TRANS- PARENCY TRUST HONESTY INTEGRITY · Under such circumstances, it is important that the...

OIL INDIA LIMITEDVIGILANCE DEPARTMENT

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Volume 13, No. 2, July-September, 2012

A Q U A R T E R L Y N E W S L E T T E R O F V I G I L A N C E D E P A R T M E N T

INTEGRITY

HONESTY

MUTUAL TRUST

TRANS-PARENCY

Vigilance Department

OIL INDIA LIMITED VIGILANCE DEPARTMENT

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Contents

From CVO’s Desk 2

Editorial 3

Preventive Vigilance and Information Technology 4

Sarbanes–Oxley Act: An act to stop corporate fraud in USA 6

Vigilance Activities 9

Vigilance Case studies 11

Circulars from CVC / DPE 13


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From CVO’s Desk

I am happy to note that the OIL Vigilance dept. is publishing

a vigilance news letter, called “Intouch” to bring awareness

about the various suggestions and concepts related to

Vigilance. A public sector enterprise is duty bound to deliver

its best to all its stake holders. Therefore what matters is

performance fuelled by ethical compliance than mere

improvements in volumes and figures. I am sure this effort

would sensitize all our employees and other stake holders to

commit themselves for creating a transparent work culture

marked by integrity and honesty.

Bringing articles related to vigilance awareness is

an effective way to propagate it as a way of life and

helpful in rededicating ourselves to this prime aspect of

organizational culture. I am sure that this news letter will

be useful as a guide in diligent discharge of our duty.

While Vigilance Awareness Week being round the corner, it

is not out of place to mention that, a good amount of effort

is being put to increase awareness among all Oilindians, by

way of participation in various events with certain vigilance

themes / topics, during the week long activities. One new

initiative taken in this direction is, inviting suggestions for

system improvement. Such an initiative will not only create

a lot of awareness, but also go a long way in improving

company’s systems and procedures on small incremental

manner. Your whole hearted support is needed to see

these initiatives through. The observance of such events

help in developing awareness about the consequences

of corruption and educating the public about the

improvements needed to create a corruption free society.

Let us join together and work untiringly for eradication of

corruption in all spheres of life.

A.M. Prasad

Chief Vigilance Officer

“The proof of honesty lies in its practice”


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Editorial

The word corruption is so commonly used and

understood that it requires no specific description. The

mathematical construct as Corruption=Discretion+Mystifi

cation-Accountability, i.e. corruption rises with increase in

discretion/mystification or decrease in accountability and

vice-versa. Here discretion means power to take decisions,

which may defer under the same circumstances by

different interpretations and mystification connotes lack of

transparency. Our new CVO has urged upon all responsible

officers/Employees of OIL to assist Vigilance set-up in

helping OIL realize the mission of curb the corruption.

Everyone can become a vigilance officer by identifying

the systems blind spots which provide opportunities for

malpractices and corruption and assist in simplifying

matters so that such opportunities are curbed. Individuals

can play the whistle blowers by informing the activities

of black sheep along with some evidences showing their

mis-endeavours against the organizational interest. In

brief new CVO liked to persuade and encourage to join the

hands of vigilance in rooting out the weeds of corruption

and expanding the islands of integrity to engulf the whole

organization.

Vigilance Department of OIL plays the role of a third eye

and makes everybody more accountable in spending

public money. If the preventive and predictive Vigilance

are to work together, it will give more reliability to our

organization in evolving a dynamic and clean work

environment and culture.

Dr. Ajit Pattanaik

Rajumoni Saikia


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Preventive Vigilance and Information Technology

� Anirban�Bhagawati� Dy.�Chief�Engineer�(Technical)� Office�of�Director�(Operations)

Public Sector Undertakings (PSU) play a major role in the economic as well as social development of the country.

Pandit Jawaharlal Nehru termed the PSUs as “Temples of Modern India”. Their contribution towards economic and sustainable development, employment generation is immense. They deal with tax payers’ money and are therefore accountable to the public through Parliament. Under such circumstances, it is important that the interest of the organization is always placed before self by the employees while dealing with matters pertaining to the organization. This is why vigilance cells were set up in the PSUs with rules, regulations and guidelines to regulate the conduct of the employees of these undertakings.

Punitive vigilance alone can not ensure an effective vigilance system in an organization. In punitive vigilance, the vigilance department acts on complaints or information of specific instances of mala fide action, and then conduct enquiry and accordingly actions are initiated against the corrupt employee. In contrast, preventive vigilance calls for in-built procedures and systems to restrain the acts of wrong doing and misconduct before it happen. The comparison is just like comparing Break-down maintenance with Preventive maintenance. Preventive vigilance can be considered as a risk management tool which helps the organization to identify the likely areas of risks like fraud, corruption, malpractices and take corrective action beforehand. It creates awareness and also guides the employees against common lapses and mistakes. There are several tools for preventive vigilance, notably amongst them are- Standardization, Automation, Transparency Awareness Creation etc.

The Central Vigilance Commission has been emphasizing on the need to leverage technology for improving vigilance administration in PSUs and Government departments.

Number of areas have been identified where use of information technology can bring efficiency, economy as well as transparency, thus leading to an environment free from corruption and malpractices. One of the initial initiatives using IT in vigilance administration was Computerization of Annual Property Returns. Similarly, online Vigilance clearance system been introduced by few PSUs. Nowadays, Information Technology has been extensively used for bringing transparency and efficiency by introducing E-procurement, E-payment, Bill Tracking system, Web publishing of purchase and contract manuals, defaulting vendors, vendors portal etc.

E-procurement helps in broader participation of vendors with greater transparency. Most of the PSUs are now publishing tenders through e-tender portal in their website. Govt. has set up Central Public Procurement Portal to provide a single point access to the information on procurements made across various central government organizations. It facilitates all the Central Government Organizations to publish their Tender Enquiries, Corrigendum and Award of Contract details.

Similarly, e-payment helps in bringing economy and efficiency, at the same time reducing the scope of corruption. The system helps in reduction in transaction cost and delivery cost of payment by cheques and drafts and also eliminates corruption in handing over of the cheques to contractors. Bill Tracking System enables the vendors to check the status of their submitted bills, at the same time allowing management to monitor the time taken in releasing supplier’s bill. Web publishing of purchase and contract procedures helps vendors to understand the purchase procedure of an organization to a greater extent, thus eliminating mistakes and unnecessary communication with the organization during an enquiry/


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tendering process, in a time and cost effective manner. Similarly, an online platforms for vendors facilitates to put their queries and helps to get reply accordingly. Similarly, the process of registration of vendors can be initiated online and approved and updated vendors’ list published in the website. Publishing of defaulting / banned vendors (like publishing names of corrupt official) helps in creating awareness among others.

Apart from above, application of Enterprise Resource Planning (ERP) system is not only integrating various functions and providing real time information for decision making, but also facilitating as internal risk management tool in preventing fraud, misuse. Alerts and Exceptions reports can be generated where there is significant deviation from norms and these can be directly messaged to senior management and vigilance cell. This is particularly helpful in monitoring various stages of a tendering process. Alerts can be auto generated and sent to vigilance department if there is inordinate delay in evaluating bids and placing of orders etc. Asset managers can also monitor actions and expenditure incurred in plant and machinery and gets alerts in case of deviation from maintenance schedules, frequent breakdowns, abnormal booking of spares and hence expenditure etc. Consumption of spares, lube oil etc. can be standardized and any abnormal rise in consumption can be easily tracked. In HR front also, all

personal claims etc. has been captured in the system and can be monitored. The list of benefit from application of ERP system is long, but the point to be noted here is that it helps management to get real time information and various reports including exception, deviation reports at the click of the mouse, at the same time creating awareness and alertness among employees that all the transactions are transparent and any misdeed can be tracked and found at any point of time.

Use of Information Technology is not only being used in vigilance administration in Purchase and Finance related matter; but it can also be extensively used in other areas like logistics, stores etc. Let us take an example. Installation of Vehicle Tracking System (VTS) on the tankers carrying petroleum products on one hand is providing solution for an efficient supply chain management and at the same time helps in mitigation of risks of adulteration of fuel and misuse from diversion of tankers from pre-determined routes. Electronic Access control systems can be installed in Company’s stores, go-down, record room etc for ensuring that only authorized personnel can enter such places. From above, we can very well see the importance of integrating vigilance activity in main stream operations of the organization through the leveraging of information technology for overall business risk management.


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The Sarbanes–Oxley Act of 2002 also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH).

The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets.

It does not apply to privately held companies. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Harvey Pitt, the 26th chairman of the SEC, led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

The act was approved by the House by a vote of 423 in favor, 3 opposed, and 8 abstaining and by the Senate with a vote of 99 in favor, 1 abstaining. President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.

Debate continues over the perceived benefits and costs of SOX. Supporters contend the legislation was necessary and has played a useful role in restoring public confidence in the nation's capital markets by, among other things, strengthening corporate accounting controls. Opponents of the bill claim it has reduced America's international competitive edge against foreign financial service providers, saying SOX has introduced an overly complex regulatory environment into U.S. financial markets. Proponents of the measure say that SOX has been a "godsend" for improving the confidence of fund managers and other investors with regard to the veracity of corporate financial statements

OutlinesSarbanes–Oxley contains 11 titles that describe specific mandates and requirements for financial reporting. Each title consists of several sections, summarized below.

1. Public Company Accounting Oversight Board (PCAOB)

Title I consists of nine sections and establishes the Public Company Accounting Oversight Board, to provide independent oversight of public accounting firms providing audit services ("auditors"). It also creates a central oversight board tasked with registering auditors, defining the specific processes and procedures for compliance audits, inspecting and policing conduct and quality control, and enforcing compliance with the specific mandates of SOX.

2. Auditor Independence Title II consists of nine sections and establishes

standards for external auditor independence, to limit conflicts of interest. It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.

Sarbanes–Oxley Act: An act to stop corporate fraud in USA� � � � � � � � Dipangkar�Malla�Baruah� � � � � � � � S�E�(Well�Logging)


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3. Corporate Responsibility Title III consists of eight sections and mandates that

senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company's "principal officers" (typically the Chief Executive Officer and Chief Financial Officer) certify and approve the integrity of their company financial reports quarterly.

4. Enhanced Financial Disclosures Title IV consists of nine sections. It describes enhanced

reporting requirements for financial transactions, including off-balance-sheet transactions, pro-forma figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls. It also requires timely reporting of material changes in financial condition and specific enhanced reviews by the SEC or its agents of corporate reports.

5. Analyst Conflicts of Interest Title V consists of only one section, which includes

measures designed to help restore investor confidence in the reporting of securities analysts. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest.

6. Commission Resources and Authority Title VI consists of four sections and defines practices

to restore investor confidence in securities analysts. It also defines the SEC’s authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker, advisor, or dealer.

7. Studies and Reports Title VII consists of five sections and requires the

Comptroller General and the SEC to perform various studies and report their findings. Studies and

reports include the effects of consolidation of public accounting firms, the role of credit rating agencies in the operation of securities markets, securities violations and enforcement actions, and whether investment banks assisted Enron, Global Crossing and others to manipulate earnings and obfuscate true financial conditions.

8. Corporate and Criminal Fraud Accountability

Title VIII consists of seven sections and is also referred to as the “Corporate and Criminal Fraud Accountability Act of 2002”. It describes specific criminal penalties for manipulation, destruction or alteration of financial records or other interference with investigations, while providing certain protections for whistle-blowers.

9. White Collar Crime Penalty Enhancement Title IX consists of six sections. This section is also

called the “White Collar Crime Penalty Enhancement Act of 2002.” This section increases the criminal penalties associated with white-collar crimes and conspiracies. It recommends stronger sentencing guidelines and specifically adds failure to certify corporate financial reports as a criminal offense.

10. Corporate Tax Returns Title X consists of one section. Section 1001 states that

the Chief Executive Officer should sign the company tax return which makes the CEO owe the responsibility of company’s financial statements.

11. Corporate Fraud Accountability Title XI consists of seven sections. Section 1101

recommends a name for this title as “Corporate Fraud Accountability Act of 2002”. It identifies corporate fraud and records tampering as criminal offenses and joins those offenses to specific penalties. It also revises sentencing guidelines and strengthens their penalties. This enables the SEC to resort to temporarily freezing transactions or payments that have been deemed "large" or "unusual".

Events contributing to the adoption of Sarbanes–Oxley

A variety of complex factors created the conditions and culture in which a series of large corporate frauds occurred between 2000–2002. The spectacular, highly-publicized frauds at Enron, WorldCom, and Tyco exposed


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significant problems with conflicts of interest and incentive compensation practices. The analysis of their complex and contentious root causes contributed to the passage of SOX in 2002. In a 2004 interview, Senator Paul Sarbanes stated:

The Senate Banking Committee undertook a series of hearings on the problems in the markets that had led to a loss of hundreds and hundreds of billions, indeed trillions of dollars in market value. The hearings set out to lay the foundation for legislation. The hearings produced remarkable consensus on the nature of the problems: inadequate oversight of accountants, lack of auditor independence, weak corporate governance procedures, stock analysts' conflict of interests, inadequate disclosure provisions, and grossly inadequate funding of the Securities and Exchange Commission.

Some of the events that led to the adoption of Sarbanes-Oxley Act are as follows

• Auditor conflicts of interest: Prior to SOX, auditing firms, the primary financial "watchdogs" for investors, were self-regulated. They also performed significant non-audit or consulting work for the companies they audited. Many of these consulting agreements were far more lucrative than the auditing engagement. This presented at least the appearance of a conflict of interest. For example, challenging the company's accounting approach might damage a client relationship, conceivably placing a significant consulting arrangement at risk, damaging the auditing firm's bottom line.

• Boardroom failures: Boards of Directors, specifically Audit Committees, are charged with establishing oversight mechanisms for financial reporting in U.S. corporations on the behalf of investors. These scandals identified Board members who either did not exercise their responsibilities or did not have the expertise to understand the complexities of the businesses. In many cases, Audit Committee members were not truly independent of management.

• Securities analysts' conflicts of interest: The roles of securities analysts, who make buy and sell recommendations on company stocks and bonds, and investment bankers, who help provide companies loans or handle mergers and acquisitions, provide opportunities for conflicts. Similar to the auditor conflict, issuing a buy or sell recommendation on a stock while providing lucrative investment banking

services creates at least the appearance of a conflict of interest.

• Inadequate funding of the SEC: The SEC budget has steadily increased to nearly double the pre-SOX level. In the interview cited above, Sarbanes indicated that enforcement and rule-making are more effective post-SOX.

• Banking practices: Lending to a firm sends signals to investors regarding the firm's risk. In the case of Enron, several major banks provided large loans to the company without understanding, or while ignoring, the risks of the company. Investors of these banks and their clients were hurt by such bad loans, resulting in large settlement payments by the banks. Others interpreted the willingness of banks to lend money to the company as an indication of its health and integrity, and were led to invest in Enron as a result. These investors were hurt as well.

Internet bubble: Investors had been stung in 2000 by the sharp declines in technology stocks and to a lesser extent, by declines in the overall market. Certain mutual fund managers were alleged to have advocated the purchasing of particular technology stocks, while quietly selling them. The losses sustained also helped create a general anger among investors.

• Executive compensation: Stock option and bonus practices, combined with volatility in stock prices for even small earnings "misses," resulted in pressures to manage earnings. Stock options were not treated as compensation expense by companies, encouraging this form of compensation. With a large stock-based bonus at risk, managers were pressured to meet their targets.

Benefits of Sarbanes Oxley Act on a long term basisSarbanes Oxley Act provides a number of long term benefits. Investors' confidence is increased as SOX ensures reliable financial reporting. SOX has had a significant impact on corporate governance, as companies are no longer able to manipulate inventories or stocks of products or sales as there is a real time reporting system in place. SOX requires a standard data entry system. SOX nurtures an ethical culture as it forces top management be transparent and employees to be responsible for their acts and also protects whistle blowers.


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Vigilance Activities

CVO Mr A. M Prasad, IAS visited KG Basin Project at Kakinada as a part of familiarization and fact gathering trip on 07-10 August 2012. He visited the work site and also discussed with GGM( KG& BEP) and other concerned executives on various areas of the KG Basin Project. Dr A.K. Pattanaik.Head (Vigilance) also accompanied CVO. The KGB Project is headquartered at Kakinada from where the project activities are monitored and controlled.

Shri S. Majumdar, Chief Manager (Vigilance) and Shri S. Bhattacharjee, Chief Manager (Vigilance) visited UK for a training on “Combating Fraud in Govt,Business and Civil Society” conducted by RIPA International of UK from 11-12 June 2012 This programme introduces a range of Techniques which can help to combat Fraud. These techniques include the Introduction of high quality Vigilance Systems, more rigorous investigation Process,

strategies to increase the prospect. Of successful fraud prosecutions, and Measures to combat money laundering And seek repatriation of stolen funds.

Vigilance Department has been in continuous endeavor in suggesting system improvement in the company,which plays an important role in reducing chances of making unintentional mistakes and also eliminating malafide intentions. On occasion of the Vigilance Awareness Week during end October/early November,awards would be presented to the best three implementable system improvement suggestions. The best three suggestions will be awarded with attractive cash prizes and winners names will be published in the special issue of the Vigilance journal “Intouch” during the Vigilance Awareness Week-2012.

Departmental meeting in progress at NOIDA office


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Sri Varun Sharma GGM (KG & BEP) giving presentation to CVO during his visit to KG Basin Project.

Meeting with officers from all spheres

Meeting with officers from all spheres


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Vigilance Case Studies By:�Sri�Rajumoni�Saikia,�

Manager�(Vigilance)

CASE - ISynopsis of a complaint which was received from M/S xxxx,New Delhi in June’2011 via e-mail, alleging that in a particular tender for supply of 38 no. indirect Heaters, the party emerged as L1 with Rs 15.32 Lakh(Per) offer against L2 offer of Rs 15.48 lakh by M/S yyyy. Allegedly Material Dept.OIL asked L1 to lower its price, upon not doing which, the tender was offered to L2.

Gist of the inspection

L1 failed BRC clause. As such it is misnomer to call it L1 party. The order placed with L2 is only trial order was also offered to L1 (but turned down by L1).As for actual order, OIL is going for re-tendering. Thus complaint by L1 is not valid.

Observations:

(i) The tender is dated 24.03.2009, while the purchase order was placed dt 04.08.2010. Electronic mode was followed for tendering.

(ii) Though two parties qualified technical evaluation, both could not meet BRC criterion regarding experience (clause A 1.0).

(iii) As the parties were failing BRC clause, indenting dept suggested Material Dept to place trial order of 25% of indented quantity i.e. 10 nos.of heaters to meet the immediate need and go for re-tendering for rest 75%.

(iv) LMC in meeting dt 09.03.2010 decided that given that parties failed BRC clause, the parties will not be treated as L1, L2, and trial order of 10 heaters will be placed

on both parties at price of last order which was made in 25.03.2008 to M/S zzzz. The second decision in this meeting was to place repeat order of 2008 on M/S zzzz for 14 no. heaters.

(v) As decided above, both parties were offered trial order at price of previous order. L1 turned down this order and L2 accepted the trial order for 6 heaters for 72 lakh.

(vi) CBC approved placing above order and go for re-tendering for rest 18 heaters.

Recommendation:

The certain deviations from purchase Manual in placing trial order were observed and suggestions made that these deviations should be communicated to concerned Departments.

CASE - IIAs a part of surprise inspection an inspection was carried out at particular department of OIL, regarding execution of contract (Providing services of unskilled WCLs).

Gist of the study:

The contract was for providing 4 nos of unskilled listed works contract labors (WCL)for miscellaneous jobs at Particular Section for one year from May’2011. As per contract, contractor had to provide protective clothing and safety wear in accordance with Oil Mines Regulation. However no such safety wear was provided. They were provided safety shoe from company‘s side. Another aspect of the contract was contractor had to follow Mines Act. However it appeared that no such training had been imparted. Contractor had to provide verification report


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from civil administration about antecedents of persons engaged, but no such repot was available with Material Section.

Observations:

Safety shoe was provided by Company as per existing guidance. But no such guidance was made available to Vigilance Inspector.

Regarding MVT, no MVT training had been imparted to WCLs in last few years

Related to character certificates of the persons from civil administration, Material Section had already written to the contractor.

Recommendation:

GCC clause is not clear about imparting MVT to contractor’s personnel. Therefore it needs to be more clear. Concerned officer of the above mentioned particular section should ensure that verification report from Civil Administration is submitted by contractor before engaging WCLs and that contractor supplies protective clothing and safety wear to its persons.


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CIRCULAR FROM DEPARTMENT OF PUBLIC ENTERPRISES


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CIRCULAR FROM CHIEF VIGILANCE COMMISSION


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Continuation of CVC Circular


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Corporate Office: OIL House, Plot Number 19, Sector 16A, Noida, District Gautam Budh Nagar, Uttar Pradesh 201301, IndiaTel: +91 (120) 2488 333. Website : www.oil-india.com

Disclaimer: For internal circulation only. Opinions published are personal opinions of authors.

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