Basics of Internal Audit of Sections(Segments) of Electric Distribution Co.(EDC)

Be sure (double-check and be sure again) about the industry

An EDC undertakes their operations through various segments these segments may be divided according to the area of operation, location advantage, serving of particular customer segments, Service area, the convenience of operations and profit center. These segments are connected either in Pyramid structure or Horizontal structure for the reporting and management of the segments.

The basics of the EDC are to purchase power and distribute the same to the ultimate user for consumption. The difference between rate of purchase and sale is the main earning source of the EDC. The selling rate many a times is controlled by the Govt or by the controlling authority, however the maintenance and cost of distribution, wastage and being basic need of the people in large the concessional supply to the needy is included in the selling cost.

The first and foremost internal audit requirement is to understand the nature, object and need of the specific segment created by the EDC.The functions the segment performed ,its effectiveness & whether the laid down procedures, and guidelines of the EDC is followed by a particular segment. It is also required to be seen whether the segment is serving the objects for which the same is created.

In many cases it may be possible that, the functions of the segments are dependent, connected or interlinked with the other segments, in such case the segregations of the functions of the segment you are auditing is the basic starting point.

The activity of the EDC is on a very huge scale, as such the activities of the segments are also have a very huge scale, this requires auditing by samples and the selection of the sample size of the particular segments based on its functions is very essential to become internal audit effective.

Being the distribution is the spine of the EDC, there is always a tendency to give value and high importance to the distribution activity than other activities, this also may be due to the distribution is earning activity of EDC.

Being internal audit function is very widely divided in to segments, their consolidation and conclusion will be a huge task as such the internal audit of a particular segment should be independent by itself which left very little work of consolidation and compilation.

Generally, the reporting formats of the internal audit are devised for a particular line of segment, which serve and cover the main functions of the said segment. An Internal auditor has to study the formats very carefully to understand the inputs in to the format and their ultimate result. As advised, the information should be filled in should be very specific, complete and is related to the segment only.

Since this is a huge exercise, the timeline of the assignment is very important as this will help in early and better consolidation, rectification and compliance at the main segment or at the center. The timeline have to be followed for the internal audit of each segment every time all the time as we follow while doing the statutory audit of the bank branches at the end of the year.

Being the core and majority of the workforce are always busy in distribution and collection of the EDC. It is advisable to do the maximum work of the internal audit assignment at our office only like understanding of functions of the segment, selection of the sample, informing in advance the time schedule of the internal audit so that, the workforce of the EDC will require to devote less time with maximum information for the internal audit. If we are well prepared, an effective audit is possible in the initial four to five days only; the workforce though willing may not be able to give attention for a longer time.

The internal audit has the following basics:

Work at our office:

• Basic work like obtaining NOC from the previous auditor, reading and understanding the letter of appointment, ascertaining the expectations of the EDC from the audit of a particular segment, and reviewing the report formats and letter of acceptance with the engagement letter.
• Ascertain the data and information available at the segment. Request details about data, segment functions, and relevant particulars to help decide sample size, audit techniques, specific questions, and expected answers.
• Decide the timeline and schedule for completion of the assignment, manpower deployment, and specific task allotments. Inform the segment in advance about the audit plan and request the necessary data, files, and documents to be kept ready.
• Identify the required inputs for the internal audit report format. Make a list of these and consider alternatives to obtain the required information if it’s not available as expected.
• Study whether the information filled in the formats helps to draw conclusions required by the format and serves the intended purpose.
• Focus on the conclusion or result rather than just filling out formats. Categorize audit program points as must, very important, important, or necessary, and allocate time accordingly to avoid wasting time on unimportant issues.
• Since this is an internal audit, involve the auditee's staff effectively by informing them in advance about the time, requirements, formats, and needed information. This promotes better compliance and rectification post-audit.
• Prepare all necessary soft copies (circulars, formats, previous audit report, compliance details, notes from previous auditors) and hard copies (printouts of the schedule/program) that may be needed during the audit.

Work at Segments:

• Obtain all the information, files, details, and data at once for the day's checking. Also, gather details of the staff handling specific functions. Discuss with each staff member about the completion of required details and assure them that they will be kept in the loop throughout the audit process, especially when discussing audit points and observations.
• Carry out the audit for the day as per the program. Make a list of observations to discuss at the end of the day with the concerned staff. Begin filling inputs into the formats and check if they serve the intended purpose.
• Prepare a daily discussion note with columns: Sr. No., Particulars of Observation, Auditee Comments, and Remarks on whether the observation is closed. Share the list of requirements for the next day with the concerned staff after discussion.
• Since the same function may be handled by various staff at different stages, ensure all relevant individuals are included in discussions about the observations.
• Give due importance to information provided by the staff, as internal audits should involve them actively. If limited information is available to the auditor, the staff are often the best sources for clarification or insights.
• Prepare a work completion chart and ensure adherence to the audit schedule. Be flexible if the audit program needs to adjust based on new issues or observations identified during the audit.
• Be specific in audit comments rather than general. Clearly state whether information is available or not, and whether it belongs to the segment. Avoid ambiguous or "in-between" responses to ensure clarity and prevent miscommunication.
• Prepare the draft report and discuss it with the concerned team. Allow sufficient time for them to provide their information or views on the draft.
• Finalize the report after considering their submissions on the draft. If no specific timeline is given for feedback, proceed with finalization without unnecessary delays.
• Discuss the final report, focusing on major issues and observations. Obtain supporting documents such as attendance sheets (similar to statutory bank audits). Perform a final review and ensure all information is accurate, complete, and matches the reporting format to draw valid conclusions.
• These points outline the internal audit process for EDC segments. However, since each segment differs by function and objectives, tailor the audit program to include specific points as needed. This note provides a foundational understanding of EDC internal audit activities.