MONITORING ACTIVITIES & LIMITATIONS OF INTERNAL CONTROL

1. Do you use ongoing evaluations (timely info), separate evaluations (conducted periodically) or a
combination of the two to access whether the components are present and functioning or not?
The ongoing evaluations are used mostly in all of the cases

In procurement different quotations are gathered and share with the finance department who
then evaluates the rates quoted with similar items procured in the region If there is significant
price difference the finance manager will procure the parts himself from the vendor who has the
lower rates and will dispatch them to us.

The parts related to Caterpillar machinery are procured from Allied Engineering and Services
parent company of Allied rental Modaraba through sending the request for parts to the
concerned who in turn issue Internal Parts Requisition (IPR) which in turn are invoiced by the
Allied engineering and services and sent to the finance department for further processing
A copy of each IPR and Invoice issued are kept by each region and excel file is maintained of all
parts issued
All material procured that are not available in Allied Engineering and Services parent company of
Allied rental Modaraba are done through issuing a purchase order and vendor will issue a
invoice against the purchase order and the invoice will get paid through the Cheque payable in
account only

Quarterly evaluations are conducted for the parts issued and the cables that are moved with
genset and the issues that were found were highlighted usually these both segments have high
costs associated with them

2. What are IPR and SMU?

The IPR have been Internal parts requisition as explained earlier
SMU are service maintenance units and described in hours like in cars you have to change
certain parts at kilometers Similarly you have to change certain parts like filters and similar stuff
at certain SMU
3. On what basis do you decide which evaluation or combination of evaluation to choose? Could
be internal factors/external factors, nature of the operations, associated risks.
Usually the controls are well in place and the ongoing evaluations fulfill the need. Unless there is
some serious problem like the record of cable inventory has some sort of discrepancy or the
equipment faced some major failure after overhauling then this issue will require some separate
evaluation
4. Is your industry one that is rapidly changing? (This means that more frequent separate
evaluation will be needed)
Our Industry was somehow stagnant but the companies is now changing its business model and
moving from power generation business to the cranes and construction machinery business
 Logistics business. Company has faced some serious issues in the logistic segment and in the
process of designing new controls for this segment
5. Do you think that any change is needed within the components of internal control? Explain a bit.
When the company was in power business its control segment was very effective. However,
when the company entered the logistic business the control segment doesn’t work effectively
leading to heavy losses This segment needs more attention and more controls need to be
implemented
6. How is CAT’s internal control system addressing to the risks existing in the market?
The Allied Rental Modaraba has been having a reactive strategy. The external risks are
associated with change in government policies due to which the business has suffered a lot.
For example, in 2013 there were sever power crisis and gas generators were a large part of the
company assets as at that time the company was more focused on the power generation and
hence the company purchased a lot of diesel gensets to meet temporary demand. But as the
power crisis of the industrial sector reduced the diesel gensets were no longer demanded and
the capital got tied up
The company is now entering into diversified business such as logistic and other segments in
order to minimize the risks
7. Does CAT have an internal audit function existing?
Yes, the internal audit is fully functional
8. Have you created any benchmarks of components of internal control against other competitors?
The company has its internal controls and doesn’t benchmark with the competitors
9. Do you have any outsourced service providers? Have you found any deficiencies in the internal
control components once you accessed them? How were they resolved? (Through independent
audit or examination report)
We are the service providers and the outsource service providers we use are for HR purpose and
for transportation and loading and unloading of the machinery on the site.
There are not any deficiency that have been found so far
10. How have the following limitations affected the effectiveness of internal control?
a. Judgement (errors caused by basic human judgments)
b. Breakdowns (instructions misunderstood or carelessness, distraction or lack of focus)
c. Management override (focus on personal gain)
d. Collusion (working together to conceal an action from detection)

The logistic business operations were thought by higher management as simple business
and the ineffective persons without having proper understanding were appointed to look
after the project. Higher management misjudge the business and things did not turnout
well.

I don’t think any other thing happened