INTERNAL FINANCIAL CONTROLS 6/25/2018 3:27 AM INTERNAL FINANCIAL CONTROLS

Policies & Procedures adopted by the company to ensure :- WHAT IS IFC Policies & Procedures adopted by the company to ensure :- Orderly and Efficient Conduct of business Adherence to Company Policies Safeguarding of Assets Prevention and Detection of Frauds and Errors Accuracy and completeness of Accounting Records Timely Preparation of Reliable Information

Process Level Controls COMPONENTS OF IFC Entity Level Controls Shareholders Board & COMMITTEE Periodic reviews Process Level Controls Finance & accounts Marketing & logistics Inventory management others

NEED FOR IFC 2001 - ENRON Jeffrey Skilling (CEO) used Accounting Loopholes to hide Debt worth Billions of Dollars from failed Deals & Projects Shareholders lost $74 billion Employees lost their jobs & their retirement accounts. Jeffrey Skilling got 24 years of Prison

NEED FOR IFC 2002 – WORLD COM Bernie Ebbers (CEO) inflated Assets as much as $11 billion Investors lost $ 180 billion 30,000 Employees lost their jobs Bernie Ebbers got 25 years of Prison CFO & Controller were fired & sentenced to Prison.

Company Law Board barred the then Board & appointed 10 new directors NEED FOR IFC 2009 – SATYAM Ramalinga Raju(Chairman) confessed that he had manipulated the accounts by $1.5 Billion. Company Law Board barred the then Board & appointed 10 new directors Share Price fell from Rs 544 in 2008 to Rs. 11.50 in Jan 2009 Raju & his brother were fined Rs.55 million each & sentenced to 7 years imprisonment along with others.

RESPONSIBILITY ASSIGNED Board of Directors (Section 134) State in Director’s Responsibility Statement that they have:- Laid down the IFC Such IFC were adequate & operating effectively Board of Directors (Companies Accounts Rules 2014) Include the details in respect of adequacy of Internal Financial controls with reference to the Financial Statements No Reporting Responsibility existed in Companies Act 1956 Audit Committee (Section 177) Evaluation of Internal Financial Controls & Risk Management Systems Independent Directors (Schedule IV) Satisfy themselves on the integrity of financial information & ensure that financial controls & systems of Risk Management are robust & defensible

RESPONSIBILITY ASSIGNED STATUTORY AUDITORS Restricted to Purchase of Inventory and Fixed Assets and for Sale of Goods & Services OLD Report on Adequacy & Operating Effectiveness of Internal Financial Controls NEW

APPLICABILITY OF IFC Statutory Requirements Listed Companies 6/25/2018 3:27 AM Statutory Requirements Listed Companies Specific Class of Companies Other Companies Directors Responsibility Statement Rule 8 of Companies (Accounts) Rules,2014 Audit Committee Independent Directors Statutory Audit Report

SPECIFIC CLASS OF COMPANIES 6/25/2018 3:27 AM Public Unlisted Companies Having:- 1 Paid Up Capital of Rs. 10 Crores or more 2 Turnover of Rs. 100 Crores or more Aggregate outstanding Loans/Borrowings/Debentures/Deposits exceeding Rs. 50 Crores or more 3 As existing on the last Audited Financial Statements

IMPACT OF INADEQUATE IFC - PENALTIES 6/25/2018 3:27 AM COMPANY  Fine upto Rs. 25 Lakhs EVERY OFFICER OF COMPANY  Fine Upto Rs. 5 Lakhs  Imprisonment upto 3 years

MANAGEMENT’S RESPONSIBILITY 6/25/2018 3:27 AM Review existing process and map them with risks & controls and ensure that they are adequate. Improve the process and controls wherever it is observed that process is slack. Assess Fraud Risk and built processes around the same so that risk is minimised. Test Internal controls so formed on regular basis and ensure that processes are working effectively. In-house team may be assigned this task or a consultant may also be appointed in the first year of implementation

IMPACT OF INADEQUATE IFC 6/25/2018 3:27 AM 1 Qualified Opinion in Auditor’s report that can have an adverse effect on the functioning of the company. 2 Non existence of IFC imply that Frauds cannot be monitored effectively thereby affecting the credibility of the Financial Statements. Lack of proper IFC would also damage the credit rating of the company & affect the negotiation power of the entity with borrowers. 3

Purchase and Procurement Marketing and Logistics IFC - GHCL Process Level Controls Existing Company policies with respect to each activity Authority & Responsibility Structure System Controls in Place to prevent Fraud & Errors Purchase and Procurement Marketing and Logistics Finance and Accounts

IFC - GHCL CUSTOMER SELECTION PRICE FINALISATION REBATES AND DISCOUNTS MARKETING CUSTOMER SELECTION PRICE FINALISATION REBATES AND DISCOUNTS

IFC - GHCL Entity Level Controls SHAREHOLDERS LEVEL CONTROLS BOARD COMMITTEE LEVEL CONTROLS MD LEVEL CONTROLS

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