INTERNAL AUDIT REPORT(July 2010 to December2010)

MAIN REPORT Sr. No. Observations Recommendation SECTION A: Sales and Cash collection 1. No Agreement With the Customers During the course of Audit it has been observed that in 10 cases no agreement has been entered into with the wholesale customers. Further we observed that in 47 Cases since the payment term is DOD as per practice no agreements have been taken from such customer. Details of the cases are given in Annexure-I

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks

Compliance

Rajesh whole sale Proper Agreement should be entered into with the wholesale customers before making any transactions Pls obtained clarification from corporate office with regard to agreement with DOD customer. Out of 10 customers, we are awaiting signed agreement with 3 customers and for balance 7 customers, we have ceased to do the business Debtors ageing

2.

High Exposure of Credit Limit to the Customers As per the corporate policy the customer is given credit exposure up to 3 times of the total security deposit available but in 2 Cases we observed that the customers are given credit exposure more than 3 to 4 times. Details of these cases are given in Annexure- II High credit exposure should be given to the customer only on the basis of approval from the top management. High exposure to the customers is given only after the approval of Business head along with the Finance Head of Sport division. The same has been duly approved

BG Register excel Security deposit

in

3.

Outstanding Debtors since Long On review of debtors we observed that in 29 cases debit balance amounting to Rs.1.59 crore is pending for recovery for more than 180 days. On analysis the same reason for outstanding are as under: These debto should be properly followed up & recovery should be done on priority basis. Amount recoverable by issuing credit notes is Rs 48.38 Lacs. Rs .7 Lac has to be written off.

GSA & ASSOCIATES

INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Legal action against customer having od of 22.97 Lacs. Balance amount of Rs 86.95 Lacs has been collected till March. Details in annexure Compliance

No of Customer 11

Balance outstanding (In Rs) 11763094

Reason for out Standing Customer under reconciliation, Will be settled by end of March, 2011 Cheque Bouncing Charges Amount to be written off Legal Action will be initiated if not settled by April2011 Sales Return pending and Credit not

Further adequate provision for bad & doubtful debt should be made on such debtor.

6 3 1 3 4 1

5000 31158 2297709 786717 1028018 3477

No overdue as on Date Short Collection

Details of these cases are given in Annexure- III

4.

Recovery Pending of Cheque Bouncing Charges As per cheque audit it bounce the agreements with the customer, PRIL is to recover. 10,000 for the bouncing charges for every cheque bounce case, but during course of has been observed that the company is recovering. 500 for every cheque cases.

These recoveries should be done on priority basis or the clause for the same in agreement should be amended.

All new agreements will be with Rs 500 penalty.

Cheque bounce detail excel

We have calculated the short recovery from the customer on the basis of agreement i.e. 10,000. Details are given below:-

GSA & ASSOCIATES

INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Compliance

Customer Name AMAR MARKETING KROSS MARKETING LKSH INC Narayani Enterprises Premier Sales RISHAB MARKETING Roopali Exclusive S B Sports Star Enterprises TRANSWORLD Grand Total

Total 13 4 5 1 7 30 11 2 4 21 98

Per cheque 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000

Recovery to be Made 130000 40000 50000 10000 70000 300000 110000 20000 40000 210000 980000

Recove ry Made 5500 1000 1500 0 2500 12000 0 500 0 9000 32000

Short Recovery 124500 39000 48500 10000 67500 288000 110000 19500 40000 201000 948000

5.

Sales Without Any Security Deposit/ Bank Guarantee During the course of Audit it has been observed that in 12 cases credit sales amounting Rs 82.04 Lacs have been made without taking any security deposit/Bank guarantee from the customer. Details of these cases are given in Annexure- IV Credit sales should be made only on the basis of any security deposits held from the customer.

No further credit sales will be allowed to any customer from April onwards and regarding the recovery of money, it has already been covered in point no 3

SD & BG register

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INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation SECTION B :IMPORT OF MATERIALS 6. Shortage between PO and GRN It has been observed that in 40 cases there is a difference of 33,270 units between PO Quantity and GRN quantity. Details of these cases are given in Annexure V

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Compliance

Shortages should be reconciled and the cause for the same should be traced so as to reduce shortages in future.

There have been small shortages at the time of receipt of stock. The goods are also insured but the kind of the shortages that comes is so small that it is not prudent to claim insurance for very small shortages. Total shortages during the period was USD 462 and the money recovered from the vendor USD 269 We will discuss this with HO and take their feedback by April

7.

Hedging Against foreign Exchange As explained to us there is no procedure for hedging foreign exchange risk for the payment outstanding to foreign vendor. The company must hedge against foreign exchange risk exposure in order to avoid loss due to foreign exchange fluctuations.

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INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation SECTION C: Bills Processing & Payment 8. a. Late Delivery by the Safe Express Cargo Pvt. Ltd. During the review of M/s Safe Express Pvt. Ltd. bills it has been observed that delivery time between various cities is more 10 Days which is beyond the reasonable transit time. Further the agreement with the Safe Express Cargo Pvt. Ltd was not available for the verification. Details of cases in which delivery time is more than 10 days are given in Annexure- VI

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Compliance

A fixed transit time between various cities should be fixed and a penalty clause should be introduced in the agreement for not Delivering the goods as per Transit time Defined.

At times, we have to accommodate the request of our customer to hold the goods at hubs of our logistics Company, due to paucity of space at the customers Godown. In these cases the delivery time increases. Reply in annexure

Rajesh

9.

a. Expenses not booked during the period During the course of our Audit we observed that expenses amounting Rs 2.86 Lacs have not been booked neither any provision has been made in the books of accounts. Details of the cases as per Annexure- VII Proper booking of the expenses should be done for every period.

10.

Prior Period Expenses booked under Current Period During the course of our Audit we observed that expenses amounting Rs 11.47Lacs l pertaining to prior period has been booked under the current period. Details of the cases as per Annexure- VIII

Prior period expenses should be booked under the different GL head.

Reply in annexure

Provisions a. Still being done for Closed Stores 11. During the course of our Audit we observed that provisions amounting to Rs15.80 Lacs has been provided for the closed stores Details of the cases as per Annexure- IX

Provision should not done for the closed stores.

Excess provision made has been reversed and already been rectified.

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INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Excess a. Provisions done 12. During the course of our Audit we observed that Excess provisions amounting to Rs. 14.01 Lacs have been provided for the expenses without any reasonable basis. Details of the cases as per Annexure- X Observations Recommendation

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Provision has been made on the basis of last 3 months actual and it is not practical to assume the exact amount of provision at the end of the month and there is bound to be some difference. However we have implemented new way of making the provision and checking on store to store basis, thereby reducing this kind of error. Compliance

Provision should be made for the expenses on reasonable basis.

13.

a. Rent Agreements not transferred in the name of PRIL During the course of audit it has been observed that in 41 stores rent agreements have still not been transferred in the name of Pantaloon Retail India Ltd. Details of the cases as per Annexure- XI

We are still in the process of getting the name changed from Winner Sports to PRIL and has been able to do for 34 stores and balance will be done by July 2011

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INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation SECTION D: Cash & Bank Section 14. Bank Account still in the name of Winner Sports During the course of audit it has been observed that the following bank accounts are still in the name of Winner sports Pvt Ltd. Name Bank HDFC IDBI ING 15. of Bank Account Number 03132320003738 038102000013244 5920-592011009297 Balance as on 31st Dec, 2010 Rs. 143161.93 Rs.1005508.51 Rs.461148.35

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Compliance

These bank accounts should be closed or transferred to PRIL.

HDFC has closed now.

been

ING is in the process of closure. IDBI will take time pending transfer of agreement of Chandigarh in PRIL name.

Excess cash withdrawn for petty cash from Sales As per the company policy, store manager is to withdraw petty cash from sales as per the limits specified by the company, but in few cases we observed that cash withdrawn by the store manger exceeds the specified limit. Details of the cases as follows:Withdrawal Limit 20,000 30,000 20,000 20,000 30,000 30,000 Withdrawal Amount 30000 41858 26144 26148 31673 32782 Excess Withdrawal 10,000.00 11,858.00 6,144.00 6,148.00 1,673.00 2,782.00 Petty cash should be withdrawn from sales as per the company policy.

Profit Centre 20039000 20059000 20119000 20379000 20509000 20699000

Month Dec, 2010 Dec, 2010 Dec, 2010 Dec, 2010 Dec, 2010 Dec, 2010

We have already communicated to the Store team that any excess withdrawal without the proper permission will be viewed seriously and strict action will be taken against the defaulter

Further it has been observed that petty cash is being withdrawn irregularly from the sales

GSA & ASSOCIATES

INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Compliance

16.

Delay in collection of cash by CMS During the course of audit, we observed that in 22 cases there has delay ranging from 3 days to 6 days for the cash collection by CMS agencies. Details of the cases as per Annexure- XII

Cash should deposited very days.

be next

Out of 75 stores there has been a delay in 5 stores. 2 stores of Hyderabad had delayed collection due to riots for telangana district. Ambi Mall Gurgaon used to be closed on Tuesday and once it started working on Tuesday also there was a delay leading to change in Cash pickup arrangement. Ambi Mall Vasant Kunj opened during the period when the delay have been shown. It stabilized in Dec end itself. One delay of lucknow noticed, which we are taking up with the cash pick up agency.

GSA & ASSOCIATES

INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. Observations Recommendation

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Compliance

SECTION E: Purchase, Material In warding, Stock Transfer & Inventory Analysis 17. Inventory appearing in the closed stores During the course of Audit, we observed that Inventory amounting to Rs 44.96 Lacs is appearing in the stores as per SAP but the same store has been closed. Details of the cases are as follows:Stock as on 31st December, 2010 (MRP) 1,289,473.58 511,219.00 1,190,408.42 1,505,384.54 Inventory should be transferred from the closed store. Stores 2022 and 2007 has been closed and blocked in SAP. Should be able to close 2006 and 2039 by March end

From 2006 2007 2022 2022 2039

Store Code 2006 2007 2022 2039

Store Location CHENNAI HYDERABAD Pune HYDERABAD

Store Closing Date 03-11-2010 15-09-2010 29-12-2010 18-11-2010 SECTION F: HR, Administration & Payroll

To Posted Qty 206 22.02.20 9 11 1115 203 28.01.20 9 11 497 206 06.01.20 8 11 1012 206 10.02.20 8 11 185 Vendor hold the stock, now it is under process

18.

Recruitment & Joining During the check of recruitment for the month of Jul, 2010 to Dec, 2010 we observed the following points needs merit attention. Joining form is not signed by the concerned HOD. No Reference check is being done by the HR department. No verification of the document is done internally or by any outside agencies. Interview assessment sheet of employees not filled properly. Written guidelines should be drafted & adhered to for the prescribed documents to be taken when employee joins the organization

Action initiated. We have asked AOMs to sign the joining report & Joining docket. Practically it is not possible to do reference check and verification. Started ensuring that no hiring to take place without properly filled interview assessment sheet.

Naveen

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INTERNAL AUDIT REPORT(July 2010 to December2010)

Sr. No. 19. Non receipt of PAN Card During the coue of Audit, we observed that in the following cases no PAN cards copy has been received from the employees, but TDS has been deducted. Name Siddhesh Harishchandra Pawar Narender Kumar Kamran Khan DOJ 20/04/2010 20/04/2010 08/11/2010 Designation Store Manager Executive Area Operation Manager Observations Recommendation

Pantaloon Retail India Ltd (Sports Division)

Action Status/ Remarks Action Initiated and will be closed by March Compliance

Employee ID 172200 172208 184050

PAN cards copies should be received at the time of joining of the employees

20.

Resignation During the course of Audit, we observed that in the following cases employees have not served there notice period i.e. 30 days (As per policy) at time of resignation. Detail as per annexure-XII Notice period should be served at the time of resignation.

In all the cases where notice is not served as per policy then , amount is recovered from their Full and final settlement for the remaining period

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