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, ; .~~.~wry) ~-:. \\J~ d=i\~ Me~J. EMPLOYEES' PROVIDENT flJNDORGANISA TION NEW DELHI' . ( ( ( ( ( 113th~~eting of the FINANCE INVESTMENT AND AUDIT COMMITrEE ( ( ( ( \ .[CENTRAL BOARD OF TRUSTEES, EMPLOYEES' PROVIDENT FUND} On 23-06-2014 at "3:00 PM ....- . ~ --_._ . Venue: Conference Hall, 3 rd Floor HO, EPFO Bhikaiji Cama Place, New Delhi 1 1 1 1 1 - -1 . '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
112

1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

Aug 28, 2020

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Page 1: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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EMPLOYEES' PROVIDENT flJNDORGANISA TION

NEW DELHI' .

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( 113th~~eting of the

FINANCE INVESTMENT AND AUDITCOMMITrEE(

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. [CENTRAL BOARD OF TRUSTEES, EMPLOYEES' PROVIDENT FUND}

On23-06-2014 at "3:00 PM

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Venue:Conference Hall, 3rd Floor

HO, EPFOBhikaiji Cama Place, New Delhi

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Page 2: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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JJ3'h FIAC Meeting

EMPLOYEES' PROVIDENT FUND ORGANISATION

AGENDA BOOK

113t1l .Meeting of the Finance Investment Be.Audit Committee, CBT, EPF .

. Date: 23-011-2014 INDEX OF ITEMS . Time: 3:00 PM

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Item Agenda Page No.No.

1. Confirmation of the Minutes of 112th. Meeting of the Rnance and i-.sInvestment Committee held on 28.04.2014 at EPFO, Head Office,New Delhi.

... . Actions· taken oil the· recommendations of the 111th meeting of2. G-'fRnance & Investment Committee held on 27.03.2014.

3. Challenges in investment of EPFO fund in the changed economic 8·scenario.

4.Appointment of Consultant for Selection of portfono Ma-nagers, 3-2~Custodian and Concurrent Auditor and Performance Evaluation ofSelected Portfolio ManaQers. i

5. Delegation of power to FA·& CAO for .approval of payment to Fund :Z6-~'7-1Managers, Custodian, Consultant and External concurrent auditor.

6. Note on status of Accounts in EPFO and initiatives taken to 2-8improve upon the same.

I7. Migration of EPFO'saccounts to Double Entry. accounting system. ;[<3-'1'1-18. Acceptance of proposal of PICUP for Settlement of dues. '18-811

9. Extension of tenure to the External. Concurrent Auditor MIs8:2-&':1Chandabhoy & Jassoobhoy till 31.10.2014 after their performance

evaluation from 1.11.2012to 31.03.2014.

10. ExtenSion of tenure to the C~lQd.Lq!1..Mls_.standard.Cbartered..Bank..··:J··········~f········tit! 31.10.2014 after their performance evaluation from 1.11.2012 0- .9to 31.032014.

11. Scheme of audit in EPFO tOO-(oG

12. Any other Item with permission of Chair

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JJ3th FIAC Meeting

Item No.1:- Confirmation of the Minutes of the 112th meeting of theFinance Investment &. Audit Committee held on 28.04.2014at EPFO, Head Office, New Delhi.

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Minutes of 112th meeting. of Finance Investment and AuditCommittee held on 28.04.2014 were Circulated vide letter NoInvest.l/(112th Mtg.)/FIAC/2014/1750 dated 6.05.2014. Copy of theminutes is enclosedasAnnexure - 1 of this item.

Minutes may be taken as confirmed.(

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J13th FlAC Meeting

Annexure-l of Item No.1

Minutes of the 112thmeeting of Finance Investment & Audit Committeeheld on 28.04.2014

1. The .11:ih meeting of the Finance and Investment COmmittee, Central Board of Trustees, .Employees' Provident Fund.was held at 12:00 Noon.on 28.04.2014 at EPFO, Head office,New Delhi.

2. The followingwere present in the meeting:

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a Shri K.K.Jalan Chairman, Anance Investment & Audit Committee

(AAC), CST, EPFand Central Provident Fund

Commissioner, Employees' Provident Fund. -'.

Organisation, Head Office.

b Ms. Meenakshi Gupta Joint Secretary & Ananclal Advisor, MOl&E

c. Ms. Sameera Saurabh Joint Secretary (Social Security), MOl&E

d Dr. G.Sanjeeva Reddy Member, CBT, EPF (Employees' Representative)'.

e Shri J.P.chowdhary Member, CST, EPF (Employers' Representative)

f. Dr. Shashank Saksena, Domain Expert, Director(MOF) (Representative of Sh.

Anup Wadhawan, Joint Secretary, I&P, DFS, MOF)

g Shri Sanjay Kumar Convener and FA & CAO, EPFO

.3. The following members could not attend the meeting:

a. Dr. G.Sanjeeva Reddy Member,CBT, EPF (Employees' Representative)b. Dr. Ram S. Tarneja-Member, ..CBTr·EPF.~Employers~.Rep-f.e.~ept~tjye).

4. The following officers were in attendance:

a. Ms. Mridula Ghai, Director (Audit)b. Shri Sanjy Kumar RPFC-(F&A,Investment}c. Shri Manoranjan Kumar, RPFC.;;II(Investment)d. Shri Ajay Kumar, RPFC-II (IMC)e. Shri Vishall Agarwal, RPFC-lI (IMC)

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Item No.2:-Actions taken on the recommendations of the 111th ( Imeeting of Finance & Investment Committee held on I27.03.2014. ..~ .. I

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JJ31h FIAC Meeting

5. The Chairman welcomed all the members and officers present in the meeting.

6. The Agenda wise discussions are recorded below:

Item No.1:-Confirmation of the Minutes' of 11lth Meeting of the Finance'and Investment Committee held on 27.03.2014 at EPFO,HeadOmce, NewDelhi.

The minutes were confirmed.

The Committee took note 'of the Action Taken Report.

Item No. 3:-Additional Investment guidelines for new pattern ofinvestment (decided in 202nd meeting of CBT).

(i) ·FA & CAD introduced the agenda item to the Committee. Apresentation titled "Challenges before EPFOin generating betterrate of return" was made by FA & CAO before the Committee. Thepresentation contained the following proposals;

(a) To remove the following conditions for investment inbonds of dual AAA private companies laid down by201 st CBTheld on 25.02.2013;

a. Listed companies.b. Continuously made net profit during last 5 years.

...•.•..•... ~! ...•..Minj.tnum..positive.net worth of Rs.3000 Cr.--_ .._-_._-_._ ..__ .__ ._ ~~.d. Continuously paid minimum dividend during last 5 yrs.

(b) To increase. the basket for Private Category byallowing investments in bonds of dual AA+ ratedprivate companieswith following conditions;

a. Maximum investment Limit as 20% of net-worth.b. Maximum tenure of 5 years.

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c. Covenant for stepping up of interest in case ofdowngrade by one notch by the rating agency.

d. In case of downgrade by more than one notch by boththe rating agencies,EPFOcan use option to redeem thebond (PUToption).

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(ii) Sh. Shashank Saksena, Director (MoF) suggested that condition oftenure of 10 year may also be removed.

(iii) On the query of Sh. Prabhakar Banasure that how many more privatecompanies will qualify for investment of EPFOon approval of aboveproposal of relaxation for investment in bonds of dual AM privatecompanies, FA& CAOinformed that if proposal is approved, the basketof AAA private companies that may -qualify for the purpose wouldincreaseto about 66 from 16.

(iv) Sh. J. P. Chaudhary suggested that since the matter -involvedrisk andreturn on investments of EPFO,it should be brought before the CBt forconsideration and approval for which a separate meeting of the CBTmay be called for deliberating solely on investment issues.

(v) Ms. Meenakshi Gupta, ]5 & FA, MoL&E suggested that the ExpertCommittee to be headed by Shri Kaul formed for _analyzing variousitems on investments and giving recommendations on them may alsobe assiqned the task of examining the issue of further relaxation inprivate category and its suggestions/ recommendations may be placedbefore the HAC / CBT.

(vi) ChairmanHAC suggested that since the wage limit may get increasedto 15,000 for which notification is awaited, this call for relaxation forinvestment in private category would have to be taken by the FIACsooner than expected and accordingly requested the members toapprove the item.

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113th FIAC Meeting

(vii) The Committee decided to recommend the item to the CBT forconsideration and approval of both the proposals as mentioned abovewith the observation that if the Expert Committee to be headedby ShriKaul formed for analyzing' various items on investments and giving' c:recommendations on them shall also examine and giverecommendations on this item as well, its suggestions specific to thisitem may also be placedbefore the Boardalongwith the main agenda.

Item No. 4:-Finalisation of MoUwith NTPCfor subscription to the bond

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issuance for next 3 years. C..·····C·

FA & CAO introduced the agenda item to the Committee. Afterdetailed discussions, .~e Committee decided to recommend thefollowing to the CBTfor approval;

a. To approve the proposal of NTPC as contained in theAgenda.

b. To constitute a PSU'Cell within IMC as proposed in theAgenda.

c. To delegate the power of signing the agreement with anyPSUtothe CPFCwho is also the Chairman,FIAC.

Item No.5: Proposal for borrowing of funds for participation in primaryauctions of Government Securities and Corporate bonds.

FA& CAOintroduced the agenda item to the Committee. It wasinformed to the members of the Committee that similar item of

___ ._ _ _._ borrowmg from CBLQ. for.·.·participation in primary auction ofGovernmentsecuritiesand SDLby RBI had already been approved bythe CBT,EPFin its 200th Meeting held on 07th August, 2012. However,due to certain operational issues the borrowing from CBlO could notbe done till date.

The Committee after detailed discussiondecided to recommendthe item to the CBTfor approval.The Meeting ended with vote of thanks to the chair.

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113* FIAC Meeting

Item No: 2 Action Taken Statement in respect of 112th meeting of Finance&. Investment Committee held on 28.04.2014.

Item

No.Decisions/Directions of FIC Action Taken

The Committee after detailed discussiondecided torecommend the item to the CST for consideration

3. and approval. It is further observed that the Expert.... Committee to be headed by Sh. Kaul formed for

analyzing various items on investment and givingrecommendation on them shall also examine thisitem and give its recommendations. Its suggestionsspedfic to this item may also be placed before theBoard alongwith the main agenda.

Additional Investment Guidelines for New Item will be placed before thePattern of Investment 2013 ensuingmeetingof CST.

4.

Finalisation of MoU wit" NTPCfor .subscription' to the bond issuance for next .Item will be placed before the3 years. ensuingmeetingof CST.

After detailed discussion, the Committeerecommended the following to the CBT forapproval;

L To approve the proposal of NTPCas containin the Agenda.

If To constitute a PSU Cell within IMC as..proposed..in..the.AgendiJ......................................................... . .

IlL To delegate the power of signing theagreement with any PSUto the CPFCwho isalso chairman of HAC

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Proposal for borrowing of funds forparticipation in primary auctions ofGovernment Securities and COrporatebonds.

The .Committee after detailed discussiondecided to recommend the item to the csr forapproval.

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JJ3th FIAC Meeting ro

Item will be placed before thehensuing meeting of CBT. ~.

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113th FlAC Meeting

Item No.3: Challenges in investment of EPFO fund in the changedeconomicscenario.

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A power point presentation will be made in the meeting.

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Item No 4: Appointment of Consultant for Selection of PortfolioManagers, Custodian and Concurrent Auditor andPerformance Evaluation of Selected Portfolio Managers.

.1. The Central Board of Trustees, EPFin its 202nd Meeting held on13.01.2014 gave its approval for constitution of a five membersCommittee to carry out the process of selection of Consultant fromamong the credit rating agenciesregisteredwith SEB.

2. The Committee prepared the Request for Proposaland sent the same tothe six credit rating agencies registered with SEBI. The same was alsoposted on website of EPFO. The interested parties were. given fourweeks time to send in their bids i.e. Pre Qualification, technical bid and···financial-bids till 11:30 A.M. of 9thMay, 2014. Three bids were receivedby the office within the stipulated time pertaining to following CreditRatingAgencies:

(i) MIs. CRISILLtd(ii) MIs. CARE(Hi) w« Brickwork Ratings

3. The Committee met on 12thMay, 2014 at 11:30 a.m. onward as per theschedule for opening of the bids received in the office. Therepresentatives of aft the bidders were present for opening of bids. Thebids submitted by MIs. BrickworksRatings.endMIs. CAREwere not in theprescribed format and were accordingly, liable for rejection on technicalgrounds of not adhering with the procedurefor submissionof bids as wasprescribed in the RFP.However, in order to have wider partiCipation inthe bidding process and give fair chance to all bidders, the Committeedecided to consider their bids with certain conditions as detailed in the----.---- ..-- - -.- _ ···········th····.. ' ,. . ..

. minutes of the Meeting held on 12 May, 2014 placedat Annexure 1.

4. Thereafter, the Pre-Qualification(PQ) bids·were opened in the presenceof the representatives of all the three bidders. There were seven PQcriteria which were all to be fulfilled' by the bidders. Bidders fulfilling allthe PQcriteria becameeligible for opening of their technical bids followedbe opening of financiat bids if found technically qualified. All three CRAswere evaluated by the Committee one by one on PQ criteria and

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JJ3'h FIAC Meeting r:

thereafter results tabulated. Since each bidder had to qualify on each ofthe seven PQ criteria, the criteria subsequent to first disqualification· wasnot evaluated by the Committee. After the evaluation of the PQ bids.of all

. the bidders, two of them were disqualified. on Pre-Qualification stage forfailing to qualify on one of the PQ criteria as mentioned in theComparative Statement of pre-qualification. bid prepared and signed by allthe Five Members of the Committee.

5. Accordingly, the technical bid of the only pre-qualified partlclpant i.e. Mis.CRISIL was opened and technically evaluated by the Committee on eachof the parameters prescribed in the RFP. As mentioned in the RFP, Mis.CRISIL also made a presentation on the parameter for 'Approach andMethodology to be followed for Execution of Assignment' ..before the .Committee.

6. The Committee was of the unanimous opinion that Mis. CRISIL was thetec;:hnicallyqualified for carrying out the assignment successfully as it hassecured 58 marks out of 80 against the minimum requirement of 48marks and hence financial bids of MIs. CRISIL could be opened. Thefinancial bid of the CRISIL was opened and the following rates werequoted for the works to be done:

SI. Activity to be carried out Period of Consultancy Total

No. Engagement Fee (In Rs.)(In Rs.)

1. Preparation of Expresslonof 1 32,00,000 1 * ~2,oo,OOO

Interest (EoI) and Request for = 32,00,000

Proposal (RFP) and in evaluatingthe Technical andFinandal Bids

............. ·······for··ap·poln"tme·ilt·ot·pOrtfoiioManagers, Custodian. &Concurrent Auditor.

(ONETIME t;XERCISEl

2. Monitoring the performance of the 3 24,ooiOoo 3 * 24,00,000

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JJ3th FIAC Meeting

selected Portfolio Managers, = 72,00,000

Strengthening of in-houseInvestment Monitoring Cell (IMC)of EPFO.and training the officials ..on investment procedure andpractices from time to time and -Providing research basedassistance to·EPFO.

(RECURRING I;XI;BCISE}

TOTAL 1,04,00,000

7. The Committee decided to recommend to the Central Board of Trustees,EPF the name" of MIs. CRISIL for appointment as Consultant for theassignment as mentioned in the RFPon its quoted fee.

"8. In view of the above, the FIAC may recommend the name of Mis. CRISILLtd. for appointment as Consultant for selection of Portfolio Managers,Custodian and Concurrent Auditor and performance evaluation of selectedPortfolio Managers. However, keeping in view of the paucity of time andimportance of the matter, it is suggested that the FlAC may recommendthe name of M/s. CRISIL Ltd. for appointment as Consultant to theChairman, CBT for approval and the matter may be placed in the nextMeeting of CBT for information/ratification.

The agenda is placed before the Committee for approval of Para---.-.----..- 8-abiive~··..·········..·-·········· .

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EmpIQyees'·Provl~eot·FU"dO.rg~n.~sati~n.:'(Minlstty. ~f:L,al.~ljr"~Q~''Qf IncUa),," .. ·.~Uz(~/aeacr9m.~ ..'

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" . ·www.epnndfa.lov~iDtlfWl!;epnJ)d·il.;)ilc;Jn- . , ,. . .... " . ;-.:~ . ..- - :" .

Dated;

To,

"Pr. G.~njeev.a'Reddy, SheSharad.Pa~l,President,· "Secretary Ge.ri.eral,(OE) , .. , ,Indlpn National Trade UnionCongr~i eTIployees' Feqeration :of India,6/8,'Leigh Bar1ccttPur'e, ',' 204,Joanna; tO~ManuafGonsalves Road,Hyderabad-$OOQ27. ' .'-.:.' Sandra (West)': '

.Mumbai:-4OQ'OSO.

.: . l .Subject: Minutes of the .. ':Ibird Meeting!. of. U.e,::,~mtpi~ for. AppointmentQf

Consultant for ,th~ SeI~9n, 'oNP-C>.rt:{9Jio -·M,a.n~gersiCustodian, COncurrentT . Auditor and Perfc:nmance ':valuatipn'Qf:the eo,.~~no,Mana.gers.

I am directed to forward herewith the Minutes of the Third Meeting of Committee

for Appointment of Consultant for the Selection of Portfolio Managers, Custodian,

Concurrent Auditor and performance Evaluation of the Porttollo Managers held on 12th, ,

May, 2014 signed by EPFO representatives and concurred through email by Dr. G.

Sanjeeva Reddy and Sh.·Shar,adPatil (copy otemalls enclose~l for perusal and record.

_.__ _-_ _ _._ .

Sir,

Endos",re:- As above

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Minutes of the Third Meeting of the COmmittee for Appointment of COnsultant forSelection of Portfolio Managers. CUstodian and Conaarrellt Auditor and perfonnanceEvaluation of the POrtfolio Managers. held on 12'" MaYl 2Q14 at 'EPFO Head Office,Hew Delhl.-

The Third Meeting of the Committee was held on 12th May,. 2014 from 11:30 A.M. onwards

in the Conference R(>Om;3ldAoor, EPFOHead Office, New Delhi. The 'purpose of this Meeting

was to open and evaluate the bids received from CRAsfor appotnbnent as Consultant.

All the members as fdHows were present in the Meeting:

1. Dr. G. SClnjeevaReddy, CSTMember Member, Employees' Representative

2. Shrl Sharad Patil, CSTMember Member, Employers' Representatl\le

3. Shri Sanjay Kumar, FA& CAO Member, EPFO

4. Ms. Mrldual Ghat, Director (Audit) 'Member, EPFO

5. Shri Sarijay Kumar, RPFC-I{IMC} .Member, EPFO

The officers of Investment lIMe, l.e, Shri Manoranjan Kumar, RPFC~n,Shri Ajay Kumar,RPFC-II and Shri Vishal Agarwal, RPFC-II and concerned offidals of IMC section were alsopresent to assist the Committee in theexerdse.

The FA&. CAO welcomed aU the members to the Third Meeting of the Committee. He

C informed that the two letters with reference to the RFPdocuments were received from CRAs.'-"-'----'- ..·"·'..'..Wh'lIe..ln'.the.·fi.rs( ..Mj$~···cRisiL'Ud~'~dsought certain clarifications on RFPd()CUments,ln theC

second, MIs. Brickworks Ratings has requested to relax clause 11.bofthe RFPi.e. Bidder shOUld

have minimum ten years of experience of operation in India. With reference to the first, the

Committee was Informed that the clarification had been issued to all CRAswhich was tal<ennote

of by the Committee. With reference to the representation from Btic;kworks seeking rel~tionin Oause l1.b, FA &CAO observed that since relax!;ltion sought came under the domain of theCommittee, no reply has been sent and requested the Committee to decide the same. The

Page 17: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

Committee perused the representation and heard views of the representative of MIs. Srid<WQrksRatings. Thereafter, the Committee had a detailed diSCUSSionafter which it ~M~ded· that-since thedause was there in the laSt RFP forseledion of consultant"als<> end there rnu~be .'some minimum benchmark. Inexperience asthe presen~aSSigMien~ requlredn~ only t~hnlCPlexpertise but also sliffident experience In the relevant area of consultancy, it would not be

appropriate to relax Ule said condition lilt this stage; The representatiVe of MIs. Brickworks

Ratings was informed of the decision of the Committee.

In total 3 bids were receivedfrom eRAs namely w« Brid<works Rati~gsi MIs. CARE .and

MIs. CRISIl and the representativ~ Qf··all the bidderS Were present fo.ropening of bids whose.- .. " ... " ...... .....

attendance was tak,en on record. The main envelopes containing the bi<:\sof all the 3 bidders

were opened in presence of all. The bids d MIs.Brickworks Ratings and MIs. CAREwere oPtsubmitted In·three separate envelopes with proper superscription of the type of bid on the top

of each .envelope as prescribed ·dearly at Para 23 of Page 1101 the RFP(ttlat was readoutfmm

RFP for information. of all present) and were accordingly, liable for rejediOhon technic:aJ

grounds of not adhering with theprocedureforSUbmfssion of bids as ~ p~bed ..in theRFP •However, the representatives of MIs. Brickworks RatingS andMls.CA.RE requested the

Committee that their bids might not be rejected on this ground as they knew the t.ype of bidkept in each envelope and if opportunity was given to them, they could super~be the type of

bid on top of each of them correctly. AccQrdingly, in order-to have Wider participation in the

bidding process and to give fair chance to all bidders, the Committee decided to con$jdertneirbids With the condition that since the technical and financial bids of only those bidders were to'be opened who q~allfied PQ and technical stag~ respectively as per the procedure given 11'1 theRFP; their representatives should give writtenatXeptance that if after opeoingof the envelope,the bids were not In presctibed format or some other type' of brd other than that super-scribed

....................................on.top ..js.openedi·the same shaJJbe liable for rejection. The representatives of both Brickworks

and CARE gave their Written acceptance on the baQ<Qfl:he envel<>peto thateffeq and wereacc:ordingly,allowed to super-.scribe the envelopes.

Thereafter,. the Pfe,Qualificatlon (PQ) bids were opened in the presence of the

representatives of all the three bidders. There ~re severiPQ criteria which were all to ~fulfilledW the bidders so as to be eligible for opening of their technical bids followed by opening

Page 18: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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of finandal bids if found technically qualified. The standing on each of the seven criteria or anthree CRAswas evaluated by the Commlttee one by one and thereafter tabulateQ.Slnce each .

. . .• . .

bidd~ had toquaJify' on' each of the sevenPQ criteria, .the .criteria subSequent t:6 first -disqualification was, notevcsluated bytheCornrnittee .. AftertheeValua~onoft;be'~ bltIs of a1~the bldders, it was obServed by the Committee that while. MIs. Brickwork Ratings could notfulfllI

PQCriteria 2 t.e, The Credit Rating AgenCf should have minimum 10 years of operations in India

in thefle1d of ratings,M/s. CAREdid not submit documentary proof in respect of PQ Criteria :3te.lhe Bidder should have never been disqualified by SEal (on which the Committee took a

lenient view duly observing that if found qualified for the assignment after completion of the

bidding process, MIs. CARE would submit the p~bed affidavit In time bound manner to.- " ,- .. -" " .. ".- ..

which its representative agreed) a.nd further COUld not qualify PQ CrIteria 5 l.e. The, bidder

should be experienced in selection of investment portfolio managers OR The bidder should"be

experienced in evaluating perfonnance of investment portfolio /Investment pol1:fOliOmanagers

as ~ the infonnation giVen in PQ bid. MIs.' tRIsIL fulfilled all the PQ criteria Y/hereasM/s.

Brickworks Ratings and MIs. CARE were disq~alified on, Pre-Qualification stage for falling to

qualify on one of the PQcrlteria as mentioned'in the Comparative staternentof pre-qlJalificstionbids wI1ichwas prepared and signed by all the Ave Members of the COmmittee (encJosed as

Annexure 'Al.

Accordingly, it was decided to proceed with opening of the technical bid of only one such

bidder which. had pre-qualified the bidding process. On this point, Director (Audit) observedthat since only one party has pre-qualified after evaluation of PQ, the Committee might considerinviting fresh bids in order to give wider partidpation to the prospective bidders. It was darified.

by FA & CAO that each of the 6 eRAs recognized by SEBI was individually infonned of the

process. There was absolutely no probability that any of the prospective bidders was uilawate

~~ " ,.of,the ..biddlng ..process; ..·'Secondly, the pre-qualification criteria followed In this bidding process

C Were either identical to or relaxed than the technical criteria fixed while selecting the consultant

for the similar workin 2011. Out of 7 pre-qualific:ation criteria, White criteria 1, 2, 3, 4 and 7'

were identical to, the tecnnical criteria adopted for selection of the Consultant in 2011, criteria 5

and 7 were made mQrelibetal in order to generate wider partidpation. If the Committee went

by technical evaluation adopted for selection of the consultant last time, qualification to each

technical criteria was individually analyzed, in other words, the technical criteria evaluated by

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Page 19: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

the Committee in the last bidding process were a,lsotreated as mandatory and pre-qualificatory

In nature. The process of selection of consultant thIs time was atlgned to thep~ prescribed " '

by the Depattment of Expenditure, MiniStry,of Finance for Selection of COnsunants ;to the

'maximum posSible extent It was further added that the rdle Of"tne~rtant Wasmuch more, . .

than work of a cr.edit 'rating agentYas it not 0A1y Involved selection of .appropriate portfolio

managers but also evaluation of their performance on peri6di~J basfs, rendering trafni'ng and

providing research based asSistance. The c;onditions presciibed have to mke lnto accOijnt the

experience of the CRAs in executingasslgnmentot similar nature.

Dr. sanjeeva Reddy observed that proper comrnunlcatio~., ~asgivtm to each of theprospective, bidder not :on'ly through e:-mail' and' 'w~~,te'but also through .$peed ,.post.

TelephonicacknoWled~ment of receipt of RFP was alSOeoofirri'leQfromeachCAA. TherefOre, 'it. '

Was dear that reasonable opportunity and sufficjentilOtice (off our weeks) were given to all the

prospective bidders. So he suggested to proceed With opening of tectlnical bid of the pre-: ,qualified bidder.

Sltri Sharad Patil also endorsed the views of the FASt CAOas well as Dr~Sanjeeva Reddy.

He also emphasized, that quality of the Consultant had wider ramification in the subsequent

process of selection of portfolio Managers as wen as evaluation of their performance in Fun~

Management. Therefore, the conditions ?lsagreedbytfle· Committee for pr~ualification andtechnical evaluation should not be compromised. He further added that Sl,Jfficieotopportunlty

had been given to all the prospective bidders whiCh, apart from the 3 bidders;, others haveopted not to avail, .and the process cowd netbe derailed merely because some prospective

bidder(s) had not shown interest in the assignment.and h~daccordin9ly not applied~l'heref()re,

there INasOO reason for not going ahead with the process further •

..............................................Accordingly, as stipulated in the RfP, the technical bid of the only ,pre-qualified bidder l.e,

Mis. CRISll was opened and technically evaluated by the Committee on each of the

parameters. Asmentioned In the RFP,MIs. CRlstl al$Qmade a presentation on the parameterfor 'Approad'aand Methodology to be followed for ExeCU,tion of Assignment' before the

COmmittee. A copy of the same was also kept in fllefor record, The flnal score obtalhed by MIs.

dUSIL on each of the parameters was as under:

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Page 20: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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ExPerIence In eValiJation of perfOmiance of pension. I provident fundsmanagf!fS[(a) No of years of'~, (b) No Of dlent:Sand {e). SIze·of asset$

2 tnanagedbydlent$) (BIdder shoUld submit letterof' award/appoiiltment1. letter/COPYof agreernentjSatlsf mmplelioo letter as doc:umenbIry

proof for these assignments for (a) & (b) AND self attesteddedaration for(el]

15 12

Experience in deslgnlng· and aeatioo cJ txmchmarkif\9·lndk:es·formfuatfQti .of performance of inveStments· .in Govt. securities and COrporate Bonds

1 3 attd/Ofequities. (N~ of years of experience, No of Oients~ No. Of Indices.).. (Bidder should $l,ibmlt ·theliSt of indices that are outstanding in the publiC

dOmain) .10 9

(a) Experience in handling assignments / projects in the current Flnandalyear and previous Ananctaiyears (FY 2010-11, 11-12& 12-il) forFinanaal.~ regulatOrs - in India (8"Kfder should submit letter ofaward/appointment 1etter/c:J:)p'f of ~tJSatlSfactory COftI))Ietion letteras docUmentary proof for tt..ese ClS$i9mnents)

(b) Experience as Member on the committees set up by Anancial. sectorRegUlators (SEUl/RBI/IRDAIPFRDA etc.) and Industry Bodies (BIdder shouldSUbmit the names of the Committees and representativeS on thoseCOmtnittees)

5

Profile of Team Leader and relevant experience2.1 4

Profile of the Team and rekNant experience2.2 10 1

3

ApproOChandMethod9Jogy to be followed for executJon ~ assignment

Project Plan and Tmellne 25 15

80.....................~::......................... . .

TOTAL

The Committee was of the unanimous opinion that MIs. CRISIL was techniCally qualified for

carrying. out the ~SSignment successfully as it had secured 58 markS out of 80 against the

minimum requirement of 48 markS and hence ftnandal bids of MIs. CRISIL could be opened.

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Page 21: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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rates were quoted for the wOft(s to be done:

Accordingly, the finandal bid of MIs. CRISIL was opened by theeommittee. The following

1,04,00,000 .

(ONEUMEQERCISEl

$. Activity to be. carried QUt,No.

~'of ~ncyT'",~.' Fee,(ln-') (Ii1(1lL)

1 * 32,00,000=3~/OO)OOO

1. .Preparation of ExpIession fA Interest (EoI) and 1Request for Proposal (RfP) al)d, inevalu~ the.

Tec;hnicat and Anandal Bids for i;lpPoInt:rner¢ ofPortfolio Managers,CUstPdlan &.Coil.current AudItor. .

2. Monitoringthe perfOnna~ f;)f the~ 'PQrtfOno 3

Managers, Strengthening Of 'n"~ InvestmentMonitodogCelI (IMC) of EPft)' afld b'alnlngtheoffldals on Investmentprocedure. and practices fromtlme b). time and ProvIding researth base<I

assistance b) EPFO.

24,00,000

(RECURRINGpERQ$E)

TQTAL

It was felt by the Committee that the consultancy fee quoted by the bidder was on. thehigher side considering the fact that the total fee. on the last occasion Wijs Rs.61,OQ,OOOl·.Accordingly, the representatives of the bidder Le. MIs. CRISIL were called to seek dariflcatlonon the finandal bid vis-a-vis tile Scope of Work and Terms of Reference mentioned In the RFP.

It was :<:tariffedby the' bidder that rlotonly the prices had Increased significantly in the last three

.....""."",,.....·....··years, but also since scope of work has Increased in both one time exerdse (as they have tocarry out the task of selection of not only portfolio managers but also CUstodian aod Coocurrent

Auditor) as well as recurring exercise (as they have to impart tlqinlngand pr.oVlde research

bClsedassistance to EPFO in addition to the scope in the last mandate), the higher fee bas been

quoted. The fact was considered by the COmmittee and' was found reasonable. Accordingly, the

quoted fee was accepted with the observation that If appointed, the selected Consultant would

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Page 22: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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have to render training for atleast 2 days in each half of calendar year to the officers I offidals

Of EPfO as per the requirement of EPFO to which the bidder agreed.

AccOrdingly, tbe Committee dedded to recommend to the ~rd. of lrU$teeS, EPf·tbename of Mis. CRlSIL for appomtmentasConsultantfor the assignment as merttioned Irt the

RFPon its quoted fee and above observation.

The meeting ended Withthanks to all.

~~Ms.·MRIDUlA GHAt, DIR. (AUDIT)

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SANJAY.KUMAR, FA·It CAO

- Sd.-Dr.G. SANJEEVA REDDY, CBT MEMBER

- s.d..-SHARAD PATlL, CST MEMBER

................................................................

Page 23: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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ComPDrativestatemeot of Pre-gualifltationbid for apRQiotmentof. . . . '. . . . .' " .. '. .

Portfolio Miloagers, Cu§todianand, ~mal;o,nc;urrentAuditqt,

The, credit Ratings A copy oftne Regl$tration 'yesAgenq' stlouldbe duly certificate to that, effect 'registeredwith SEBI. most be endosed

S~no Criteria

No

1. Yes

"'1. The Credit Rating Relevant documents ,No"Agency should have evi(iendngt;he period. of-minimum 10 years of operation, such aspperation in India in certificate ofthe fteldofratings ,Commencement of

,Business, Certificate of,incorporation, Service Taxregistration etc. must beendosed

Yes Yes

3. Bid®r's shOuld - YesdocumentaryProof

4.

The Bidder should have Thenever-been disqualifiedbySEBI

endosedan affidavit on'Rs. 100/- Stamp Paper tothe effect that they werenever disqualifiedby SEBI.

Yes Yes

5.

The Bidder should have The Bidder will need to -profit ttac:k. record for $Ubmlt copies of Balance

, last 5 years. Sheet and Pal Statement'duly certiftedb'i CA for thelast five years.

(a) The bidder should (a) The documentary-l?e. experienced in proof of completion,ofselection of investment 'works of seJedion ofportfOliomanagers. investment portfolio

managers, $lith asSatisfactory COmpletionLetter must'beendosed.

Or

(b) the bidder shouldbe experienced in (b) The documentary

NO Yes

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l

Page 24: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

•...•.

Yes

evaluating performance proof of experience Inof investment portfolio evaluating performance of ../investment portfolio investment portfOliomanagers managers such as

mandate letter/work'omer/letter ofaward/appointment-letter/copy ofagreement/satisfactorycompletion letter/pressrelease/report must beenctosed.

6. The biddershoufd have The documentary proof, -in-house expertise ln such as mandate letter/rating of financial work order!"· .letter ..ofinstruments or award/appointment letter/

- valuation of finandal· copy of agreement/instrument of designing Satisfactory completionandaeation ·of letter/ press release/benchmarkindies. report must be endosed.

7. The bidder snould have Appropriate supporting-minimum on-roll staff undertaking I certificateof 20 peopleWorking in from the Head of HR Orthe area of funds Company Secretaryresearch, valuations· specifically certifying thatand .indies. Out. of as 011 the date of RFP,thethese, at least 10 bidder has a minimumshould be financial staff of 20 peopleworkinganalysts in the area of funds,.-. research, valUations and

indies and out of these, atleast 10 are financialanalysts with minimumqualification ofMBNCA/CFNpostgraduate degree infinance.

Yes

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Page 25: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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Each bidder had to qualify on every PQaiteria, the crfteria subseqUEmt to firstdisqualification was not evalUated.

The te<:hnlcal&.~nandalbids:ofthe·CARe a;d B~ not opened asthey failedto

quahfy the Pre Qualifi@tion (PQ) criteria.

A~~SANJ/AY KU~lPFC-I (IMC)

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Ms.MRIOULA GHAl{QIIt AVOIl)

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Page 26: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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Gmail- eonfirmation of minutes Page lofl

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Vish_1 Ag;arwal <[email protected];om>

confirmation of minutes

. irtwc hq<intuchq@gmaitcom>To: [email protected]: [email protected]

Dear Sir,

~nk you very much for sending ttleMinotes of the Third Meeting of the .Committee for ApPoihtrl'lentof Consultant for SelectiOn of PortfoIIoM~nagerslCOstod"ean and Concurrent AUditor and Perfor:manceEvaluation of the PortfoliO Managers, held on 1~ May, 2014 atEPPO Head Officel New DeIhl.

I hereby CQnfinn and you may 1<in<1!Yobtaint:heslgnature during mynexf: viSit to. Delhi.

Sincerely,

G. sanjeeva -Reddy

President INTUC

https:llmail.google.com/maillulO/?ui=2&ik=a650 1e68dc&\riew=pt&q=sharadspatil%... 17-06.;2014

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Page 27: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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Gmail« ccnfinnationof'minutes Page loft

V'lShalAgarwal <[email protected]>

confirmation of minutesEFt $QLAR<efi$Olar@Q1tnLnetin> - . . 0 •• ° Mon,Jun9, 2014 at 5!;$4 PM .To; Vi$bafAgarwal <[email protected]>.. ... 0.. • . • . o.

Cc: Sharad P$tU <$haradSpatil@gmaif:eom>;sanjay_ii's <[email protected]>, IMCI2PFO- <[email protected]>

Deat Vishal,

I do likewise. Tks n bst rgds Sha~d Patit.[Quoted .text hidden)

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Page 28: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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J13lh FIAC Meeting

Item No.5: Delegation of power to FA&CAOfor approval of payment toFund Managers, Custodian, Consultant and Externalconcurrent auditor. '

oAdministrative approval' and financial sanction 'to,· incur- . the following

. ,

expenditure have been given by CBT illJ1:s_191st,195th and 196th meeting.

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1. FundManagera. 5BI

b, ISecPD

c. H5BC

Rateof Fee0.01%

0.0003%0.0036%

d. RelianceAMC 0.0004%2. - Custodial1of.5e(;uriti~~_ 0.0000001%

3. Consultantfor fund management 16lakh (+ 15lakh per annum)-

4. External.ConcurrentAuditor llakh permonth

On receipt of the invoices from them, the proposal is put up again to CPFCfor

.approval before making payments though these approvals. The -process for

approval is more or less a routine, in view of the decision already taken by

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The process consumes extra time, which may be avoided if this power

is delegated to FA & CAO

The proposal is also in line with the latest instructions of the. Govt. of. .

India which desires reduction in the level of decision making authorities in any

administrative process in order to achieve better efficiencies in the. administration and management of the affairs of the government.

, J

In view of the above, it is proposed to delegate power to approve and

authorise periodical payment to FA & CAO for making payment for the

following services at the rates already approved by CST-

• Fund Manager,• Custodian of Securities,• Consultant for fund, management,• External Concurrent Auditor

Page 29: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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The Agenda item is put up before FIAC for consideration and.,'> , .. ,'.< ' , " "\,,,;:, ",:1' ,,'

recorTlInendationtoCentralBoard of Trustees,Ernploy~s Provident Fund forit's approval.

Page 30: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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Item No.6: Note on status of Accounts in EPFO and initiatives taken toimprove uponthe same.

Tobe circulated separately -

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Page 31: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

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th .113 . FlAC Meeting

Item No.7: Migration of EPFO'saccounts to Double Entry accountingsystem.

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A•.Approval for approach for migrati~g to Double Entry BookKeeping. . .- .

B. Engaging -In~te. of Charted Accountants· of India,Accounti~g Research-Foundation (ICAI,ARF) as 3 consultantfor the above process.

In its 78t:h meet:ing held on 5th March, 2014E(:, CBT while discussing"." . . .

item No.3 on the Revised Estimates ..for Financial Year 2013-14 and Budget

Estimates for 2014-15 had also directed EPFO to adopt Double Entry accrual

based"accountitig:bylhe" end of current Financial year 2014 ...15.

Considering the size of the Organisation particularly to the amount of

funds being manaqed byEPFO and also the. number .of members to the

different Funds" itWas decidedto evaluate the work involved"with>the help ofJ3rofesSionalorganizi3tion. Accordingly, Accounting Research .Foundation of

Institute of Chartered Accounting of India (leAl ARF} which is an Apex Body

for evolving accounting practices in India was approached to give broad level

road map /apprqach for undertaklnq the task of migration to Double Entry

Accounting System.

An Agenda Item on progress on migration to" the Double Entry

Accounting system was also placed in 11lth AACheid on 27-03-2014,

informing the FIAC that due to complexity of issues involved lCAI ARF has

been approached and preliminary roadmap for the task to be undertaken will

be placed before FIAC as and when it is received.

Several rounds of discussions were held with the team of lCAI, ARFboth at the Head Office level and also at the level of RO and SROs. On 16-05-2014 a technical approach note/high level road map was submitted by100 ARF (Annexure-I). On the same day, a meeting was convened byCPFC calling the Commissioner Finance and D.O. Finance from ESIC to

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understand the strategy to be adopted for implementation. A separatepaper . for discussion relating to the .sequential steps onimplementation was also presented by lCAI ARFwhich is placed atAnnexure~II. The minutes of the meeting is placedat Annexlire III.

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-Or:t the basisof the approach paper and strategy for implementation aspresentedbyAccounting ResearchFoundation, it Wasdesired that AccounnnqResearch Foundation may submit a final proposal on the approach paperincluding the cost of preparatory work and roll out of implementation ofDouble Accounting System till pilot stage. Accordingly, a letter has beenreceived from Accounting ResearchFoundationwhich is placed at AnnexureIV.

. A 'separatepresentation on this agenda item is'also being made by'IOOARF.

.Proposal:

a) On the basis of approach paper, implementation road map andpresentation made by Accounting Research_Foundation, FlAC mayapprove the broad level approach for migration to Double EntryAccounting System.

b) The Committee may approve and recommend Accounting ResearchFoundation of Institute of CharteredAccountant of India as Consultantfor the above work.

c) The Committee may recommend the constitution of a Sub-Committeefor finalization of terms of reference and final negotiation of the ratefor proposed preparatory work by AccountingResearchFoundation.

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Annexure 11.f:lMII ~ 7

PILOT STUDY ON ACCRUAL ACCOUNTINGEMPLOYEE PROVIDENT FUND ORGANISATION,

TECHNICAL- ApPROACH NOTE / HIGH LEVEL ROADMAP

leAl Accounting Research Foundation

31

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1. Introduction' EtBackground .....•.....................~.......•........•..•..•.............•...........•..........•..............22.---5cope of Work :•...........•....•................•.............~•.••.••..................................••..................4'3. Methodology .........................•.•....................•...................•......................................................... 64. Project Deliverables .............•.....................•.............•...................................•........................... 85. Project Timeline ..............•..........................................•............................................................ 156. Roles and Responsibilities , 207. Project·Management Office Structure 24Annexure 1 Key tnternal Control and Account;ng Issues 26

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Technical Approach

1.Jntroclu~tion. & Background- .

.The EmployeeProvident Fund Organization (EPFO) has approached the ICAIAccounting- Research-Foundation (ICAI ARF) to support for the implementation ofPilot Project of Accrual Based Double Entry Accounting System. On the basis of theEPFOcommunication, the ICAI ARF, a company registered u/s 25 of the CompaniesAct, 1956 and promoted by the Institute of Chartered Accountants of India (ICAI)decided to take up the -said project with EPFO.

Accordingly, a familiarization meeting between Sr. Officials of EPFOwith the ICAIARFTeam was held at Bhikaji Kama Place, New Delhi on 27th March 2014. ICAI ARFTeam thereafter undertook a field visit to the Office of .the . ., ._____ on with an aim to understand the following keyaspects of the Existing Accounting Systemsat EPFO:

• The Current Accounting Procedures and Practices;

• . Flow of Accounting Transactions at the Pilot Sites; and

•. All Related Intricacies and Peculiarities.

This Approach Note has been prepared with the key objective to provide astructured approach and direction to the proposed engagement based upon initialinteractions and discussions with Sr. Officials at EPFO; observations and review byICAIARFTeam. This Approach Note highlights:

a. The basic understanding of the KAI ARFTeam of the various aspects of thepresent accounting system that wHlbe required to be addressed as a part ofthe proposed project on migration to' double entry based accounting systemat EPFO.However, it is indicative in nature and shall be further updated basis.follow up discussions on the Areas Requiring Further Clarity from EPFO(referAnnexure '1 ');

b. Scope of the Proposed Pilot Study Project including identification of theactivities against each deliverable;

c. Proposed methodology to be adopted by the ICAI ARF Team in theperformance of the identified activities;

d. Project Deliverables required to be submitted under the proposedengagement;

{Draft Copy for Discussion} 21Page

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Annexure 1Technical Approach Note I High level Roadmap for Pilot Study on Accrual Accounting - EPFO

May 2014

e. Timelines of submission of each deliverable. However these timelines beconsidered as 'initially proposed tirnelines". The same are subject to revisionbasis the follow up discussions; .and change in the scope of assignment;.' . . . .' . .. .' - '. .

!..Role &: Responsibilities oflCAI ARFin terms of the eachIdentified activity;

g. Role ft Responsibilities of EPFO against each identified activity and thesupport to be provided thereof;

h. Details of Pre-requisites against each identified activity; and

i. Internal dependencies within Identified Activities.

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Z.Scope of Work,Based upon tntttat interactions; and discussions with Senior Officials of EPFO, ICAI-ARF.has envisaged the scope of the proposed pilot study as discussed hereunder:

a. Assess the 'As Is'; and perform gap analysis from 'To Be' perspective includingthe review of related regulatory/statutory requirements for smooth transitionsinto Accrual Based Double Entry Accounting System",

Under this activity , the ICAIARF Team is expected to design the 'To Be'projected- scenarios to identify the gaps with the existing "As Is" state of affairs,which shall have to' be addressed in terms ·of the iterative exercise.

Further during this phase ICAI ARF Team will also perform a Review· of·Accounting Tree; and Overall Reconciliation Controls over Receipts / Collectionand Payment / Withdrawal accounting streams at both the Establishment Leveland at Employee Level to assess the adequacy and operative effectiveness ofinternal controls over accounting of financial transactions in respect these keyactivities areas.

b. Develop Appropriate Accounting Policies to determine, identify and design mostsuitable approach of Accrual Accounting to be adopted on the basis of theuniqueness of the accounting transactions at EPFO; and considering theregulatory obligation and practicability aspects in due consultation withmanagement;

c. Categorization; Grouping and Sub-grouping of Assets and Liabilities; and Revenueand Expenditure in.due consultation with EPFO;

d. Designing of formats for capturing. data for drawing Opening Balance Sheet*;

e. Restructuring of Chart of Accounts;

f. Determination and valuation of fixed assets (other than intangible assets),current assets, investments, long term liabilities, current liabilities and networth as on opening balance sheet date*;

g. Designing and implementation of MISFormats (to be taken up separately);

h. Selection and implementation Of accounting procedures includes the followings:

• Transaction Procedures;• Budget Preparation and Execution Procedures;• Period End Procedure (at the level of ZO/RO/SRO);

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Annexure 1 c:Technical Approach Note I High leVel Roadmap for Pilot Study on Accrual Accounting· EPFO

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• Reconciliation Procedures; and• Inter ROTransaction Procedures,~ , In'case of ZO/HO related accounting aspects dealt with at the EPFOthe way·

forward accrual based accounting mechanism will be recommendatory only

i. Preparation of Fixed Assets Register as on date of Opening Balance Sheet andperiodic updation 'of fixed assets register*;

j. Preparation of Opening Balance Sheet*;

k. Preparation of periodic financial statements"; and

l. Strengthening and Capacity Buildingof Human Capital in new accounting system.

*Limited to the Pilot Site only

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3. Methodology

Tne proposed' pilot .study.' for the' Implementation' of Acc'rual' Based Double Entry..Accounting-System in the EPFO, wherein the Office of RO, Delhi South .at Dwarka,Delhi, ·of EPFO is identified as the Pilot Site (to reconfirm regarding theindependent accounting center status at SRO, DilshadGarden), is divided intospecific steps in which it will be carried out. The scope also includes aU pilot siterelated accounting aspects; and the accountingpohcy matters that are dealt withcentrally. at the EPFOHead Quarter. These implementation steps will be designedtaking into consideration best accounting practices namely Indian GovernmentFinancial Reporting Standards (IGFRS)issued by.GASAB;Accounting Standards issuedby Institute of Chartered Accountants of India (ICAI);and Standards Issued by IPSASboard for Government Accounting.

The .methodology shall be designed to ensure that all activities focuses on EPF, EPSand EDLIMain Accounts related aspects on priority as compared to their respectiveadministration accounts.

The implementation steps are enumerated as under:

a. Assess I ExamineThe very first step of the pilot study refers to the performance of an Assessment. of the 'As Is' scenario in respect of accounting system at the pilot site. Thisimplies an in-depth review of the present accounting tree and identification ofthe internal relationships of the accounting streams between various subsystems.Further the existing poticies and procedures in practice, as applied and followedat the pilot site would also be a focus area with an aim to identification of anyundefined or fuzzily defined factors and parameters requiring clarity at thisstage.

b. Evaluation and Analysis (E8:A)

During the !;8:AStage, the pilot study shall focus designing of the projectedscenarios, basis 'To Be' for identification of gaps I improvement areas frommigration to 'accrual accounting perspective. All this noted gaps andimprovements areas shall form part of the pilot study and addressed during thedesigning the implementation module. Evaluating the effectiveness of theexisting system and the probable impact of changes shall also form part of thisstage,

c. Envisaging 8: Designing (E8:D)

The third stage is of E8:D.During this phase ICAIARFteam wiUdesign / develop amodel for changeover, with specific regard to all the issues which would havebeen identified during the E8:Aphase. The E&Dphase will consider; incorporate

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and address all the steps that would be needed to take the system through thetransition phase. During this stage all specific issues with regard to prospectiveMISdesigns will also be addressed. The proposed module will be tested by the .."KAI·ARFTeamalong with the EPFo"Team, ..

d. ImplementationThe Implementation· stage of the study will commence after the EftDStage. Thisstage is the actual implementation stage when on the basis of the output of therollout process the envisaged structure will be updated appropriately . Majoractivities in this stage shall include putting the building blocks of the new systemin place; running the new system under close monitoring and supervision andtaking care of cultural constraints ensuring a smooth migration.

e. Ensuring I Sustainability ..This Stage follows Implementation Stage. Activities under this stage are designedto ensure Sustainability of the new system. During this stage training of thetrainers, on-site personnel etc. is carried out along with development of variousmanuals and guidance documents etc. Furthermore the ensuring stage shall alsoinclude the staff training programs to be conducted at Regional I Sub-Regionallevel. The initial Staff Training Programs addressing accrual accounting aspectsof all business cycles are essential to future sustainability of this project.

Methodology Diagram

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4. Project Deliverables

Based upon initial understanding of scope of proposed engagement, ICAI ARF has- .envisagedfottowtngdeliverabtes-for the pilot study:

a. Comprehensive Scope Evaluation Report (CSER);b. Restructured Chart of Accounts;c. Fixed Asset Register*;d. Opening Balance Sheet*;e. MISFormats;f. Preparation of Annual Financial Statements for the Transition Period*;g. Strengthening and capacityh. building;t, Accounts Manual;j. Internal Audit Manual; andk. Training Ma~ual

*Limited to Pilot Sites only

The above stated deliverables are described in more details as under:

A. Comprehensive Scope Evaluation Report (CSER)

Comprehensive Scope Evaluation Report (CSER)or Inception Report shall addressthe task of bringing together in detailed manner all the components of the existingsystem, identify the gaps that exist in the present system, the impact of those gapson the transparency of the system, and the extent of prudence and propriety of theexisting system. .

The key aspects addressed in the CSERare summarized hereunder:

a. The CSERshall be designed to address the task of bringing together inadetailed manner all the components of the existing system and the extent ofprudence and propriety of the existing system. --.------- ..--.-.-.-.- .

b. The CSER will include a Review of Accounting Tree; and OverallReconciliation Controls over receipts I collection and payment I withdrawalaccounting streams at both the BusinessEntity LeveLand at Employee Levelto assess the effectiveness of internal controls over accounting of financialtransactions in respect these key activities areas.

c. Development and Selection of Appropriate Accounting Policies to determineidentify and design most suitable approach of Accrual Accounting to beadopted on the basis the uniqueness of the accounting transactions at EPFO';

(Draft Copy for Discussion)

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Annexure 1Technical Approach Note I High Level Roadmap for Pilot Study on Accrual Accounting - EPFO

May 2014

and considering the regulatory obligation and practicability aspects in dueconsultation with management;

.d. CSER.shall present. detailed .description of the accounting system for therecording and processing of Collections and Withdrawals and capitalexpenditure;

e. CSERshall include detailed internal organization chart of the Collections,Withdrawals, Administration, Budget, and Accounting ROs;

f. CSERshall provide level of verification and checking of accounting transaction.related data within the organization;

g. CSERshall identify the gaps that exist in the present system, and the impactthose gapsmight.have.onthe proposed' double entry accounting system; and

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h. CSERshall outline the changes required in the present system and method ofimplement of changes for the implementation of accounting reforms. C

B. Fixed Asset Register(FARshall be limited to the Office of the -------------- __ -J

One of the most important steps in the process of implementation of accrual baseddouble entry. system is identification and accounting of Fixed Assets. As per thecurrent practice in EPFOcapitalizes only the land and building and all other capex are.treated as expense in the year in which they are paid.

The accounting for Fixed Assets being a policy matter will be dealt with in dueconsultation with management as the migration to accrual accounting requiresbuilding up FARof the organization.

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cThe Fixed Assets Register (FAR)shall provide details of aU fixed assets of the RO.TheFARshall be comprehensive single record of aU information necessary about eachphysical assets and these record will form part of general ledger accounting system. c\The FARshall provide the information to manage the asset and--this"information"witl"be·'·..·..·....·"....·....,,·..,,·the basis for knowing the investment in assets and will help in planning for further ()investments in future. Date of purchase/acquisition of asset will also be identifiedwhich will help in determining the age of asset. FARwill also gives information aboutlocation of the asset in the organization. The said exercise of compilation of FARshallalso cover:

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a. Validation, verification, assessment and valuation of all fixed assets owned by theRO. This would include own and leased assets, e.g., land (freehold, leasehold,'-..'encroached); parks; gardens; buildings (office, staff quarters etc); machinery and

(Draft Copy for Discussion) 91Page

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equipment; vehicles (heavy vehicles and light vehicles); furniture and fixtures andany other fixed and tangible assets owned by way of any title by the RO;

.~.b: .vaUdation, verification, assessment and valuation-of intangible fixed asset (if any);.

. c. Validation, verification, assessment and valuation for Capital Works in Progress ofthe ROas on date of reporting; and

d. Review of existing fixed asset inventory record and past financial year transactionsto segregate capital items and identify likely heads of account for the BalanceSheet.

Methodology to be adopted for the compilation the Fixed Assets Register (FAR) isexplained below in brief:

a. Identification of Fixed Assets":

The first step of the process of compilation of Fixed Assets Register isidentification of all the fixed assets owned by ROincluding leased assets underthe control of RO. The identification of assets will be based on the physicalvertficatton and from the past records which is best available for capturing theasset details. After identification the assets shall be classified into variouscategories on the basis of some common features and that will be used in chartof accounts and in financial statements;

b. Ver;(ication of Fixed Assets:

After identification of fixed assets, next step is the physical verification ofassets. The process has already been discussed in detail in the preceding paras.

c. Assessment of Value of Fixed Assets on date of opening Balance Sheet:

After tdenttffcation and verification of fixed assets, next step is to find out thevalue of fixed assets as on the date of opening balance sheet.

d. Finalization of Accounting Policies relating to Fixed Assets:

This includes finalization of depreciation policy; useful life of assetL~mLQ.t.!J.~L_ .accounting issues relating to compilation of fixed assets;

e. Compilation of Fixed Assets:

After completion of steps (a) to (d) above final step is to compile if Fixed AssetsRegister (FAR)as on reporting date.

°EPFOshall be responsible for the initial identification of fixed assets and providingrelevant information to ICAIARFthereto.

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Annexure 1Technical Approach Note I High Level Roadmap for Pilot Study on Accrual Accounting - EPFO

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C. Chart of Accounts (CoA)The present Chart of Account (CoA) as approved by CGA shall be required to berestructured to incorporate .new accounting heads as required . based upon..implementation of accrual based double entry accounting system. The said exerciseshall be carried out taking into consideration the process adopted by ICAIARFduringits various similar type assignments.

D. Opening Balance Sheet (OBS)(OBS is limited to Pilot Sites only)Opening Balance Sheet shall be prepared so as to assess the actual state of affairs onspecified date. For the said purpose all the assets and liabilities as on reporting dateshall be assessed and the difference between assets and tiabtttties on date of reportingshall be taken to capital fund. The exercise of compilation of Opening Balance Sheet(OBS)shall also require carrying out some additional activities as per the scope ofassignment. The said activities broadly include:

a. Reconciliation of amounts receivables/recoverable (collections under variousschemes, administrative charges, interest on deposits, loans and advances etc.):

b. Reconciliation of amounts payable to Subscribers (under various schemes),supplier, contractors, employees {excluding actuarial valuation of terminalliabilities} etc. and obtaining confirmation of balances;

c.. Assessment of contingent liabilities;

d. Preparation of Bank Reconciliation and Other reconciliation as on reporting date;

e. Identification of pre-paid expenses, outstanding expenses, outstanding incomeand any income which is received in advance;

f. Reconciling the investments in bonds xxxxxxx, xxxxxx, xxxxx, etc. anddetermining the amount of accrued interest. Obtain balance confirmation frominstitutions holding deposits on behalf of RO;

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h. Providing support and advice to ROstaff to pass opening entries as on1st April20XXto bring the balances into Booksof Account; and

1. Provide a management analysis report on the methodology followed in preparingthe opening balance sheet with comments, observation, and limitations, if any.

(Draft Copy far Discussion) 111Page

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E.Management Information System (MIS)Formats

MISis,an important part of effective accounting system. ICAIARFproject team shall" design various MISformats and wtllalso train the human capital of ROin capturing of .information in MISformats. ICAIARFproject team shall also design and implementvarious other formats of books of accounts, records and registers required to bemaintained by the ROunder the new system of accounting.

F. Periodic Financial Statements(Limited to the Pilot Sites only)

leAl ARFshall prepare the periodic financial statements for the transition period. Thesaid exercise of preparation of periodic financial statements shall also require theteam of ICAIARFto provide assistance to EPFOin the following activities:

a. Reconciliation of receivables and collections from -the period;

b. Reconciliation of advances;

c. Reconciliation of loans received (borrowings), if any;

d. Reconciliation' of loans given to others;

e. Annual Provisioning for Fixed Asset with regard to Depreciation

f. Annual Provision for doubtful recoveries! recoverable/ debts;

g. Provistoning of unrealized receivables on annual basis;

h. Closing of Ledger accounts on annual basis; and

t. Accrual of interest on investments and loan to employees on annual basis.

G. Strengthening and Capacity Building Initiatives

Strengthening and capacity building of human capital of the ROfor-tbe-susteinabiltty ....·....···········..·..·····..·········of Accrual Based Double Entry Accounting System is one of the most important steps ofimplementation of accounting reforms.

Building up of human capital has always remained an enigma; a process much talkedabout and manifesting itself in varied forms. The present staffing pattern in the ROwill require strengthening to support the proposed new system's effectiveimplementation; following scientific developmental policies for competencyimprovement in the existing human-ware and systems assumes a critical dimension.The process of reforms will not be complete without ensuring a situation in which therequired skill set, behavioral patterns, public dealing skills and exposure norms in the(Draft Copy tor Dlstussion] 12 IP age

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Annexure 1Technical Approach Note I ~igh level Roadmap for Pilot Study on Accrual Accounting - EPFO

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work profile is compulsorily made a part of the overall process of organizationaldevelopment. The process of strengthening and capacity building shall broadly cover:

a. Reviewing.the' existing accounting system;

b. Clarifying the proposed roles and responslbittties of accounting officials;

c. Preparing a strategy paper to include recommendations for the development ofsystems;

d. Preparing a training and capacity development materiat- (Training Manual) tosupport the new accounting model;

e. Training core accounts trainers! resource persons in each sites of organization;.~~ .

f. Carrying out the training; and "establishing on-the-job support systems.

g. Organizing training for capacity building and sustainability under new system ofaccounting at regional level to cover the accounting personals of all the 26 circleoffices

h. Inculcating the requisite technical. skill set by understanding the core dimensionsto handle transition in the frame work of accounting;

1. Inculcating the skill to handle technology for a speedy inter face with the workrelated issues; and

j. Causing attitudinal change by making the personnel more focused and adept atproblem solving skills.

H. Accounts Manual

Accounting Manual shall broadly cover the following:

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(a. General Accounting Procedure including guidance ..-for.--drawlAg···opening-··balance···················::-:....

sheet and financial statements for succeeding years; \

b. Significant Accounting Principles;

c. Codification structure and chart of accounts and General Principles supporting toIT enabled accounts;

d. Procedure details with recommendations of booksI registers to be maintained;

e. Forms!formats for books of accounts, registers and other subsidiary record;

(Draft Copy for Discussion) 13IPage

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f. Accounting procedures in terms of Reconciliation procedure, Internal ControlProcedure, Year End Procedures; and

g. Formats for periodical! annual financial statements.

I. Training Manual

Training ManuaLwill be reference document for training to staff of RO.lt will serve asa background material for day to day accounting of transactions. Training Manual shallbroadly cover:

a. Accounting Reforms and Transition to Accrual Accounting;

b. Capacity Building sustainability Procedures;

c. OrganizationaL Development (00) Intervention;

d. Human Resource Planning Process; and

e. Training Modules.

J. Internal Audit Manual

The audit manual shall fulfil the following requirements and serve as a:

a. Ready handbook of practical guidance to the Officers undertaking audit of theRO in attaining and developing their technical skill and job efficiency so as to

, maintain a high standard in performance of audit function;

b. Codified handbook of ROal instructions relating to accounts and audit;

c. Ready reference book to auditors and also to those who are responsible formaintenance of accounts; and

d. It will help in improving the quality and standard of audit.

(Draft Copy for DIscussion) 14 IP age

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5. Project Timeline

leAl A~F proposes to complete the whole assignment in XXXweeks. The whole ofthe assignment"1S divided into three key objectives outlined hereunder:

A. Objective 1:

It represents the activities that wilt be required to be carried out in theinitial/startup stage of the assignment. All these activities covered underobjective 1 are one time activities.

B. Objective 2:

'" It represents the process of compilation of annual financial statements for thetransition period. Alt the activities covered under objective' 2 shall be regularongoing activities to be carried out during the whole assignment and' shall. alsoinclude Non ZO/RO Accounting aspects dealt with at EPFOHead Quarter andtheir treatment under Accrual Accounting System.

c. Objective 3:-~"

It represents Phase 1 of Post Pilot Study Sustainability and Capacity Buildinginitiatives for the strengthening of the new system of accounting. Under theSustainability and Capacity Building initiatives, leAlARFshall take up the task oforganizing training programs for accounting personnel of EPFO at its regionallevels. The scheduling; management and associated financial aspects areelaborated in the detailing of objective para below.

DetaUing of objective activities and expected completion timelines.

A. Objective 1

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CThe Objective 1 is divided in 7 (Seven) phases and is expected to be completed C.in XXWeeks. The performance in-T-espe~t"o"'phase·J·-and·-phase··4··relating··to········ .identification and recording of fixed assets will depend upon the Fixed C_.Assets Policy that will be framed by the EPFOgoing forward. Time period ofeach phase;' and activities to be performed have been discussed in detailhereunder. However the time schedule of each phase is subject to timelyavailability and submission of information as and when required by aU/any of theinformation! accounting center(s). In case of delays in submission ofinformation, any or aU phase(s) may take more time than that mentioned againsteach phase:

Phase 1: Inception Report (End of xx Week)---.,--------.----.- ..-~,----.----(Drait Copy for Discussion) 151Page

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Activities under this phase include:

a. Assessment ofe)(isting system and requirements including the review oflegislative framework with reference to existing laws forsmocth transition toaccrual based double entry accounting system in new format of accounts asprescribed. During this Stage, the team will direct their attention specificallyto the application of methodology to identify the projected scenarios and tolocate the gaps with the existing state of affairs, which shall have to beaddressed in terms of the iterative exercise;

b. Business Process re-engineering with reference to accrual system ofaccounting;

c. Categorization, grouping and sub-grouping of assets and liabilities;

d. Submission of Comprehensive Scope Evaluation Report (lnception Report);

e. Organizing necessary training program (s) for Human Capital of RO tosensitize in accrual based double entry accounting system as per new format;

f. Organizing orientation programs for senior officials as and when required.

Phase2: Finalization of Significant Accounting Policies (End of XX Week)

.Phase 2 shall be most important phase of whole assignment where all thesignificant accounting policies specially related to depreciation; threshold limitfor capitalization of assets; accounting of employee related transactions;revenue recognition; contingent liabilities etc. shall be finalized.

Finalization of major accounting policies in the initial phase of assignment hasbeen planned in order to prevent the delays in the implementation that occurs inabsence of clear accounting policy.

Phase 3: Updation of Inventory of Fixed Assets and Introduction of newformats for capturing data relating to Assets and Liabilities (End o/XXWeek) __._._ ".".""""."".."." "." "".." ".".".""..",, ,'., ,..

Activities under this phase shall be carried out jointly with the officials of EPFO.The identification of assets shall be carried out by EPFOofficials only. The saididentification of fixed assets may be carried out on the basis of registers,records, books of account, etc. The Team of ICAIARFshall carry out followingtasks during this phase:

a. Review of existing fixed asset inventory record and past financial yeartr.ansactions to segregate capital items;

161 P age(Draft Copy for Discussion)

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Annexure 1Technical Approach N~te I High Level Roadmap for Pilot Study on Accrual Accounting - EPFO

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b. Introduction of new formats for capturing data reLating to Fixed Assets andgetting them filled by concerned staff;

. c. Verittcetlon of data submitted with the help of staff of EPFO;

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Cd. Classification of data as per classification criteria finalized under phase 1~~ - Ge. Introduction of new formats for capturing data relating to Assets and 0

liabilities (Other than that covered under point i. above) for drawing'Opening Balance Sheet' and getting them filled by concerned staff; fl

f. Organizing necessary training program (s) for Human Capital of RO:

.i..To sensitize in accrual based double entry accounting system as per newformat; and

ii. To trafn them to fill the formats for capturing information to draw'Opening Balance Sheet'; and

g. Organizing orientation programs for senior officials as and when required.

Phase 4: Compilation of Fixed Assets Register (End of xx Week)

Activities under this phase include:

a. Finalization of accounting policies including valuation norms for fixed assetsaccounting;

b. Validation, verification, assessment and valuation of all fixed assets owned bythe RO. This would include own and leased assets, e.g., land (freehold,leasehold, encroached); parks; gardens; buildings (office, staff quarters etc);.machinery and equipment., vehicles (heavy vehicles and light vehicles);.furniture and fixtures and any other fixed and tangible assets owned by wayof any title by the RO;

c. Validation, verification, ~$.~..ssm.e.nt.._and_.vaLuation--of..intangible·-.fixed--asset-(if-any);

d. Validation, verification, assessment and valuation for Capital Works inProgress of the ROas on date of reporting;

e. Review of existing fixed asset inventory record and past financial yeartransactions to segregate capital items and identify likely heads of accountfor the Opening Balance Sheet purposes.

f. Compilation of fixed assets register;

(Draft Copy for Discussion) 171 P age

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g. Organizing necessary training program for Human Capital of RO on FixedAssets Accounting; and

h. Organizing orientation programs for senior officials as and when required.

Phase 5: Restructuring of Chart of AccouiJts '(End of xx Week)

Activities under this phase include:

a. Restructuring of Chart of Accounts;

b. Organizing necessary training program for Human Capital of the ROon Chartof Accounts; and

c.Organizing orientation prqgrams for senior officials as andwhen required.

Phase 6: Opening Balance Sheet (End of xx Week)

Activities under this phase include:

a. Drawing 'Opening Balance Sheet';

b. Organizing training programs for Human Capital of RO (As and whenrequired); and

c. Organizing orientation programs for senior officials as and when required.

Phase 7: Manuals and Formats (End of xx Week)

Activities under this phase are as below:

a. Preparation of MISformats;

b. Preparation of Accounts Manual;

Preparation of Training Manual; ·an_d ._ , .c.d. Preparation of Audit Manual.

B. Objective 2

Objective 2 shall cover the process of compilation of annual financial statements forthe transition period. All the activities covered under objective 2 shall be regularongoing activities to be carried out during the whole assignment. This objective willrun simultaneously with Objective 1. Under Objective 2 it is proposed to submit firstdraft Annual Financial Statements of Transition period by the end of XXWeek andUpdated Annual Financial Statements of Transition Period by the end of XX Week

-----_._-- .._--_._-- ----_._ ..__ ._--_._ ..--.-._-----------_ ..._.-.--------(Draft Copy for Discussion) 181Page

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provided RO submit the comments on draft Annual Financial Statements on time.Further the draft of the concept note on the accounting treatment of non-circleaccounting transaction dealt with at the EPFOHead Quarter will also be provided bythe end of the XX Week. Major Activities' to be-.performed under Objective 2include: .

.:

a. Capturing of accounting' transactions, vouching and reconciliation of data forpreparation of Annual Financial Statements;

b. Updating Assets Inventory Register and Booksof accounts(

c. Preparation of Month-end Trial Balance; and(

d. Compilation of Annual Financial Statements. (....

e. Accrual based accounting treatment of non-circle accounting transaction dealtwith at the EPFOHeadQuarter .

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C. Objective 3

Objective 3 addresses the future sustainabiLity aspects of the proposed engagement.It is imperative that Post Pilot Study Sustainability and Capacity Building initiatives.are planned and undertaken systematically across aLL zones of EPFO with an'objective to support pan-India implementation and strengthening of the new systemof accounting. Under the SustainabiLity and Capacity Building' initiatives, ICAI ARFshaLLtake up the task of organizing training programs for accounting personnel ofEPFOat its regional leveL.

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The scheduling and management aspects of this objective shaLLbe detailed in dueconsultation with the EPFOin an ongoing manner. As discussed and agreed EPFOpresently plans to hold XXXXXsuch Three Day Regional Training Sessions/ Programsacross aLLROswith participants level not exceeding forty at each session / program.ICAI ARF shaLL be responsible to provide Faculty Support and Training-kit &Background Material only. ALLother costs of hosting the session / programs includingparticipants travel, boarding, lodging, refreshments during the session, venue, on-site support with a locaLp!'Qg!:.~ITlcQ.:~Q9.r.d.l!JatQr..shalL..be...bome ..by..the ..EPFQ. Theproposed fee accordingly includes for XXXXXsuch sessions / programs only and anyadditional session / program will be charged at Rs. XXXXXXper program (plus taxesas applicable).

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(Draft Copy for Discussion) 191Page

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6. Rolesand Responsibilities

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A. General Roles and Responsibilities

.i, ICAIAccounting Research Foundation

a. To clearly layout an action plan and implement the same;

b. To arrange, monitor and supervise the resources needed for each part of theaction program;

c. To provide onsite support, advisory and guidance;

. d. To help the Group·.of Facilitators intheir own appointed tasks which isprimarily to oversee the performance of the Project Team in discharge of itsobligations as highlighted within this document;

e. To prepare and present the needed reports and technical documents;

f. To handhold the program from beginning to end; and

g. To provide a clear training strategy. with the details of various trainingprograms and other measures for sustainability of the proposed changes inthe accounting system and to conduct all training programs, workshops andmeetings etc. as may be required.

ii. Employee Provident Fund Organization (EPFO)

a. To Identify the change agents (significant persons within the existingsystem) who will -

t, .Take the role of (a) linking outputs of the accrual accounting system toinputs from the existing system, and (b) pointing out where theoutputs do not have corresponding inputs from the existing system;

11. Determine the changes that are to be made at the ground level inorder to create the input source for (b) above;

iti. Take upon themselves the responsibility of introducing small changesfirst, and then bigger ones as may be required so that the system as awhole is not disturbed, but at the same time, start producing all theplanned outputs;

tv. Act as reviewers as well as precedent setters to each other;

(Draft Copy for Discussion) ZOIPage

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v. Take the role of propagating the advantages that are obviouslyderivable from the changes introduced; and

vi. Take the role of generating ideas, designing formats that are practicaland implementable within the Government context, and makesuggestions on procedural changes to be brought in for improving MISand budget formulation.

b. To ensure the availability of all the infrastructural support to the team ofI(AI ARF. It shall include fully furnished air-conditioned room(s), computersincluding printers, internet facility, telephone facility etc. The EPFOshallbe responsible for ensuring the availability of all the infrastructural supportfor organizing the training programs during the execution of the Project. Itincludes availability of conference halls, computers, projectors and all the. necessary support for effective execution of training programs.

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Technical Approach Note / High Level Roadmap for Pilot Study on Accrual Accounting· EPFO

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B. Activity Based Roles and Responsibilities

1 Assess IExamine

a examining the 'as is' situation in EPFO.• To review of the current accounting system

including various subsystemswithin thecurrent system and identifying the linkagesbetween the various subsystems,understanding the policies and proceduresin practice under the current accountingsystem.

• Tn direct attention towards developing a'site map' of the situation with

on identifying undefined or fuzzilyefined factors and parameters.

• To provide all the necessary informationand clarificattons on various issuesas maybe required by the project team of ICAIARF.

2 Evaluation 8:Analysis

• In identify the projected scenarios and tote the gapswith the existing state ofrs, which shall have to be addressed inof the iterative exercise.

• In evaluate the effectiveness of thesystem through measures of

oarameter-wtse importance, and the .bable impact of changes shall also formof this stage.

• To provlde all the necessary informationand clarifications on various issuesas maybe required by the project team of ICAIARF. .

3Envisaging 8:Designing

• 10 develop a model for changeover', Withpecific regard to all the issueswhich

have been identified during thephase. Designing the new model

be done, keeping in mind the stepsthat would be needed to take the systemthrough the transition phase. During this$tage specific issueswith regard to MISwillalso be addressed. .

• To provide all the necessary informationand clarifications on various issuesas maybe required by the project team of ICAIARF; .

• To finalize the policy issuessuch as relatingto timing and place of revenue recognition;depreciation policy; threshold limit for the :capitalization of fixed assets; accounting of.

mlovee related transactions and terminal

(Draft Copyfor Discussion)

53221Page

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benefits of:employee etc in consultationwith the "team of ICAIARF;

• To ascertain the cultural viability of themodel of changeover finalized forimplementation.

• ]fo execute the model designed in the • To carry out the Identification offi~ed~nvisaging stage. This stage is actual assets of the RO.implementation stage when the results of • To provide all the necessary informationthe iterative process will be progressivelyintegrated into the envisaged structure. and clarifications on various issues as may

4 Implementation Major activities in this stage shall include be required by the project team of leAl

putting the building blocks of the new ARF;system in place, running the new system • To provide the comments and sugg~stions 'under close monitoring and supervision and on deliverables submitted within the~akingcare of cultural constraints. prescribed time.

1ensure Sustain.b!lity of new system.

a. To ensuring the availability of all the. infrastructural support for organizing the' .training programs during the execution of

• the Project. It includes availability ofquring this stage training of tratners.on- conference halls, computers, projectors

5 Ensuring I slte personnel etc is carried out along with and all the necessary support for effectiveSustainability development of various manuals and execution of training programs

gridanCe documents etc. b. To ensure that participants of all thetraining programs, conference, workshops,technical meetings etc. attend the same,and to issue administrative orders in thisregard, if deemed necessary.

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7. Project Management Office Structure

Continuous and ongoing 'monitoring of the progress·of all the planned activities;identification of challenges and roadblocks, timely resolution, resource alignment,effective review mechanism are. the keys to successful; effective and,timely completionof any project.

'ICAI ARF proposes to set up a Project Management Office Structure (PMO) in placeimmediately at the start of the project. The PMO structuring and working shall bemutually agreed by ICAIARFand EPFO.

PMOshall support weekly project progress review and act as a communicator of theagreed actionable addressing each issue highlighted during the Weekly Review'MeeUrigs:. '

241Page(Draft Copy for Di:icu:i:iion)

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Annexure 1Key Internal Control and Accounting Issues

1.1 Completeness

1.2 Accuracy1.3 Existence

1.4 Valuation1.5 Ownership1.6 Presentation

All stated controls wlll form part ofthe proposed accrual accountingsystem wherever applicable.

An overview during the Field Visits---------i highhght limited existence and

effectiveness-------i

2. Reconciliation Controls

2. 1 IGlobal Reconciliation ework under various Schemes.

2.2 Collections No Separate Reconciliation2.3 Withdrawals exercise performed

Periodic Reconciliation of key streams I-- ~

will form part of the new system

3. Review / Analysis - On regular basis

3.1 InoperativeAccounts

3.2 Suspense Accounts

3.3 Negative Balances To be Confirmed at HO

Any Other3.4 I Unexplained

Balance / Account

Regular Review &: Analysis to beperformed under new system

(Draft Copy for Discussion) 251Page

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Liability on account of salary as on

4.1 I Salary I Booked on Cash basis i.e. at the I 31st March of the FYwill be•.~~~ of actual payment. calculated under accrual system of

accounting.Leave Salary I Liability as on 31St March ofBooked on Cash basis i.e. at the4.2 I Contribution for ttrne of actual payment. will be calculated under accrualEPFO Emp~oyees ! system of accounting.

Pension sookeo on Cash basis i.e. at the Liabilities as on 31st March of FYwill4.3 I Contributions time of actual payment/receipt of be calculated under accrual system of

~ontribution. accounting.on Cash basis i.e. at the PF subscription Liabilities as on 31

4.4 I PF I time of actual payment/receipt of March of FYwill be calculated underaccrual system of accounting.

on cash basis;receivable as on 31stof the FYis not Liabilities as on 31st March of FYwillLoans To I lascertained;4.5 I Employees c. ilnterest received is books on

be calculated under accrual system of

iactual receipts basis withoutaccounting.

:taking into account interest!receivable.

5. Administrative ExDendlturesGeneral

5.1 I AdministrativeBooked on Cash basis i. e. at the Liabilities as on 31st March of FYwill

Expenditures be calculated under accrual system ofRepair and time of actual payment. accounting.5.2 Maintenance

5.3 Minor Works

(Draft Copyfor Discussion) 261Page

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5.5

5.6

5.7 IContingencies6. Assets

6.1 Fixed Assets

Fixed Assets register is maintainedon hjstorical cost however:a. ~o depreciation is calculated;

~ndb. WDV at the end of financial

y~ar is not calculated

Under accrual system of accountingfollowing additional tasks will berequired to be done:a. Finalization of depreciation

, policy;b. Fixation of Threshold limit;c. Computation of WDVas on 31st

March 'of fY.d.Compilation of FAR.

Current Assets,6.2 I Loans and

AdvancesAccounting is done on cash basis

Balances of Current Assets, Loans andAdvances as on 31st March of fY willbe calculated under accrual system ofaccounting.

7. liabilities

7.1

Current Liabilities

Liabilities are not booked asaccounting is done on cash basis

LongTerm Liabilities as on 31St Marchof FYwill be calculated underaccrual system of accounting.

Long TermLiabilities

7.2 Liabilities are not booked asaccounting is done on cash basis

Current Liabilities as on 31St March offY will be calculated under accrualsystem of accounting.

(Draft Copyfor Discussion)

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PILOT STUDY PROJECT ONIMPLEMENTATION OF DOUBLE ENTRY BASED ACCRUAL ACCOUNTING

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EMPlOYEES PROVIDENT FUND ORGANISATIONI . .

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Agenda Points tor Discussions

leAl Accounting Research Foundation

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Annexure - II~,..

Agenda Points (or Discussions on Implementation StrategyI .--------,-----------------------_ ........•. ~II

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A.I. Roll-out Steps]under the Pilot Site ApproachI

a) Team;Identificationb) i. Mapping of entry flow "as it is"

ii. Books of accounts being maintainedc) Identification of gap in controld) i. Defining JI as should be"

ii Books of accounts to be maintainede) Evolution of accounting policy for accrual based system for EPFOf) Format of presentation of accounts to be finalized and approval of C&AG, if

requited. ...g) Transformation is initiated at the Pilot-site (PS) and also at HO*h) Initial implementation / rollouti) During Implementation Resource Training and Capacity Building at PSj) VATs are performed at PSk) Stabilization of PS1) Resource readiness across Entire Businessm) Roll-out across the Business Universe

"Limited to addressing key accounting transactions dealt with at HO level only and forall Accounting Policies related matters

60

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Annexure - II,

Agenda Points ~r Discussions on Implementation Strategy.....cont,. . I

A.2. Roll-out Stepf under the Global Approach

a) Transformation is initiated from HOb) Formation of the Core Team at HOc) Identifying all key accounting transactions dealt with at HO leveld) Addressing all Accounting Policies related matterse) Pre-launch sensitization; training and identification of internal location-

wise resources / implementation-ownerf) Initial 'implementation / rolloutg) During Implementation Resource Training and Capacity Buildingh) VATs are performed at HO ,i) Improvements / gaps identificationj) Stabilisation review

6/

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II Annexure - /Ii!

Agenda Points lor Discussions on Implementation Strategy _

B. Policy Formations:

a) Accrual Ac~ounting treatment for the initial 1st Financial Yearb) Accrual Accounting treatment on continuous basisc) Fixed Asset Policyd) Actuarial Valuation of liabilities under EPS (to be discussed)e) Clarity Notes on all specific accounting issues as identified during

implementation

C. Core Team to address Strengthening of Internal Control Framework overAccounting Transactions

D. Accounting Centre - wise Trial Balance / Balance Sheet Approach (to bediscussed)

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Annexure - III~{ettt1~7

Minutes of the meeting held with leAl ARF Team on Migration of EPFO's Account to DoubleEntry Accounting System on 16th May 2014 at 12.30 P.M. at EPFO Offices. Bhikaji Kama Place,

New Delhi

Present:

1. EPFO a) Sh. K. K. Jalan, CPFCb) SheSanjay Kumar, FA& CAO_c) SheSanjay Kumar RC, F&Ad) SheManoranjan Kumar RC-ll, Investment

By Invitation a) SheS.K.G.Rahate, FC, ESICb) SheHemant Pandey, Dy. Director'(Finance), ESIC

2. ICAIARF a) CA. [agdish Kapoor, Sr. Cons1:lltantb) Mr. Vikas Sharma, Officer

The meeting was held in pursuance of the decision taken in the meeting held on 5.5.2014. Themeeting was to discuss the way-forward in respect of the Proposed Pilot Study Project onMigration to Double Entry based Accounting System. The draft copy of the Technical ApproachNote / High Level Roadmap duly realigned by ICAI ARF following the last meeting held on 5thMay 2014 and their subsequent field visits to RO Delhi South and SROLaxmi Nagar wasconsidered in the meeting. A copy of the Note on Agenda Points for Discussions, as mailed byICAI ARF,was also placed on the table.

The following matters were discussed during the meeting:

1. Sharing of Experience on Migration to Double Entry Accounting System at ESIC

CPFC welcomed Mr. S.K.G Rahate, Financial Commissioner, ESIC and Mr. HemantPandey, Dy. Director (Finance, ESIC) and invited to share the ESIC experiences in respectof migration of accounting system. The facts as shared by Mr. Rahate and Mr. Pandey arenoted as under:

1. It is feasible to migrate the accounts on Double entry system however planningand execution should be spread over a year. They explained that time was one of------- --- -.--.-.-- -·······-··-··fue··maIn··constramt·m:·thelr.case,

ii. It was noted by Mr. Pandey that Computerisation of EPFO may be more complexas it will require ledger and sub ledger reconciliation as funds in PF are beingmaintained in individual A/c.

iii. Pre migration / rollout training sessions were held in the initial six months.iv. A seven days training session was for the Core Team through support of Institute

of Cost Accountant.V. The migration exercise was undertaken completely on in-house basis.vi. All accounting centres were taken up at one go.

. vii. Point of accrual was decided by the internal committee.

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Annexure· III t:

viii. Dead stock register was prepared taking a cut off date to account fixed assets.ix. The actual migration work was started in the month of January 2012and the first

quarter was closely supervised to improve and perfect the MIS at all locations.x. All accounting policies and chart of account were also designed and approved .

internally.xi. The key activities were undertaken on a parallel note i.e. drafting of"training

manual and training sessions, designing of accounting policies and chart ofaccounts and development ofMISformats. . .

xii. Manpower / skill set challenges were not significant.xiii. Tight timelines were faced by ESICdue to prior commitments to C&AG.

2. Exchange of views on Agenda Items

The CPFC while expressing his views referring to. the Technical Approach Note / HighLevel Roadmap suggested that the team should first agree on to the approach to befollowed. For this ESICexperiences and the uniqueness of the EPFO accounting in its roleas 'the custodian of the subscriber funds should be considered.The Key Concern Areas as ~ghlighted by FA&CAO are as under:

i. Documentation of current accounting scenario on /IAs Is" pasis.ii. Review of internal-controls over financial transactionsiii. Identification of gaps in current accounting system on·uToBe" basis.iv. Documentation of accounting policies commenting of each point of accrual and its

possible treatment in the process, the help of ESIC may be taken as they havedecided on point of accruals in similar accounting environment.

v. EPFO may examine Adoption of hybrid framework (accrual plus cash basis) andthe relevant policy notes

vi. CAG's prior approval requirement in respect of format of accountsvii. Training Framework.viii. Aspects related to global reconciliation of collections and withdrawals.

While discussing over the aforesaid issues Mr. Kapoor suggested that EPFO needs todecide whether it wants to adopt a pilot site approach or a global approach as the entire

···················································way':::"IoiWaidapproach will then be required to be re-aligned accordingly. FA &CAOsuggested for taking pilot and global approach together in one financial year. Pilot may,therefore be taken up in the beginning of the year.

The DD (Finance) suggested that reconciliation of Sub-Ledgers in EPFO would be achallenging task, similar to the PSU Banks when they migrated on total computerisedsystem.

It was also shared by ICAI ARF that the accounting structure wise there is no differencebetween RO and SRO as both manage their accounts independently. There exists the

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relationship only from administrative supervision perspective. Further ICAl ARF alsoshared that the key accounting aspects attracting accrual accounting are addressed at HOonly i.e. Payment of Interest, Investments etc. apart from all the accounting policiesmatters. In view of the same, for any migration to the accrual accounting wouldnecessarily cover the !:fO as well.

CPFC also expressed that Account of EPFO may also be complexin view of existence of- .'large no. of inoperative account.

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The CPFC viewed that ICAl ARF should conduct a comprehensive pilot study, as Phase Iexercise. This should be done at select locations addressing all accrual accounting relatedaspects in line with the discussions held today and the issues as noted above and submit areport as deliverable. The select locations identified for this study were noted as Regionaloffice Delhi North, SRO Noida office and HO. The objective of the study will be to designthe strategy for EPFO to migrate its accounting system tq .a..Double .Entry .basedAccounting System.

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CPFC asked whether ICAl ARF can be assigned the task of implementation onnomination basis or any other body can be engaged. Mr. [agdish Kapoor informed that inthe latest case Department of Telecom, Gal has assigned this task to ARF on nominationbasis.

Action points:

On the basis of the presentation made by ICAl ARF, experience sharing by ESIC and thedeliberations in the meeting, the following decisions were taken for action:-

i) Submission of final proposal by ICAl, ARF: ICAI ARF is to submit a final approachpaper on the basis of the discussion alongwith expected time line for completion ofeach activity. The cost of preparatory work and roll out of the implementation ofdouble entry accounting system till pilot stage shall also be submitted ill next 2-3 days.

ii) Identification of Pilot sites: It was tentatively decided that SRO, Noida and Regionaloffice, Delhi North will be Pilot sites for development of the process and.implementation. Notification to this effect is to be made by RC(FA), Head Office.

iii) . Constitution of a Committee to assist ICAI ARF and to lead implementation at thec.,..·....··········································Pilbf·Sife;···the--leam··is··io--beconstituted from among the officers posted in the Pilot

offices along with few experienced officers who have sufficient knowledge of accountsin EPFO. The list is to be finalized by RC(FA), Head Office after taking approval ofCPFC.

iv} Approval of appointment of rCAl ARF for consultant for the pro<;ess: On the basis ofthe submitted proposal of ICAl ARF, the Finance Division will prepare an AgendaItem to be submitted for consideration and approval of appropriate authority.

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Annexure IV't-te.?N1 ~7

Dear Sirs,

Greetings !!!

Per reference to our last meeting held on May 16, 2014 at the EPFOOffices onthe quoted subject matter and our subsequent telephonic discussions.

Please find attached a Draft for DiscussionCopy of the proposed MoU betweenICAIARFand EPFO.Once negotiated and frozen in all aspects the final copy ofthe MoUalong with cost estimates will then be placed for sign-off purposes asper the internal process.

. '. .' . . .

As also informed a meeting is scheduled on June 27, 2014 for making apresentation and we would like to hold interactive discussion over the sameas per mutual convenience at the earliest.

Best regards,Jagdish Kapoor FCAICAI Accounting Research. Foundation (ICAI ARF)Mobile: +919910301510 &. +918130494944 Wine: 0091 1203045900 ext. 860www.icaiarf.org

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Memorandum of Understanding - lCAI ARF& EPFO

May-2014

Annexure IV

Memorandum of Understanding

leAl Accounting Researeh Foundation&

Employees Provident Fund Organization (EPFO)Ministry of Labour & Employment. Government of India

leAl Accounting Research Foundation

(Draft Copy Jor Discussion) 21Page

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Memorandum of Understanding - ICAI ARF &: EPFO Annexure IV

May-2014

Draft for discussion copy

This Memor~d~m of Understanding (MoU)is made on-· _..----- at ~----~- .. -. ~~~--..

between

leAl Accounting Research Foundation, a company registered U/S 25 of the CompaniesAct, 1956having its registered office at 'leAl Bhavan, Indraprastha Marg, New Delhi110002hereinafter referred to as "ICAI ARF" which expression shall mean and includesits successor, assignee, representatives etc. on the one part

And

Employees Provident Fund Organization (EPFO), Ministry of Labour andEmployment, Government of India having its office at Bhikaji Kama Place, New Delhi-110003 to be referred as "EPFO" wherever necessary which expression shall mean andincludes its successor, assignee; representatives etc. on the other part.

The leAl ARF· and EPFO ..both shall collectively be referred as "Parties" andindividually as"Party" wherever necessary.

By this MoU the parties

K'Al ARF on one part and

EPFO, Ministry of Labour and Employment, Golan the other part

have decided to cooperate; collaborate and further agrees as under:

1. EPFO plans to migrate its present accounting system to Double Entry based Accrua1Accounting System and has invited K'Al ARF to undertake and perform a Pilot

.........................................?~<:ly.)~r.~j~~~.to .share it expertise and extends its support to EPFO in its said.initiative.

This Memorandum ?fUnderstanding is based on:·f

(a) The proven capacity and expertise of the leAl ARF in terms of its ability toassure needed expertise for the proposed Pilot Study Project as well as for thegeneral purpose as required, from time to time;

(Draft Cupy Jor Discussion) 31Page

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Memorandum of Understanding - leAl ARF &:EPFO Annexure IV

May-2014

(b) The understanding of the EPFO of K'Al ARF's effectiveness and requisiteexpertise to support .EPFO in support ~!eas as .identified and elaborated in. the

,. ." - . _.said Annexure iIA"; and'

(c) A shared understanding' that the initiative in· terms of the support areas, asidentified for Pilot Study Project now to be undertaken by the leAl ARF at EPFOwill require the highest order of technical knowledge and skills need to beemployed on the Proposed Pilot Study Project from the very beginning.

Article 1: Roles and Responsibilities

Article 1.1: Role and Responsibilities of leAl ARF

1.1.1. leAl ARF agrees to be responsible for the performance of the ProposedPilot Study Project.

1.1.2. K'Al ARF will submit a draft version of the deliverable, in line withAnnexure 1/A", to the assigned / designated Sr. Officials of EPFO forinternal discussion and acceptances and to share their feedback views Isuggestions for further improvements, if any, within a pre-defined andagreed time frame.

1.1.3. K'Al ARF shall release the final version of the deliverable after dueconsideration of the feedback views / suggestions made .by the EPFOOfficials and effect changes wherever appropriate.

Article 2.2: Role and Responsibility of EPFO

2.2.1. The EPFO will be responsible tosee that all information and inputs, assought for by lCAI ARF, pertaining to any support areas forming part ofthe Pilot Study are made available timely. Further the EPFO will alsofacilitate the discussions with the concerned EPFO official as may also besought for by leAl ARF for the project purposes from time to time. EPFOmay suggest the notice period that it will require from ICAI ARF in thisregard. EPFO will further ensure that the notice period so suggested isreasonable and does not result in any unreasonable delays in performanceon the part of lCAI ARF.

(Draft Copy for Discussion) 41Page

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Memorandum of Understanding - leAl ARF & EPFO Annexure IV

May-2014

2;2.2. The EPFO will be responsible for printing of the deliverable; andpresentation of technical material and participan~' kits for.the conference,.workshops, technical meetings etc. that may be required to' be held duringthe performance of the pilot study."

2.2.3. The EPFO will also be responsible to ensure that the officials of EPFO havethe necessary cooperation and support from their respective offices and itwill further arrange for a site office for leAl ARF at eac~ identified pilotsite, with space for a project team of 3, with minimum basic facilities i.e;intercom/telephone connectivity, printer, storage space..etc.

,.,

2.2.4. The EPFO will be respoIlsih.le..f()r ..~surTI:t~..timely and meaningfulfeedback from the supervisory management of the identified pilotsites/units. The timelines in this regard may be mutually agreed uponseparately.

Article 2.3: Matters which shall lie with both the parties

2.3.1.

2.3.2.

2.3.3.

Both the parties agree to notify each other of their respective Nodal Officerwith 2 days of the signing of the MoU. The-names of the Nodal Officer canbe shared verbally / telephonically and can be ratified through thesubsequent written communication within the period of 7 day. NodalOfficers, so nominated, shall be responsible to facilitate the effectiveperformance of their respective teams.

Both the parties agree that without specific and express approval from theEPFO, no part of this assignment shall be publicly communicated by anymeans, except for such matter which is found important forcommunication in Seminars having regard to the academic content thereofor otherwise than in accordance with the law. In former cases, the identityof the units shall be withheld and the prior approval of the EPFO will betaken.

It is understood by both the parties that an exercise as envisioned at EPFOmay require support and handholding even after the pilot study has beenformally declared completed. A view on the way-forward approach onsuch a necessity shall be taken jointly, before the scheduled completion ofthe Pilot Study.

(Draft Capy for Discussion) 51Page

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Memorandum of Understanding - leAl ARF &: EPFO Annexure IV

May-2014

(,2.3.4. Any clarifications arising o!lt of tl$MQU or any material changes desired

in this document shall be mutually discussedand agreed upon. 0

Article 2: Deliverables

The deliverable of the proposed Pilot Study Project is as stated in the Annexure IIA",

Article 3: Fees/Consideration:

-

leAl ARF considered the Pilot Study as critical step for designing a strategy formigrating to double entry based accounting system at EPFO in line with the scop~ of 00

.the study as elaborated intheattached Annexure A. The fee/consideration for the pilotstudy is more intended to meet the estimated costs as per mutual agreement betweenEPFO and leAl ARF. 0

leAl ARF will charge a sum of Rs. 43.20 lacs plus all applicable taxes; and Rs. logO lacper month plus all applicable taxes (on fixed monthly basis) against administrative andc~mtingencies expenses. In case of anyoutstatiort visit or travel for any project relatedmatter the complete travel; boarding and lodging costs shall be directly borne by theEPFO. The resources shall operate from the leAl ARF Offices and EPFO's Offices onneed basis as the case may be. Further all costs of holding any workshop/seminar andthe printed material for the same purposes shall be directly borne by EPFO. "

Fees/consideration shall be paid by the EPFO as under:

• On the signing of the MoD 30%• 30 days from the commencement of the study 25%• On the submission of the initial draft 25%• On the submission of final copy 20%

"Ihe out of pocket expenses shall be claimed on monthly basis and are not included in the above.

All payments shall be released by EPFO within a period of 15 days from the date ofinvoice by the leAl ARF.

Article 4: Timelines

The delivery timelines of this Pilot Study Project are as under:

(Draft Copy for Discussion) 61Page

11

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Memorandum of Understanding - leAl ARF & EPFO Annexure IV

May-2014

r:, • Completion of Field Work;(Information gathering and data compilation)

5 to 6 weeks

r- • Preparation & ~elease of Draft Rep?rt• Discussions on the Draft Report

(Including addressing of feedback views,comments and suggestions)

• Preparation & release of Final Report

-2 weeks2 weeksr

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r: "The above timelines indicative and are subject to timely ava#ability of relevant informationduring the field work and it does not include the time taken ,by management in sharing itsfeedback views, comments and suggestions an the,draft report. '

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Article 5: AuthoritiesThe xxxxxxxxxx of the ICAI Accounting Research Foundation and the xxxxxxxxx ofEPFO are the authorized signatories for the purpose of the signing of this MOU.

Article 6: Others

THE PARTIES FURTHER AGREE AND COVENANT THAT

a. For any material changes desired in this MOU the same shall be mutuallydiscussed and agreed upon in writing between both the parties before beingacted upon.

b. Communication of Notice

In case of ICAI ARF

Mr r

ICAI Accounting Research Foundation,lCAI Bhawan, Inderprastha Marg,NewDelhi-ll0002

In case of EPFO

(Draft Copy for Discussion) 71Page

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Memorandum of Understanding - leAl ARF &: EPFO Annexure IV

May-2014

c. Force MajureThe several obligations.ta be performed by both the parties-herem are subjectto the usual force majure clauses and factors and acts beyond the control ofparties, such as acts of God, war, aggression. civil commotion, breakdown ofconstitution or political machinery , strike, natural calamities, storms,cyclones, epidemics etc.

d. TerminationThis MOU shall stand terminated on the expiry of the duration / orsubmission of deliverables by leAl ARF as agreed hereinabove. However, itcan bee~te~dedfurther on the basis of mutually agreed terms and conditionsthat shall be applicable for the extended period.

Provided that any party may terminate this MoU by giving a 30 days priorwritten notice to the other party without assigning ~~y reason for the same.

Provided further this MoU may be terminated by any party by giving a 15days prior written- notice to the other party in case of material breach of anyof the terms and conditions of this MoU.

Provided further that ICAI ARF shall be compensated by EPFO for its timeand efforts on pro-rata basis in the event of pre-mature termination of MoUby EPFO.

e. Arbitration.That in case of any dispute or difference in relation to the meaning orinterpretation of this MOU, the same shall be referred to Arbitration. Eachparty shall nominate one arbitrator and the two nominated arbitrators shallnominate a Presiding Officer. In case of difference between the twoarbitrators, the matter shall be referred to the Presiding Officer for resolution.The Arbitration and Conciliation Act, 1996 shall be applicable. The seat ofarbitration shall be at New Delhi. The language of arbitration shall be English.The award of the arbitrator shall be final and binding. The Cost of Arbitrationshall be borne equally by the parties.

f. Jurisdiction

(Draft Copy for Discussion) 81Page

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Memorandum of Understanding - ICAI ARF &:EPFO Annexure IV

May-2014

Subject to the arbitration agreement contained herein, any dispute betweenthe parties arising out of this MOU shall be subject to the jurisdiction.of theCourts at Delhi only. ... . - ..

IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT ATNEW DELHI ON THIS __ DAY OF 2014 .

Authorized Signatoryfor EPFO

.Authorized SignatoryforICAIARF

Witnesses

1.- 1.

2. 2.

(Draft Copy for Discussion) 91Page

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Annexure IV

Annexure A

Employees Provident Fund Organization'Ministry of Labour and Employment/Government of India

Pilot Study Project at Employees Provident Fund Organization (EPFO) ~'.

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Memorandum of Understanding - ICAI ARF & EPFO Annexure IV

May-2014

leAI Accounting Research FoundationPilot Study Project

Employees Provident Fund Organization (EPFO), Ministry of Labour and Employment, Government of India

1. Identification of Pilot Sites

i. Gaining an in-depth (already identified as RO-

understanding of II As Is" in Delhi North and SRO-Noida

respect of: and Head Office)I

i. All Accounting Streams 2. Communicate and Collect

Designing aii, Accounting Policies as data and information at Pilot

followed Sites and HOStrategy iii. Financial Controls over

Total say

Document on Accounting Transactions 3. Perform Proposed Activities RO, Delhi North; Report on . around 2.5 / 3

1. I Migration to iv. Adequacy of High-level SRO Noida andMigration "Strategy Months

Double Entry MIS 4. Discuss and agree over on the Head Officeat EPFO - 'Cash to required for

based understanding of all noted Accrual Accounting the proposed

Accounting 2. Develop liTo Be" Scenario critical issues with EPFO team. Pilot Study

System at EPFO from migration to accrualaccounting purposes. I 5. Analyze and evaluate Pilot

3. Identification of gaps ..Study outputs from designing

between /I As Is" and "To Be" of the Migration Strategy

in all quoted areas in 1 perspective

above.

EPFO - Identification of Support Areas - Draft for Discussion Purposes Page90/12

7-6

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Memorandum of Understanding - leAl ARF &: EPFO Annexure IV

May-2014

EPFO - Identification of Support Areas - Draft for Discussion Purposes Page 100/12

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JJ3th FIAC Meeting

Item No 8: Acceptance of proposal of PICUPfor Settlement ofdues.

EPFOhad. received Rs. 1.24 Crore. of Bonds ·ofPradesJ:1iyaIndustrial &Investment Corporation of U:P. Ltd. (PICUP) from various Exempted Trusts .

. The bonds were guaranteed· by the state Government oflJttar Pradesh,PICUP is a state public sector undertaking of U.P Government.

PICUP had defaulted in payment of periodical coupon amount andredemption proceeds due on bonds, since 2004. 5BI being port foliomanager of EPFO had followed up the matter with PICUP by periodicallywriting letters and thereafter Jeg-alnotice was served on it. The invocation ofGovernment guarantee was not honored by the state government. LaterPICUp·had submitted a proposal for acceptance of principal amount only and .for waiver of interest due which was not accepted by EPFO.

A Writ Petition No. 1759 of 2011 against the Govt. of U.P was filed inthe Hon'ble High Court of Judicature at Allahabad, Lucknow Bench. TheHon'ble Court has issued an interim order on 22.02.2011 directing PICUP topay the principal amount to the petitioner within a maximum period of sixmonth, which EPFO shall accept without prejudice to the rights of eitherparty to the writ petition. Accordingly, PICUP has remitted the amount ofRS.1.24 Crore by a demand draft dated 31.03.2011. Thereafter, the matteris pending in the High Court and no effective hearing has taken place eversince.

While the case is still pending, PICUP showed their interest foramicable out of the court settlement in this case. In this regard a meetingwas held with their Deputy Managing Director on 24.03.2014 & 25.03.2014.Thereafter PICUP has sent a proposal for settlement of the dues (AnnexureI).

In the proposal PICUP has submitted that 489 Bond investors out of522 have already settled. their dues/claims at principal amount as full andfinal. They have also waived the entire interest dues on their investment.

It has further been informed that the financial health of thecorporation has not improved and the core activity of lending has beenstopped by the Corporation since 2002. Government has directed them tosettle only 25% of claim of interest with EPFOfrom the date of default to the

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t:

rJJ3th FIAC Meeting \'

date of payment of Principal Amount i.e. upto 31.3.2011. In their proposalthey have further offered the interest rate only at simple interest.

It may also be pointed out that there is difference of approach in. calculation of interest between SBland PICUP.As per SBI calculation the··total. dues was Ri. '1; 94~ 19,?56 till 31.10.201L .The amount will furtherincrea~e1f1tis calculated up to date. SBI has calculated overdue interest @2% higher than the coupon rate which is about 13%.

On the other hand, PICUP has furnished documents showing thatcoupon rate was. reduced to 100/0 and 11% which was accepted by theExemptedTrusts from where the bonds were transferred to EPFO.FurtherPICUPhas calculatedtotal interest only up to 31.3.2011 i.e. date of paymentof principal amount. Thus as per their calculation total interest dues is Rs.

... '" .' '1,13,59,765. As they offer to pay only 25% of the' interest 'amount, the .amount comes to Rs. 28,39,941 only.

FIACmay accept the offer of. PICUPand settle the claim as full andfinal by accepting Rs. 28,39,941, after due verification of the mathematicalaccuracy of calculation and verification of the coupon rate of the bond byteam of RC (F&A) and, DGM of SBI on the principles of the offer ofsettlement as outlined above.

Alternatively, outcome of the case pendlnq in the Hon'ble High courtmay be awaited.

The proposal is placed before RAC for consideration and its approval forplacing before CBT,EPFwith appropriate recommendation..

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BY SPEED POST;;:,ofhl rv : ~l.tl'."/l t:G····.Al i1j\jt"i. li ,,\1'\.'·e1'- •.•.. '.' •• _ •• ,"'.r""',·.......... t .\-,.1- ., .•..yt.,. ., "';"""-:J

Mr. rv,anoranjan Kumar. .Regional P.F. COmrmssiQr'-or-Ji (invest.)Emptoyees Provid$nt Fund Organisation.(MinisUyotLapour & Employment, Govt. of India),Bhavishya Nidhi Bhawan I

, 1. BhikajaiCama Place.NEW QEbHI-l10 066.

Dearsrrs.

In reference to your letter no.lnvest111(125)/04/UP P1CUP &. UP SFC dated 30Jan., 2014 and the discussion held W1th you in your office on 24 & 25.3.201;1..-on •amicable settlement of interest dues only. (As.Principafamount of RS.124.00 lakhsalready paid to you 0031.03.2(11). outofC~rt.

As discussed, thecorl$enfletters to reduce rate ()f interest from coupon rate ofinterest to 10% & 11% by the oarUer Bond Holders (inveStors) namely (l) MIs. MCFMangalore Chemicals & Fertilizers limited Employees' Provident Fund, PANAMBUR.MANGAlORE (.KARNATAKA) from 13% (ii, and MIs. MCF Mangalore Chemicals &FertH;zers Limited ~mployees; Provident Fund. PANAMBUR. ·M.A.NGA.LORE(KA.RNATAKA) from 13% and (III) MIs. NGEF Employee Provident Fund. Banga~orefrom 13.40%. are enclosed as Annexure-I. II & Ill- respect,vely for your kind perusal.

1had ~xp'ained during the mooting thatcohsid~rjng the adverse financial hearthof the CorporatIon L43. accumutated losses & o$(lative net worth, (as on 31.032013Rs. 350.84 erores and ne.gative net worth RS.189 crores), so far, as many as 489Bond investors (out of 522) (which constitute around 94% of investors) haveaireadysettled their duesldaims at principal amount invested as ftiti and final settlement.They have V/aived the entire interest due/to be due on their Bond Investments. SuchBondholders eompri~ ofCentraJ/ State PSUs, Individuals, Corporate Houses, Trusts,NationaliZed Banks/RRBs etc. The investors. who have thus settled their Bondinvestment With P1CUP are prooominantly of EPFI PF category. (The Ust of suchBcndholde,s is enclosed for perusal).

~"'.A~ ••.~~ ------------------------------------------------------~-------------------"PIC,UP SHAWANo! ~mtiN~pt, LUel<now-UG010(,ildial

Phones :(O~) 21l0t;89, 2720798 Fax~(0522) 2'72019~GRAM: pacup

ViSit us at. : http://www.picuplodla.CQfTE-mail; plcup@&anehameUr

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itwas also informecttnatthe. Corporation's financial h$8lth hfis not .yellmproved"and the corG'13Ctivity·of1ellding has been stopped by the CorporatiOn since F.Y.2OQ2.However; in the.eameS.tnes$to~ttfe with thefewremainihgfnve~()rs likeyours"theGovemmentttas- <urected us.losettt. your simple interest dues also which is accruedfrom the date of defilufUo Ihed3te of Principal Amount pajd to you La. upto 31.3~20it.SInce onniy req\.jeSt you were not agreeable to seWs at princrpaf & had desired -anoffer in writing for ~sideration of your Competent Authority for decision)we herebyoffer you to pay 25% of the total aectuedsimp(e interest as a special case with in amonth from the-dated. your consent 'ett~r Which works out to Rs.28,39,941!- as fUtl&flnaf settfement."Acafcu~tlon sneet.at annexUfe-tVfs enclosed as per revIsed-agreed""rate of interest agreed by the ortgJnalBondholders. "" ""

Kmdly giVe your consent as the above offer so that after necessary approvalsfrom our competent authorrty. an amount of Rs.28,39,941!- can be paid to you as full&. final settlement With the condition to withdraw the Court Case.

Thanlttng you,

IncA. As above.

"PiCUPI;SHAWAN" Gomti Nagar, Ludutow,;.2260fO;{ltldJa)Phone$ : (OS22)2720689J2120798~)f : (0522)2.120792

GRAM :PJCUPVisit usaf.: http:ltwww.p\wpmdla.oom

Ecmall: picup@saoch<imeun

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JJ3tn FlAC Meeting

Item No 9:Extension of tenure to the External ConcurrentAuditor nt« Chandabhoy Ii Jassoobhoy till31.10.2014 after their performance e~aluation"from"l.ll.2012 to 31.03.2014.

L As per" the decision taken in 196th meeting of Central Board ofTrustees (CBT),EPF held on 20.07.2011, MIs Chandabhoy &Jassoobhov, Chartered Accountants, Mumbai was appointed asExternalConcurrent Auditor (ECA)for Portfolio Managersof EPFOfor aperiod-of three years. In the meeting the"Board had decided that theperformance of the Auditor would be reviewed after one year and

"""further extension would be given after assessingthe performance onayearly basis.

2. As per the agreement entered into between CBT,EPFand the ECAMisChandabhoy& Jassoobhoy,.the tenure of the ECAcommenced on 1stNovember 2011 for a period of three years. The tenure of ECAwascoterminouswith the tenure of fund managers of the CBT, EPF,whowere appointed for the same period,. Therefore, performance of theECAwas evaluated for the period 1.11.2011 to 31.10.2012 on theparameters of duties arid responsibilities along with the qualificationcriteria stated in the request for proposal (RFP)document issuedat thetime of inviting tender. The evaluation report was put up in the 201stmeeting of CBT held on" 25.2.2013. On account of satisfactoryperformance of Mis Chandabhoy & Jassoobhoy, CharteredAccountants, the CBT decided to extend the tenure of the ECAtill31.03.2014. "

3. It was also decided in the CBT meeting that the next annualperformance review of the ECAmay be done for the period from01.11.2012 to 31.03.2014.

4. Therefore performance of the ECAhas been evaluated for the period1.11.2012 to 31.03.2014 on the parameters of duties and

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JJ3th FIAC Meeting

responsibilitiesalong with the qualification criteria stated in the requestfor proposal (RFP)document issued at the time of inviting tender. Theevaluation report is placed at Annexure - ~.

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5. As.reflected in the performance evaluation report, the work of the ECAhas been satisfactory. Therefore, theECA, Mis Chandabhoy & (

Jassoobhoymaybegivenextension for the penodfrom tst April2013to 31sfOctobef2014.

The item is placed for consideration of FIACand recommendation toCBT, EPF. . .

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Annexure I?~:9

PERFORMACE EVALUATION OF EXTERNAL CONCURRENT AUDITOR (ECA)M/S. CHANDAYBHOY AND JASSQOBHOYFOR THE PERIOD 1.11.2012 TO 31.03.2014 .

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SI. Duties anq ResponsibilityNo. of External Concurrent

Auditor

Performance of ECAMIs. CHANDAYBHOY AND

JASSOOBHOY

Ensure that the audit is to beconducted by a team consisting ofone leader and at least two staffpersonnel. The leader of the teamshould be a qualified chartered.accountant with at least threeyears experience in the field ofPortfolio' Audit. The audit should becarried out under direct supervisionof a Partner of the charteredaccountant firm if the leader of theTeam is not a Partner of: theChartered Accountant firm.

1 Yes. The audit team always consists of onechartered accountant and two semi qualifiedpersonnel. Further the audit is carried out underdirect supervision of a Partner of the Firm.

Ensure that they are not engagedfor audit of the same fundmanager(s) of EPFO for anypurpose other than the terms ofreference contained in this RFP. .

The audit firm is not engaged in the audit of thesame fund managers of EPFO.

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Ensure, to the best possible extent, Yes the same has been complied with.that the team leader appointed toconduct the audit should continuein his role till the completion of theassignment. For any reason, ifthere is a change in the teamleader appointed to conduct theaudit, the same should beintimated to EPFO immediately.

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4 Reconcile the Funds flow and Bank Yes the same has been done on monthly basis.Accounts of EPFO with thePortfolio Manager(s) on a monthlybasis.

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Annexure I

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Check the MIS from custodians of Yes, the same has been checked and compliedsecurities and report exceptions, if with.any, on an immediate basis.

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6· . Check the receipt of data and MIS Yes, the same has been checked and compliedfrom Portfolio Manag.ers and report with.any exceptions to EPFO.

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Check the daily transactions with Yes, the same has been checked and compliedthe market data and report with.·deviations.

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8 Check the Credit ratings of theInvestments 'On a daily basis andreport any downgrades or .n~g~tiv~.watch/outlook immediately.

Yes, the same has been checked and compliedwith. (

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9 To examine and verify whether thefund managers have followed theinvestment pattern, investmentguidelines . and the terms ofagreement entered into betweenEPFO and the fund managers. ~

Yes, the same has been checked and compliedw~. (

10 To scrutinize the investmenttransactions made by the portfoliomanagers on day-to-day basis toensure that the same are as perthe pattern as well as theguidelines issued by the CST,EPF. Also to point out whereverdeviations have been made.

Yes, the same has been checked and compliedwith.

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11 To examine the investments madefrom time to time to ensure that theportfolio manager could getmaximum return possible on ourfunds. Also the investment of CST,EPF funds in TORs of the banksunder same management groupmay be examined carefully.

Yes, the same has been checked and compliedwith.

12 To verify whether the interest and Yes, the same has been checked and compliedmaturity proceeds are collected with and exceptions (if any) are reported.promptly and re-invested as perthe provisions made in the Pattern

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Annexure I

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14 To bring out cases of undue delayin the recei~t of incentives.

of Investment. Also to point outdelays, if any, and the causes forsuch detay.

13 -, To verify whether the incentives, Yes, the same.hasbeenchecked and compliedwherever . receivable from the with and exceptions (if any) are reported.

-r,nstit"utioris, are collected promptlyand invested as per the prescribedpattern/guidelines.

16 To verify whether the capital was Yes, the same is verified and complied with.invested promptly. If the Capital

-, remained un-invested for asignificant period, then to verify ,whether income/capital gain ondelayed investments has out-weighed pre-investment,income/capital loss together withincome for un-invested period.

18 To verify whether all shares, Yes, the same is verified and complied with.securities, debentures and otherinvestments have been held in thename of Central Board of Trustees,Emptoyees' Provident Fund.

19 To verify whether there is a Yes, the same is verified and complied with.reasonable system of authorizationat proper levels and there are

15 To verify, from the daily transactiondetails, whether the charges arelevied correctly by the Portfolio'Manager as per the terms andconditions and to report excesscharges levied by PortfolioManager on account of splitting upof investment deals.

17 To verify whether proper' records- <" have been maintained in respect of

all transactions and contracts andto ascertain whether the recordsare correctly and timely updated.

Yes, the same is reported.

Yes, the same is verified and complied with.

Yes, the same is verified and complied with.

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adequate system of internalcontrols commensurate withquantum and value of investmenttransactlons.

22 To verify whether investments are Yes,the same has been checked and compliedmade at the highest available yield with and exceptions (if any) are reported.forthe particular ~eriod of maturi!}'.

23 To comment on internal control Yes, internal control mechanism I system ismechanism, whether the systems adequate to avoid any internal frauds.are adequate to avoid any internalfrauds. If not, suggest a suitablemechanism after discussing thematter with are Portfolio Managerconcerned.

24 To examine whether the Portfolio Yes the same is verified.Manager has taken steps to rectifythe deficiencies pointed out fromtime to time.

26 Special care shall be taken to Yes, the same has been done and compliedwith.examine the cases of tax deductedat source and the receipt of refundfor the same or the receipt of TDScertificates in Form 16-As for thosecases. The details may be workedout for the cases in respect ofwhich no refunds or TDS

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To verify whether· adequate Yes, the same is verified and compliedwith.records are kept in support of eachinvestment decision.

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To ascertain whether the Yes, the same has been checked and compliedInvestments have always been with and exceptions (if any) are reported.made at the optimal market rate.The ECA will look into the price onthe date of investment and checkthe proportion of investment closerto lowest, medium' 'and . highest.rates.

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To bring out any other point, which Reported if any, in monthly concurrent auditcomes to notice of ECA during the reports. -----.--.--.- .course of audit.

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In Audit Reports, audit Yes, the same has been complied with.observations regarding PensionFund, Provident. fund, EDLI Fund,EPF Staff Provident Fund, EPFStaff Pension and Gratuity Fund,etc., should be categorizedseparately as separate accountsare maintained by - EPFO.Concurrent Audit report on Pensionfund shall be bound separately anda consolidated report on all otherfunds shall be bound separately forsubmission to EPFO.

Certificates are received.27 The auditors have to ensure that all Yes, the same has been looked into and all the

the guidelines/circulars issued by guidelines I circulars issued by CST, EPF fromthe Government/CST, EPF from time to time are followed.

- - time -to-time _-are followed and thevarious points mentioned - in thescope of audit mentioned aboveare looked into.

28 The Audit Report shall also cover Reported if any, in monthly concurrent auditshortcomings in the existing set up, reports.which are to be taken care of byissuing suitable guidelines.

The concurrent audit needs to be _Yes, the same has been complied with.carried out and Report submitted to -- -- --the EPFO on a monthly basis.

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51. Qualification of ECA Status of the ECA __ ··u.____ ...___ ._._ .......

No.1 The name of the Partnership Firm Chandabhoy & Jassoobhoy

should be a registered with the Chartered AccountantsICAI Mumbai

2 There must be at least FIVE (5) Yes, the firm has 6 (six) full time partners as onQualified Chartered Accountants date.working as full-time Partners

3 The firm must have atleast Yes, the firm has around 50 - 55 other accountingFIFTEEN (15) other accounting staff members (including qualified chartered

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Annexure I

staff members in addition to the accountants) in addition to the Partners.Partners

4 The Firm must have registere9 The firm was registered on 17.12.1925Withthe ICAI on or before Of April2000

5 The Firm must have experience of The firm has more than 10 years' experience in theatleast FIVE (S) years in audit on audit of accounts of portfolio managers having(Concurrent Basis) of the accounts turnover of more than Rs. SOOOcrores.of Portfolio Managers havingturnover of not less than Rs.SOOOCrores

The Firm I any partner should not The Firm and '\none of its partner have beenhave been convicted by a court of Convicted by a court of law or indictment I adverselaw or indictment I adverse .order order passed against the firm I any partner. inpassed against the firm I any similar activities during past five years.partner in similar activities during·the past FIVE (S) years i.e. from 01April 2006 till date. A declarationon affidavit to this extent shall befurnished duly signed by theManaging Partner of the Firm inthe Technical Bid. The affidavitshould be attested by a NotaryPublic I Magistrate.

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Item No 10: Extension of tenure to the Custodian Mis StandardChartered Bank till 31.10.2014 after their performance

. evaluation from 1.11.2012 to 31.032014.. .

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1. As per -the decision ·taken in 196th meeting of Central Board ofTrustees (CBn, EPF held on 20.01.2011, MIs Standard CharteredSank, Mumbai was appointed as custodian of EPFOsecurities for aperiod of three years. In the meeting the Soard had decided that the.performance of the custodian would be reviewed after one year andfurther extension would be given after assessingthe performance on a.yearly basis.

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2. As per the agreement entered into between CST, EPF and thecustodian MIs SCS the tenure of the custodian commenced on 1stNovember 2011 for a period of three years. The tenure of thecustodian was coterminous with the tenure of fund managers of theCST, EPF,' who were appointed for the same period. Therefore,performance of the custodian was evaluated for the period 1.11.2011to 31.10.Z012 on the parameters of duties and responsibilities alongwith the qualification criteria stated in the request for proposal (RFP)document issued at the time of inviting tender. The evaluation reportwas put up in the 201st meeting of CSTheld on 25.2.2013. On accountof' satlstactory performance of SCS, the CST decided to extend thetenure of the Custodiantill 31.03.2014.

3. It was also decided in the CST meeting that the next annual

performance review of the custodianmay be done for th~ ..~r:!~ ~~~ .01.11.2012 to 31.03.2014.

4. Therefore performance of the custodian has been evaluated for theperiod 01.11.2012 to 31.03.2014 on the parameters of duties andresponsibilities along with the qualification criteria stated in the requestfor proposal (RFP) document issuedat the time of inviting tender. Theevaluation report is placedat Annexure- I.

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JJ3th FlAC Meeting

5. The performance has been evaluated on the basis of daily reportsreceived from the Custodian, MIs SeB. The Investment Division ofEPFO maintains records of all the accounts related to invesbnentcorpus.and there has not been any notE~(Jdeviation from the dutiesand responsibilities assigned to SCa. Information.received,from thefour Portfolio managers of EPFO also provide independent input forevaluation of functioning of the custodian. There has been-no noteddeviation d!Jringthe period under review.

6. As reflected in the performance evaluation report, the work of thecustodian has been satisfactory. Therefore the custodian MIs sea may

.be giyer ,an, extension for the period from tst April 2014 to 31st'October2014.

The item is placed for consideration of FIAC and recommendationto CBT,EPF.

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Annexure I1)t~·, 10

PERFORMACE EVALUATION OF CUSTODIANMIS. STANDARD CHARTERED BANKFOR TJiE PERIOD 1.11.2012 TO 31.03.2014

51.No.

Duties-and Responsibility ofCustodian

Performance of CustodianM/s. Standard Chartered Bank (SCB)

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1 To collect and receive any income and All monetary income, other payment andother payments and distributions made distributions made by the issuer of Securitiesby the issuer of Securities, for the are credited to the respective saving accountsaccount of the CST,EPF and in the of CST, EPF.absence of contrary Instructions credit Interests on Corporate Bonds are credited tothe non monetary distributions to the the NG cash accounts and Interests onCustody account. ' ,or the, monetary" Government. of India Securities are credited todistributions to the Saving Account as the G:-Sec pool account of the respectivethe case may be portfolio managers/CBT, EPF. However in

case of GOI securities assigned to SSI, intereston GOI securities are credited to the Cashaccount of CST, EPF maintained directly withRSI and managed by SBI.All non-monetary income, other payment anddistributions are credited. to the respectivedepository account of portfolio managers/CST,EPF maintained with SCB.

2 To take all/any action necessary andproper in connection with the receipt ofincome and other payments anddistributions referred above, includingwithout limitation the presentation ofcoupons and other interest items

SCS as Custodian is taking all necessaryactions in connection with receipt of incomeand other payments.

3 To receive and hold for the account of All funds received on account of call/put optionthe CBT,EPF all/any moneys arising made by the issuer/client of Securities or onout of or in connection with the Property account of redempti6n-'~fte--ctedite(f,···to"··lhe'·'whether 'as a result of it being called or respective saving accounts of CST, EPF.redeemed or otherwise becomingpayable and credit the same to theSaving Account

4 To take all/any action necessary and Entitlements on account ofproper in connection with the receipt of PUTlCALURedemption proceeds are systemthe moneys referred above, including generated by the Custodian.without limitation the presentation for Expected PUT/CALURedemption proceedspa'yment of any ProQ.erty becoming are followed up with issuer and intimated to the

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Annexure I

payable as a result of being called orredeemed or otherwise becomingpayable and the endorsement forcollection of cheques, drafts .and othernegotiable lnstruments:

client in report sent on one working day prior tothe pay date.Upon receipt of PUT/CALURedemptionproceeds,. the same are credited to therespective s~lVingaccount. of CBT,EPF;Wherever required, the securities aresurrendered/handed:-over/discharged to theissuer and the proceeds are credited to therespective saving account of CBT,EPF.

5 To receive and hold for the account of SCB receives and follow up with the companythe CBT,EPF, the Securities received to collect new securities if characteristic haveby the Custodian as a result of changed due to reorganization, consolidations,reorganization, consolidations, conversions, capitalisation of reserves. Pleaseconversions, capitalisation of reserves, . note that CST, RPF does not invest in equityand the like issued with' respect" to' any where this type of even is common.Securities held by it hereunder. -

6 To exchange interim or temporaryreceipts for definitive Securities, and oldor over stamped certificates for newcertificates.

SCB facilitate the exchange of interim ortemporary receipts, generally received in debtsecurities as letter of allotment (LOA) fordefinitive securities. The securities are nowavailable in electronic format and .issuerarranges to issue securities in definitive formonly.

7 To deliver any security cash and/or anyother property belonging to CBT,EPFwhich has been sold after confirmationfrom CST EPF and/or make paymentfor, and receive Property purchased onbehalf of CBT, EPF, provided howeverthat the Custodian will deliver Propertyonly after receipt of payment for saletransactions and/or make payment onlyafter receipt of Property for purchasetransactions unless instructed to thecontrary or is required by prevailingrules, operating procedures andregulations on any relevant stockexchange, clearance system,depository to do otherwise but with asimultaneous intimation to theEPF/CBT.

SCB ensures that no securities are sold by theportfolio managers unless & until properinstructions are received from CBT,EPF.However, for every sale SeB ensures thatsecurities are released only after receipt offunds and/or securities are released prior to thereceipt of funds only to' the ClearingCorporation of the exchanges and/or wheresecurities (GOI SEC) are debited directly bytb.e.-.-- R.e.sJ~Jv.e, ,_ _..e,~n!s gf. _ !.~.~_!~:.. ,

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To deal with rights, or public issues,warrants and other similar interestsoffered or received by the Custodian.

To deliver such Securities to the issuerthereof or its agent when Securities arecalled, redeemed, cancelled retired orotherwise become payable and toreceive payment thereof.

SCB as custodian acts on the instructionreceived by the CBT,EPF or PortfolioManagers for any voluntary corporate actionswhere instruction is required, TheRights/warrants are more common" in equitieswhere CBT, EPF does not invest: .

Wherever require, the securities aresurrendered/handed-over/discharged to theissuer and the proceeds are credited to therespective saving account of CBT,EPF.

10 To deliver such Securities for SCB as custodian acts on the instructionexchange for a different number of received by the CBT,EPF or through theSecurities or certificates' representing" "Portfolio Managers for any voluntary corporatethe same aggregate face value; or actions. where instruction is required. SCBconversion pursuant to any plan of would act as custodian and do the needful tomerger, consolidation, collect the funds or securities for any voluntaryCustodianpitalisation, reorganization or corporate action,readjustment of the Securities by theissuer of such Securities; orpursuant to provision for conversioncontained in such Securities; providedthat, in" any such case, the newSecurities and cash, if any, are to bedeJiveredback to the Custodian.

1·1 To surrender warrants, rights or similar SCB as custodian act on the instruction"Securities and receive back the delivery received by the CBT,EPF or Portfolioof new Securities. Except as provided Managers for any voluntary corporate actionsherein, to deliver or dispose of the where instruction is required. TheProperty only as may be specified by Rights/warrants are more common in equitiesInstructions and supported by where CBT, EPF does not invest.confirmation from CBT EPF.

I--:-=--+-::::------~-_.-___:_--___:_-:--:-t-=-=-=_---:--~=--__:::--::~~--=--:-----:--__f .12 Except as may be otherwise provided SCB acts on Port Folio Manager's instructions

herein, the Custodian shall make, or for debiting the saving account only for thecause its agent to make, payments following types of transactions:from the Saving Account only on 1) Primary I Secondary market Tradespecific Instructions Instructions

2) Transfer Instructions for movement of fundswithin the accounts3) Payment of CCll charges I MarginPlacementOther than the above, SCB takes specific

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Annexure I

instructions from CBT,EPF to make thepayments.

13 For the purchase of Property for theaccount "of .the CBT,EPF and orcrediting of the Property to the CustodyAccount(s) I Depository Account(s) ofthe CBT, EPF

Same as above

14 For payments to be made in connectionwith the conversion, exchange orsurrender of Property held in theCustodyAccount

SCB as custodian acts on the instructionreceived bytheCBT,EPF or' PortfolioManagersTor any voluntary corporate actionswhere instruction is required.. SCB would actas custodian and do the needful to collect thefunds or securities for involuntary corporateaction.

15 The Custodian shall arrange on written SCB has acted onCBT,EPFis instruction forrequest by the CBT,EPF for registration sending the physical securities for registrationof Property with the issuer or its agent with the Issuer. .in the name of CBT EPF, provided suchregistration is permissible underprevailing laws

16 The Custodian shall furnish to the SCB sends the requisite reports to CBT, EPFCBT,EPF a daily statement of cash and on daily basis, weekly basis, monthly basis anda dailyl weekly statement of Securities as and when required by CBT, EPF.held by the Custodian in a mutuallyagreed format, before the close of thenext day and within two days after theend of each such week respectivelyand additionally such other statementsor reports that the CBT,EPF mayrequest. It shall be obligatory for theCustodian to provide all information,reports or any explanations soughLQY _._.__ .the CBT,EPF, at such frequency and insuch formats as mutually agreed, andlor the Auditor of the CBT,EPF for thepurpose of audit and for physicalverifications and reconciliation ofSecurities belonging to the CBT, EPFso long as necessary information isavailable with the Custodian to prepareand provide such other additionalstatements or reports.

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17 The Custodian may supply to the Custodian has provided the operating processCBT,EPF from time to time operating to CBT, EPF and in quarterly review with theprocedures which shall.govern the day Portfolio Managers, they present themselves toto day operations' ·of. .the Custody receive feedback from the PMs and CBT; EPFAccount and the Saving Account. Such to further fine tune their processes.operating procedures, may beamended by from time to time bymutual consent between the Custodianand the CBT,EPF.

18 The CBT,EPF reserves the right to call SCB provides all the infonnation as and whenfor information and exercise such other requested by CBT, EPFrights which under these presents isexercisable by the CBT,EPF by givingan intimation to the .Custodian .to thateffect.

19 The Custodian shall allow the SCB holds the securities and cash on behalf ofCBT,EPF, withdrawal of all or any part CBT, EPF and the securities and cash areof the Property in the Custody Account made available to CST, EPF.and/or the Saving Account.(

20 Delivery of any Property other than The custodian delivered the securities as andcash shall be made within reasonable when required us their reasonable time.time at such locations as the partieshereto may agree.

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21 The Custodian shall arrange anadequate insurance cover for the entireProperty belonging to the CBT, EPF,the details of which shall be submittedto the CBT,EPF.

SCB has taken an adequate insurance coverfrom AON and renews the policy yearly.The cover for Crime includes:

- Fidelity- Physical loss- Forged Instruments- ExtQtllQfL..__,,,_.__._,..,, ____._.,,.__,,.,,.,,,, " " , ,'" .- Computer & Telephonic Misuse

The cover for Civil Liability includes:

Claims made against Standard Chartered forCivil Liability arising from the provision or thefailure to provide Services.

22 The Custodian shall be responsible for Standard Chartered has good checks andfollowing up with the issuers of processes where by issuers of securities are

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Annexure I

securities for any default in payment of contacted with an objective to get the status ofinterest and/or maturity proceeds. If any payment of interest and maturity proceeds.legal proceeding is to be initiated, the EPFO is updated on the status of paymentcustodian would take all necessary including . likely delay of payment of.legal actions in consultation with EPFO interest/maturity .proceeds, eff6rtstaken byand the cost thereon would be borne by SCB etc.EPFO.

In the eventuality of default or late payment ofinterest and/or maturity proceeds, SCBinteracts with concerned issuer or its registrarand make formal demand of interest for latepayment. The factual information is alsogathered by engaging the concerned Banks(who have issued payment instrument, receiptof payment instructions,technical issues if anyfaced by them for processing electronicpayments through RTGS/NEFT etc). Thedetailed note in the facts is snared with EPFOincluding recommendation to initiate legalproceedings . etc.

In consultation with EPFO, law firm / Counsel c-is appointed to initiate legal proceedingsincluding representing EPFO's interest in the C!court proceedings.

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SI. Qualification of Custodian Status of the CustodianNo.

1 Custodian should be registered with SEBI: Standard Chartered Bank (SCB) isSEBI and RBI and the registration registered with SEBIshould be valid on the date of

, application RBI: Standard Chartered Bank is licensedunder section 22(1} of the Banking Companies----- ..__ ..__.-Act;··1949·to··carry·outbankrng·in fndla' by theReserve Bank of India

2 Applicant should have more than 5 year Standard Chartered Bank (SCB) started itsexperience in providing custody custodial services activities in 1998 in India andservices. has a experience of over 15 years

3 Custodian should have more than Rs. Standard Chartered Banks Total Assets under1,00,000 crores total Assets Under Custody as on 31-3-2014 was Rs. 419,221 .Custody (AUC) as on 31-3-2011. crores.

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Annexure I

(Rs 2,29,964 crores excluding EPFO)

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4 Should be having at least Rs. 50,000 Standard Chartered Banks total Debt AssetsCrores of Debt Assets Under Custody under Custody as on 31-3-2014 was Rs.as on 31-3-2011' .' 296,426 crores

(Rs.1 ,07,169 crores excluding EPFO)

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5 Should, be able to offer custodial SCB' provided clearing and settlement servicesservices, settlement services and to all type of eligible securities Corporatereporting thereof for all type of eligible Bonds, Government Securities (CSGl), Banksecurities i.e, Corporate Bonds, FORs, CBlC or any other securities in whichGovernment Securities (through CBT,EPF may transact in future as prescribedSGUCSGl), Bank FORs, CBlO or any by the Government.other securities in which CBT,EPF maytransact in future as prescribed by the-Governrnent. '" ' . ' .."

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6 Should have a system which can SCB provides system generate reports to 'generate consolidated MIS reports as CBT,EPF as per the requirement.required by EPFO which should includereports on all eligible securities. Thereports should be system generated

7' Capability to develop a new system for SCB has source code of system provide themcatering to automation and straight flexibility for development and automation ofthrough processing and reporting system as perthe requirement.requirements of EPFO.

8 Flexibility in the system to provide any System of SCB is flexible enough to providenew reports required by EPFO. any new report required by EPFO.

9 Scalability in system to handle large SCB has capability in the system to hand largevolumes volume.

10 Adequate insurance to cover any _SG.BJl~l~K~n...~n ..~g~q!:!.gt~..i.o.§JJ.r~Jl~,~..9.Qy'~r....".. ,liability that may arise. from AON and renew the policy yearly.

The cover for Crime includes:

- Fidelity- Physical loss- Forged Instruments- Extortion- Computer & Telephonic Misuse

The cover for Civil Liability includes:

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Claimsmade against Standard Chartered forCivil Liability arising from the provision or thefailure to provide Services...

11 Should· have functional offices at Yes, SCB has functional offices in Delhi andMumbai & Delhi having responsible Mumbai.officials.

12 Any conviction by a Court of Law or Noindictment/adverse order by a_regulatory authority that casts a doubton the ability of the applicant to provideCustodial and other related services

13 The Custodian of EPFO. should be SCB is providing custody services to CBT,EPFdifferent from Banker and/or Fund and have opened only operational accounts forManager of EPFO. However EPFO CBT,EPF for settlement-of trades.reserves its right to allow the Custodianof EPFO work as Banker and/or Fund .Manager ofEPFO.

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Item No 11: Scheme of audit in EPFO

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Methodology For Internal AuditThe internal audit has been _working for decades without a proper

codified methodology for its various activities. There was no internal auditplan drawn well in advancefor the ensuing year, no prescribed procedure forselection of areas to be audited, no procedure for dropping of internal auditparas, no procedure for using the audit data to improve systems orstreamline processes.

The working of the Audit wing was reviewed and it was felt that.there was an urqentneed to put in place systems for the various activities ofthe audit wing. These systemswere to be built around the role asslqned tothe audit wing by the ExecutiveCommittee.

The role of Internal Audit is to identify systemicweaknesses/bottlenecksand to help design timely interventions in order toprevent any loss to the fund held in trust on behalf of the subscribers. Asper the Mandate given by Executive Committee .in its 56th meeting whileexpanding, the Audit Wing, the audit wing was to conduct a much moreVigilant and fast paced audit at shorter intervals focusing on processaudit inwhich each and every processis audited in its entirety. The audit wing wasalso to ensure the quality of data during the migration from Manual toComputerizedsystem. This work needs to be done diligently in order to buildrobust computerized databaseand fool proof processes.

Annual Audit PlanIn order to ensure optimal utilization of the audit manpower to

achieveorganizational objectives-itiS-importantto-have--an--annual--audit-pfan---------------.This plan shall be drawn up jointly by the FA & CAO and ACC(Audit)/Director (Audit) by 15th February every year. This plan shall clearlydetail the core areas for audit during the year. It shall clearly specify thepriorities in terms of the offices to be audited and the areas to be covered.The plan shall take into account the human resource available at thedisposal of the audit wing, the focus areas of the organization, the main

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bottlenecks that require special attention, targets set by the organization andany special needs in view of frauds detected etc.

Procedure For Dropping OfAudit ParasThe deficiencies pointed. out by the Internal Audit Party- must be

removed without fail and this is required to be monitored closely. In thiscontext the procedure followed for dropping of Internal Audit Paras assumesutmost importance. In order to focus on this a system of Committees fordropping of Internal Audit Paras has been devised. The Audit Paras raisedby the Internal Audit Party IS proposed to be divided into three categories asfollows.

• Category 'A'.....•. Category '6'

• Category 'C'

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Category' A'

Category 'A" shall contain the Internal Audit Paras relating to thefollowing .

1. Sanction of the Competent Authority does not exist.2. Violation of MAP.3. Snags in Software4. Fraud5. Cash Book Reconciliations6. Negative Balances7. Erroneous Debit/Credit8. Overpayment more than Rs. 20,000/-9. Pre-ponement /postponing of Coverage.10. Delay in conclusion of 7A /14B/7Q cases for more than 2 years.11. Balance Sheet errors and omissions12. Un due delay_.in ..uoalizatian ..of ..P.ension·daims.············.................13. TA1DNLTC/ up to Rs. 20,00014. Dummy Accounts15. Interest on Belated credits.16. Stale Cheques17. Irregularities in the procedure for transfer of fund from Contribution

Account to Investment Account18. Review of minutes of OverPayment Review Committee.19. Pension Reconciliation PPOwise/Bank wise.

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20. Time taken in claim settlement2l. Non recovery of arrear demand/Non recovery of current demand22. Residual balances in Form 2423. Irregularities in Annual statement of Accounts-

Excess/unauthorized debit service charges by S8I24. . .

As these subjects impact the vital systems of the Organisation, have hugefinancial implications and are of a global nature, these Internal Audit Parasshall be dropped by the following Committees;

C.P.F.C.F.A &CAOJoint Secretary Level Officers

ChairpersonMemberMember

.Category 'B"

Category "8' shall contain Internal Audit Paras related to the following

1. TAjDA/LTC/ more than Rs. 5,000/- but less than Rs. 20,0002. Delay in conclusion of 7A/14 8/7Q of more than 1 year but less than 2

-'years.3. Pay Fixation/MACP1ACP .4. Stepping up of p_a'i.5. Over payment more than Rs. 5,000/- to Rs. 20,000/6. Delay in notification of Coverage u/s 1 (4)7. Misuse of Powers by the Officers/Staff.8. Review of 8udget Control Register9. Non compilation of Annual Accounts 'of Exempted Establishments.10. Irregularities in seniority lists. ,.

11. Irreqularities in re appropriation of Funds12. Violation of GFR -13. Pay anomaly.14. Difference in name in Form 9 & 2415. .Non maintenance ..ofeash-Books· ....·............................·......·.......................................................

16. Double Ledger Card17. Incorrect approval of Family Pension18. Non Inspection since coverage19. Non obtaining utilization certificates in case of withdrawal under Para

68820. Non liquidation of old differences and other irregularities in the Cash

Book of various EPFAccounts.21. Irregularity in settlement of EDU cases

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22. Non maintenance of speed post recondliation/ordinary postreconciliation account.

23. Discrepancies in maintenance of Form 9.24. Non confirmation of credit position of CheQue/DDs deposited in S8!.25. Sanction not taken from the Competent Authority~26. Irr~ularitY in Reconciliation of Form 24.27. Non maintenance of DCB Register -28. Non maintenance of Register for Withdrawal29. Non maintenance of Scroll Inward Register30. Non maintenance of Register for Returned Money Order & Intimation31. Non maintenance of Register of Un disbursed Money Order32. Non maintenance of Cheque cancellation Register33. Non maintenance of Investment Register Public Account34. Non maintenance of Register of Securities35. Non maintenance of Overpayment Register36. Non maintenance of Transfer Out Register37. Non maintenance of Transfer in Register.38. Non maintenance of Incumbency Register39. Non maintenance of Register of Inspection Charges40. Non maintenance of Special Reserve Fund Register41. Non maintenance of Register of rejected/returned' claims '.42. Non maintenance of Stock Register of assigned Insurance Policies43. Non maintenance of Month wise Automatic Payment Register of

Insurance Policies44. Non maintenance of Housing withdrawal-compliance watchi~ ,"-~ster45. Non maintenance of Valuable Document Register46. Non maintenance of Part Payment Register47. Non maintenance of Undisbursed Pay Register48. Non maintenance of Unclaimed Deposit Account Register49. Non maintenance of Contingent Register50. Non maintenance of Care-Taking Register51. Non maintenance of Cash Book Cash (1 2,10,21,22J52. Non maintenance of Cash Book Bank53. .Non..maintenance ...of·Sa"oU·Inward··Register·.................54. Non maintenance of Previous accumulation Register55. Non maintenance of Despatch Register (Postal)56. Non maintenance of Inspection R~ister57. Non maintenance of Marginal Establishment Register58. Non maintenance of Register of Un pasted items

As these issues impact the system that are critical and require urgentattention, these may be examined and dropped by the following Committee

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113th FIAC Meeting

F.A. & CAO/ACC (AUDIl)2 A.C.C IIACC II

ChairpersonMembers

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Category 'C'Category 'CIf shall handle paras related to the following

1. Non maintaining of Registers.2. TA/DA/L TC/ Overpayment upto Rs. 5,000/-3. Arithmetical cakulatlons Mistakes ;

4. Overwriting or alterations5. Non availability of Sanctioned strength6. Non maintenance of Incumbency Register.7. Improper Maintenance of all types of Registers.8. Non submission of adjustment bills in case of TNDALL TC.9. Use of Improper formats.10. DelC!yin 7NJ 4 B/7Q cases upto one year.11. Monitoring of punctuality.12. Levy of Surcharge due to delayed payment of bills.13. Over payment upto Rs. 5000/-14. Improper accountin~ of Leave15. Non submission of Tour Programme/Tour Diary16. Overpayment of Children Education Allowance.17. Improper documentation in case of grant of various advances to

staff.18. In complete documentation after advance oranted.19. Non monitoring of recovery advances.20. Misuse of Office Vehicles21. Improper maintenance of Service Books.'22. Non submission of Insurance policy in HBA cases23. Recov~ry of License fee.24. Annual physical verification of stores/Stock/Dead Stock.

.. . .................25. Non verification of fixed assets.26. Non maintenance of Service Book Re~ister27. Non maintenance of Staff Pension Register28. Non maintenance of Advance Register29. Non maintenance of LTC Register30. Non maintenance of TAmA Register31. Non maintenance of Building Maintenance Register32. Non maintenance of Petty Cash Register33. Non maintenance of Medical Register

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34. Non maintenance of SPFAnnual Accounts Register35. Non maintenance of Budget Register36. Non maintenance of Stock Reqlster37. Non maintenance of Dead Stock Register38. .Non maintenance of Telephone Register39. Non maintenance of Log Book Register40. Non maintenance of Uveries Register .41. Non maintenance of Log Book (Generator)42. Non maintenance of Computer Register43. Non maintenance of Tax deducted Reqlster ,44. Non maintenance of Staff _quarter Allotted Register45. Non-maintenance of Register for files46. Non maintenance of Work Diary Register47. Non maintenance of Reminder Register48. Non maintenance of Festival Advance Register .'.

49. Non maintenance of Pension Disbursement Register50. Non maintenance of Staff Pension Register51. Non maintenance of GIS Register52. Non maintenance of Staff Car Maintenance Register53. Non maintenance of Fire Fighting Equipment Register

The Internal Audit Paras in the above Category shall be dropped bythe following Committee

R.P.F.C. (F & A) Chairman

R.P.F.C. (HRM) Member

R.P.F.C. II (ASD) I Member

Further, all the Audit Paras will first .be scrutinized by theAudit Wing. They shall be sent to the different Committees afterdue examination and comments of the Audit Wing.

-PowerW··Cate·gotiZlfAliilit·Paras···· ····..· .

In case any ambiguity arises in relation to the categorization of aparticular audit para, it shall be sorted out by Director (Audit)/ACC(Audit)with the approval of CPFC.On the basis of the experience of handling suchambiguous cases, the classification of the audit paras in to Category 'A', '8'and 'C' will be reviewed and an amendment if any in the categorization willbe placed at least annually before FIAC.

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Annual Report to FIACon the Workin~ of the Audit Wing

JJ3th FIAC Meeting

The annual report of the activities of Internal Audit wing shall be placedbefore FIAC for its consideration' and necessary guidance. '

The agenda is placed before the' Finance, Investment & Audit -Committee for consideration.

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Item No.6: Note on status of Accounts in EPFO and initiativestaken to improve upon the same.

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Accounts in EPFOare maintained as per the provisions of Section 5(5)

and 5(6) of the EPF& MP Act, 1952. As per these provisions, the-Central

Board shall maintain proper eccouote of its income end expend!ture-in sl!ch-

form and in such manner as the Central Government may, after consultation

with the Comptroller and Auditor-General of India, specify in the Scheme.

The accounts of the Central Board shall be audited annually by the

Comptroller and Auditor-General of India and any expenditure incurred by

him in connection with such audit $hall be payable by the Central Board to

the Comptroller and Auditor-General of India.

Para 55 of the EPF Scheme provides that the .Central Board shall

maintain proper accounts of. its income and expenditure, including its

administrative accounts, in Form 10, and the balance sheet in Form 11. The

accounts shall be prepared for the financial year and the books shall be

balanced on the 31st March each year.

Accounts of EPFO are maintained in single entry system of

accounting. Traditionally the Government Accounts are maintained In this

system only. Under this system, while for certain transactions both the

aspects (debit arid credit) are recorded, for others only one aspect is

) recorded and some.transactions are even ignored.

) Due to this system, accounts of EPFO suffer from following

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disadvantages:-.......................................................................................

• Fixed Assets (excluding Land & Building) are not being

reflected as Capital Asset instead they are booked are revenue

expense. So Fixed Assets are being understated in the

financials.

• Depreciation is not charged on Building

• Current Assets are not being reflected in the Books

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• Interest accrued but not due on Investments is not recognized

in Bookswhich result in understatement of Income.

• Sundry Debits/Suspensedebits are not reconciled

• Reconciliation of balances in PF Members accounts with the

total liabilities shown in Balance Sheet-under "Employee~' PF..

Account" not done.

• Amounts received are not classified correctly as in case of

partial deposit of dues after court orders.

• SRF fund is not reconciled. Its utilization & recovery is not

properly reflected in the financials

• Interest Suspense Account is not properly reconciled which

sometimes results in overdrawaIof Interest. .' . . .....

• Staff PF/Pension Fund: liabilities are not matched .with the

respective Investments.

• C&AGreport negative comments on our FinancialStatements.

• Lack of reliable Information/MIS for Management to take

timely decisions.

• Organization is more susceptible to Financial Frauds

• Proforma of Annual Accounts of the Organisation are not as per

the generally accepted accounting principles- Receipts and

Payments need not be the part of Annual Accounts.

Initiatives taken to improve the accounts are as follows:................- ~ 'lnte£iraHon . of all India accounting data in a computerized

environment.

• Exploring option of assigning permanent unique account number by

shifting subscriber based number.

• Preparatory work to shift accounts to double entry accounts have

been initiated.

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JJ3th FIAC Meeting

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• Controlling and cleansing the inoperative accounts. The quantification

of inoperative accounts has been gradually moved from a manual

environment to an IT assisted system. Thus, it has been possible to

bring down the total inoperative amount from Rs. 35,621.25 crore to

Rs. 26,496.61 crore during thelastfinancial year.

• A drive has been launched for clearance of r:'egative balance, As a

result, a total of 4.36 Lacs accounts with negative balance of Rs.

597.79 crores (as on 31.03.2014) has been brought down to 3.93

Lacs accounts with negative balance of Rs. 358.99 crores (as on

13.06.2014). The negative balances are by and large accounting

errors.

r.• CCPAP (Corporate Cheques Payable·at Par)module of SB! for

payment to beneficiaries is at trial run stage at Delhi (South) office.

Under this module the contents of cheque such as Name, Bank Afc

No. and amount shall be uploaded on the SFrP server of SB! before

dispatch of'cheques, This will be useful for prevention of frauds on

account of presentation of fake chequesor tampering of cheques.

• Sweep transfer of day end balance of EDU Alc No. 21 at all field

offices has been started w.e.f. 13.06.2014. A centralized "Pull-Push

mechanism" is being operated by SB!, Mumbai to pull all credit

balance or alternatively push debit balance at the end of the day. It

will help in timely investment of surplus amount at field offices and

will ensure that fund is not left idle. NFMShad been implemented in,,-.

Alc No. 1 and 10 in 2005.-.................................................~....·The·· Internet banking facility for making payment by employers

through other banks is at development stage with SB!. The service

charges payable to SBI on collection through Internet Banking has

been reduced from Rs. 3.00 per thousand to Rs 2.50 per thousand

rupees.

Page 112: 1 Me~J.€¦ · 1 1 1 1 1 - -1. '1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ... a Shri K.K.Jalan Chairman, Anance Investment &Audit Committee (AAC), CST,EPFand Central Provident Fund

JJ3th FIAC Meeting

('"'\Errata to Item No. 11: Scheme of audit in EPFO

r('

C

c.r('

(

On page no. 101 of agenda booklet, point no 13 of category 'A'

should be written as "TA/DA/LTC more than Rs. 20,000" in place of

" TA/DA/L TC upto Rs. 20,OOO'~

r