Sl. No.

Process Sub-process

1 Project / Capex Policy & Projects SOP

Procedure

Project Department
functional Structure

2 Budgeting Budgeting (Time and

Cost)

Budget Revisions

3 Vendor Selection Vendor Identification

Issue of RFP
 Receiving of Bids

Receiving of Margin
money / bid security
amount

Costing validation

Vendor Assessment /
Evaluation and selection

4 Contracting Contract Approval

 Contract Formats

Addition to the Master

Data record

5 Safeguards Tracking of contracts

Bank Guarantees

Insurance
6 Fixed Asset Capitalization & Asset Capitalization
Depreciation Accounting

7 Statutory clearances Legal / statutory

clearances
8 Assets transfer Assets transfer

9 Assets disposal Assets disposal

10 Site Handover Site handover

Defects liability

11 Scrap Management Scrap realization

 Scrap disposal

12 Project Feasibility Project Conceptualization

Feasibility Study

14 Project Financing Project Funding

15 Project Progress Monitoring Project cost monitoring

Timelines Monitoring

Quality Control

Health & Safety

Access Control

Sub-contracting
Risk

Inconsistent practice and people dependent processes in the

absence of an SOP

Unauthorized transactions / manipuations due to inadequate

segregation of duties

Possibility of incurring excess cost in the absence of budgetary

control or inability to complete the project due to exhaustion of
budget

Unauthorized revisions to project budget

Best available option not identified due to inadequate market

research

- Selection of sub-optimal vendor due to vendors being

evaluated basis bids received with different assumptions /
parameters ; or / and
- desired benefit not received due to incorrect / incomplete
communication of requirement
Leakage of bid information leading to unauthorized advantage
to specifc participant

Misappropriation of bid security amount

Excess cost to the company on account of inaccurate cost

estimation and negotiations

Supply inturruption / delays / additional cost due to selection of

sub-optimal vendor

Unauthorized contract with vendors

Inadequate protection against legal & commercial risks in the
absence of a standard contract template

Fake / duplicate vendor records

Expired or unavailable contracts leading to legal risk

Expired or unavailable bank guarantees leading to financial

risk

Expired or unavailable contracts, project insurance and bank

guarantees leading to legal and financial risk
Under / over reporting of assets due to delayed capitalization

Expensing off of assets

Asset physical verification and tagging

Project inturruption / halt on account of non-compliance with

statutory requirements
1. Unauthorized asset transfers.
2. No tracking of assets transferred from one location to
another.
3. Asset transfers not updated in FAR.

1. Unauthorized/inappropriate asset disposals.

2. Assets disposed off at incompetitive prices.
3. Non-compliance to applicable statutes (e.g. in case of e-
waste).

Handing over of project without completion / defects in the

completion lying undedected

loss on account of cost of rectification of defects not debited to

contractor

Financial loss on account of under realization of scrap value

Unauthorized initiation of a project

Financial Loss / inturruption on account of taking up an

unviable project

Project inturruption / halt on account of poor project funding

planning

Cost overruns in the absence of monitoring

Time overruns in the absence of monitoring

Sub-standard quality of structure

Loss of life / health on account of mishappening

Misappropriation of the items at site due to inadequate

physical access control

Possibility of compromise with project quality due to

unauthorized appointment of sub-contractors
 Audit Checks

Level 1
a. Check if there is a project SOP in place , duly updated in
line with current practices and approved by the Board of
Directors / DOA.

b. Ascertain from the discussion with process owners within

project team, whether they are aware of the project SOP

a. Check if adequate segregation of duties have been

ensured in the Projects function.

b. Check If required committees have been formed for :-

- Vendor evaluation and selection and
- project monitoring

Check if the project budget has been prepared and approved

as per DOA.

Check if there have been any revisions in the budget and

obtain approvals (as per DOA) for the same
Check if multiple options (minimum 3 parties) were identified
for inviting quotations.

In case, of minimum 3 options not evaluated, was the

justification documented and adequately approved.

Check if an Request for Proposal document was prepared

and circulated well in advance to all identified vendors for
submission of quotation
Check if the bids in response to RFP were received in a
sealed format and opened all together in the presence of bid
evaluation committee comprising of cross functional team

Ensure that in case of receipt of bids over e-mail , same

should be marked to selection committee user id and should
be received on / before specific date.

check if there is any control to ensure security and

confidentiality of bids in such case.

Check if Bid security amount has been collected from all

bidders as per terms of RFP and record of the same has
been maintained.

Check if cost break up / detailed Bill of Quantities has been

obtained from vendor and reviewed by bid evaluation
committee

Check if there is a pre-defined technical and commercial

criteria for evaluating the bidders and a comparative
statement has been prepared for all the bids received

Check if the contract entered into with the vendors are

approved / signed off as per Delegation of Authority
Check If contract format has been validated by the Legal
Department of the Company

Analyse vendor master to review the following :-

- Duplicate vendor codes (identify basis duplicate name,
address / phone number / PAN number / Tax registration
number etc)
- Missing details in the master data (e.g. payment terms,
address, PAN number , contact number etc
- Id(s) used for creating master records

Check if there is a process to maintain tracker of agreements

and status of the same.
Check if there is a process to maintain tracker of various
bank guarantees to be collected from contractors and status
of the same.

Check if there is a process to maintain tracker of various

insurance policies and insurance claims pertaining to the
project and status of the same.
Review Fixed Asset register to analyze:-
- Assets with no depreciation rate assigned
- Any unusual balances in asset register (i.e. negative value
of asset etc)
- Unreal / irrelavant date of capitalization
- Any expense items capitalized unless incurred in relation of
asset installation / commissioning / upgrading
- same type of asset classified under different categories

Scrutinize expense ledgers (through review of narration

against the transactions / sample review of high value entries
especially in repair and maintenance GL) to review if any
asset has been charged off as expense.

Check if a complete physical verification of the assets has

been carried out on the new project and assets have been
tagged , post completion of the project.

Check if there is a checklist defined for clearances and

compliances to be ensured before undertaking , during the
course of the project and post completion of project.
Check the company policies & guidelines around Assets
Transfer. Obtain list of the assets transferred from one
location to another. Analyise the same & select sample of 30
Transferes & check the following:
a. Approval of transfer & check from gate register whether
assets was actually transfered or not.
b. Check the accounting treatment of transfered assets
c. Check whether FAR was updated w.r.t. such transfer i.e.
updation of location

1. Review the process of asset disposal w.r.t:

a. Approvals (user, respective department etc)
b. Vendor selection
c. Legal compliance (in case of e-waste).
2. Review for sample instance if appropriate processes and
company guidelines (if any) have been duly followed.
3. Review if any obsolete assets are kept and not timely
disposed off.
4. Select sample of 30 Disposals & check the above aspects
for the same & also ensure correct accounting of the same.

Check that work completion strategy specifying the list of

activities to be performed during handover and commisioning
is submitted by the project consultant and contractor.

Discuss the process of recording all snags / defects identified

during testing.

Check that defect rectification programme has been

complied by contractor and verified and certified by
Consultant.

Understand who has the responsibility and ownership of

scrap disposal and sale as per terms of contract agreed with
the contractor.
Check whether statutory requirements for disposal of waste
has been complied with.

Understand reasons from management for taking up the

project and source of funds planned for funding of the
project.
Check if a project Financial and Technical feasibility has
been performed by a competent authority and approved as
per DOA.

(usually Financial Feasibility is performed by Finance

Function and Technical Feasibility is performed by Projects
and Procurement Function.

Such study can also be performed by outsourced agencies /

consultants engaged by the company. Check agency
selection process as per vendor selection process defined
below, if so)

Understand the source of financing for project and obtain

approval for the same as per DOA

Check if there is a process to track project cost against the

budget for each cost head / centre and variations are
reported to the Management as part of periodic MIS
Check if there is a process to track project time against the
budget for each milestone and variations are reported to the
Management as part of periodic MIS

check if there is a process of quality testing for materials

being used on site and the structure (generally quantity and
quality surveyors / auditors are appointed for validation of
quantity and quality of materials used in the project ).

Check quality procedures agreed with contractors.

Ensure that there are health and safety procedures defined

and agreed with each of the contractors as part of
agreement with them and there is a process to monitor
compliance with the same.

Check if a disaster recovery plan is available with the project

team to handle emergency situations

Perform a visit to the project site to ensure that adequate

security staff have been deployed at the site to control and
record movement of items at the site.
Check if contractors have appointed any subcontractors for
part or full work assigned to them (check through verification
of bills submitted by contractor , if any subcontractor bills are
being submitted)

Check if pre-approval of company was obtained for

appointment prior to appointment of sub-contractor
 Audit Checks

Level 2
Prepare a checklist and ensure compliance to the key provisions of SOP

Ensure that :-
- Person responsible for project procurement activity or directly dealing with vendors are not
involved in accounting / transactions posting in Books or have access to master data
- there is cross functional committee to evaluate bids / select vendor

Review cost budget break up to ensure :-

- Redundant / Duplicate costs are not in-built into the budget (compare the cost break-up with
financial & technical feasibility study to assess if cost component considered if valid or not)
- Budget does not include any additional buffer compared to cost assessed as per Financial
Feasibility (except certain % for the contingency)
- All relevant costs have been considered as part of the budgeting (also compare actual cost
with budgeted cost to identify elements missed at the time of budgeting and understand
reasons for the same)

Review time budget break up to ensure :-

- Mile stones are defined in the time plan
- Responsibility for monitoring of progress has been assigned

Check if such revisions have been correctly reflected in the MIS / project monitoring template

- Understand / ask the basis of identifying the vendors being invited for submitting bids and also
for rejecting the ones not shortlisted for bidding

- Check if any standard parameters (such as size of company / number of years into the
market, market reputation , global presence, etc.) were used for shortlisting the parties
identified

Check if RFP included the following parameters at the minimum to facilitate submission of
standard bids by the vendors:
- Project overview
- vendor pre-qualification parameters
- Margin money / bid security money required
- Estimated size of project and value etc
Check if all the bid opening details (e.g. vendor, date of receipt of bid, total quote amount etc),
are captured in the bid opening form and signed off by the bid opening committee

Check if the margin money has been returned post completion of selection process and
acknowledgement of the same has been obtained

Obtain detailed cost sheets / BOQ for shortlisted vendor and check whether all the elements of
cost were accurately considered in the cost :-
- Materials (ensure that material measurement standards have been specified to ascertain the
cost of material, rates for commodity can be checked through market rates)
- Manpower (ensure mandays for each activity and rates are specified)
- Freight cost (ensure no double computation e.g. included in material cost and considered
separately also)
- Taxes (as per applicable rates per law)
- Scrap realization value (deduction basis standard scrap ratio)

Also ensure that

- no duplicate or redundant cost has been considered in the costing
- appropriate adjustments / deduction has been made from input costs for the tax credit
(Modvat / cenvat)

Check if the following parameters have been considered in the evaluation process at the
minimum :-
Technical Criteria:-
- Financial Strength (current turnover, assets base etc)
- Relevant previous experience
- previous performance experience with the company (if any)
- restrictions / reservation in the bid submitted
- Reference check results
- Results of visit to vendor facility

Commercial Criteria :
- Bid value
- payment terms including credit period etc.
- penalty terms on SLAs (e.g. accetance of penalty clauses for delay in completion etc)
Check if the following terms (at the minimum) have been included as part of the contract :-
- Payment terms
- SLAs
- Warranty as to quality & Structural Warranty & Asset componenet wise Warantee
• Passing of risks and title in the materials brought to the site
• Responsibility / penalty for late completion
• Mode of payment
• Liability for contractor’s labour (e.g.Pension, Overtime, etc.)
• Applicability of Local Labour Laws
• Mode of settlement of disputes
• Jurisdiction of courts
- Sub-contracting not permitted without pre-approval
• Company’s entitlement to inspect/ audit the contractor’s materials and records
• Periodic or final technical audit by the company
- Retention money
- Performance Bank guarantee

For duplicate vendor codes, check if both the codes have been used and if dual payments and
outstanding are reflecting in the ledger accounts.

For vendors with missing mandatory details, select a sample and review customer addition
forms and selection documents to check for authenticity and existence of such customers.

Select a sample of top 10 vendors and check if the contracts are in force for existing parties If
the work has not been completed.
Select a sample of 10 top contractors including civil contract to check if the following types of
Bank guarantees have been collected:-
- Bank guarantee for Advance payment
- Performance Bank guarantee (post completion of work upto defects liability period)
- Check If such Bank Guarantees have been collected for correct value as per terms of contract
- Ensure that bank guarantees are unconditional and irrevocable
- Ensure bank guarantees are in force if the related work / condition has not completed.

Review insurance policies for the following :-

1. Type of coverage (during construction)
- Project all risks insurance
- Workmen insurance
- Professional indemnity insurance
- Third party damage / liability insurance
Post construction completion (post capitalization)
- Asset Insurance
2. Location of coverage
- check project locations have been accurately specified in the policy
3. Name of the insurer : check if the name of the insurer is accurately specified in the policy
4. Period covered : check if the insurance policy is in force
5. Value coverage : check if the value of project is adequately covered as per project budget (if
the size of the project is very significant then, insurance can be obtained in phases as per
milestones achieved to optimize cost of insurance premium)
6. Premium receipt: check if the premium has been paid in time and receipt is available
Obtain a sample of 15 asset capitalization vouchers to review:-
- asset installation and commissioning certificate (where applicable)
- accuracy of date of capitalization as specified in installation certificate / date of purchase
- accuracte classification of asset for the purpose of depreciation accounting (as per Schedule
VI of companies act)
- accuracy of capitalization cost*
- accuracy of accounting

*The following associated costs, which are normally incurred while purchasing any fixed asset,
should be capitalized, along with the cost of asset (i.e. the suppliers invoice price net of all
discounts/ commission):

• All non-refundable duties and taxes such as excise duty, custom duty, sales tax, octroi, (net of
Cenvat / Modvat credit and Sales Tax set off)
• Cost of site preparation
• Freight, loading, unloading and handling costs
• Cost of foundation, installation and commissioning
• Costs of fees and expenses incurred for professional services used such as architects,
engineers, surveyors
• Cost of foreign exchange, forward contract and variation in the foreign exchange rates
relating to borrowings specifically obtained for procuring fixed assets
• All other costs, which are directly attributable to the purchase of fixed assets e.g. In case of
land, if the cost of an advertisement for ensuring clear title, etc.; the same is added to the cost
of land.
• Ensure that interest and other financing costs such as bank charges, stamp duty/paper
charges paid for loan agreements with the financier, documentation charges, commitment
charges etc. Have been capitalized along with the respective fixed asset, if such borrowings
are specifically identifiable with and earmarked for a particular asset or assets and such assets
are qualifying assets in terms of AS-16
• Ensure that expenditure incurred on interest and commitment charges on loans upto the date
of completion and commissioning of the project have been capitalized.

Compare project budget with actual cost on the project for each line item and ascertain
instances of under spend compared to budget.

Discuss and understand reasons for the under spending and check if such costs were not
allocated on the project and charged off as expenses

Select a sample of 25 assets (mix of capitalized and CWIP assets) and perform physical
verification. Ensure the following are checked :-
- Condition of the asset
- matching of asset number / tag
- status of asset (in use / not in use)
- location of the asset

Check how project department and consultant ensure compliances to statutory requirements by
the the company and contractors ?
Check whether records of project completion tests are properly documented ( info such as
Plant, Manufacture reference number, validity of testing equipments, qualification of tester) and
certificates of tests are received by the Company.

Ensure that consultant has certified that all the requiements of the contract has been complied
by contracor and equipments loaned to contractors have been recovered and deposited to the
company .

Check if maintenance work expense (check through expense ledger) post completion of project
during defects libility period whether being recovered from contractor as per terms of contract ?

If contractor is responsible, ensure that the same has been deducted from / factored into the
costing agreed with the contractor.
Check through review of expense ledgers if company has incurred any scrap disposal cost
which should have been debited to the contractor.

Check if approval as per DOA (generally Board of Directors) is available for concept and overall
investment that company intends to make into the project

Review Financial & Technical feasibility study for accuracy, completeness and relevance.

Check for the accuracy of following key components in Financial Feasibility :-

I. Projected investment / outflow :
- capital expenditure (check from approved budget and capex estimate).
- any additional capital invenstment (for any capacity increase planned)
II. Projected Inflow .
- Sales volume / revenue and growth projections / revenue projections (obtain basis for the
same)
- Sales Pricing (check the basis / compare with current sales prices)
- Product Costing (check the basis / compare with current costing. Ensure tax exemptions and
special levies etc. have been adequately factored in)
- Financing cost (interest on planned debt portion etc.)
- Taxation (check if tax exemption , non-cash costs e.g. depreciation etc. have been considered
into tax computation)
- Project financing cost (check if there is a plan to take loan for the project and if interest cost
has been considered into the computation)
- Discounting Rate / Cost of Capital (ensure that it is more than long term debt interest rate)
- Computation of NPV (Total present value of cash inflow - present value of outflows)
- Internal Rate of Return (IRR) : NPV / Present value of cash outflow

Review Technical Feasibility study for the coverage / consideration on the following elements:-
- Availability of required resources for the project at the location being proposed (e.g.
electricity / water / labour supply , roads / connectivity etc)
- Availability of know-how for the project implementation
- Key challenges in implementation of project
- Expected timelines for the project
- Geo-political scenario
- Project plan overview

Check if a cash / fund flow statement has been prepared for duration of the project to ensure
consistent flow of cash to fund the project .

Check if such cash / fund flow statement is being revised periodically basis actual scenario.

Review MIS to ensure :-

- Accuracy of budget considered (from approved budget)
- Accuracy of actual committed cost (from ERP / Accounting system / PO + Service Order
dump)
- Accuracy of actual incurred cost (GRN + SRN dump + GL cost on cost centre)
- Actual cost has been compared with proportionate budget (and not full budget) applicable
upto stage of milestone / completion of project
Review MIS to ensure :-
- Accuracy of budget considered (from approved budget)
- Accuracy of actual time taken (from project technical auditor certificate / progress report)
- Actual time has been compared with proportionate budget (and not full budget) applicable
upto stage of milestone / completion of project

Obtain quality control procedures of the company / as agreed with the contractor(s) and
understand types of quality checks to be performed.

Select sample days , materials and sections and obtain quality check reports and Check
- If such reports are available
- if such reports include specifications as per agreed specifications in the BOQ or quality control
procedures.
- If these have been reviewed and signoff by quality auditor / technical engineer

(Quality control checks on project include brick strength test, structural strength test etc.)

Ascertain if there have been any incidents on the project (through discussions and project
MIS), if so check the reasons and if corrective action was taken against the same.

Check security register to review outward movements of assets / equipments and select
samples to obtain authorizations for the same.

Ensure that company is not incurring any additional cost on account of appointment of sub-
contractor by the contractor (unless specifically agreed and approved as per DOA)
 Applicability (Yes/No)

Level 3
If no updated SOP is available, obtain detailed understanding /
walkthrough of the process followed and summarize as part of audit
planning document.

Check the Project Department's existing manpower alignment with the

planned / approved org chart

Check if budgets are fed into the financial system and control exists to
prevent expense booking in excess of budget

- If no standard parameters were used in identifying the vendors, perform

market research (google etc.) to identify other major players in the sector
which were not invited

- seek justification for the same from the process owner and assess
reasonableness
Make cold calls (as imaginary party) and perform web search to verify
existence of the bidders.

Perform a cost comparison between BOQ of different vendors and

understand reasons for any variances in quoted costs .

Also, pick contracts for related nature of work of different vendors and
ensure that money is not being paid for same service performed by the
different vendors (i.e. there should not be a duplication of service
between 2 contractors)

Check if all the negotiations have been documented and signed off by
the bid evaluation committee and if the selection has been approved as
per the DOA.

In case of selection of multiple parties , ascertain the basis of allocation

of share of business and approval thereof.
Check terms of agreement / BOQ with contractors if obtaining insurance
is liability of the contractor or insurance cost has been inbuilt into the cost
, if so , check the following :-
- if the company has ensured that insurance has been obtained (a copy
of policy has been sought from contractor)
- There should not be any duplicity in the insurance policies (e.g.
insurance coverage obtained by company as well as contractor)
- If the insurance policies are timely renewed
Review ageing of CWIP account, ascertain reasons for long o/s items in
CWIP and assess reasonableness of explanation provided.

Perform physical check of sample cases if possible to review if assets

lying in CWIP have already been installed and used

Check if the following types of common costs have been identified and
appropriately allocated on the project for capitalization / amortization over
a period:-
- Management time spent on the project
- Corporate overheads
- Pre-operative expenses

Review if the following types of key compliances have been ensured:-

- Factories act (layout approval etc.)
- Labour (contract licenses, PF / ESI / Wage payment etc)
- Environmental (Air and Water pollution, and Hazarduous waste
disposal) etc
- RBI guidelines having bearing on funding of project (if any)
Perform a visit to the project site and perform general inspections and
ascertain deviations .

Checks to include wall cracks, incomplete tasks , material on site etc.

If company is responsible, understand the mechanism of tracking ,

weighment , recording and disposal of scrap followed by the company
and check the following:-

- Standard scrap items and ratio of generation as part of the project

activity (Scrap may include existing structure dismantaling scrap, steel
scrap, cement , wooden and plastic scrap etc)
- Actual scrap sold till date from start till date (basis scrap sales ledger,
invoices and movement outward register)
- Actual collection from scrap sale (from scrap sale ledger and cash/ bank
ledger)
- Quantity of scrap lying in the stock (as per scrap stock register /
weighment of scrap)
- Basis of identification and selection of vendor and finalization of rates (if
competetive bidding was followed and quotes obtained were authentic ,
to be checked through cold calls and market rates comparison)
Check if the project was commenced before completion of feasibility
study

Check accuracy and source documents for fund flow statement

prepared , on sample basis.

Check If there is a process to identify root causes and action plan for
exceeding budget .

Ensure that root causing performed identifies the responsibility for the
variance. If the responsibility lies with the contractor / service provider ,
the variance / excess cost needs to be debited to the contractor.

Ensure that the same is communicated to the contractor on time and

agreed with him to avoid disputes at a later stage .
Check If there is a process to identify root causes and action plan for
exceeding budget .

Ensure that root causing performed identifies the responsibility for the
variance. If the responsibility lies with the contractor / service provider ,
the variance / excess cost needs to be debited to the contractor.

Ensure that the same is communicated to the contractor on time and

agreed with him to avoid disputes at a later stage .

Perform a visit to the project site and perform general inspections and
ascertain deviations .

Checks to include wall cracks, incomplete tasks , material on site etc.

Perform a visit to the project site and perform inspections as per

checklists and ascertain deviations .

Checks to include safety warnings, use of protective equipments by

labours, availability of first aid box at the site, use of safety nets for
workers working on altitudes, cleanliness of pathways etc.)
Responsibility (Function) Source Document Exceptions Noted

Level 1
Project / Capex SOP / Startegy
Document

- Organization / Functional
Structure
- Employee Job description
- System access rights matrix

- Approved Time and Cost

Budget

- Budget Revisions
- Project MIS
Vendor Identification Tracker for
sending RFP

RFP Document
Bid opening document

- Copies of Demand Drafts /

Cheques received as security
money
- Record / register /
acknowledgement receipts for
security month

- BOQ / Cost sheet with detailed

break-up

- Bids
- Comparative evaluation
- Negotiation summary

- Contracts with vendors

- Approved contracts

- Vendor Master
- Vendor addition form and
supporting documentation

- Agreement with contractors

- Bank Guarantees

- Project related insurance

policies
- Claims tracker
- Insurance expense ledger
- Claims recovery ledger
- CWIP ledger
- Fixed Asset Register

- Expense ledger
- Project Budget

- Fixed Asset register / CWIP

ledger

- Statutory Compliance checklist

- Work completion certification /
Site Handover certificate from
project contractor certified by
project consultant and technical
auditor

- Maintenance expense ledger

- Site testing and defects records
- Defects rectification certificate
by project consultant / project
manager

- Vendor contract
- Scrap standards
- Scrap sales ledger
- Scrap Vendor ledger
- Scrap register
- Scrap invoices
- Scrap disposal expense ledger
- Scrap disposal approvals

- Board Resolution for the project

- Financial and Technical

Feasibility Study

- Project Financing Approval

- cash / fund flow statement

- Project MIS
- PO Dump
- Project Cost centre
- GRN and SRN Dump
- Expense Ledgers
- Project MIS

- Quality inspection reports

Health and Safety Manual

- Security Gate Register

- Progress bills
- sub-contractor appointment
approvals
 Exceptions Noted Cause Working paper
ref
Level 2 Level 3 People/Process/Technology