Chetan
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Monu
Tu

Pappu
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C

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 Scope of Audit

As a part of our internal audit programme for Ram & Shyam Chawalwaala
Limited, we have conducted the audit for the period ended December 31, 2022.
From reporting point of view, wherever required we extended our audit programme
period.
The report has been prepared on the basis of our discussion with the concerned

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officials along with detailed verification and examination of the various records.
Wherever possible we considered the explanation of the officials and the same have

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been included in the report.
Emphasis has been laid down on the following areas:
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S.NO Particulars Page No

A INTRODUCTION 3
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B EXECUTIVE SUMMARY 4-8

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C Main Report 9-16

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D Follow up Points 17-18

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C

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 INTRODUCTION
Ram & Shyam Chawalwaala Limited is a company that specializes in the manufacturing and

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distribution of rice. They are based in India and have been in operation for several years,

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providing high-quality rice products to their customers.

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The company sources paddy, or unprocessed rice, from local farmers and then processes it
into various forms of rice, such as white rice, brown rice, and parboiled rice. They also offer a
range of specialty rice products, including basmati rice, which is known for its distinctive
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flavor and aroma.

Ram & Shyam Chawalwaala Limited has a state-of-the-art processing facility that utilizes
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advanced technology to ensure that their rice products are of the highest quality. They have a
team of experienced professionals who oversee the entire production process, from sourcing
the paddy to packaging and distribution.
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The company is committed to sustainable practices and works closely with local farmers to
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ensure that their paddy is grown in an environmentally friendly and socially responsible
manner. They also prioritize food safety and have stringent quality control measures in place
to ensure that their rice products meet international standards.
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Overall, Ram & Shyam Chawalwaala Limited is a reputable rice manufacturer that is
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dedicated to providing high-quality rice products to their customers while maintaining a

commitment to sustainability and social responsibility.

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 Executive Summary
ESI & PF has not been deducted in few of the cases
Observation:

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During the internal audit, it was found that ESI and PF were not deducted in a few cases.

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Management Comment:
We are investigating the issue to understand the root causes and implementing measures to

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prevent such issues from occurring in the future.
Implication:
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Non-deduction of ESI and PF can lead to legal and regulatory penalties and reputational
damage.
Recommendation:
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We recommend reviewing the payroll process to ensure that ESI and PF are being correctly
deducted and implementing controls to prevent future issues.
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No Man power Indent Form raised by production department to HR

department
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Observation:
The production department did not raise a Manpower Indent Form for new hires to the HR
department.
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Management Comment:
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We acknowledge the issue and are taking steps to investigate and address the root causes of
the issue.
Implication:
Failure to raise a Manpower Indent Form can result in unauthorised hires and non-
compliance with legal and regulatory requirements.
Recommendation:
We recommend implementing a system for raising and reviewing Manpower Indent Forms
to ensure compliance with legal and regulatory requirements.

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Non filing of multiple regulatory returns by the company
Observation:
The company has not filed several regulatory returns.
Management Comment:
We acknowledge the issue and are taking measures to investigate and address the root
causes of the issue.
Implication:
Non-filing of regulatory returns can result in legal and regulatory penalties and reputational

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damage.

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Recommendation:
We recommend reviewing the regulatory compliance process and implementing controls to

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ensure timely and accurate filing of regulatory returns.
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Non filing of multiple regulatory labour law returns by the company
Observation:
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The company has not filed several regulatory labour law returns.
Management Comment:
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We acknowledge the issue and are taking measures to investigate and address the root
causes of the issue.
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Implication:
Non-filing of regulatory labour law returns can result in legal and regulatory penalties and
reputational damage.
Recommendation:
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We recommend reviewing the regulatory compliance process and implementing controls to

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ensure timely and accurate filing of regulatory labour law returns.

Inadequate control over punching records In and out time

Observation:
Inadequate control over punching records was observed in the in and out time records.
Management Comment:
We acknowledge the issue and are taking steps to investigate and address the root causes of
the issue.

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Implication:
Inadequate control over punching records can lead to errors in employee attendance records,
payroll issues, and non-compliance with legal and regulatory requirements.

Recommendation:
We recommend reviewing the time and attendance recording process and implementing
controls to ensure accurate and timely recording of employee attendance.
Same Description with multiple Code showing in purchase register
Observation:
The purchase register contained multiple codes for the same description.

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Management Comment:

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We acknowledge the issue and are taking steps to investigate and address the root causes of
the issue.

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Implication:
The use of multiple codes for the same description can lead to confusion and errors in the
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purchase process.
Recommendation:
We recommend reviewing the purchase process and implementing controls to ensure
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consistency and accuracy in coding.

Vendor balance are outstanding since long
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Observation:
Vendor balances have been outstanding for a significant period of time.
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Management Comment:
We acknowledge the issue and are taking steps to investigate and address the root causes of
the issue.
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Implication:
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Outstanding vendor balances can result in reputational damage, legal and regulatory
penalties, and negative impact on cash flow and financial stability.
Recommendation:
We recommend reviewing the vendor payment process and implementing controls to ensure
timely payment of outstanding balances.
We are purchasing paddy on a daily basis from vendors, is it because of the
Split PO?
Observation: We have identified that we are purchasing paddy on a daily basis from vendors,
and we need to determine if this is due to the split PO.

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Management comment: We will investigate this issue and take necessary steps to address it.
Implication: If we fail to address this issue, it may lead to increased procurement costs,
reduce efficiency, and may impact production schedules.

Recommendation: We recommend that we conduct a thorough review of our procurement

process and ensure that we have adequate controls in place to address this issue.
Impact: Addressing this issue will help us reduce procurement costs, increase efficiency, and
improve our production schedules.
Lesser % of GST charged in sales of Rice in few cases
Observation: We have identified instances where a lower percentage of GST has been
charged in the sales of rice.

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Management comment: We will investigate this issue and take corrective action to ensure
that we comply with GST regulations.
Implication: Failure to comply with GST regulations may lead to penalties and other legal

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consequences.
Recommendation: We recommend that we review our sales records and ensure that we are
charging the appropriate amount of GST.
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Impact: Addressing this issue will help us maintain compliance with GST regulations and
avoid potential penalties and legal consequences.
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Old SO found- Open sales order and quantity not manufactured

Observation: We have identified old sales orders that are still open, and the quantities have
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not been manufactured.

Management comment: We will investigate this issue and take necessary steps to address it.
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Implication: If we fail to address this issue, it may impact our customer relationships and
may result in financial losses.
Recommendation: We recommend that we review our sales order process and ensure that we
have adequate controls in place to address this issue.
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Impact: Addressing this issue will help us improve customer relationships, avoid financial
losses, and improve our sales processes.
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AR ageing - dues outstanding. FEMA non-compliance in AR ageing found

Observation: We have identified instances where accounts receivable are outstanding, and
we are not in compliance with FEMA regulations.
Management comment: We will investigate this issue and take necessary steps to address it.
Implication: Failure to address this issue may lead to penalties and other legal consequences.
Recommendation: The company should conduct a thorough review of its accounts
receivables and take necessary steps to collect outstanding dues. It should also review its
compliance with FEMA regulations and take necessary actions to ensure compliance.

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Impact: Addressing the outstanding accounts receivables and ensuring compliance with
FEMA regulations will improve the company's cash flow and avoid financial penalties,
respectively.

We have noticed that few paddy has gone outside for third party processing (i.e.
job worker) long back but the processed paddy has not been received yet
Observation: The company has sent paddy for third-party processing, but the processed
paddy has not been received yet.
Management Comment: The company is investigating the issue and has initiated
communication with the third-party processor to determine the cause of the delay.
Implication: Delay in receiving processed paddy may result in production delays and may

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harm the company's reputation.

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Recommendation: The company should investigate the root cause of the delay and take
necessary steps to expedite the receipt of processed paddy. It should also review its
procurement and payment processes to avoid such delays in the future.

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Impact: Expediting the receipt of processed paddy will help the company maintain
production schedules and avoid supply chain disruption, thereby improving its reputation.
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Few old ageing inventory of rice found in inventory ageing report
Observation: The company has some old inventory of rice that has been aging.
Management Comment: The company is taking steps to dispose of the old inventory and is
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implementing a process to prevent accumulation of such inventory in the future.

Implication: Accumulation of old inventory may result in wastage
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 Main Report
Observation:
During the course of our internal audit, we found that ESI and PF have not been deducted in
a few cases. Specifically, we found that in the months of October 2022, November 2022 &
December 2022, Few employees did not have ESI and PF deductions in their payslips
(Annexure 1 attached).
Management Comment:

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We take this matter very seriously and apologize for any inconvenience caused to the affected

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employees. We are committed to ensuring compliance with all statutory regulations and will
take immediate steps to rectify the issue.
Implication:

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The non-deduction of ESI and PF in some cases could have serious implications for the
company. Firstly, it puts the company at risk of non-compliance with regulatory
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requirements, which can result in hefty penalties and legal action. Secondly, employees who
have not had ESI and PF deductions may not be able to access the benefits that these
schemes offer, which can negatively impact their morale and well-being.
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Recommendation:
To rectify the issue, we recommend the following steps:
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Conduct a thorough review of payroll data to identify any other instances of non-compliance.
Rectify the non-compliance issue immediately by ensuring that ESI and PF deductions are
made for all eligible employees.
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Provide training and support to HR and finance teams to ensure that they are aware of and
comply with all statutory regulations.
Conduct regular internal audits to ensure that the company remains compliant with all
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regulatory requirements.
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Impact:
Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will ensure compliance with all statutory requirements, thereby avoiding the risk of
penalties and legal action. Secondly, it will help to maintain employee morale and well-being,
which is crucial for the productivity and success of the company. By implementing these
recommendations, the company can demonstrate its commitment to ethical and responsible
business practices.

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Observation:
During our internal audit, we found that the production department has not raised a man
power indent form to the HR department, as required by the company's process. We
reviewed the records of the production department for the last three months and found that
in October month there were no man power indent forms raised during this period.
Management Comment:
We take this matter seriously and acknowledge that the non-compliance with standard
operating procedures is a concern. We will ensure that the production department is made

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aware of the importance of raising the man power indent form and the potential implications

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of non-compliance.
Implication:

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The failure to raise a man power indent form can have serious implications for the company.
Firstly, it can lead to the recruitment of unqualified or unsuitable candidates, which can
negatively impact the performance of the company. Secondly, it can lead to over-staffing or
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under-staffing in various departments, which can result in inefficiencies and reduced
productivity.
Recommendation:
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To rectify the issue, we recommend the following steps:

Provide training and support to the production department on the importance of raising
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man power indent forms.

Review the current standard operating procedures and ensure that they are clear and easily
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accessible to all departments.

Conduct regular internal audits to ensure that all departments comply with the company's
standard operating procedures.
Ensure that the HR department and the production department work closely together to
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ensure that the correct staffing levels are maintained.

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Impact:
Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will help to ensure that the company hires the most qualified and suitable
candidates, which will have a positive impact on the company's performance. Secondly, it
will help to ensure that the company maintains the correct staffing levels in all departments,
which will result in greater efficiency and productivity. By implementing these
recommendations, the company can demonstrate its commitment to ethical and responsible
business practices.

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Observation:
During our internal audit, we found that the company has not filed multiple regulatory
labour law returns, including and labour welfare fund, factory returns, as required by law.
We reviewed the records for the last three months and found that several returns were not
filed within the prescribed timeline.
Management Comment:
We take this matter very seriously and apologize for any inconvenience caused to the
concerned stakeholders. We are committed to ensuring compliance with all statutory
regulations and will take immediate steps to rectify the issue.

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Implication:

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The non-filing of regulatory labour law returns could have serious implications for the
company. Firstly, it puts the company at risk of non-compliance with regulatory

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requirements, which can result in hefty penalties and legal action. Secondly, it can lead to the
loss of goodwill and reputation of the company, which can have long-lasting negative effects.
Recommendation:
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To rectify the issue, we recommend the following steps:
Conduct a thorough review of the current compliance status and identify any other instances
of non-compliance.
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Rectify the non-compliance issue immediately by ensuring that all pending regulatory labour
law returns are filed within the prescribed timeline.
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Provide training and support to HR and finance teams to ensure that they are aware of and
comply with all statutory regulations.
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Conduct regular internal audits to ensure that the company remains compliant with all
regulatory requirements.
Impact:
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Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will ensure compliance with all statutory requirements, thereby avoiding the risk of
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penalties and legal action. Secondly, it will help to maintain the company's goodwill and
reputation, which is crucial for the sustainability and success of the company. By
implementing these recommendations, the company can demonstrate its commitment to
ethical and responsible business practices.

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Observation:
During our internal audit, we found that the company has inadequate control over the
punching records for in and out time. We reviewed the punching records for the last three
months and found several discrepancies and anomalies in the data. We observed that there
was no mechanism in place to verify the authenticity of the punching records.
Management Comment:
We appreciate the observation made by the internal audit team and acknowledge the
significance of having a robust control system for in and out time punching records. We will
take immediate steps to rectify the issue and implement a control mechanism to verify the

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authenticity of the punching records.

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Implication:
The inadequacy of the control system over punching records for in and out time can have

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serious implications for the company. Firstly, it can lead to inaccurate attendance records,
which can result in errors in payroll processing and employee benefits. Secondly, it can lead
to potential employee fraud and abuse, which can negatively impact the company's
operations and reputation.
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Recommendation:
To rectify the issue, we recommend the following steps:
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Develop and implement a robust control mechanism for in and out time punching records.
Conduct regular internal audits to ensure the accuracy and authenticity of the punching
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records.
Provide training and support to HR and administrative teams to ensure that they are aware
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of the control mechanism and comply with it.

Implement a disciplinary policy for non-compliance with the control mechanism to deter
employee fraud and abuse.
Impact:
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Taking the recommended steps will have a positive impact on the company in the long run.
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Firstly, it will ensure the accuracy of attendance records, which will help to avoid errors in
payroll processing and employee benefits. Secondly, it will deter employee fraud and abuse,
which will result in greater accountability and transparency in the company's operations. By
implementing these recommendations, the company can demonstrate its commitment to
ethical and responsible business practices.
Here is a report on the observation, management comment, implication, recommendation,
and impact of outstanding vendor balances for a long period.

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Observation:
During our internal audit, we found that some vendor balances are outstanding for a long
period. We reviewed the vendor balances outstanding as at December 31, 2022 and found
that several vendors have overdue payments that have not been settled yet.
Management Comment:
We appreciate the observation made by the internal audit team and acknowledge the
significance of timely payment to vendors. We will take immediate steps to rectify the issue
and ensure that all vendor payments are made on time.

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Implication:
The outstanding vendor balances for a long period can have several implications for the
company. Firstly, it can lead to strained relationships with vendors, which can negatively

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impact the company's reputation and future business prospects. Secondly, it can lead to a
reduction in the creditworthiness of the company, which can make it difficult to secure credit
in the future.
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Recommendation:
To rectify the issue, we recommend the following steps:
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Conduct a thorough review of all outstanding vendor balances and prioritize payments based
on their due date.
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Develop a system to ensure that all future vendor payments are made on time, including
setting up reminders for due dates.
Maintain regular communication with vendors to ensure that there is transparency
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regarding payment schedules and to manage expectations.

Implement a system of regular internal audits to ensure that all vendor balances are up-to-
date and accurate.
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Impact:
Taking the recommended steps will have a positive impact on the company in the long run.
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Firstly, it will help to maintain positive relationships with vendors, which can result in better
prices and terms for future purchases. Secondly, it will help to improve the creditworthiness
of the company, which can make it easier to secure credit in the future. By implementing
these recommendations, the company can demonstrate its commitment to ethical and
responsible business practices.

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Observation:
During our internal audit, we observed that the company is purchasing paddy on a daily
basis from a particular vendor. We reviewed the purchase orders and invoices for the last
three months and found that the purchase orders for paddy were split into multiple small
orders, and the company was purchasing paddy daily.
Management Comment:
We appreciate the observation made by the internal audit team and acknowledge the
significance of efficient procurement processes. We confirm that the purchase orders for

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paddy were split into multiple small orders, and we were purchasing paddy daily to ensure a

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steady supply of paddy and to avoid any disruption in the production process. However, if we
receive the blanket approval from the management then that would make easy for us.

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Implication:
The daily purchase of paddy from a vendor can have several implications for the company.
Firstly, it can lead to higher procurement costs as purchasing in small quantities can result in
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higher unit costs. Secondly, it can result in administrative and logistical inefficiencies, as
managing and tracking multiple small purchase orders can be time-consuming and labor-
intensive.
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Recommendation:
To optimize the procurement process, we recommend the following steps:
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Review the procurement process for paddy and identify opportunities to streamline the
process.
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Consider consolidating the purchase orders for paddy into larger orders to reduce
procurement costs and improve efficiency.
Implement a system of regular internal audits to ensure that the procurement process
remains accurate and up-to-date.
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Evaluate the performance of the current vendor and consider identifying and engaging with
additional vendors to ensure a reliable supply of paddy.
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Impact:
Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will help to reduce procurement costs and improve efficiency, resulting in cost
savings for the company. Secondly, it will help to ensure a reliable supply of paddy and
reduce the risk of any disruption in the production process. By implementing these
recommendations, the company can demonstrate its commitment to ethical and responsible
business practices while improving the procurement process.

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Observation:
During our internal audit, we discovered an open sales order that had been active for a
significant period of time. Upon further investigation, we found that the quantities specified
in the sales order had not been manufactured. This indicates that there is a discrepancy
between the company's production capabilities and its sales forecasting.
Management Comment:
We acknowledge the observation made by the internal audit team and confirm that it was an
oversight on our part. We have taken immediate steps to rectify the issue by reviewing all
open sales orders and ensuring that they are aligned with our production capabilities. We

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have also implemented a system to monitor all open sales orders and ensure that they are

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fulfilled in a timely manner.
Implication:

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The presence of an open sales order with quantities not manufactured can have several
implications for the company. Firstly, it can lead to a loss of revenue if the customer decides
to cancel the order due to delayed delivery. Secondly, it can result in a negative impact on the
company's reputation and customer satisfaction levels. Additionally, it can indicate that the
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company's sales forecasting process may be inadequate.
Recommendation:
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To prevent such issues in the future, we recommend the following steps:

Review and revise the sales forecasting process to ensure that it is aligned with the
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company's production capabilities.

Implement a system to monitor all open sales orders and ensure that they are fulfilled in a
timely manner.
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Conduct regular internal audits to ensure that all open sales orders are being monitored and
fulfilled on time.
Impact:
A

Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will help to ensure that all sales orders are fulfilled in a timely manner, which can
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enhance customer satisfaction levels and reduce the risk of revenue loss. Secondly, it will
help to maintain the credibility and reputation of the company among customers and
stakeholders. By implementing these recommendations, the company can demonstrate its
commitment to efficient and effective business practices while avoiding any potential
financial and reputational risks.

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Observation:
During our internal audit, we found that there are several outstanding accounts receivable
(AR) balances that have been pending for a significant period of time. Upon further
investigation, we found that there is non-compliance with FEMA regulations in the AR
ageing report.
Management Comment:

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We acknowledge the observation made by the internal audit team and confirm that it was an

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oversight on our part. We are taking immediate steps to rectify the issue by reviewing all
outstanding AR balances and ensuring that they are compliant with FEMA regulations. We
are also implementing a system to monitor AR ageing and ensure that all AR balances are

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collected in a timely manner.
Implication:
The presence of outstanding AR balances and non-compliance with FEMA regulations can
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have several implications for the company. Firstly, it can lead to a loss of revenue if the
outstanding balances are not collected in a timely manner. Secondly, it can result in a
negative impact on the company's cash flow and financial stability. Additionally, non-
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compliance with FEMA regulations can result in significant financial penalties and legal
liabilities for the company.
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Recommendation:
To prevent such issues in the future, we recommend the following steps:
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Review and revise the AR management process to ensure that all outstanding balances are
collected in a timely manner.
Ensure compliance with all FEMA regulations and conduct regular internal audits to ensure
compliance.
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Implement a system to monitor AR ageing and ensure that all AR balances are collected in a
timely manner.
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Impact:
Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will help to ensure that all outstanding AR balances are collected in a timely
manner, which can enhance the company's cash flow and financial stability. Secondly, it will
help to avoid any potential financial penalties and legal liabilities that may arise due to non-
compliance with FEMA regulations. By implementing these recommendations, the company
can demonstrate its commitment to ethical and legal business practices while maintaining a
strong financial position.

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Observation:
During our internal audit, we found that there are some old ageing inventory of rice which
have been lying in the warehouse for a significant period of time as per the inventory ageing
report.
Management Comment:
We acknowledge the observation made by the internal audit team and confirm that it is a
matter of concern for us. We are taking immediate steps to investigate the issue and
ascertain the reasons for such old inventory. We will review our inventory management

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process to prevent such instances in the future.

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Implication:
The presence of old ageing inventory of rice can have several implications for the company.

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Firstly, it can lead to a loss of revenue if the inventory becomes obsolete and cannot be sold.
Secondly, it can result in a negative impact on the company's cash flow and financial
stability. Additionally, it can result in increased warehousing and storage costs for the
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company.
Recommendation:
To prevent such issues in the future, we recommend the following steps:
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Review and revise the inventory management process to ensure that inventory is regularly
monitored and old ageing inventory is identified and addressed.
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Develop a system to track inventory ageing and ensure that measures are taken to prevent
excess inventory and obsolescence.
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Implement a periodic inventory review process to ensure that old ageing inventory is
identified and disposed of in a timely manner.
Impact:
A

Taking the recommended steps will have a positive impact on the company in the long run.
Firstly, it will help to ensure that the inventory is efficiently managed and old ageing
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inventory is identified and addressed, which can enhance the company's cash flow and
financial stability. Secondly, it will help to avoid any potential loss of revenue due to obsolete
inventory. By implementing these recommendations, the company can demonstrate its
commitment to efficient inventory management and maintain a strong financial position.

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 FOLLOW UP POINTS
Background:
During a routine audit, it was discovered that a few invoices had incorrect Harmonized
System of Nomenclature (HSN) codes mentioned. The HSN code is used to classify goods
and services for tax purposes, and incorrect codes can result in inaccurate tax assessments

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and potential penalties.

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Action Taken:
Upon discovery of the issue, the following actions were taken:

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The affected invoices were identified and a team was assigned to review and correct the HSN
codes.
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A training program was developed and conducted to educate all relevant employees on the
correct process for determining HSN codes and ensuring their accuracy.
A review of the company's invoicing procedures was conducted to identify any gaps or
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weaknesses in the process and to implement improvements to prevent similar issues from
occurring in the future.
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Outcomes:
The actions taken resulted in the following outcomes:
All affected invoices were corrected and the correct HSN codes were applied.
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The training program was successful in educating employees on the correct process for
determining HSN codes and ensuring their accuracy.
The review of the invoicing procedures identified some areas for improvement, which were
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implemented to prevent similar issues from occurring in the future.

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Follow-up Measures:
To prevent similar issues from occurring in the future, the following measures will be
implemented:
A process will be put in place to conduct periodic audits of invoices to ensure that HSN codes
are accurate and up-to-date.
The training program will be repeated periodically to reinforce the correct process for
determining HSN codes and ensuring their accuracy.

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Conclusion:
The issue of incorrect HSN codes on a few invoices was addressed and corrected, and
measures were implemented to prevent similar issues from occurring in the future. The
organization is committed to ensuring the accuracy of all invoicing procedures and will
continue to monitor and improve these processes to prevent issues from arising in the future.

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