Budgeting
Internal Audit Report
Audit period: July 2018 – December 2019
New audit findings
Summary of audit findings
S. No. Audit Findings Annex Ratings
1. Inadequate monitoring of budget and cost overruns A Medium
2. Timelines not defined for the circulation of variance report Low
Timelines as required in the SOP for annual budget preparation and
3. B Medium
approval not followed
Approvals as required for donor budget and subsequent changes not
4. C Medium
obtained
5. Log for the approval of unbudgeted items Low
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Inadequate monitoring of budget and cost overruns Medium
Observation:
Adequate mechanism to monitor budget and cost overruns either not in place or inconsistent. Following issues noted:
a) 0% tolerance level defined in the policy (3.2 Monitoring of Annual Budget) for cost overruns with requirement of the
CEO; Board approval for any exception. However, no mechanism in place for timely identification related to Program
Income expenditure overruns.
b) As per SOP, (3.4 Monitoring of Donor Budget) monthly burn rate donor reporting shall be prepared and submitted.
However, In all 18 months of the audit period it was not ensured in case of LAD & PPIF.
c) In 4 out of 18 months, monthly variance reporting not conducted as per the SOP (3.2 Monitoring of Annual Budget).
Refer Annex A for details.
Recommendations:
Adequate mechanism to monitor budget and cost overruns should be in place and consistently followed.
Management Response:
a) Currently, we are preparing the variance report on monthly basis to evaluate cost over runs, however, the same is also
communicated to the Board quarterly basis. However, we shall include the procedure of getting approval of the Board
along with the specific items approval.
b) This has already been initiated and we are trying to adopt this procedure for all the donors.
c) We shall ensure this procedure from August 2020 onwards.
Responsibility for action plan: CFO by December 31, 2020.
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Timelines not defined for the circulation of variance report Low
Observation:
Timelines not defined in the SOP for the circulation of variance report.
Recommendations:
Timelines should be defined in the SOP for the circulation of variance report.
Management Response:
Recording of expenses and their deadlines are fixed internally, at present we are testing system for time to monitor the
expected outcome. IT is in consultation to enhance system requirements, we will let you know the time lines with no. of
days required after month closing to generate and circulate the report.
Responsibility for action plan: CFO by December 31, 2020.
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Timelines and process as required in the SOP for annual budget
Medium
preparation and approval not followed
Observation:
Timelines and process (Initiation, Kick off meeting etc.) as required in the SOP (3.1 Timelines and Responsibilities) for
annual budget preparation and approval not followed. BoD approval for the budget 2018-19 and 2019-20 was obtained after
June 15. Refer Annex B for details.
Recommendations:
Timelines as required in the SOP for annual budget preparation and approval should be followed.
Management Response:
It will be addressed in the revised SOP.
Responsibility for action plan: CFO by December 31, 2020.
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Approvals as required for donor budget and subsequent
Medium
changes not obtained
Observation:
In all 3 cases, recommendation by the BIC & approval of the BoD as required by the SOP (3.3 Preparation /Approval of the
budget) for donor budget and subsequent changes (realignment) not obtained. Refer Annex C for details.
Recommendations:
Approvals as required the SOP for donor budget and subsequent changes (realignment) should be obtained.
Management Response:
Finance:
This observation should be parked with the programs, because it is part of the grant approval from the board.
Program:
As discussed with CFO, BIC no more approves donor budgets as per new TORs, so ratification of budgets is no more
required. Project budgets are approved by donors and BoD/PCM are updated accordingly, respective SOP will be updated
accordingly.
Responsibility for action plan: CFO & Program
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Log for the approval of unbudgeted items Low
Observation:
No log has been maintained for the approval of unbudgeted items in year 2018-19 & 2019-20 (till Dec-19). Hence, we are
unable to comment on the compliance of the said unbudgeted items.
Recommendations:
Proper log of all the approved unbudgeted items should be maintained.
Management Response:
This observation will be addressed in the revised SOP. It will be difficult to prepare transaction wise log, but the monitoring
system will address the unbudgeted transactions processing cycle.
Responsibility for implementation: CFO by December 31, 2020.
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Annexes
Annex- A
Inadequate monitoring of budget and cost overruns
S . No. Month Variance report prepared
July - 18
1. No
2. August - 18 No
July - 19
3. No
August - 19
4. No
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Annex- B
Timelines and process as required in the SOP for annual budget preparation and approval not followed
S.
Activity Timelines Followed
No.
1. Initiation / Template Preparation Feb 15 / 10 working days No
2. Kick off Meeting & Template Circulation March 1 No
Time taken by relevant departments to submit
3. 15 working days No
draft budget
1st Review and time taken by finance to
4. 10 working days No
resolve queries with relevant departments
5. 2nd Review for availability of donor funds. 5 working days No
6. CEO’s Review 10 working days No
7. BIC’s review Around Middle of May No
8. BOD Approval Latest by June 15 No
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Annex- C
Approvals as required for donor budget and subsequent changes not obtained
Initial Budget or Subsequent BoD
S . No. Project
changes Approval
DAFPAK (May 2019)
1. Subsequent changes No
2. KFW – FATA (November 2019) Subsequent changes No
PPIF (November 2019)
3. Initial Budget No
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Follow-up of previous audit findings
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Summary of audit findings
S . No. Audit Findings Current status
1. No monitoring of various aspects of budget Implemented
2. Lack of automated system for monitoring Not Implemented
3. Inadequate documentation Implemented
4. Incorrect allocation of CAPEX budget of Network dept. Implemented
5. No Submission of concept paper from COPs to Finance Department Transferred & Dropped
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No monitoring of various aspects of budget Low
Observation:
No monitoring is being done for various aspects of budget including the quantities and timings of various budgeted
activities.
Recommendations:
All aspects of the budget should be monitored. Further, a cash flow budget including time of expenditure should be
prepared to identify the excess cash available.
Management Response:
▪ Financial reports include variance reports based on actual travel expenditure vs. targets on monthly basis and shared
with the management accordingly.
▪ Quantity variance is done for Sales & CYP targets along with Head Count variance.
▪ MIS department shared with management a very comprehensive monthly report for departmental as well as donor
deliverables.
Responsibility for action plan: CFO by 31st October 2016
Status as at 31st December, 2019:- Implemented
Implemented for monitoring of budget.
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Lack of automated system for monitoring High
Observation:
Organization lacks automated system for adequate monitoring of activities, variance reporting and availability of forecast
information thus effecting the efficiency and effectiveness of Finance department.
Recommendations:
An automated system for adequate monitoring of activities, variance reporting and availability of forecast information
should be implemented.
Management Response:
A new ERP (MS Dynamic AX) has been implemented from July 1, 2016.
Responsibility for action plan: CFO by 31st October 2016
Status as at 31st December, 2019:- Not Implemented
a) Automated system for adequate monitoring of activities & variance reporting not in use. For the year 2019-20, in 10 out
of 30 cases sampled, PR budget approval check was manually overridden.
b) Entity and departmental budget for the years 2018-19 not incorporated in the ERP (MS Dynamic AX).
Follow-up Management Response:
a) We are in process of preparing the revised process for monitoring of activities budgeted (in financial terms) and
reporting of variances, we will prepare the SOP for automated monitoring through ERP also.
b) We have implemented this issue for the budget of 2019-20.
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Inadequate documentation Low
Observation:
Adequate documentation was not available to substantiate the reasonableness of :
▪ sales targets
▪ few expenditure line items, for details refer Annex A
Recommendations:
Adequate documentation should be maintained to substantiate the reasonableness of all material items in the annual budget.
Management Response:
The departmental budget template will be improved to capture the information and will emphasize the department to
include the related working in budget template.
Responsibility for implementation: CFO by 31st October 2016
Status as at 30th June, 2016:- Implemented
Status as at 31st December, 2019:- Implemented
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Incorrect allocation of CAPEX budget of Network dept. Low
Observation:
As per SOP of Budgeting and Forecasting (Refer section 3.1), each item to be included in the budget should clearly identify
the department to which it relates. However, CAPEX (computers) of Network department are budgeted by IT department in
their departmental budget.
Total amount of IT department CAPEX (computer) budget is Rs. 1.85 Million and its breakup into IT and Network
department is not available.
Recommendations:
Respective departments should budget their departmental activities under their own departmental budgets.
Management Response:
Network department CAPEX (computer) budget was not clear at the time of preparation of budget hence it is budgeted in
IT department budget. However, in future the CAPEX budget will be included in its respective department.
Responsibility for implementation: CFO by 31st October 2016
Status as at 30th September, 2016:- Implemented
Status as at 31st December, 2019:- Implemented
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