Iia Presentation

STATUTORY COMPLIANCE IN MANUFACTURING INDUSTRY

16th September 2011 1By Sriranjini & Srinivasan


2

Table of contents Need for compliance

Types of regulations

Inherent challenges

Compliance process

Compliance framework implementation

Applicable Laws

Proof of compliance

Why don’t people comply

Approaches to audit

Audit / Reporting16th September 2011


3

LAW

COMPANY

What do you do?

Manufacture & sell goods

Pay excise duty & sales tax

Where do you buy materials from?

Do you render any service?

What do you get by selling?

What do you do with profits?

Have you accumulated wealth?

Pay sales tax / import duty

Pay service tax

Income tax / MAT

Pay dividend distribution tax

Pay wealth tax

Pay surcharge & cess. In the case of delay pay interest / penalty

Other state / country

Yes

Profits / Loss

Distribute dividend

Is there anything else to pay?

16th September 2011

Yes


4

Investors

Employees

Government

Environment

Others

Need for compliance


5

Types of regulations

16th September 2011


6

Compliance

Inherent challenges

Location of the units Multiplicity of regulations Changes in legislation

Basis of disclosures & extent of reporting

Delegation of responsibilities Reputation risk uncovered Not one time – filing returns/

maintaining registers

Fiscal / Corporat

e

Labour

Safety

16th September 2011


7

2Identifying

locations /key personnel

1Document

business process

3Capturing applicable regulations4

Capturing the compliance

requirements

5Communicating the compliance

requirement

6Review

compliances

7Analysing

gaps

8Remedial actionand monitoring

Compliance process

16th September 2011


8

Annexure 1A of Clause 49 of Listing Agreement

Report on compliance of the code of corporate governance to the Board

On quarterly basis

Includes disclosures regarding: Fatal accidents, dangerous occurrence, material effluent

or pollution problems

Significant labour problems and proposed solutions

Significant developments in human resources / industrial relations front

Non compliance of any regulatory / statutory / listing requirements

Review of compliance reports of applicable laws & steps taken to rectify non compliances16th September 2011


9

Laws (Illustrative)

Personnel & Industrial

- Factories Act, 1948

- Industrial Disputes Act, 1947

- The Contract Labour (Regulation & Abolition) Act, 1970

- The Employees Provident Fund & Miscellaneous Provisions Act, 1952

- The Employees State Insurance Act, 1948

- The Industrial Employment (Standing Orders) Act, 1946

- The Minimum Wages Act, 1948

- The Payment of Bonus Act, 1965

- The Payment of Gratuity Act, 1972

- The Payment of Wages Act, 1936

- The Tamilnadu Shops and Establishments Act

- The Workmen Compensation Act, 1923

Operations – General / Industry specific

- Air (Prevention & Control of Pollution) Act, 1981

- Environment (Protection) Act, 1986

- Hazardous Wastes (Management & Handling) Rules, 1981

- Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989

- The Indian Boilers Act, 1923

- The Indian Explosives Act, 1884

- The Petroleum Act, 1934

- Water (Prevention & Control of Pollution) Act, 1974

- Water (Prevention & Control of Pollution) Cess Act, 1977

Legal & Secretarial

- Foreign Exchange Management Act

- Foreign Trade (Regulation & Development) Act

- Public Liability Insurance Act, 1991

- The Companies Act, 1956

- The Indian Stamp Act, 1899

- The Negotiable Instruments Act, 1881

Taxation

- Central Excise Act

- Customs Act

- Income Tax Act

- Service Tax / Rules

- The Central Sales Tax Act

- The Tamilnadu General Sales Tax Act

- Wealth Tax Act

Microsoft Office Word 97 - 2003 Document


10

Audit of Statutory Compliance


11

Do You Act Based on these Acts ?¿¿

Yes, It’s Management Policy to be a law abiding

firm.


12

Pre requisites for compliance Willingness of Management

Availability of Knowledgeable person (Knowledge of Law)

Financial stability to comply

Continuous monitoring of various compliance

Intolerance for non compliance


13

Why don’t organisations comply ?

Cost of Compliance

Management Philosophy

External Factors

Ignorance of law


14

Attributes of an Auditor

Basic Knowledge of Applicability of Various Statute.

Audit programme – what / how to check the compliance?

Section/Location Specific checklist.

Analyzing the consequence of Non compliance.

Abreast of latest legal requirements


15

Sample Compliance check list format

Statutory Provision

Compliance/ Relevant Document

Time Frame

Whether the Company has Complied

Penalty for breach/ non-compliance

Relevant Authority

Proof of Compliance

Steps taken to rectify the non-compliance

Justify action /non-action/Remarks

Rule 4

The Tamil Nadu Factories Rules, 1950

Registration and Grant of License for a factory

Whether the Chief Inspector has issued registration and license to the Company in Form 4 following an application in Form 2 in the prescribed manner by the company

License valid till 31st December of the year for which it is granted

Yes / No / NA

-Imprisonment upto 2 years-Fine upto Rs. 1,00,000-Or both-If continuing offence – Rs. 1,000/day

Chief Inspector or Deputy Chief Inspector of Factories

License certificate valid till 31-12-2011


16

Approaches to Audit

Classification / prioritization of compliance to be verified.

Verifying the proof of compliance.

Reporting

Follow up


17

Classification / prioritization of compliance to be verified

High

Imprisonment of directors / officers Closure of plant/office loss of reputation

Moderate

Exceptions relating to renewals of licence Provision which does not attract Imprisonment

Low

Exceptions relating to maintenance of records , filing of returns etc.


18

Verifying the proof of compliance

Physical Records

Electronic Record

Publications

Certification from Experts


19

Reporting

Consequence of Non compliance – Financial / Criminal liability

Loss of reputation.

Statutory report


20

Follow up

Review of previous Non compliance

Current Status of Non compliance

Continuous Monitoring to ensure compliance


21

IT in Compliance

Compliance Framework

Compliance Scheduling

Compliance Assessment

Compliance Follow up


22

IT in Compliance

• Location (Branch)• Financial Year• Applicability

Captures key details of

• Process Owner (Individual)

• Manager

Assign Responsibility

• Intimation Mail• Three levels of reminders• SMS (Messaging)

Model Alerts


23

THANK YOU

16th September 2011

Iia Presentation

Documents

statutory compliance

insurance act

customs act

petroleum act

instruments act

centralorders act

sales tax act

payment of wages act