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DEPARTMENT OF ACCOUNTING & INFORMATION SYSTEMS
BBA Program
INTERNSHIP REPORT ON
THE INTERNAL CONTROL SYSTEM OF
TITAS GAS TRANSMISSION & DISTRIBUTION CO LTD.
SUBMITTED TO
Md. Safayat Hossain
Lecturer
Department of Accounting & Information Systems
University of Dhaka
SUBMITTED BY
Alokananda Bhowmik
ID No. 15061
Department of Accounting & Information systems
University of Dhaka
DATE OF SUBMISSION: 25th February, 20
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LETTER OF TRANSMITTAL
Date: February 25, 2013
Md. Safayat Hossain
Lecturer
Department of Accounting & Information Systems
University of Dhaka.
Subject: Submission of Internship Report.
Respected Sir,
With great gratification, I am here with submitting my Internship Report on “The Internal Control System of Titas Gas T&D Co. Ltd.” that you have assigned me as an essential requirement of the internship program.
To prepare the report I collected what I believe to be most relevant information to make my report as analytical and reliable as possible. But it was an enormous task to present the data in the right way. I have concentrated my best effort to achieve the objectives of the report and hope that my endeavor will serve the purpose. I request you to excuse me for any mistake that may occur in the report despite of my best effort. I sincerely hope that you would consider my endeavor and will find this report satisfactory.
Thank you again for your support and patience.
Yours sincerely,
Alokananda Bhowmik
ID: 15061
Accounting & Information Systems
University of Dhaka.
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ACKNOWLEDGEMENT
Successful conclusion of any course requires support from various personnel and I was fortunate
to have that support, direction, and supervision in every aspect from my teacher, Titas officials
and friends.
First of all, I pay my gratitude to the omnipresent Almighty for enabling me to complete this
Internship Report within due course of time.
I am deeply indebted to my faculty Mr. Md. Safayat Hossain, Lecturer, Department of
Accounting & Information Systems, University of Dhaka for his whole-hearted supervision
during my organizational attachment period. My appreciation and gratefulness also goes to Mr.
Humayun Kabir Khan, manager of Accounts Section, as my organizational supervisor. It would
have been very difficult to prepare this report up to this mark without their guidance.
My gratitude goes to the entire Department of Accounting & Information systems of University
of Dhaka for arranging Internship Program that facilitates integration of theoretical knowledge
with real life situation.
I also show my utmost thankfulness to all the officials of Titas Gas T&D Co Ltd. The speed and
helpfulness of the officers really helped me in obtaining the necessary information in time. I
would also like to thank Mr. Md. Abdul Aziz khan, Managing Director of Titas Gas T&D Co.
Ltd. who made the door of Titas wide open for me and Mr. Sankar Kumar Das, Director
(Finance) for his kind concern and helpfulness during my stay at Titas.
And finally, words are very few to express my enormous humble thanks to my affectionate
parents for their prayers and supports that enabled me to conclude my internship program.
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EXECUTIVE SUMMARY
Titas Gas Transmission & Distribution Company Limited is the largest integrated natural gas
distributor in Bangladesh serving more than 15 million consumers in Dhaka and Mymensingh.
The company has more than 50 years of experience in operation and maintenance of gas
transmission and distribution system. Its activities also include planning, designing and
maintenance of pipelines for gas transmission. Titas operates in a region of the country that has a
rapidly growing demand for natural gas and power generation due to significant industrial
development.
Internal control systems is a topical issue following global fraudulent financial reporting and
accounting scandals in both developed and developing countries. A proactive preventive
approach to the problem requires a critical evaluation of existing internal control structures in
organizations to determine their capacity to ensure that the organization’s activities are carried
out in accordance with established goals, policies and procedures.
In this report, an attempt was made to know about the internal control system of Titas. There is
several global guidance setting bodies that provides general guideline to the professionals
regarding the internal control system. An endeavor was made to describe the internal control of
Titas according to those established guidelines and finally recommendations were made to the
inconsistencies that were noticed during the preparation of the report.
The report contains 4 chapters. In the introductory chapter, objectives, methodology and
limitations of the study were mentioned. The second chapter is based on literature review. It
contains the Internal Control frameworks recommended by various international guidance-
setting organizations like COSO and ICGN. In the third chapter, a historical overview of Titas
was given. Internal control system of Titas was also discussed in this chapter. In the fourth
chapter, an analytical evaluation was made regarding the presence of internal control in Titas and
various deficiencies therein were identified. Later recommendations for the remedial of the
problems identified were also given.
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TABLE OF CONTENTS
CHAPTERS TOPICS PAGE NO.
Chapter 1 Introduction
1.1 Background of the Report 1
1.2 Objectives of the Report 2
1.3 Methodology 3
1.4 Limitations 5
Chapter 2 Literature Review 6
2.1 Committee of Sponsoring
Organization (COSO)
7
2.2 ICGN Framework 12
Chapter 3 Titas & Its Internal Control
System
3.1 History of Titas 13
3.2 Description of Control
Established by Titas
15
3.3 Evaluation of Internal Control
established by Titas
23
Chapter 4 Discussion & Findings
4.0 Discussions & Findings 30
4.1 Weaknesses 34
Recommendations 36
Conclusion 38
Reference 39
Appendix 41
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Acronyms
BGFCL: Bangladesh Gas Field Company Ltd.
CBA: Collective Bargaining Agreements
CG: Corporate Governance
COSO: Committee for sponsoring Organization
ERP: Enterprise Resource Planning
GTCL: Gas Transmission Company Ltd.
ICGN: International Corporate Governance Network
IOC: International Oil Company
T&D: Transmission & Distribution
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CHAPTER 1
INTRODUCTION
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1.0. Introduction
1.1. Background of the report
Natural gas contributes the lion’s share in our total energy sector. Exploration by the public
companies along with the foreign companies (IOCs) has established the existence of a significant
gas sources. Still the amount of extractable reserve of natural gas is uncertain and yet to
determine. Titas Gas Transmission & Distribution Co. Ltd. (from now on Titas) is the country’s
largest integrated gas company meeting 63 per cent of the total gas demand, serves in two most
populated and industrially flourished region of the country.
Titas is a government owned company which off-loaded its 25 per cent ownership in the share
market just 4 years ago. Still its operation is hugely controlled by the government due to the fact
that it is mostly state owned and that it deals with public resource. Better management of overall
functionality will be hampered if good and efficient internal control system is not present in any
entity. Internal control system is implied in every organizations and their nature is the same. But
the objectives they are intended to achieve will be mostly dependent on the nature and objectives
of the organization. In line with the common practice all over the world, Titas has its own
internal control which ensures that good corporate governance does prevail in the company.
This report is an essential requirement of the internship program for successful completion of
BBA course. Practical experiences along with the class-room experience make our learning
sustainable and implementable. For that purpose, the university authority has attached me to
Titas Gas T&D Co. Ltd and my supervisor assigned me to work on internal control system of
that company.
Internal control systems are essential to the success and endurance of any organization. They
keep the organization on the rails. This report discusses the internal control system of Titas
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which attempts to identify various control mechanisms, the problems therein, the reasons for
such inconsistencies and finally some recommendations were made to overcome the short-
comings of the system.
During my six weeks time at Titas, I worked in the Accounts Department under the Finance
Division. The Accounts department has four sections and I got the opportunity to overview the
activities of all the four sections. Most of the time, I worked with accounting related issues and
get introduced with the existing internal control system through my day to day work. Besides,
discussion with management of Titas put light into the issue and helped me to identify the major
control mechanisms.
Efficiency of operation is increased if a sound accounting mechanism is in place. In my six week
time at Titas, I learned that Titas has its own internal control system which is directed towards
better operational management, financial reporting and compliance with the rules & regulations.
And all these things make Titas to some extent different from the other government and non-
government organizations.
1.2. Objectives of the Paper
This paper evaluates the existing internal control systems of Titas directed towards the
management of the organizations. Specifically, the paper:
Ascertains whether internal control exists in the organization to ensure that it is running
in the intended direction
Examines whether such control is effective or otherwise and whether such control
systems comply with globally-accepted internal control mechanisms or the international
standards
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Attempts to identify the shortfall of the control system and tries to recommend some
remedies.
The objectives raise a vital question whether or not the existing internal control systems in Titas
are effective. This includes the following minor but inter-related questions:
What role should internal control system play in the management of Titas? Does
management of the company appreciate, understand, and clearly respond to this role?
What internal control systems are currently in use? Do they include all the expected
elements of internal control systems?
To get the answer of the above questions certain methods were adopted for the investigation. In
the later part of the paper, discussions were made on the selected methods and tried to justify
such selection.
1.3. Methodology
As the report pertains to describe the internal control system of Titas which is pervasive but is
not a very easy task to rules out in paper , this study tried to discuss the internal control based on
two frameworks-
Framework of the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission &
The International Corporate Governance Network (ICGN) framework
In case of qualitative research, several research methods are available, such as- grounded theory,
ethnographic, phenomenology, case study etc. The study uses a case study method. The
justification is that the study investigates details of a real life phenomenon using multiple sources
of evidence. The sources of evidence are data collected through: interviews, observations, and
documentary analysis, extraction of data and information specific to an organization and use of
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confidential information tailored to suit the study. This method aims at the comprehensive
understanding of a single, distinctive case.
Earl Babbie (1998) supports the choice saying that whereas most research attempts to limit the
number of variables considered, the case study seeks to maximize them. Ultimately, the
researcher executing a case study typically seeks insights that will have a more generalized
applicability beyond a single case under study. In view of the fact that this study involves an
investigation of whether internal control systems established by Titas are effective, the case
study method is used.
Keeping the research approaches in mind, this study will go for deductive method where
relationships among different variables will be established and a structured method (in this case
the framework depicted in Figure 2) will be used.
To make this report more meaningful and presentable two sources of data were used widely. As-
Primary Data
Working in Titas as an internship student gave me the privilege of accessing different
organizational documents which is neither very much available on internet and different
publications nor people outside the organization could have access to them. Extensive
discussion with the managers and DGM of the accounts section opened up the broad way
of knowing their day to day operations as well as the details accounting procedure.
Secondary Data
The Annual reports of the company for the last five years and different publications of
Petrobangla and the Ministry of Finance made it possible to mention the latest data on
Titas. Besides, the publications of ICGN and the COSO framework served as the
principle secondary source of data.
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1.4. Limitations
Everything comes with a downside. This report is of no exception. While working on the report,
one thing that stood as an impediment is that there was absence of previous studies on the topic.
Though there are numbers of studies on the gas sector of the Bangladesh but no studies were
conducted on Titas. So, there was lack of scope of consulting the ideas of others.
Likewise, crucial information was collected directly from the company personnel. As there are
no publications from where necessary data could be obtained, interviewing and close group
discussions were often very painstaking. Use of subjective judgments while rating the control
variables can be counted as a limitation.
The study was based on my 6 weeks working experience at Titas. But six week time was not
enough for over viewing all the control activities of Titas. Another thing that could be counted as
a shortfall is that lack of experience of working in the related fields of this study.
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CHAPTER 2
LITERATURE REVIEW
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2.0. Literature Review
Internal control provides a means of assurance that corporate objectives are being achieved
(COSO framework, 2011). Though this report mainly focuses on the internal control system of
Titas but two other things must also be discussed along with this because internal control cannot
be well understood without understanding these two phenomenon.
The first thing is, Internal Audit function, which helps in evaluating the business processes and
procedures to assess the effectiveness of control systems and compliance thereof, highlights the
weaknesses in the internal control systems and recommends solutions to overcome the
weaknesses. It also enables the organization to improve operational efficiency and accuracy and
reliability of its financial data. Institute of Internal Auditors (IIA) is a guidance-setting body
which is audit profession's global voice, chief advocate, recognized authority, and principal
educator (Wikipedia).
The other thing is Corporate Governance which has become a buzz word in today’s corporate
world. Corporate governance (CG) is the system by which companies are directed and
controlled. In general, CG deals with laws, procedures, practices and implicit rules that
determine company’s ability to take managerial decisions vis-à-vis its claimants—in particular,
its shareholders, creditors, customers, the State and employees. However, a somewhat broader
definition would be to define CG as a set of mechanisms through which a single country or firms
within a country operates when ownership is separated from management ( Du, Hua, 2006).
Corporate governance therefore calls for three factors:
1. Transparency in decision-making;
2. Accountability which follows from transparency because responsibilities could be fixed
easily for actions taken or not taken, and;
3. The accountability is for the safeguarding the interests of the stakeholders and the
investors in the organization.
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The International Corporate Governance Network (ICGN) which was founded in 1995, is an
initiation of major institutional investors, represents investors, companies, financial
intermediaries, academics and other parties interested in the development of global corporate
governance practices.
2.1. Committee of Sponsoring Organization (COSO)
In response to widely publicized business failures in the USA in the late 1970s and mid-1980s,
the National Commission on Fraudulent Financial Reporting (the Treadway Commission) was
inaugurated to identify factors that caused fraudulent corporate financial reports and make
recommendations that resolve such issues. The recommendations directly addressed the
problems of weakness of internal controls and emphasized the importance of the control
environment, codes of ethical conduct, management reports on effectiveness of internal controls
and development of a common definition and framework of internal control. The evolutionary
process of developing a generally accepted definition and framework of internal control was
realized in 1992 with the publication of a landmark report on internal control: Internal Control -
Integrated Framework, referred to as “COSO” (Committee of Sponsoring Organization).
Hence, COSO provides the necessary guidelines for establishing internal control while IIA is a
guidance-setting body for internal audit professionals and ICGN is the global partner for
developing corporate governance practice around the world. In this section, the report will try to
describe the international standards of internal control which stand as a guide to the internal audit
professionals and corporate governance practice.
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The Institute of Internal Auditors defines internal control as follows:
“a process within an organization designed to provide reasonable assurance regarding the
following primary corporate objectives:
the reliability and integrity of information
compliance with policies, plans, procedures, laws and regulations
the safeguarding of assets
the economical and efficient use of resources
the accomplishment of established objectives and goals of operations or programs”
As mentioned before, COSO is a voluntary private sector organization established in USA. It is
dedicated to improving the quality of financial reporting through business ethics, effective
internal controls, and corporate governance. COSO was originally formed in 1985 to sponsor
the National Commission on Fraudulent Financial Reporting, an independent private sector
initiative. It is concerned with factors that can lead to fraudulent financial reporting. COSO has
developed principles of internal control. It defines internal control as follows:
Internal control is a process, affected by an entity’s board of directors, management and other
personnel, designed to provide reasonable assurance regarding the achievement of objectives in
the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
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It identifies the key concepts of internal control as follows:
Internal control is a process. It is a means to an end, not an end in itself.
Internal control is affected by people. It’s not merely policy manuals and forms, but
people at every level of an organization.
Internal control can be expected to provide only reasonable assurance, not absolute
assurance, to an entity’s management and board.
Internal control is geared to the achievement of objectives in one or more separate but
overlapping categories.
Components of internal control:
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring Activities
A direct relation exists among the objectives, which are what an entity strive to achieve,
components, which represent what is needed to achieve the objectives and the operating, legal
and other structural units within the entity.
The essential elements of an effective internal control system must be present and functioning
effectively for any internal control system to achieve organization’s objectives. According to
COSO, the control elements have the following characteristics or principles-
Five Principles relating to control environment:
1. The organization demonstrates a commitment to integrity and ethical values
2. The board of directors demonstrates independent independence of management and
exercises oversight for the development and performance of internal control
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3. Management establishes, with board oversight, structures, reporting lines and appropriate
authorities and responsibilities in the pursuit of objectives
4. The organization demonstrates a commitment to attract, develop and retain competent
individuals in alignment with objectives
5. The organization holds individuals accountable for their internal control responsibilities
in the pursuit of objectives.
Four principles regarding Risk assessment-
1. The organization specifies objectives with sufficient clarity to enable the identification
and assessment of risks relating to objectives
2. The organization identifies risks to the achievement of its objectives across the entity and
analyzes risks as a basis for determining how the risks should be managed
3. The organizations consider the potential for fraud in assessing risks to the achievement of
objectives
4. The organization identifies and assesses changes that could significantly impact the
system of internal control.
Three principles relating to control activities-
1. The organization selects and develops control activities that contribute to the mitigation
of risks to the achievement of objectives to acceptable level
2. The organization selects and develops general control activities over technology to
support the achievement of objectives
3. The organization deploys control activities as manifested in policies that establish what is
expected and in relevant procedures to affect the policies.
Three principles relating to information and communication-
1. The organization obtains or generates and uses relevant, quality information to support
the functioning of other components of internal control
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2. The organization internally communicates information, including objectives and
responsibilities for internal control, necessary to support the functioning of other
components of internal control
3. The organization communicates with external parties regarding matters affecting the
functioning of other components of internal control
Two principles relating to monitoring activities-
1. The organization selects, develops and performs ongoing and/or separate evaluations
whether the components of internal control are present and functioning.
2. The organizations evaluates and communicates internal control deficiencies in a timely
manner to those parties responsible for taking corrective action, including senior
management and the board of directors, as appropriate.
The COSO framework may be relevant to larger organizations, but inappropriate for small ones
due to costs and operational complexity. Management of small organizations may not need
formal internal controls for the reliability of the records and other information, because of their
personal involvement in the operations of the organization.
Another weakness of the COSO mechanism is failure to recognize Information Technology (IT)
as one of the major control components. IT is crucial to an internal control framework. Today,
organizations use IT for initiation, authorization, recording and processing of transactions. IT
ensures effectiveness of internal controls. However, COSO’s failure to recognize IT as a control
component motivated other bodies to design and develop frameworks to remedy the omission.
One such framework is the Control Objectives for Information and Related Technology (COBIT
1996, 1998, 2000, 2005, 2007). In this report, along with the five elements of the COSO
framework, the IT element of the COBIT framework will be taken into consideration.
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2.2. ICGN Framework
ICGN statements on global corporate governance rules out the various principles for good
corporate governance such as-
The corporate objectives of the corporation should be to optimize over time to time the returns to
its shareholders and the board should develop and implement a strategy which will improve the
equity value over the long term. Corporations should disclose relevant and material information
concerning the corporation on a timely basis and along with the financial information;
disclosures should be made on the ownership and voting rights of the company. The ICGN
supports the development and harmonization of the highest-quality international accounting and
financial reporting standards. The audit should be undertaken by independent external auditors
which will also be approved by the board or the appropriate authority.
Besides the general guidelines, ICGN also provides some guidance on issues like shareholders’
ownership, responsibilities and voting rights and remedies all are aimed to better practice in the
corporation to enhance the corporate governance of the concerned corporations.
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CHAPTER 3
TITAS
&
its INTERNAL CONTROL SYSTEM
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3.0. Titas & Its Internal Control System
3.1. Overview of Titas
Titas Gas Transmission & Distribution Co. Ltd., country’s significant provider of natural gas,
was established on November 20, 1964 following a significant gas discovery at Titas Gas Field
in 1962. The company began its commercial operation with the commissioning of gas supply to
Siddhirganj Thermal Power Station on April 28, 1968 after construction of 14 inch dia 58 mile
long Titas-Demra gas pipeline by the then East Pakistan Industrial Development Corporation.
At the beginning, 90% of its shares belonged to the then Pakistan Government and Pakistan Shell
Oil Company owned the rest. Till the liberation of the country, Titas had been able to supply gas
to two power stations, one fertilizer factory and about 2000 customers in other categories. After
liberation of the country the company was nationalized under the Presidential Order No.
2711972 and its overall activities has been placed under the supervision of Bangladesh Oil, Gas
& Mineral Resources (Petrobangla). Under the Nationalization Order of 1972, all the
government owned shares of the company were vested in the Government of Bangladesh (GOB).
In accordance with an agreement signed between Shell Oil Company and GOB on August 9,
1975, the ownership of the remaining 10% shares was transferred to the GOB through
Petrobangla in exchange for a lump-sum payment of £100,000. After the independence of
Bangladesh in 1971, the company started its journey as a company of Petrobangla with the
authorized and paid up capital of Tk. 1.78 crore.
Subsequently, the company’s Board was vested with full autonomy & exercises all financial
powers as per Company’s Act 1994 as stated in the government gazette notification no. dated 5
November, 2002. Recently, the company has been listed with Dhaka Stock Exchange on June 9,
2008 & with Chittagong Stock Exchange on June 19, 2008 under the direct listing rules of
Securities and Exchange Commission to offload 25 per cent of its shares in the stock market.
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Table 1: Titas at a glance:
Date of Incorporation November 20, 1964 Corporation Bangladesh Oil, Gas & Mineral Corporation (Petrobangla) Administrative Ministry Ministry of Power, Energy & Mineral Resources Franchise Area Greater Dhaka & greater Mymensingh Authorized Capital Tk. 2000 crore Paid up capital ( as of June 30, 2012)
Tk. 942.12 crore
Number of customers ( as on June 30, 2012)
Total 15,35,592
Market share in sales Sources of gas supply (fields) Manpower Listed with DSE Listed wiith CSE
63% Titas, Habiganj,Narsingdi, Kailashtila,Jalalabad,Bibiyana, Moulovi Bazar, Rashidpur,Bianibazar & Bangura gas field. 2,446 June 9, 2008 June 19, 2008
Titas Franchise Area
TFA includes-
Dhaka Metropolitan City
Greater Dhaka
- Narayanganj, Sonargaon, Rupganj, Araihazar
- Keraniganj, Munshiganj, Mirkadim
- Tongi, Savar, Dhamrai, Manikganj, Aricha, Gazipur, Sreepur
- Madhabdi, Narshingdi, Ghorashal
Greater Mymensingh
- Tangail, Mirzapur, Jamalpur, Sherpur, Tarakandi;
- Mymensingh, Netrokona, Bhaluka, Trishal, Gafargaon;
- Kishoregonj, Bhairab Bazar.
Brahmanbaria
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- Brahmanbaria, Ashuganj, Bhairab Bazar.
For enhancing operational efficiency and ensuring good maintenance, Titas divided its
franchising area into several zones and divisions. For example, Dhaka metropolitan city is sub-
divided into 13 zones.
3.2. Descriptions of Control Established by Titas
Internal control system is fundamental to the success and survival of organizations. It keeps the
organization on the rails. Corporate governance which has become a phenomenon across the
world can be strengthened by ensuring better control in the organization. With an efficient and
effective internal control placed in the organization, it is assumed that the overall performance of
the organization will improve.
Internal control is inherent in every organization. Though it is an abstract idea still it enhances
the likelihood of achieving the objectives of the organizations and adapt to changes in the
business or operating environment. Titas is a government company where day to day operation is
strictly controlled and the company is under the purview of the concerned ministry which
amounts to greater control than any other private companies.
Natural gas can spur the growth of development of any country. As we know, Titas is the sole
distributor of natural gas in country’s two most industrially flourished areas; the company plays
important socio-economic roles in its areas of operation. That’s why it must ensure better
performance by establishing and ensuring better internal control in the organization.
Like every other organizations, Titas has its own internal control placed within the entity so that
it can perform its operations effectively & efficiently, can ensure compliance with all the
required legal restrictions and can create more accountability among the employees. The effect
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of internal control is pervasive but in this report, the internal control employed in Titas will be
discussed from 3 aspects. The COSO framework discussed in the previous chapter also tried to
describe internal control in terms of these three aspects. And the report, as mentioned before, will
attempt to discuss the internal control in Titas according to the COSO framework.
Operational Control
Titas is the country’s major distributor of natural gas. The main objective of Titas is to supply
natural gas to customers of different categories under Titas Franchise area, thereby reducing
dependency on imported liquid fuel. Towards this end, the company has to construct, operate and
maintain pipelines, stations and associated facilities. It transmits natural gas from the gas
through national grid line and distributes the same to different consumers.
The operation of Titas may be represented as-
(i)
Figure 1: Operation of Titas
Procurement (Intake)
Exploration and Production activities are operated by three (3) state owned companies and four
International Oil Companies (IOC) under Production Sharing Contracts (PSC). Titas is solely a
trading concern. It buys gas from the gas fields and then sells it to different types of customers.
Operation
Distribution Transmission Procurement
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Transmission
Presently, Gas Transmission Company Ltd. (GTCL) has the responsibility to gradually establish
the national gas grid for the uninterrupted transportation of natural gas in a safe, reliable and
economic way. Titas pays GTCL wheeling charges or transmission charges for the amount of gas
transmitted through their lines.
But before the establishment of GTCL, the transmission activities were also undertaken by Titas
along with the distribution activities. Even now, a portion of gas lifted by BGFCL is transmitted
by Titas.
Distribution
Titas serves around 1.5 million customers of 8 different types in its franchise area. They include-
power, fertilizer, feed gas for CNG, captive power, industry, tea-estate, commercial & domestic.
To increase efficiency and effectiveness in the above mentioned operational activities, the
following internal controls are put in place-
The intake is controlled by the use of meter at both ends. Titas keeps track of the volume
of gas procured or purchased from different gas fields by establishing metering and valve
system. At the end of the month, the gas fields send bills to Titas for their payment. After
verifications of the bills, the company makes necessary arrangements for payment.
Likewise, meter is also used to measure the gas transmitted by GTCL. Titas pay GTCL
wheeling charges or transmission charges on the gas transmitted. That’s why GTCL also
requires to submit their bills to Titas which are paid after due verifications.
Besides, certification by a technical person will be required before payment is made.
Meters are used to measure the consumption of gas by different customers but domestic
consumption is still unmetered due to some technical weaknesses. The domestic
households pay at a uniform rate regardless of their uses. But the amount of gas
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consumed by the domestic users constitutes a small portion of the total consumptions and
this unmetered consumption is in no way financially hampering the company.
The meter readings from the gas fields, GTCL and different customers are sent to the
Central Database at the head-office and the accounts division.
The bills from the gas fields and the bills to the customers will constitute the accounts
payable and the accounts receivables. So, the meter readings will work as source data or
evidence data of the payables and receivables amounts.
Besides, there are Metering Department and Vigilance Department. The Metering
Department tests the accuracy of the meter reading and the Vigilance Department
inspects the yard of the customers for illegal gas connections.
Besides, Mobile Court has been established under the Mobile Court Act to search and
penalize illegal gas users and tempering of meters.
So, from the above discussions, it is evident that Titas use various internal control mechanisms
which will increase their effectiveness of operations. The specific target used to determine
whether a control is operating effectively is called the control objective. We can place the
Control objectives of Titas under several detailed categories to capture effectiveness-
Verifications: The amount of gas procured, transmitted and distributed will be measured
and verified with the help of meters and technical certifications.
Reasonableness: Amount of payables and receivables will have to appear reasonable
relative to the meter reading.
Compliance: Gas connections will be provided as per the decisions and approval of the
technical committee and upon the receipt of security deposits, otherwise it will be
considered as illegal connection and such customers will be charged with penalties. The
vigilance department will check such inconsistencies by paying a visit to the yard of the
customers.
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Financial reporting effectiveness
Titas has got such a recording procedure which is partly computerized and partly manual. When
companies around the world are opting for ERP software, there is still an absence of a central
computer system to bind the whole company into a single system. Still spreadsheet program such
as Microsoft Excel is used to make all the necessary statements. According to the requirement of
the Bangladesh Securities and Exchange Commission, Titas prepares quarterly reports before
preparing the annual reports.
Following control activities can be included (but are not limited to) to enhance reliability of
financial reporting-
Segregation of duties- Separating authorization, custody, and record keeping roles to
detect and prevent fraud or error by one person.
Authorization of transactions - Review of particular transactions by one or more
appropriate person(s). All the bills are approved by a person who is empowered to do so.
Retention of records - Maintaining documentation to substantiate transactions.
Supervision or monitoring of operations - Observation or review of ongoing
operational activity.
Physical verifications: Moveable assets are verified each year whereas immoveable
assets are verified once in every five years.
Budget- Budgets are used as a major financial control tool. There is a separate section
under the Finance division (Budget Section) who prepares budget for each year. The
budgets must be approved by the board of directors and the ministry. Before any payment
is made, every bill is verified to see if it was previously included in the budget. This can
put check to unauthorized expenditures.
32
Internal audit: There is an internal audit department who review and approves all the
transactions made within the company. Usually they perform post audit and pre-audit
review.
Pre-audit is done before payment (usually for amounts above tk. 500) is made to verify
authenticity and proper authorization.
Post-audit is the statutory audit. Each year the company engages a CA firm to perform
audit to find any fraud and defalcation. Post audit also ensures that all the transactions
were recorded properly while complying with all the accounting rules and company
policies and they reflect the true financial condition of the company. The government
also perform audit , done by the Directorate of Commercial Audit of the government to
find out fraud and misappropriation and to find out whether the company’s rules and
regulations were observed before each payment and receipt.
Top-level reviews: Top-level reviews include analysis of actual results versus
organizational goals or plans, periodic and regular operational reviews, metrics, and other
key performance indicators (KPIs). Besides, management review of reports comparing
actual performance versus plans, goals, and established objectives are placed in the
Management Report which is also prepared along with the financial reports.
Controls over information processing- A variety of control activities are used in
information processing. Examples include edit, checks of data entered, accounting for
transactions in numerical sequences, comparing file totals with control accounts, and
controlling access to data, files and programs.
Compliance with all the relevant laws, rules and regulations
Being enlisted in the stock market, Titas is needed to comply with some regulations which
companies in general are also needed to follow. At the same time, it needs to abide by some
special acts and regulations, as it is a government organization. Since Titas is the sole provider of
33
gas in its franchise area which creates the scope of practicing monopoly, strict compliance of
different acts and regulations is demanded by the regulatory bodies.
To govern the corporate environment in Titas, following legal measures are in practice:
Securities and Exchange Ordinance 1969
Securities and Exchange Commission Act 1993
Companies Act 1994
Gas marketing Policy 2004
Bangladesh Energy Regulatory Commission (BERC) Act 2003
Rules for Government Commercial Audit
Public Procurement Rules
However, to institutionalize the practice of corporate governance in Bangladesh, initiatives have
been taken by the Bangladesh Securities and Exchange Commission (BSEC). BSEC issued a
notification on Corporate Governance Guidelines (CG Guidelines) for the publicly listed
companies of Bangladesh under the power vested on the Commission by Section 2CC of the
Securities and Exchange Ordinance, 1969. The CG Guidelines were issued on a ‘comply or
explain’ basis, providing some ‘breathing space’ for the companies to implement on the basis of
their capabilities.
Titas has already complied with these BSEC notifications in its annual report of the FY 2011-12
and it is planning to undertake audit on Corporate Governance soon.
Besides, as we know, Titas is a company of Petrobangla which is under the Ministry of Power,
Energy & Mineral Resources Division, the company needs to follow all the decisions and
guidelines of the ministry and Petrobangla.
In case of determining the selling price of gas, Titas needs to comply with the policies of BERC
which is an independent and impartial regulatory commission for the energy sector.
34
Corporate Governance in Titas
As we know, Corporate Governance (CG) is the system by which companies are directed and
controlled. In general, CG deals with laws, procedures, practices and implicit rules that
determine company’s ability to take managerial decisions vis-à-vis its claimants—in particular,
its shareholders, creditors, customers, the State and employees.
All corporate governance systems revolve around four core principles: Fairness, accountability,
responsibility and transparency (Dr. Hua, 2006). And they govern the corporate government of
the organization.
In 2012, Bangladesh Securities & Exchange Commission has made an order that requires the
listed companies to prepare a notification on comply or explain basis. Titas has complied with
the BSEC guideline in the year 2011-12 and has included such issues as-
Soundness and efficiency of internal control
Appointment of head of internal audit
Suspected or presumed fraud or irregularity or material defect in the internal control
system
Internal audit services.
This indicates that Titas is opting for creating a corporate environment that will require much
more accountability, transparency and responsibility. But as Titas is mostly controlled by the
government (as the board of directors is consisted of government officials) there is a chance that
it may be treated as a government department and unit. As a result, unlike the private concern, it
may not have its board or management changed via a takeover or proxy contest, and cannot go
bankrupt. In addition, it has “free” equity and a very low cost of subsidized loans. Thus, the
incentives for board members and managers to maximize the value of the company and keep
costs in check are reduced.
Also there is a chance that accountability and performance may also be hindered by political
interference, poorly defined non-commercial objectives, and an absence of transparency. Strong
internal controls, good disclosure, independent boards of directors, and other CG tools can help
35
state -owned enterprises like Titas perform well and act in the best interests of citizens and other
shareholders.
3.3. Evaluation of Internal Control established by Titas
In the earlier section, internal control of Titas was discussed. This section of the report will try to
examine the effectiveness of existing internal control system of Titas so that we can know all the
components of internal control and the short-comings thereon. A similar type of study was
conducted by Angella Amudo and Eno L. Inanga on 2009 where they developed a conceptual
model that was used in evaluating the internal control systems in Public Sector Projects in
Uganda financed by the African Development Bank. This report will also use the model
developed by Amudo and Inanga to evaluate the control established by Titas.
Internal control is a process of integrated sets of activities originated by top personnel of an
organization and embedded within all the organization’s activities to achieve goals. This
comprises two sets of variables: dependent and independent. Influence of authority is the
cornerstone of independent variables that ensures that the independent variables function to
generate the outcome of the dependent variable.
Figure 2 shows the conceptual model components of dependent and independent variables.
The effectiveness of internal control is the dependent variable. This is achieved by the presence
and proper functioning of all the (predefined) independent variables in relation to each category
of the objectives. Proper functioning of independent variables provides reasonable assurance of
proper functioning of dependent variable.
36
That is-
Then the organization realizes preset objectives of efficient and effective operations, generation
of accurate, reliable and informative financial reports that comply with relevant legal and
regulatory requirements (note that there are 3 objectives mentioned in figure 2). The objectives
are overlapping. This means efficient and effective operations produces accurate, reliable and
informative financial reports that comply with applicable laws and regulations.
Figure 2: Conceptual model of internal control
Source: International Research Journal of Finance and Economics (2009)
Effectiveness of internal control (i.e. dependent variables) = ƒ (independent variables)
37
The objectives, depicting overlapping interrelationships are numbered 1, 2 and 3 in Figure 2- (1)
include efficiency and effectiveness of operations (2) accuracy and reliability of informative
financial reporting and (3) compliance with applicable laws, regulations, policies and procedures.
The independent variables determine the effectiveness of an internal control system. The
presence and proper functioning of all the components of the independent variables ensures
effectiveness of internal control system. This achieves each category of objectives 1, 2 and 3 in
Figure2.
The independent variables comprise major and minor components. Individual minor components
jointly provide for and form a specific major independent variable. The measurement of minor
independent variables locates any weaknesses existing in the major independent variables. The
major independent variables include:
Control environment
Risk assessment
Control activities
Information and communication
Monitoring
Information Technology
The minor independent variables include:
Authorization and approval procedures
Assignment of authority and responsibility
Accountability obligations
Segregation of duties
Limit of amount eligible to expend
Proper Documentation
Controls over access to resources
Presence of internal audit
Verification
Reconciliation
38
Review of operating performance
Supervision
Human resource policies and practices
A direct relationship exists between the outcomes of the dependent and the independent
variables. All the independent variables are relevant to each category of objectives. Internal
control processes (minor independent variables) affects the effectiveness of internal control
systems, which is subject to the organization’s determined objectives. All the independent
variables are interdependent but each has an impact on the effectiveness of internal control
systems.
Different approaches to the evaluation of effectiveness of internal controls are available. The
study uses the model in Figure 2. In this regard, controls evaluation is a step toward achieving
the study’s objectives once the questions under the study are answered. The questions under the
study are formulated to identify the existence or otherwise of each variable of internal control.
The conceptual model in Figure 2 identifies three objectives of the effectiveness of internal
control systems.
[*] The first is operational efficiency and effectiveness. Effectiveness relates to the quality of
controls over the achievement of specific management objectives, while efficiency addresses the
quality of controls yielding an optimum quantify of resource inputs to productive outputs. This
objective determines whether the organization is reasonably assured that no material
inefficiencies exist in the organization or the processes.
[*] The second objective related to the first one, is accuracy of financial reports and statements
produced. This objective emphasizes the adequacy and effectiveness of management controls
over the preparation of financial reports and ensuring reliability in external reporting.
[*] The third is the organizations’ compliance with applicable laws, regulations, policies and
procedures. This focuses on the adequacy and effectiveness of management controls that govern
39
adherence to external laws and regulations. This checks the correlation between the laws and
entity’s procedures and actual practice.
This study identifies the following six essential components of an effective internal control
system:
control environment,
risk assessment,
control activities,
information and communications,
monitoring and
information technology.
The model includes working relationships, which is taken into account to achieve effective
functioning of the six core control components.
These six control components are assessed before expressing opinion on the design and
effectiveness of the overall internal control systems. But this alone cannot identify the exact
weaknesses in the internal controls. To do this, core control components are broken down into
minor independent variables and those that fall under each of the major independent variables
identified. The control components instituted for management of these projects are measured
against the components identified in the benchmark.
In table 2 ( the table can be viewed in the appendix), each of the major independent variable of
the model is defined using several minor independent variables, which are used for rating the
effectiveness of controls in the projects, and locate internal control weaknesses. To understand
and apply the criteria to control components the analysis uses binary numbers of 0 and 1 as
ratings. A rating of 1 reflects a control component with control problem, while 0 rating signifies
a control component with no control problem.
Table 2 defines each major independent variable with a set of corresponding minor independent
variables, used as criteria for rating the effectiveness of controls in the projects. Each major
40
independent variable and their respective minor independent variables have to ensure
consistency in the evaluation process.
The assigned ratings (either 0 or 1) must match the predefined criteria of the minor independent
variables in Table 2 during evaluation. In the final evaluation, if controls provide reasonable
assurance that management objectives will be achieved, a 0 rating is assigned. A 1 rating is
recorded if controls do not provide such assurance. Use of judgments plays a significant role in
assigning these ratings. However, corrective recommendations indicate that there exists a
problem with the controls evaluated. The evaluation processes commences as shown in Table
3(see appendix).
The findings of this study is summarized in Table 4 that determines whether internal control
implemented by management works in line with the company objectives.
Table 4: Control Evaluation Table
Control Evaluation Table
Ratings Model’s Objectives
0: No Problem exists
1: Problem exists
Effectiveness &
efficiencies of
operations
Reliability of
financial reporting
Compliance with
laws, regulations,
policies &
procedures
Benc
hmar
k C
ontr
ol
Com
pone
nts
Control Environment 0 0 1
Risk Assessment 1 0 0
Control Activities 0 0 0
Information &
Communication
0 0 1
Monitoring 0 0 0
Information
Technology
1 0 0
Overall 0 0 0
Detailed analysis is done in previous section
41
Analysis and interpretation of the evaluation results in Table 4 generate interesting findings. As
we can notice, all the objectives of effectiveness of internal control amounts to zero i.e. no severe
control problem exist in the existing control system. But as we can see, some of the components
of internal control have resulted into 1 which indicates problem. As a result, the minor
independent variables indicating problem will require further clarification.
42
CHAPTER 4
DISCUSSIONS
&
FINDINGS
43
4.0. Discussions & Findings
4.1. Discussions & Findings
In the preceding chapters, the study discussed about the existing internal control system of Titas
and their implications. This system will steer Titas to achieve the objectives of operational
effectiveness & efficiency, accurate and reliable financial reporting while complying with
applicable laws, rules and regulations. The study examined management’s compliance with
established internal control mechanisms and identifies the variance between expectation and
reality.
The result of internal control evaluation of Titas reveals the following control activities-
Control over sales and purchases
Control over bank and cash balances
Control over inventory
Control over payroll
Monitoring the reporting activities
The internal control of Titas is described in chapter 3 and an evaluation is done on the
effectiveness of the control in chapter 4. The study identified some control components or
variables (in table 2) to measure the effectiveness of the control system. They are-
Control Environment
Organizational structure reflecting chain of command
Segregation of duty
Documented and updated human resource policies and procedures
Delegation of responsibilities and follow up action to get feedback on results of tasks
delegated
Integrity and ethical values are demonstrated.
44
Risk Assessment
Specific objectives with sufficient clarity
Identification of risks that affect achievement of the objectives
Criteria for ascertaining critical risks
Existence of mechanisms for mitigating critical operation risks.
Control Activities
Authorization of Transactions
Segregation of duties.
Verifications of transactions before making payments
Accurate recording of zonal receipts
Collections from the customers by the authorized banks are timely transferred to the
mother accounts
Key accounts records like bank, cashbooks, loans, accounts payables etc are reconciled
on a regular basis.
Bank guarantees are checked for renewal
There is control over access to resources
There is accountability of funds advanced to the employees
Management does review operations
Internal auditors are present
Procedures have been documented/ regularly updated in respective manual for example
finance, staff rules and regulations and operations manuals
Staffs are supervised while they carry out their schedule of duties.
Information and Communication
Key criteria for evaluating performance are identified, collected and communicated.
Reports on Internal audit and Corporate Governance is incorporated in the Annual
Report
Employees do understand their control responsibilities.
Complaints and disputes by suppliers are resolved in a timely manner.
45
Grievances of customers are properly addressed
Monitoring Activities
There are independent process checks or independent evaluations of controls activities on
ongoing basis.
Interim financial statements are prepared
Information Technology
IT system to monitor & supervise the zone offices and sales centers across the franchise
area is present.
Restriction of personnel in accessing all levels of different modules in computer
Integrated computer system exists that encompasses the whole company
Now, if we look at table 3, the internal control scenario of Titas will be clear to us. From the
discussions, following things can be found-
In the control environment, organizational structure does adequately reflect chain of
command, responsibilities are delegated and follow up action is made to get feedback on
results of performance of tasks delegated, human resource policies and procedures are
documented & being updated time to time.
In case of risk assessment, it was found that management has specified the objectives
with sufficient clarity. Risk assessments are not undertaken. However, operational risks
are not perceived as threat as Titas is the sole provider of gas in its franchise area & as it
is a government company.
No problems could be identified in the Control activities. It was found that transactions
are properly authorized, duties are segregated, stuffs are supervised, verifications of
transactions are done before making payments, zonal receipts are recorded accurately,
bank guarantees are checked for renewal and control over access to resources exists.
Besides, management does review operations and internal auditors are present.
46
Control in the information and communication component of internal control was also
satisfactory. Key criteria for evaluating performance are identified, collected and
communicated. Employees understand their control responsibilities, Complaints and
disputes by suppliers are also resolved in a timely manner.
Interim financial statements are prepared and there are process for evaluating that
controls activities on ongoing basis.
Information and technology component of internal control, however, was not found to be
satisfactory.
Now, the questions arise in the study, that were mentioned in the first chapter of the report along
with the objectives of the study, can be considered. Our first question was- what role internal
control of Titas should play. The COSO and other framework described in the conceptual
framework chapter answer the control mechanisms Titas may employ. The second query was on
the current internal control of the company. The current internal control practice of Titas was
also duly described in the third chapter of the report. The dependent and independent variables
identified and evaluated in table 2 and 3 , to measure the effectiveness of the existing control
mechanisms, may also help to understand the control in Titas.
It is to note that internal control is an implied concept which is inherent in every entity. But the
question is how effective that control is and how efficiently it is directing the organization in its
desired direction. As mentioned in the previous chapter, we have expressed the effectiveness of
internal control as the function of some independent major and minor variables. The minor
variables constituted 6 major components which also falls under 3 objectives we want to gain
through the internal control. So, achievement of control in the minor independent variables will
ultimately result in successful or effective attainment of the 3 key objectives.
According to the analysis showed in Table 3, there exists some control problems. Nonetheless
they do not pose any threat to the effectiveness of the internal control as in Table 4 the overall
score for all the key objectives are 0. Still, it is necessary to understand such inconsistencies.
This study will also try to focus on the variables identified with control problems.
47
4.2. Weaknesses
Weaknesses found during the study can be summarized as follows-
In the Control environment of Titas, work distribution among the mid-level personnel of
some divisions was found uneven. This is due to shortage of manpower in some
particular divisions.
Unethical practices in the zonal offices and sales offices are open secret. This includes
providing illegal connection of gas lines, providing connection without taking the
security deposit, unauthorized use of gas and so on. But these are mostly done by the
staffs with lower ethical values who are driven by their own self-interest and for which
the company should not be blamed of.
In the Risk Assessment component of control the analysis identified that the
management has not identified risks that affect achievement of the objectives and a
criteria for ascertaining which risks are more critical. The company is the sole provider of
gas in its franchise area. As a result, it kind of has a monopoly in its area of operation as
it does not have any competitors. Hence, chances of events which may pose significant
threat to its operations are very meager. It may be the cause why Titas does not undertake
any risk assessment procedures.
Some technical inefficiency may pose threat to the operation of the company. There is no
way to test the accuracy of the meter reading of the intake of gas from the supplying gas
fields and due to technical shortfall the accurate amount of gas supplied and received may
not be known. On the other hand, differentiating the national gas and the IOC gas is also
not possible. It could create problems in the pricing policy of the company.
We have noticed that Titas is trying to improve its control mechanisms. Proper
preparation and maintenance of records and statements are made by the company. But
still some matters will need further improvements. There exists two month’s time lag
48
regarding receiving the journals from the sales and zone offices and regarding
preparations of the reconciliation statements. This problem occurs because recording and
accounts preparation in the large part are still manual. It was also noticed that collections
by the authorized banks from the customers are not deposited to the mother accounts
timely and it often requires much persuasion by the company to ensure timely deposit by
the banks.
In the information and communication component of control, it was found that Titas
does not include any report on its internal control and corporate Governance in its annual
report.
In case of the monitoring activity of Titas it was found that supervision of metering
department and vigilance department is poor to check malpractice of the lower staff and
some other CBA leaders.
Titas is still working partly manual and partly computerized system in all its activities. It
uses different software for different component tasks but not any single software to
integrate the whole organization. Though the activities of the zonal offices are set by the
head office still their direct monitoring and supervision is not possible due to the lack of a
central integrated system.
49
Recommendations
In the earlier sections, the existing internal control systems in Titas have been described. Though
the overall control system is effective enough to achieve the objectives of the company, still
there were some minor inconsistencies which may hamper the efficiency of the company. In this
section, the study will try to provide some recommendations for the company so that it can
perform better and can bind the whole company with a dynamic internal control system.
Proper work distribution among mid-level management should be made for ensuring
better management of the company.
As domestic consumption is still unmetered, improved mechanisms should be introduced
to bring these households under the metering system so that Titas would be able to keep
track of all the gas it is distributing for the household consumptions. As a result, there
will be lack of opportunities for non-payment or illegal gas connections.
Exemplary punishment should be given to those staffs that are found guilty of
malpractice. It may reduce the rate of unethical practices.
The company certainly should make risk assessments even if any such risks are still not
evident.
Research programs should be undertaken that can help to identify problems in its
operational and control activities. Besides market analysis can also be done. With all
these initiatives, the company can certainly perform better and can make predictions
about the future performance and market scenarios.
Accuracy of the meter reading should be ensured. Technology can help in this regard.
More strict and accurate meter reading and inspections will be helpful in preserving
natural gas and preventing the misuses.
50
Technical mechanisms should be introduced to differentiate the gas intakes from the
national gas field and IOC fields. This will help to adopt better and more reasonable
pricing policy.
Audit on internal control should be undertaken & should also be included in the annual
report of the company.
More training facilities for the employees can be provided to keep them updated with the
practices which are followed by the energy sectors of the developed countries. This will
make them more efficient and better corporate governance can be ensured.
Mobile court should be more active. They should pay more frequent surprise visits to the
yard of the customers, detect illegal connections and tempering of meters and impose
them exemplary punishment. Besides, they should find out the Titas employees engaged
in illegal activities and should be brought under legal action to curb their corruption.
Activities of the CBA should be more controlled so that they cannot create undue
pressure on the company management for their personal interest.
ERP software can be introduced in the company. Use of technology will help the
company perform faster and better. It will also help to access real time data and will
ensure accuracy of data. As a result, more integration among the regional offices and the
head offices will be possible.
51
Conclusion Power and energy is critical to the socio-economic development of any country. Bangladesh is
not well endowed with most sources of energy. It has negligible resources of coal and oil, little
hydropower potential and nuclear power potential is beyond its reach. It is evident that gas sector
of our country is very crucial if we want to escalate to our desired status of “middle-income
country “ that we envisages to achieve within the year 2021; as nearly all of our industries,
commercial activities and power generation is dependent on the gas industry. Hence, Titas plays
an important role in the socio-economic environment of the country.
The financial and corporate strategy of a company is underpinned by effective internal systems
(Dejan 2011). The reliability of the internal control system, improved process of risk
management, and, above all, efficiency & effectiveness of the controls established must be
ensured. There are two terms that come automatically with internal control. They are- internal
audit and corporate governance. Internal audit helps to maintain the internal control mechanisms
that are already established in the company and ensure that they are effective. On the other hand,
the ultimate target of establishing internal control mechanisms is to attain a good corporate
governance practice in the company. So we can understand how these three are intertwined.
In this report, internal control system of Titas is described in the light of the international
standards of internal control or global practices. The control system has also been evaluated
using a conceptual model which showed that control is Titas is satisfactory enough. But still
there were some short-comings in the total system for which some recommendations have been
made.
As we know natural gas in not a renewable source of energy, it is very important that we put
check on any unauthorized use or wastage of this valuable natural resource. Titas, as they deal
with this resource, must keep this in their mind and should employ better control in their overall
activities as a natural gas distributor. In this regard, internal control system cannot be
compromised and there lies its significance.
52
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54
APPENDIX
55
Table 2: Rating criteria for internal Control Appendix
Rating criteria for internal control components as defined by the Benchmark
Control Components Criteria for a 1 rating
Maj
or in
depe
nden
t var
iabl
es
Control
Environment
Minor independent variables
Organizational structure does not adequately reflect chain of command
Segregation of duty is not properly done Human resource policies and procedures not documented &
updated Responsibilities are delegated and no follow up action is made to
get feedback on results of performance of tasks delegated Does not demonstrates a commitment to integrity & ethical
values Risk
Assessment Management has not specified the objectives with sufficient
clarity Management has not identified risks that affect achievement of
the objectives. Management does not have a criteria for ascertainment of which
risks are most critical. Management has not put in place mechanisms for mitigation of
critical operating risks that may arise.
56
Control
Activities
Key control activities of the projects are not functioning as intended: Transactions are not authorized There is no segregation of duties. Verifications of transactions before making payments are not
done Zonal receipts are not recorded accurately on a timely basis Collections from the customers by the authorized banks are not
timely transferred to the mother accounts Key accounts records like bank, cashbooks, loans, accounts
payables etc are not reconciled on a regular basis. Bank guarantees are not checked for renewal There is no control over access to resources There is no accountability of funds advanced to the employees Management does not review operations Internal auditors are not present and where present there is
limitation in scope of their responsibilities by management. Procedures have not been documented/ regularly updated in
respective manual for example finance, staff rules and regulations and operations manuals
Staffs are not supervised while they carry out their schedule of duties.
Information
&
Communication
Key criteria for evaluating performance are not identified, collected and communicated.
Reports on Internal audit and Corporate Governance is not incorporated in the Annual Report
Employees do not understand their control responsibilities. Complaints and disputes by suppliers are not resolved in a
timely manner. Grievances of customers are not properly addressed
Monitoring
Activities There are no independent process checks or independent
evaluations of controls activities on ongoing basis. No interim financial statements are prepared
Information
Technology No IT system to monitor & supervise the zone offices and sales
centers across the franchise area. No restriction of personnel in accessing all levels of different
modules in computer No integrated computer system exists that encompasses the
whole company
57
Table 3: Evaluation Process Appendix
Control comp. Benchmark for rating internal control when a problem exists
Assessments of functioning of internal control components
Ratings of internal control components
Major independent
variable Control
Environment
Minor indept. Variables Minor indept. Variables 0 1
(a) Organizational structure does not adequately reflect chain of command
(a) 0
(b) Segregation of duty is not properly done
(b) Segregation of duties at some level of management was found to be unclear which was due to lack of number of personnel in that specific area
(b) 1
© Human resource policies and procedures not documented & updated
(c) 0
(d) Responsibilities are delegated and no follow up action is made to get feedback on results of performance of tasks
(d) 0
58
delegated (e) Does not demonstrates a commitment to integrity & ethical values
(e)Complaint regarding unethical practices by the lower level employees often is heard but which are often outside the purview of the management.
(e) 1
Major
independent
variable Risk
assessment
(a) Management has not specified the objectives with sufficient clarity
(a) 0
(b) Management has not identified risks that affect achievement of the objectives.
(b)There may be disagreements between the intake metering of the supplier gas fields of Titas and those of Titas and due to technical shortfall the amount of gas transferred may not be known accurately
(b) 1
(c )Management does not have a criteria for ascertainment of which risks are most critical.
(c)Risk assessments are not undertaken
(c) 1
(d)Management has not put in place mechanisms for mitigation of critical operating risks that may arise.
(d) As Titas is the sole provider of gas in its franchise area & it is a govt. company, operational risks are not perceived as threats.
(d) 1
Control
Activities
(a)Transactions are not authorized
(a) 0
(b)There is no segregation of duties.
(b) 0
© Verifications of transactions before making payments are not done
(c ) 0
(d)Zonal receipts are not recorded accurately on a timely basis
(d)0
(e)Collections from the customers by the authorized banks are not timely transferred to the mother accounts
(e) 0
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(f)Key accounts records like bank, cashbooks, loans, accounts payables etc are not reconciled on a regular basis.
(f) 0
(g)Bank guarantees are not checked for renewal
(g) 0
(h)There is no control over access to resources
(h) 0
(i)There is no accountability of funds advanced to the employees
(i) 0
(j)Management does not review operations
(j) 0
(k)Internal auditors are not present and where present there is limitation in scope of their responsibilities by management.
(k) 0
(l)Procedures have not been documented/ regularly updated in respective manual for example finance, staff rules and regulations and operations manuals
(l) 0
(m)Staffs are not supervised while they carry out their schedule of duties
(m) 0
Information & Communication
(a)Key criteria for evaluating performance are not identified, collected and communicated.
(a )0
(b)Reports on Internal audit and Corporate Governance is not incorporated in the Annual Report
(b)Though the annual reports provide for a sustainability report it does not provide Internal audit report or any report on Corporate Governance yet which the BSEC has asked for.
(a) 1
(c)Employees do not understand their control responsibilities.
(c ) 0
(d)Complaints and disputes by suppliers are not
(d ) 0
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resolved in a timely manner. (e)Grievances of customers are not properly addressed
(e) 0
Monitoring
Activities
(a)There are no independent process checks or independent evaluations of controls activities on ongoing basis.
(a ) 0
(b)No interim financial statements are prepared
(b ) 0
Information
Technology
(IT)
(a)No IT system to monitor & supervise the zone offices and sales centers across the franchise area
(a) 1
(b)No restriction of personnel in accessing all levels of different modules in computer
(b ) 0
(c )No integrated computer system exists that encompasses the whole company
( c) 1
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Titas Franchise Area Appendix
62
63