Levy of interest on delayed receipts to be

considered
RISK IMPACT - HIGH
Observations
In case of Hire of Semac (2311) and Sevak/Prabha (2327), a clause was
incorporated in the contract towards levy of interest on delayed receipts.
The rate of interest was 12% p.a. and 18% p.a., respectively, for these two
projects. On review, it was observed that no interest was levied towards
delayed receipts in case of these two contracts. This resulted in a loss of
interest amounting to Rs. 50.39 lakh. Refer Exhibit 1. A summary is given
below:

Further, in case of contracts for ABC (2348) and XYZ (2310), an interest
clause was not incorporated. As a result the Company could not levy
interest on delayed receipts from these clients. The notional interest loss in
case of delayed receipts for these two projects amounted to Rs. 17.93 lakh.
(Cont
Refer Exhibit 2. A summary is given below:
d.)

Levy of interest on delayed receipts to be (Cont

d.)
considered
RISK IMPACT - HIGH
Observations

Note: Interest calculated @ 13.75% (SBI CC rate as on March 31, 2011)

Reasons were not available for non-levy of interest on delayed receipts

wherever interest clause is included in the contract and for non-inclusion
of interest clause in case of some projects. Further, there was no
justification note or approval for waiver for non-levy of interest on
delayed receipts.
The above amounts of interest cost and notional interest, collectively,
were approximately 7% of the total interest cost of the Company for the
(Cont
FY 2010-11.
d.)

Levy of interest on delayed receipts to be (Contd.

)
considered
RISK IMPACT - HIGH
Recommendations

Action Plan

Considering the high interest Interests was not levied keeping in

cost incurred by the Company
mind various business interests.
on
working
capital No actions contemplated, keeping
requirements,
incorporating
in
mind
business
interests.
appropriate
clause
in
the
However, decisions shall be taken
contracts towards interest on
on a case to case basis.
delayed receipts and levy of
interest in case of delayed
receipt from clients needs to be Responsible: Mr. X
ensured.
Target Date: Ongoing.

Policy to be framed on Operational Manpower

Recruitment RISK IMPACT - MODERAT
Observations
Operational manpower were recruited by the Commercial department
based on requisitions received from the Project Manager. The manpower
contracts were authorised by the COO & VP Operations and GM Operations.
Day rates for these contracts were finalised by the Commercial
department. Total expenses towards Operational Manpower amounted to
Rs. 20.45 crore.
A formal policy on Operational Manpower Recruitment towards the
following aspects was not in place:
Maintenance of database of manpower
Day Rate negotiation and finalisation
Benchmarking of rates
Authorisation of manpower contracts
Authorisation of exceptions
MIS Reporting

(Cont
d.)

Policy to be framed on Operational Manpower(Cont

d.)
Recruitment RISK IMPACT - MODERAT
Observations
On comparison of day rates paid to contracted manpower vis--vis that
recovered from Client, it was observed that day rates paid to contracted
manpower were more than the day rates recovered from Client in case of
13 personnel under the Project No. 2327 (ABC Sevak/Prabha). Overall,
this project was profitable as other personnel were paid day rates lower
than the day rates recovered from Client.
A formal approval for the above exception was not available on record.
Details are given below:
(Amount in Rs.)

(Cont
d.)

Policy to be framed on Operational Manpower (Cont

d.)
Recruitment
RISK IMPACT - MODERAT
Observations

(Cont
d.)

Policy to be framed on Operational Manpower (Cont

d.)
Recruitment
RISK IMPACT - MODERAT
Recommendations

Action Plan

Framing
of
a
Policy
on In the reported case of variance in
Operational
Manpower
rate charges vis--vis recovered, a
Recruitment may be considered.
mix and match balancing was
A process of approval of
done to ensure the approved
exceptions may be framed as a
budgets do not exceed.
Policy/ Guidelines shall be made.
part of the Policy.
Responsible: Mr. X
Target Date: Mid Oct 11.

Timely raising and submission of invoices to be

ensured
RISK IMPACT - MODERAT
Observations
On review of contracted payments terms vis--vis the invoice raising
procedure, it was observed that there were delays in raising and submission
of invoices to the clients leading to provision of additional credit period to the
client and resulting increase in working capital cost.
The additional credit period due to delayed invoice raising/submission ranged
from thirteen to 75 days and the interest cost for additional working capital
amounted to Rs. 47.67 lakh (@ 13.75% - SBI CC rate as on March 31, 2011).
This is equivalent to approx. 5% of total interest cost of the Company for FY
2010-11. Refer Exhibit 4. A summary is given below:

Note: The delay is calculated based on conditions of bill submission mentioned in

the
payment terms of each contract. Details of payment terms are given in Exhibit-1.

(Cont
d.)

(Cont
Timely raising and submission of invoices to be
d.)
ensured
RISK IMPACT - MODERAT
Observations
The above delayed invoicing leads to working capital blockage amounting
to approx. Rs. 3 crore each month.
In case of Brahmaputra (2312) and Leighton Eclipse (2310), raising of
invoices were delayed due to delay in obtaining the Tick Sheets
(attendance records) from the Vessel Superintendent (obtained after the
month is complete). Further, the cut-off taken for obtaining such Tick
Sheets was the last day of each month.
Taking a cut-off of 25th of each month for attendance records and
obtaining of Tick Sheets by 27th of each month from the Vessel
Superintendent may facilitate in raising timely invoices.
In case of Sevak/Prabha (2327) the invoices could not be raised on a
timely basis as there was a delay in execution of contract (May 11, 2011)
after receipt of LOI (March 16, 2011) and mobilisation (March 24, 2011).
(Cont
d.)

(Cont
Timely raising and submission of invoices to be
d.)
ensured
RISK IMPACT - MODERAT
Recommendations

Action Plan

Time raising and submission of The tick sheets are prepared on

Invoices need to be ensured
completion of last day of month &
based on the conditions of
then submitted for Client Reps
invoice raising and submission
signatures, who have their own
mentioned in the contract with
verification processes, which are
the client.
time consuming. As soon as this
Process of obtaining Tick Sheets
aspect is completed, our actions
need to be reviewed to enable
are initiated earliest.
Cut-off of 25th of the month is not
timely invoicing.
possible, as clients have their own
procedures and we are not in a
position to dictate terms to them.
No Actions contemplated on either
of recommendations, as due
justifications
have
been
highlighted against each point in
the above observation section.
Responsible: Mr. Y
Target Date: Nil