Auditor

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CHAPTER 1:OIL INDIA LIMITED‟S PROFILE.1.1 INTRODUCTION The story of OIL India Limited (OIL) traces and symbolizes the development and growth of theIndian petroleum industry. From the discovery of crude OIL in the far east of India at Digboi,Assam in 1889 to its present status as a fully integrated upstream petroleum company, OIL hascome far, crossing many milestones.On February 18, 1959, OIL India Private Limited was incorporated to expand and develop thenewly discovered OIL fields of Naharkatiya and Moran in the Indian North East. In 1961, itbecame a joint venture company between the Indian Government and Burmah OIL CompanyLimited, UK.In 1981, OIL became a wholly-owned Government of India enterprise. Today, OIL is a premierIndian National OIL Company engaged in the business of exploration, development andproduction of crude OIL and natural gas, transportation of crude OIL and production of LPG.OIL also provides various E&P related services and holds 26% equity in Numaligarh RefineryLimited.The Authorized share capital of the Company is Rs. 500 Cr. The Issued, Subscribed and Paidshare capital of the company is Rs. 240.45 Cr. At present, The Government of India, thePromoter of the Company is holding 78.43% of the total Issued & Paid-up Capital of theCompany. The balance 21.57% of the Equity capital is held by others.OIL has over 1 lakh sq km of PEL/ML areas for its exploration and production activities, most ofit in the Indian North East, which accounts for its entire crude OIL production and majority ofgas production. Rajasthan is the other producing area of OIL, contributing 10 per cent of its totalgas production.Additionally, OIL‟s exploration activities are spread over onshore areas of Ganga Valley andMahanadi. OIL also has participating interest in NELP exploration blocks in Mahanadi Offshore,Mumbai Deepwater, Krishna Godavari Deepwater, etc. as well as various

overseas projects inLibya, Gabon, Iran, Nigeria and Sudan.In a recent CRISILIndia Today survey, OIL was adjudged as one of the five best major PSUsand one of three best energy sector PSUs in the country.
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1.2 HISTORY OF OIL INDIA LIMITED The story of OIL exploration in India began in the dense jungles and swamps of Assam in the19th century. United by geography with Burma and caught up in the cross-currents of history,the region had the common blessing of commercial. OIL.Digboi Well No-1(1889-1890)The well, started in September 1889, was completed in November 1890 as a producer at a totaldepth of 662 ft, with an initial production of 200 gallons per day. The decision to drill was takenby the Directors of the AR&T Co. in 1888 under the direction of Mr. W L Lake, an employee ofthe company and an OIL enthusiast. Uphill and Downhill (1890 – 1920)After the successful completion of the first well, Digboi Well No-2 was started in February 1891in the same area, only to be abandoned as dry at 720 ft. The drilling activities of AR&Tprogressed satisfactorily with 11 wells yielding OIL in 1894. A new firm - the Assam OILCompany (AOC), led by the same Chairman, Lord Ribblesdale - was promoted in 1899 to takeover the petroleum interests of AR&T, including the Digboi and Makum concessions.The AOC inherited 14 producing wells, with a total production of 50 barrels of OIL per day.Almost immediately on inception, the company expanded the concessional area of the field bypurchasing the rights of the Assam OIL Syndicate. In 1912 the rotary system was introduced,Well 47 being the first well to be drilled by this method.Production almost trebled from 43 bpd in 1901 to 120 bpd in 1902, rising steadily to 247 bpd in1911, and reaching a maximum of 435 bpd in 1917. By 1920, the AOC had completed 80 wellswith a total average production of 350 bpd.

Aftermath of Success (1953 – 1959)The Nahorkatiya OILfield was discovered in 1953. However, by 1956 only 16 wells had beendrilled, and evidence suggested subsurface faults which could have acted either as barriers orconduits to OIL movement. Despite this meager evidence, the AOC announced in September1956 that proved and probable reserves in the Nahorkatiya area were sufficient to plan aproduction target of nearly 2.5 million tons of OIL per year with 45 million cubic feet of gas perday. On the basis of this assurance, fortified later in the year by new discoveries at Hugrijan andMoran, a public sector refinery was initiated in 1959 at Guwahati with help from Romania. Itwas commissioned in 1962.The success of Nahorkatiya Well No-1 set in motion a series of activities. The Burma OIL
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Company signed a Promotion Agreement with the Government of India (GoI) in January 1958 toform a company - OIL India Private Limited (OIL) - to take over the management of the AOC-discovered fields of Nahorkatiya and Moran. OIL was incorporated on 18 February 1959, withtwo-thirds of the shares held by BOC and the rest by GOI. The Agreement assured Burmah OILa dividend of 10% and Digboi Refinery 1.3 million barrels of OIL per year. Mr W P GMaclachlan, a key player in the negotiation, became the first Chairman of OIL.Growth, dynamism, adaptability and technological awareness have marked the activities of OILfrom 1959 till today.

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1.3 EXECUTIVE PROFILE Chairman & Managing Director: Mr.NayanMani Borah Director (Finance): Mr.T.K Ananth Kumar Director (Exploration &Development): Mr. B.N TalukdarDirector (Human Resources and Business Development): Mr. Nripendra Kumar Bharali

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Director (Operations): Mr.Satchidananda RathGovernment

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Nominee Director: Mr.D.N. Narasimha Raju Government Nominee Director: Dr. (Smt.) Archana Saharya Mathur Independent Director: Mr.Ghanshyambhai Hiralal Amin Independent Director: Mr.Sushil Khanna Independent Director: Mr.Arun Kumar GuptaIndependent Director: Mr.

AlexanderK Luke
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Independent Director: Mr.Vinod Kumar Misra Independent Director: Mr.Pawan Kumar Sharma

1.4 OBJECTIVES OF OIL INDIA LIMITED Basic Objectives: • To achieve self sufficiency in Hydrocarbon resources. • To get adequate return on capital.
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• To promote training and development in Hydrocarbon Exploration. To encourage technological advantage for import use of Non conventional energy resources. •

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To built excellent management team. • To built and project an efficient corporate image. Objectives towards employees:

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To establish personnel policies for the well being of its employees. • To induct and develop competent persons at all levels. •

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To provide training and development opportunities to enhance skills for optimum contribution. •

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To evolve a system of closer association in involvement of employees to encourage sports, culture and other activities. Objectives towards people:

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Social and community development Development of ancillary and small scale industry • Promotion of population environment • Health interaction with the users and business associates

OIL‟s corporate objectives:OIL believes “Superlative efforts precede superlative results.” To serve that very purpose, OILhas set the highest challenges for itself to measure up to. Its organizational agenda is to: •  Accelerate exploratory efforts in order to increase Hydrocarbon reserves.  Speedy development of discovered fields and increase recovery from depleting and develop fields.  To augment crude OIL and Gas production.  Ensure adequate return on capital by capacity utilization, cost effectiveness and optimum productivity.  Ensure proper development and effective utilization of Human Resources  Diversify into the field of OIL field services: indigenous and overseas.  Undertake overseas venture in exploration, development of OIL and material gas resources.

 Promote OIL related research and development activities. Maintain a professional and efficient corporate character.  Maintain and promote environmental friendly measures.  Enhance safety measures in operations.
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1.5 MISSION AND VISION OF OIL Core Purpose:“The fastest growing energy company with a global presence value to the shareholders.”

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OILs Vision • OIL India is the fastest growing Energy Company with highest profitability. • OIL India delights the customers with quality products and services at competitive prices. •

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OIL India is a Learning Organization, nurturing initiatives, innovations and aspirations with best practices. •

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OIL India is a team, committed to honesty, integrity, transparency and mutual trust creating employee pride. •

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OIL India is fully committed to safety, health and environment. • OIL India is a responsible corporate citizen deeply committed to socio-economic development in its areas of operations.

OIL‟s Mission:  Balance between our investment in the E & P section and other low risk diversification opportunities with the objective of optimizing our asset portfolios.

 Continuously upgrade manpower skills, processes and technologies and thereby consistently improve operational and financial performance which adhering to the highest standards business conducts.  Grow with unwavering concern for the community and all over stick holders.  Have unstinted faith in our employees to enable them to make quick and informed decision through adequate training and to improve then to do so

CORPORATE SOCIAL RESPONSIBILITY: Since its inception OIL has always given top priority towards the all-round development of the people residing in and around the Company‟s area of operation. OIL management understandsthat there is a need to strike a balance between the overall objectives of achieving corporateexcellence vis-à-vis the corporate responsibility towards the community. It is this twin objectiveof business and social commitment that has prompted OIL to embark upon massive programmesof educational, health and infrastructural development endeavors; an attempt to investtechnology with a human face. Vision Statement“OIL is a Responsible Corporate Citizen deeply committed to socio-economic development in itsareas of operations. Philosophy: To promote the awareness and practice of Good Corporate Citizenship, by business becomingan integral part of societal process where people have access to resources to make informedchoices and decisions towards a more humane and compassionate society.” Strategy:

“To mobilize core competencies and resources of business, public organisations and GovernmentInstitutions…to facilitate their working in partnership on projects that benefit communities.” 1ACHIEVEMENTS OIL India bags three Petrofed AwardsOIL India Limited bagged three Petrofed OIL & Gas Industry awards for the year 2009.Instituted by Petrofed the OIL & Gas industry Awards were given away by the Honble UnionMinister of Petroleum & Natural Gas, Shri Jaipal Reddy at a packed function at New Delhi onMay 10, 2011, in presence of Captains and leaders of the petroleum industry in India.OIL India received the OIL & Gas Pipeline Transportation Company of the year award, SpecialCommendation award for Innovator of the Year-Team and Mrs Rupshikha Saikia Borah, GeneralManager (Treasury), OIL India Limited, received the special commendation award for Womanof the Year in The OIL & Gas Industry. It is indeed a proud moment for all in OIL India limited to have been recognized for their efforts. The awards have strengthened the resolve of theCompany‟s employees to perform even better.

OIL bags India Pride AwardsOIL India Limited received the silver award in the OIL & Gas category of India Pride Awards -Dainik Bhaskar group. The award was received by Shri N.M. Borah, Chairman & ManagingDirector, OIL India Limited, at a glittering ceremony, from Hon‟ble Finance minister of India,Shri Pranab Mukherjee in front of many PSU leaders and business magnates.

OIL Receives PSU awardOIL India Limited received the “Heavyweight Miniratna” PSU award at the 2nd, Dalal StreetInvestment Journal PSU Award

2010, ceremony at New Delhi on 6th April, 2010. The awardwas presented to Shri N.M.Borah, Chairman & Managing Director, OIL India Limited, byHon‟ble Union Minister of Steel, Shri Virbhadra Singh at a glittering ceremony in presence ofCEOs of other PSUs and dignitaries. The award was given taking into account the Company‟sNet Sales, Operating profit, Net Profit and Balance Sheet size

.OIL bags "PSU with the highest Book Value" awardOIL India Limited was conferred with the “PSU with the highest Book Value” award by DalalStreet, th e renowned Financial and Investment Journal. The award was given away by theHon‟ble Chief Minister of Delhi Shrimati Sheila Dikshit at a glittering ceremony at New Delhion 24th March, 2009.

Oil India Limited received the certificate conferring the NAVRATNA StatusOil India Limited received the certificate conferring the NAVRATNA Status by Govt. Of Indiaat New Delhi on 16.11.2010. The certificate was presented to Shri N.M.Borah, Chairman &Managing Director, Oil India Limited by the Honble Minister of Heavy Industries and PublicEnterprises, Shri Vilasrao Deshmukh at a ceremony in new Delhi organized by ASSOCHAM.the ceremony was attended by several dignitaries. OIL was conferred the Navratna Status inApril, 2010.

Oil India lists at 8% premiumNew Delhi: Shares of staterun northeast explorer Oil India Ltd settled at over 8% over their issueprice , the day of debut on the Bombay Stock Exchange. The scrip closed at Rs 1,140, though ithad opened marginally down. The stock hit an intraday high of Rs 1,156 and touched a low of Rs1,019. On the NSE, the scrip settled at Rs 1,135, up 7.48%. The stock during market

hoursclimbed to a high of Rs 1,156.70 and had also slipped to a low of Rs 1,090 a share. With thedebut on the stock market, Oil India has joined the club of countrys top 40 companies in termsof market capitalisation, with a valuation of Rs 27,424.52 crore. In its maiden run, over 2.84crore shares changed hands on both the bourses. The issue price for IPO of 2.64 crore shares hadbeen fixed at Rs 1,050 per share.

CHAPTER 2:INTRODUCTION TO INTERNAL AUDIT
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Internal auditing is an independent, objective assurance and consulting activity designed to addvalue and improve an organizations operations. It helps an organization accomplish itsobjectives by bringing a systematic, disciplined approach to evaluate and improve theeffectiveness of risk management, control, and governance processes. Internal auditing is acatalyst for improving an organization‟s effectiveness and efficiency by providing insight

andrecommendations based on analyses and assessments of data and business processes. Withcommitment to integrity and accountability, internal auditing provides value to governing bodiesand senior management as an objective source of independent advice. Professionals calledinternal auditors are employed by organizations to perform the internal auditing activity. Internal Audit is not a discipline of Accountancy; External Audit is related to Accountancy, butInternal Audit is an entirely separate discipline more closely related to Enterprise RiskManagement. Internal Audit does, of course, cover financial risk amongst its portfolio, but this isone very minor element of the role. Significant misunderstandings in this area have resulted inmany organisations recruiting accountants with external audit experience to staff an internalaudit function; this is usually detrimental to the quality and completeness of assurance

providedto the Non-Executive Directors/Board, and may, in part, have contributed to corporate failureswhere key operational risks that were not directly related to financial statements remainedunidentified and/or unmanaged by the Executive Management. When IIA and ACCA signed theGlobal Memorandum of Understanding, IIA President David A. Richards said, "The IIA andACCA are both long-standing, highly respected professional associations, each with membersfrom all around the world. Although we represent two distinctly different professions, our codesof ethics and perspectives on enhanced professionalism, ongoing education, and quantifiableresearch mirror one another."

The scope of internal auditing within an organization is broad and may involve topics such as theefficacy of operations, the reliability of financial reporting, deterring and investigating fraud,safeguarding assets, and compliance with laws and regulations. Traditionally, internal auditing involved measuring compliance with the entitys policies andprocedures. However, internal auditors are not responsible for the execution of companyactivities; they advise management and the Board of Directors (or similar oversight body)regarding how to better execute their responsibilities. As a result of their broad scope ofinvolvement, internal auditors may have a variety of higher educational and professionalbackgrounds. Developments in internal auditing have moved away from "compliance" which is afunction of management control, towards Risk Based Internal Auditing (RBIA) which results inmonitoring and evaluation of the risk based control framework to manage enterprise risk. Themodern approach seeks to ensure that key risks are identified, a risk appetite is defined, and controls are instigated in a fit for purpose way to manage risk according to the risk appetite of theorganisation.

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Publicly-traded corporations typically have an internal auditing department, led by a Chief AuditExecutive ("CAE") who generally reports to the Audit Committee of the Board of Directors,with administrative reporting to the Chief Executive Officer. Other definitions

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The definition above (first sentence of this page) is in essence the IIAs definition. A similardefinition has been developed by the accounting profession and adopted by the governmentauditors: the ISA 610 and the INTOSAI‟s standa rd ("ISSAI") 1003 define the Internal auditfunction as "An appraisal activity established or provided as a service to the entity. Its functionsinclude, amongst other things, examining, evaluating and monitoring the adequacy andeffectiveness of internal control."

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2.2 History of internal auditing The Internal Auditing profession evolved steadily with the progress of management science afterWorld War II. It is conceptually similar in many ways to financial auditing by public accountingfirms, quality assurance and banking compliance activities. Much of the theory underlyinginternal auditing is derived from management consulting and public accounting professions.With the implementation in the United States of the Sarbanes-Oxley Act of 2002, theprofessions growth accelerated, as many internal auditors possess the skills required to helpcompanies meet the requirements of the law

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.2.3 Role in internal control The role of internal audit is to provide independent assurance that an organization‟s riskmanagement, governance and internal control process are

operating effectively. Internal auditor‟sdeal with issues that is fundamentally important to the survival and prosperity of anyorganization. Unlike external auditors, the look beyond financial risks and statements to considerwider issues such as the organizations reputations, growth, its impact on the environment and theway it treats its employees.Internal auditors have to be independent people who are willing to stand up and be counted.Their employers value them because they provide an independent, objective and constructiveview. To do this they need a remarkably varied mix of skills and knowledge. They might beadvising the projective running a difficult change programme one day, or investigating acomplex overseas fraud the next.
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From very early on in their careers, they talk to executives at the very top of the organizationabout complex, strategic issues, which is one of the most challenging and rewarding parts oftheir roleInternal auditing activity is primarily directed at improving internal control. Under the COSOFramework, internal control is broadly defined as a process, affected by an entitys board ofdirectors, management, and other personnel, designed to provide reasonable assurance regardingthe achievement of objectives in the following internal control categories:

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• Effectiveness and efficiency of operations. • Reliability of financial reporting. • Compliance with laws and regulations.

Management is responsible for internal control. Managers establish policies and processes tohelp the organization achieve specific objectives in each of these categories. Internal auditorsperform audits to evaluate whether the policies and

processes are designed and operatingeffectively and provide recommendations for improvement. 2.4 Role in risk managementInternal auditing professional standards require the function to monitor and evaluate theeffectiveness of the organizations Risk management processes. Risk management relates to howan organization sets objectives, then identifies, analyzes, and responds to those risks that couldpotentially impact its ability to realize its objectives.In larger organizations, major strategic initiatives are implemented to achieve objectives anddrive changes. As a member of senior management, the Chief Audit Executive (CAE) mayparticipate in status updates on these major initiatives. This places the CAE in the position toreport on many of the major risks the organization faces to the Audit Committee, or ensuremanagements reporting is effective for that purpose. 2.5 Role in corporate governance Internal auditing activity as it relates to corporate governance is generally informal,accomplished primarily through participation in meetings and discussions with members of theBoard of Directors. Corporate governance is a combination of processes and organizationalstructures implemented by the Board of Directors to inform, direct, manage, and monitor theorganizations resources, strategies and policies towards the achievement of the organizationsobjectives. The internal auditor is often considered one of the "four pillars" of corporategovernance, the other pillars being the Board of Directors, management, and the external auditor.
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A primary focus area of internal auditing as it relates to corporate governance is helping theAudit Committee of the Board of Directors (or equivalent) perform its responsibilitieseffectively. This may include reporting critical internal control problems, informing theCommittee privately on the capabilities of key managers, suggesting questions or topics for theAudit Committees meeting agendas, and

coordinating carefully with the external auditor andmanagement to ensure the Committee receives effective information.
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2.6 Nature of the internal audit activity Based on a risk assessment of the organization, internal auditors, management and oversightBoards determine where to focus internal auditing efforts. Internal auditing activity is generallyconducted as one or more discrete projects. A typical internal audit project [14] involves thefollowing steps:

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1. Establish and communicate the scope and objectives for the audit to appropriate management.

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2. Develop an understanding of the business area under review. This includes objectives, measurements, and key transaction types. This involves review of documents and interviews. Flowcharts and narratives may be created if necessary.

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3. Describe the key risks facing the business activities within the scope of the audit.

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4. Identify control procedures used to ensure each key risk and transaction type is properly controlled and monitored.

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5. Develop and execute a risk-based sampling and testing approach to determine whether the most important controls are operating as intended.

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6. Report problems identified and negotiate action plans with management to address the problems.

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7. Follow-up on reported findings at appropriate intervals. Internal audit departments maintain a follow-up database for this purpose

.Project length varies based on the complexity of the activity being audited and Internal Auditresources available. Many of the above steps are iterative and may not all occur in the sequenceindicated. By analyzing and recommending business improvements in critical areas, auditors help theorganization meet its objectives. In addition to assessing business processes, specialists calledInformation Technology (IT) Auditors review information technology controls .2.7 Internal audit reports Internal auditors typically issue reports at the end of each audit that summarize their findings,recommendations, and any responses or action plans from management. An audit report mayhave an executive summary; a body that includes the specific issues or findings identified andrelated recommendations or action plans; and appendix information such as detailed graphs andcharts or process information. Each audit finding within the body of the report may contain fiveelements, sometimes called the "5 Cs": 1. Criteria: What is the standard? The standard may be a company policy or other benchmark. 2. Condition: What is the particular problem identified (difference between criteria and actual status)? 3. Cause: Why did the problem occur (which control over risk was missing design effectiveness failure; or which control did not execute as planned -operating effectiveness failure)? 4. Consequence: What is the risk/consequence (or opportunity foregone) because of the finding?

5. Corrective action: What should management do about the finding? What have they agreed to do and by when? The recommendations in an internal audit report are designed to help the organization achieve itsgoals, which may relate to operations, financial reporting or legal/regulatory compliance. Theymay relate to effectiveness (i.e., whether goals were met or compliance with standards wasachieved) or efficiency (i.e., whether the outputs were generated with minimum inputs). Audit findings and recommendations also relate to particular assertions about transactions, suchas whether the transactions audited were valid or authorized, completely processed, accuratelyvalued, processed in the correct time period, and properly disclosed in financial or operationalreporting, among other elements.

2.8 Developing the plan of engagements Internal auditing standards require the development of a plan of audit engagements (projects)based on a risk assessment, updated at least annually. The input of senior management and theBoard is typically included in this process. Many departments update their plan of engagementsthroughout the year as risks or organizational priorities change.This effort helps ensure the audit activity is aligned with the organization‟s objectives, byanswering two key questions: First, what goals are the organizations trying to accomplish in theupcoming period? Second, how can the Internal Audit Department assist the organization inachieving these goals?Internal auditors often conduct a series of interviews of senior management to identify potentialengagements. Changes in people, processes, or systems often generate audit project ideas.

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Various documents are reviewed, such as strategic plans, financial reports, consulting studies,etc. Further, the results of prior audits and resolution of open issues are considered. Thepreliminary plan of engagements is documented and prioritized. Audit resources and expertiseare then considered and a final plan is presented to senior management and the Audit Committee.

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CHAPTER 3:INTERNAL AUDIT IN OIL 3.1INTRODUCTION In OIL, internal audit of pipelines, Kolkata Office, BEP & KG and partly the fields headquarterDuliajan are carried out by Internal Audit Department located at Duliajan, Assam. In respects ofrest of the project/ offices of the company, the same is outsourced through CharteredAccountants Firms.Internal Audit is an independent department having executives & staff of Finance and

Accountsdiscipline. Presently the department is headed by GM- Internal audit who reports to the Director(Finance). 3.2 Activities of Internal Audit Department The scope and areas to be covered by Internal Audit is decided at the beginning of the yearthrough Annual audit program which is approved by audit committee.The main areas covered by Internal audit are as follows:a) Scrutiny of Contracts and Purchases Proposal awarding contracts and purchase orders. b) Payment of contractors and suppliers bill. c) Deduction of sales tax, income tax and deposit thereof. d) Establishment payment like- salary/ wages, tour claims, medical bill claim, etc. e) Documentation and payment of advances and recovery.

f) Physical verification of assets. g) Monitoring of capital work-in-progress. h) Audit of billing of crude OIL, natural gas, LPG and scrap sale.Liaise with Comptroller and auditor General (C&AG) and statutory Auditor Audit Committee The audit committee is established with the aim of enhancing confidence in the integrity of anorganization‟s processes and procedures relating to internal control and corporate reportingincluding financial reporting. Audit Committee provides an „independent‟ reassurance to theboard through its oversight and monitoring role. Among many responsibilities the boards entrustthe Audit Committee with are the transparency and accuracy of financial reporting anddisclosures, effectiveness of external and internal audit functions, robustness of the systems ofinternal audit and internal controls, effectiveness of anti-fraud, ethics and compliance systems,review of the functioning of the whistleblower mechanism. Audit Committee may also play asignificant role in the oversight of the company‟s risk management policies and programs.
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Audit Committee has thus become one of the main pillars of the corporate governance system inIndian public companies. In steering companies through today‟s complex business environment,boards are going to need strong lead ership from their audit committees. Expanding the field ofvision, clearly defining who‟s tracking the company‟s risk radar, and taking a step back to re-evaluate its own performance are some of the important steps every Audit Committee shouldconsider.This section of the site includes a range of useful publications relating to the audit committee‟soperations and oversight responsibilities.

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OIL Audit Committee

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.Members: 1. CA Pawan Kumar Sharma, Chairman. (Independent Director) 2. Sri. Vinod K Misra, member. (Independent Director) 3. Dr. (Smt) Archana S Mathur, member. (Govt. Director) Permanent Invitee. 1. Shri T.K. Ananth Kumar D (F) Secretary of the meeting Company secretary (presently Sh. S.R.Krishanan) is the secretary to the audit committee who convinced the meeting of the audit committee in consultation with the chairman audit committee. Generally HOD of Internal audit department is also invited in the meeting. Whenever directed by the audit committee, Internal Audit department arrange the presentation of the audit reports of different spheres of the OIL. The outsourced portion of the audit is being presented by the concerned auditors however the in-house audit reports is being presented by the HOD (IA). The other issues raised during the audit committee meeting is also been conveyed to the concerned departments and the action taken on the matters are reported to the committee.

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3.3 Internal Audit Mission Statements The mission of the internal audit is to provide independent and objective assessment andconsulting services to add value and improve the OIL`s operations. The internal auditaccomplishes its objectives by using a systematic, disciplined approach to evaluate and improvethe effectiveness of control, risk management and governance processes.

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3.4 Internal Audit Purpose

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The purpose of OIL‟s internal audit is to determine whether its controls, risks management andgovernance process, as designed and implemented by management are adequate and effectiveand functioning to ensure; - Risks are appropriately identified and managed - Interactions with the various governance groups as needed - Financial, managerial and operating information is accurate, reliable and timely - Employees actions are in compliance with OIL‟s policies and procedures and applicable laws and regulations - Resources are acquired economically, used efficiently and adequately protected - Plans and objectives are achieved - Quality and continuous improvement are fostered in the OIL‟s control process - Significant legislative and regulatory issues having impact in OIL‟s operations are recognized and timely addressed appropriately

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3.5 Scope and Objectives: The objective of internal auditing is to assist all members of the organization in the effectivedischarge of responsibilities by furnishing them with analysis, appraisals, recommendations andpertinent comments concerning the activities reviewed. The internal auditor is concerned withany phase of business activity where he/she may provide service to the organization. This scopeinvolves going beyond the accounting and financial records to obtain a full understanding of theoperations under review. The attainment of this overall objective involves such activities as;

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- Reviewing and appraising the correctness, adequacy and application of accounting , financial and other operating controls and promoting effective control at reasonable cost

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- Ascertaining the extent of compliance with established policies ,plans and procedures

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- Ascertaining the extent to which company assets are accounted for and safeguarded from losses of all kinds

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- Ascertaining the quality of performance in carrying out assigned responsibilities - Recommending operational improvements 3.6 Internal Audit Independence: Internal auditing is an advisory function having independent status within the organization. Thehead of internal audit-

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- Shall be directly responsible to the chief executive/director (finance) and be independent of any other section, branch or officer, and shall have direct access to all documents, records and departments/ operations for which a suitable authority letter is to be issued by the chief executive so that the assignments can be carried out independently

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- Shall have no executive powers , functions or duties except those relating to the management of the internal audit office

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- Shall not be responsible for the detailed development and/ or implementation of new systems but should be consulted during the system development process on the control measures to be incorporated in new or amended systems , and be advised of approved variations or new developments

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3.7 Internal Audit Responsibilities: The head of internal audit shall be responsible functionally to the audit committee andadministratively to the chief executive /director (finance) of OIL, for the functional control ofaudit activities in relation to:

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- Development, implementation and oversight of internal audit methods and procedures

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- Development and control of an efficient internal audit program - Scope and boundaries of audits

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- Fulfilling the objectives of internal audit - Utilizing the internal audit resources to maximize the efficiency and effectiveness of the internal audit function and

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- Maintenance of appropriate auditing standards 3.8 Internal Audit Authority: The general scope of audit coverage is organization-wide and no function, activity, or unit of theOIL or a related organization with OIL (like joint venture; JV) is exempt from audit and review.No officer or staff member should interfere with or prohibit internal auditors from examining anyrecord of OIL or its subsidiaries/ JVs or interviewing any employee that auditors believe isnecessary to carry out their duties. Additionally the head of internal audit has the authority toreview and audit the accounts and financial reports submitted to the management for itsreliability and genuineness.In performing their work, internal auditors have neither direct authority over/ nor responsibilityfor any of the activities reviewed. Internal auditors do not develop and install procedures, preparerecords, make management decisions, or engage in any other activities that could be reasonableconstrued to compromise their independence or impair their objectivity. Therefore, internal auditreviews do not, in any way substitute for or relieve any officials or staff of OIL from theirassigned responsibilities.

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Internal auditors of the organization shall: - Have access at all reasonable times to all books , documents, accounts, property , vouchers ,records , correspondence and other data of the organization which are necessary for the proper performance of the internal audit function and

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- Have the right at reasonable times to enter any premises of the organization and to request any officer to furnish all information and such explanations deemed necessary for them to form an opinion on the probity of action, adequacy of systems and/ or of controls. The officer concerned shall respond promptly to such inquiries. It is incumbent on all the officers and staff that they shall render assistance to the internal auditors in carrying out their audit duties.

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3.9 Relationship with Other Control Functions: Relationship with vigilance department: The internal audit department shall have no formal relationship with the vigilance department.However, during the conduct of the proposed audits if the internal audit department personnelcome across any cases where a mollified intention is suspected the same should be reported tothe audit committee/CMD who should decide whether to report the same to the vigilancedepartment. Only the audit committee/ CMD should give copies of the internal audit reports tothe vigilance.

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Relationship with statutory auditors: The head of internal audit is responsible for liaisoning with the audit committee for coordinatinginternal and statutory audit efforts to ensure adequate audit coverage, minimize duplication ofaudit efforts and achieve synergy of the efforts.

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Co-ordination of audit efforts involves; - Periodic meetings with audit committee and statutory auditors regarding the company`s audit universe, risk assessment updates, audit plans and the annual audit schedule.

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- Periodic meeting`s between head of internal audit , audit committee and statutory auditors regarding the plans of the statutory auditors and the desired level of direct or indirect assistance to the audit committee that may be required.

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- Access to each other‟s detailed audit programs, internal controls do cumentation, and work papers. Such access is important in order for the internal auditor to be satisfied as to the propriety for internal audit purposes of relying on the external auditors work and for the external auditors to be satisfied as to the propriety, for external audit purposes, of relying on the internal auditors work.

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- Communications regarding announcements when audits are scheduled to begin and the specific audit objectives that have been established.

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- Exchange of information related to audit observations that may have an impact on the financial statement of the company and which need to be reported to the company‟s audit committee.

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Relationship with government auditors: The internal audit department should perform the following tasks while coordinating their workwith the government and statutory auditors;

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- Share annual audit plan- the internal audit department should meet the above two agencies at least once in six months to discuss their plans for the next six months to ensure that there is no duplication of efforts .

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- Share audit issues- during the meetings all three agencies should exchange major audit issues that they may have observed in the past to help others appreciate the same when they cover the area in the future. -

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Relationship with technical operations auditors: Considering that there is an already existing group of technical officers in OIL that reports to thedirectors in respect of technical issues, it should be necessary for the internal auditors to co-ordinate their efforts with this group. They need to share their respective audit plans with oneanother and identify areas where duplicity of work could be avoided. Further, the internal auditdepartment should review the

following in respect of the technical audits conducted by thisgroup and comment on the same;
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- Level of implementation of the recommendations made by the technical audit group

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- Whether the coverage of the group was adequate and whether they were able to perform all audits that had been planned.

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- How is the group keeping itself updated in respect of the advancements in technology in respect of operational methodologies?

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As with the review of safety auditors, the purpose of auditing the technical audit group is not toreview their decisions or the quality of work that has been done by them but to ensure that theirworking is effective and efficient for operational improvement in OIL as a whole.3.10 Approach and methodologiesTo identify the areas that used to be audited by internal audit, it is essential to carry out a relativerisk ratings. This exercise will basically provide internal audit with an audit universe detailingareas that need to be audited and their frequency. This exercise is termed as risk assessment.

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3.11 Methodology of risk assessment The risk assessment methodology includes the following; (i) Understanding the business objectivesbeing a senior management team of OIL, thehead of internal audit is well aware of the existing systems, the control environment and riskfactors of each operation / activity in OIL. As a head of the function, he has access to variousreports of OIL, internal publications, reports issued by internal audit/technical audit, statutoryauditor‟s govt. auditors and frame up his perception of various risks associated in each function.

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- he should also visit to projects /sites and regularly interact with senior key functionary or process personnel to assess the risk involved in each project.

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- To review of the existing process manuals and available documentations which will help to develop the risk assessment systems. (ii) Interaction with senior management- with the objective of preparing risk basedstrategy for internal audit interaction with senior management is necessary in order to obtain anunderstanding of their perception of the nature of risks and exposures that OIL faces today and intime to come or in due course.The areas normally discussed with senior key personnel are; - Critical challenges faced by OIL. - Significant risks and exposures - Control environment - Technology issues - Suggested areas of focus for internal audit Based on the responses the audit universe is modified along with a risk rating for each audit area. (iii) Finalization of the audit universe; Based on the experience and understanding gained during the visits of various locations/activities and discussions with senior managerial personnel, the audit universe of the OIL may befinalized. The audit universe contains the list of audit areas to be covered by the internal auditdepartment/ technical audit department, frequency of each skill set required for conducting theaudits.On the basis of the audit universe, number of auditors required based on skills and number ofaudits required to be carried out in a year, is ascertained.

(iv) Assigning a risk rating to each audit universe process/area;Risk rating is used to prioritize auditable entities and to estimate the internal audit hoursconsidered necessary for an internal audit function to address the identified risks.Risk rating is allotted to each audit area in the audit universe based on interaction with keypersonnel, understanding the systems and controls, materiality mapping.
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The likelihood rating represents the likelihood of an event or risk, which may occur. Themateriality rating represents the exposure to the organization should the event or risk occurs.A risk assessment rating for both likelihood and materiality is determined for each audit areaincluded in the audit universe.

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(vii) Estimating systems understanding and documentation- the auditor should assessthe existing systems and documentation work before begins/commencing the audit work of thedepartment. While carrying out such study, the following should be looked into-- understand departmental philosophy and operating style.- identify business objectives of the department- understand existing systems and procedures in the department- perform risk analysis of the functions performed in the department- Identify critical areas that needed to be audited - identify the level of assignment of authority and responsibility- understand the level of information technology risk in the functions.

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3.12 Internal Audit (IA) Organizational Structure and Staffing Pattern 1. Internal audit structure and reporting relationships IA is an independent appraisal activity established by the management. IA will not have any line responsibility for the activities it reviews. It must be independent of management who has direct responsibility for developing and/or implementing control systems. The head of IA department (HOD) should report to the CEO/Director (Finance)

administratively and to the Audit Committee functionally. The HOD should meet the Audit Committee and its chairman on a regular basis and have the opportunity to communicate without management being present. There should be regular meetings, both formal and informal- with senior management. This will serve both to maintain the profile of IA and to ensure that IA is working alongside management to achieve the objectives of the organization.
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3.13 Staffing The staffing of the IA department is based on factors like quantum and nature of operations,number of auditable sites, number of employees in the various work centers/ Projects, number ofareas required to be covered by IA department and number of audits to be conducted in a finalyear.The following staff strength is estimated based on the nature and volume of operations carriedout by OIL and various changes made in the company‟s act and the accounting standards mademandatory applicable to the company. The corporate Governance is also become mandatory. IAwill be playing a major role to ensure appropriate implementation 4:ANALYSIS, of corporate Governance in thecompany. AND CHAPTER

INTERPRETATION

FINDINGS

CONCLUSION

INTERPRETATION,4.1 ANALYSIS OF THE QUESTIONNAIREQ.1. Have you ever requested specific services of the Internal Audit function? specific Option No. of Respondent Percentage of respondent Yes 5 15.625 % No 27 84.375% Total 32 100% Percentage of Respondent 15.63% Yes No 84.38%INTERPRETATION Nearly 85% respondents said No Only 15% respondent reques service of IA function. request 4.2 FINDINGS Internal Audit Department is an independent department Internal Audit activities averagely improves the performance of the organization The expectations of the

internal customers were meet by the internal audit functions Respondents are not fully confident to rely on the conclusions reached or recommendations made by the Internal Audit function The overall internal control of the organization is improves to some extent by work of Internal Audit The report issued by IA department helps in improving the performances of the departments The quality of IA report can be rated as average. The executives of different departments have only few knowledge on the functions of Internal Audit Department 4.3 CONCLUSION A Project report on “Internal Audit Functions and its Performance in Oil India limited” is thetopic for my study. It is a brief study of understanding about the IA functions of the organization.From the report it can be well identified that the organization has adopted a well and distinguishInternal Audit functions. The IA department working independently and reporting to the AuditCommittee in a regular basis.We have felt that the company has come forward to apply new skills and techniques in order toimprove the Functions of IA.The project work is very beneficial for us and the guidance and support receive from all duringthe course of my project was very encourage