TERMS OF REFERENCE (TOR) For Internal Audit

 TERMS OF REFERENCE (TOR)  For  Internal Audit

Martin S Company Ltd.

TERMS OF REFERENCE (TOR)

For

Internal Audit

Martin S Company Ltd.  (hereafter “Martin” or “the Company”) has been a leader among the ever-growing industry giants of Bangladesh. MARTIN has played a pioneering and leadership role by establishing Financial Institutions, Deep Sea Fishing and Telecommunications. In the passage of stepping towards the future the Company has set further its vision and goal to continue its commitment in the industrial development of Bangladesh by exploring opportunities from Agriculture to Heavy Engineering. With a successful history of Joint Ventures with foreign companies for the last three decades, MARTIN has developed key expertise in partnering with large MNCs across the globe and still continues to explore new joint venture partners for its various ventures. For smooth running of the Company in the efficient and effective manner the management of the Company introduced and established necessary policies, procedures and guidelines for the day to day operations of the Company. To ensure accountability and governance at every section of operations the management of the Company is in the need to know the internal control environment of the company as well as its compliances with internally established policies and procedures and also all other applicable laws and regulations. The management of the Company finds it appropriate that an independent and effective internal audit would fulfill the expectations of the management in providing the actual picture of the control and compliances scenarios in the Company.

Tenure of Appointment for Internal Audit

The appointment of KABIR, Chartered Accountants (hereinafter referred to as ‘the Audit’) for the internal audit of Martin S Company Ltd. is initially for a period of 14(fourteen) months starting from 01 May 2019 to 30 June 2020. However, due to CA Exam and delay in ToR finalization, KABIR Team did not work for a period from 16 July 2019 to 17 October 2019. Upon mutual discussion and agreement between both the parties the appointment of the Firm for the internal audit may be renewed or extended for further future periods. The Audit Firm will commence internal audit based on the accounts, records, papers, books and documents relating to the financial years 2018-19 and 2019-20.

Objectives of the Internal Audit Assignment

The overall objectives of the internal audit of the Company are to assess and evaluate the relevance and adequacy of internal control of the company as regards proper, economic and effective use of resources and whether the management is complying with the established policies and procedures of the Company and also to ensure the adherence to the laws, rules and regulations applicable for the Company at functional and management level adequately. The objectives of the internal audit of the company also include providing necessary guidance and assistance to the management and the key officials of the company for implementation of the

audit recommendations. The objectives of the internal audit in details which the management has aimed at to accomplish by the audit firm to:

Review and evaluate the existence, adequacy and effectiveness of internal and management control system in the Company;

Review, assess and examine the appropriateness and sufficiency of information, data and documentary evidences on financial and operational activities of the Company;

Review, examine and verify safeguarding and protection of important information, data and records including IT systems, assets, etc. from any sorts of fraud and loses

Review and check required compliances of company's established policies & procedures (in absence or inadequacy of which, generally accepted best practices) of which and regulatory/statutory provisions in relation to the conduct of financial and non-financial operations (especially Procurement of Goods & Services, Treasury Management & necessary payments to Government Exchequer e.g. VAT, AIT, Income Tax, Customs & Supplementary Duties etc.) of the Company;

Checking and verification of financial transactions and accounts balances including assets, liabilities, expenses, revenues etc. with regards to accuracy, relevance, reasonableness, completeness, purpose of the Company.

Report to the management on actual scenario in the Company and provide recommendations and assistance for implementation of recommendations for overall improvement of the control systems of the Company.

Review the financials of Subsidiaries and accordingly provide report to management of the Company during the yearend as applicable.

Scope of Work for the Audit Firm

In conducting the internal audit work, KABIR shall focus on the areas of highest risk and be driven by professional objectivity & skepticism with sufficient challenge to Management and not accept or take any Management response on mere face value but shall question the validity of the information with penetrative, questioning mind to arrive at an objective evidence & conclusion – especially with the aim of detecting fraud, false accounting, technical errors, falsification of information, documents etc., material misstatements and errors of principle etc. by engaging specialists who are experienced in the relevant field.

We shall conduct the internal audit of Martin S Company Ltd.. (for Group) and also conduct join audit to the MARTIN’s JV Companies (especially ATBEN and Union & Limited) as per the requirements, as and when required by management of the Company. But on the basis of preliminary discussion with the Audit firm, the Management of MARTIN will provide an understanding of the tasks that would be required to be undertaken by KABIR during the performance of the internal audit. However, in broad the internal audit, amongst other, will include the following:

 

a.   Review & verification of the accounting and internal control systems established by the management;

 

b.  Review & verification of the revenue recognition process and its presentation;

 

c.  Review & verification the internal control over Treasury Management, stock and bond, and their fair presentation status and balance confirmation/certification on monthly basis;

 

d.  Review & verification overall procurement system including capital expenditure proposal & implementation modality and recommend for necessary developments.

 

e. Review & verification overall Land procurement system and recommend for necessary developments.

 

f.    Review of overall internal control and financial reporting system of the Company;

 

g.  Carrying out examination of financial and operating information, data and records (100% of transactions to be tested). This may include detailed testing of transactions including income/revenues, receipts, expenses, payments, procurements, property, land, plant & equipment, investments, receivables, inventories, liabilities and accruals, equity, and other balance sheet items, etc. as well as related accounting and operating procedures;

 

h. Review of the economy, efficiency and effectiveness of operations including non-financial controls of the Company;

 

i. Review, examination and reconciliation of the fund, cash and bank accounts operation and management system of the Company;

 

j.     Reviewing, checking and physical verification (at least yearly) of each fixed assets (with comprehensive list), receivables, payables and inventory managements of the company;

 

k. Review & verification of the Company's compliance with applicable laws and regulations (especially Labor Law) to ensure whether the Company has put in place appropriate procedures to authenticate that all the relevant laws and regulations are adhered to. This will include review of adherence to laws such as taxation, customs, factory, labour, corporate legislations, etc. among others;

 

l.   Review & verification of the entity's compliance with management policies, Standard Operating Procedures, if any, and other internal requirements - (in absence or inadequacy of which, to review & verify compliance to generally accepted best practices);

m.    Carrying out independent investigations into the affairs of the company if required by management i.e. the internal audit team will carry out investigations e.g. where frauds are suspected, where there is suspected inefficiency in the use of the company resources etc.; 

 

n.   Review & verification of the IT control environment and reliability of the information and reports generated by the IT system;

 

o. Review of the filing, preservation and safeguarding system of important records, documents, books and papers; and

p.      Review & verification of compliance of the Company to applicable Tax regime of the country in terms of necessary payments to Government Exchequer e.g. VAT, AIT, Income Tax – both Corporate & Personal Income Tax of employees, Customs & Supplementary Duties etc.)

q. Any other task if found necessary under the circumstances during the course of performance of the said audit and/or any additional tasks relating to the internal audit which the management may assign to perform, etc.

Internal audit will cover Dhaka office, Chittagong office, subsidiaries offices, JV companies’ offices, and any other project/sites offices of the Company as and when required under the circumstances.

Approach to Work and Internal Audit Methodology

The audit firm as agreed and communicated through its proposal for the internal audit of MARTIN shall follow and apply the following methodology in connection with the internal audit of the Company stated above:

 

i)  Identification and Collection of Basic Documents

Before commencement of the work the Audit Firm shall conduct a preliminary survey in to the affairs of the company for the purpose of developing a proper work plan. The objectives of this survey would be to -

a) Identify and record all operational departments and units along with assigned functions of each department;

b)     Identify and record the organizational structure of the company including the job descriptions for each level and position;

c)      Collect and gather basic documents as regards the Company such as

·         Memorandum of Association and Articles of Association;

·         Administrative and financial authority level;

·         Finance and Accounts Manual/SOP;

·         Procurement Manual/SOP;

·         Operation Manual/SOP;

·         Agreements with different parties, meeting minutes, etc.

ii)   Audit Planning and Programming

Audit planning and programming will include the following:

·            Desk study of the basic documents collected from the company;

·            Preparation of risk based audit plan for the financial year

·            Preparation of appropriate audit programs – agreed with the Audit Committee;

iii)    Organizing the Audit

a)        Entrance meeting with the management to share and discuss on the audit plan. Based on discussion with the management we will finalize the audit plans;

b)   Formation of the audit team comprising adequate number of team members having relevant expertise and experience. The audit team will include an engagement partner, an experienced qualified audit manager, an audit supervisor, an audit/job in-charge and two/three senior audit staff. Besides, another partner of the Firm independent to this assignment will work as a concurring partner to enhance the quality of the audit work;

c)  Orientation to the audit team members and allocation of audit tasks among them; and

d)  Mobilization of team to the offices of Martin S Company Ltd.. A dedicated audit team comprising a job in-charge and two senior staff will continuously sit and stay at the offices of the company until completion of the assignment.

iv)      Performance of the Audit

The Firm will perform detailed audit testing at the relevant offices of Martin S Company Ltd.. as per developed audit plan and work program. A summary of our audit testing is as follows:

a)       Thorough test of transactions (100% transactions to be tested) considering recognition, measurement, relevance, recording, classification, presentation, disclosures and reporting in compliance with applicable reporting framework;

b)       Thoroughly test the design and/or operating effectiveness of controls as well as the accuracy and completeness of data

c)        Check and verification of accounts balances particularly, assets, liabilities, equities, etc. on the basis of existence, ownership & obligations, valuation, etc.

d)       Review and evaluation of management control environment including internal controls;

e)       Test of compliances of applicable laws, rules and regulations, Financial reporting standards, company’s internal policies and procedures, etc. and

f)         Physical verification of all applicable assets and liabilities.

 

v)           Review and Follow up of Audit Work

There will be dedicated senior audit personnel in the team to review and follow up the audit work at the field level. The Audit Manager and the Audit Supervisor will physically visit the audit team members on a time to time basis and will review, guide and follow up the audit work is to be carrying out by the field level team. The audit manager and the audit supervisor will report the progress and follow up of the audit work to the engagement partner. They will also report the audit issues, if any, to the engagement partner for a better guidance.

vi)         Review and Evaluation of Audit Findings and reports

The Audit Manager and the Audit In-charge will prepare a point/discussion sheet containing the audit issues and findings for the review and evaluation of the engagement partner. Each of the audit issues and findings will be brought to the attention of the engagement partner based on the facts and proper and adequate evidences. The engagement partner in discussion with the senior key audit team members will determine and select the audit issues and findings for reporting to the management of the Company. Further, the audit issues would be discussed with concurring partner, if necessary the concurring partner will review the draft report before release.

vii)   Reporting

 

The Audit Firm shall provide the following three types of report:

 

Sl#	Types of report	Contents
01.	Monthly Report	i)    Balance confirmation report on treasury items, such as investments, cash and bank balances, receivables, payables, etc. ii)  Audit issues & findings for the particular month for discussion with the management etc.
02.	Quarterly Report	Basically it would be the main report. This quarterly report will contain – ·         Transmittal letter ·         Table of contents ·         Executive summary ·         Scope of work ·         Audit methodology applied ·         Limitation to the scope of work, if any; ·         Details of findings for the quarter          Follow up of prior audit recommendation, if any.
03.	Yearly Report	It would be the 4 (four) quarters consolidated report.
04.	Presentation of Internal Audit Report in Board Audit Committee (BAC) Meeting	The Internal Auditors will present the Internal Audit Report in the Board Audit Committee (BAC) Meeting of the company as and when required (e.g. 4 - 6 times in a year).

 

       Each of the audit findings should consist of three sections namely –

 

i)          Fact (with instances) and root causes;

ii)         Risks and implications (both financial and Non-financial); and

iii)        Our Recommendation for corrective measures.

iv)         Keeping the option for Management response.

 

The Audit Firm shall submit draft report on the internal audit to the Managing Director & CEO of the company or to any key official as nominated by the Managing Director & CEO on quarterly/yearly basis.

 

After having discussion on the draft report with the management of the Company the Audit Firm shall issue the final report.

 

viii)     Assistance for Implementation of Audit Recommendations

 

The Audit Firm shall render all sorts of supports and assistance to the management of the Company to implement the audit recommendations to be communicated thereto through its reports on the internal audit.

Confidentiality

The Company and the audit firm acknowledge and agree that all information communicated either to the Company or audit firm by the other party in connection with the performance by a party under this agreement shall be received in confidence, shall be used only for purpose of this Agreement, and no such confidential information shall be disclosed by the respective parties or their agents or personnel without the prior written consent of the other party. Except to the extent otherwise required by applicable law or professional standards, the parties’ obligations under this do not apply to information that: (a) is or becomes generally available to the public other than as a result of disclosure by the Company or the audit firm, (b) was known to either the Company or the audit firm or had been previously possessed by the Company or the audit firm without restriction against disclosure at the time of receipt thereof by the Company or the audit firm, (c) was independently developed by the Company or the audit firm without violation of this ToR or (d) the Company or the audit firm agree from time to time to disclose. Each party shall be deemed to have met its nondisclosure obligations under this Paragraph as long as it exercises the same level of care to project the other’s information as it exercises to protect its own confidential information, except to the extent that applicable law or professional standards impose a higher requirement. Firm may retain, subject to the terms of this Paragraph, copies of the Company’s confidential information required for compliance with applicable professional standards or internal policies. If either party receives a subpoena or other validity issued administrative or judicial demand requiring it to disclose the other party’s confidential information, such party shall provide prompt written notice to the other party of such demand in order to permit such party to seek a protective order. So long as the notifying party gives notice as provided herein, the notifying party shall thereafter be entitled to comply with such demand to the extent permitted by law, subject to any protective order or the like that may have been entered in the matter.

Responsibilities of Management

The management of the Company acknowledges and assumes its responsibility to ensure full supports and assistances to the audit team as and when required for the purposes of internal audit in the Company. Thus the management will ensure for the audit team as follows:

i)       Access to all information of which management is aware that is relevant for internal audit purpose such as records, documentation and other matters;

 

ii)      Additional information that may be requested from management for the purpose of the audit;

 

iii)     Unrestricted access to persons within the Company from whom the audit team determine it necessary to obtain audit evidence;

 

iv)     Full cooperation of the officials of the company to the audit team during the course of internal audit; and

 

v)      All necessary logistic supports to the audit team(s) at Dhaka office and Chittagong office of the company during the performance of internal audit.

In case of any noncooperation from any official KABIR shall immediately escalate the issue to both the CFO and the Managing Director & CEO of the Company.

Audit Team Members

For efficient and effective conduct of the internal audit of Martin S Company Ltd. KABIR will form and depute an audit team comprising adequate number of team members having required skills and experiences in the relevant areas of audit for such assignment. The aim of composition of the audit team would be to ensure completion of the assignment within the planned time schedule. The internal audit team will consist of an Engagement Partner; a qualified Manager, a Job in-charge, and two/three Senior Staff based on requirement under the circumstances. Besides, a concurring partner (independent to the assignment) will review the reports for the purpose of ensuring the quality of the audit work and the internal audit report. If the situation requires the Firm will increase the number of members of the audit team. As agreed KABIR’s audit team for the internal audit of MARTIN will be as under:

Sl. #	Personnel	Position	Qualification	Experi-ence	Cell No.	Mail ID
Overall
01.	M. T Daniyal	Engagement Partner	B. Com (Hon’s), M. Com. FCA	20 years	+251381617	-
02.	AST Mourin	Concurring Partner	B. Com (Hon’s), M. Com. FCA	50 years	+2520039631	-
03.	TEK Tembark	Deputy Director Audit	M. Com, ACA	7 years	+251751027	-

 

In case of any changes in the above personnel, the audit firm shall notify it formally to the Group CFO of the company.

The above team / Internal Audit team will be required to maintain the attendance sheet, and submit the same to the Group CFO periodically.

Fee

As agreed between the Company and the Audit Firm, a net amount of Tk.2,00,000/- (Taka two lac) per month will be received by KABIR. Any taxes applicable on this professional fees will be borne by the Company. The audit firm will raise the invoice within 10(ten) working days of the following month and the Company will settle the dues within 10(ten) working days of the receipt of the invoice from the audit firm. Besides, the Company will bear any expenses if incurred for the visit of the audit team members to any offices of the Company outside Dhaka as per following rates:

                                                                                                                             Amount in Taka (per person)

Particulars	Director/manager (Qualified)	Other Staff below manager
If food & lodging are provided by client/night	Nil	Nil
If only lodging is provided by client/night	750/-	550/-
If nothing is provided by client/night	1,750/-	1,250/-
Traveling expenses (per discussion with mgt)	At Actual	At Actual

Others

All other terms and conditions if any, will be mutually agreed upon discussion.

 

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