Background :

The top management of a chemicals company, with 400 crores turnover, is extremely happy with its internal audit department specially with the cost-saving measures recommended by the department. The Chemicals company has two plants in Thane (Mumbai), and Gumdipoondi (Chennai), with its corporate headquarters at Andheri in Mumbai. The company is presently facing problems with security issues at the factories both at Thane and Chennai. The problem is acute at Chennai. The Managing Director calls the Chief Internal Auditor and informs him about the security concerns. A worker has been caught at night, scaling the factory wall from backside and trying to take away a motor from the Stores. There have been incidents of workers being caught at factory with copper wire around their waist whilst they were leaving the factory. There was a fight between truckers and the security staff in the last month with both coming to blows. However, a police complaint was avoided. The Managing Director held a meeting with the Chief Internal Auditor (CIA) and requested him to conduct a review of Thane and Gumdimpoondi plants to ensure that the root cause for so many incidents is identified. He also informed the CIA how important it is to reduce such incidents.

Based on the above background, the CIA had a meeting with his audit managers to chalk out a plan to carry out a review of security measures at the factory. He also decided to include an ex-service man employed with a security services agency in his team. He visited three security agencies and talked to their experienced personnel to understand how similar incidents were tackled in other factories.

He was given to understand that the few security incidents highlighted at his factories would in fact indicate much larger problems at the factories. The larger picture had been completely missed out. The security agencies based on their experience pointed out that the incidents reflected a small measure in value terms, whereas most incidents where the company could be losing money could be short receipts and/or defective receipts in in-coming materials. Even if this was 1% of 300 crores, it would be 3 crores which would be substantial. This conclusion was arrived at keeping in mind the deteriorating security situation at the factory. Discussions with these agencies led the CIA to this thinking, coupled with the fact that the earlier Procurement Head had left the company. Further, the procurement practices were also not as per international practices. Armed with this data, the CIA and his team carried out surprise visits to the factories at Chennai and Thane.

Security personnel worked in two shifts of 12 hours each. (It was clear that a person cannot concentrate on rounds and security aspects when he works more than 4-6 hours without rest.)

A discussion with security guards at the factory brought out that

This resulted in vendors short charging in materials supplied to the company, as they felt that this company could be taken for a ride.

In a surprise check of empty drums being taken back by one vendor at night, it was found by the internal audit team that a few drums contained material which had been supplied by the vendor. This meant that material was taken back without the return being recorded.

A few civil work contractors brought in workers for civil construction and hurled abuses at security personnel if they tried to count the exact number of workers coming into the factory and also those leaving the factory. As the civil contractor was close to the Managing Director, he enjoyed unfettered access to the factory, and his workers did not pay heed to the security staff.

Reccomendations (in brief) :

There was a need to appoint a Chief Security Officer and also the Managing Director needed to set an example by ensuring the access card/staff from HO card was also swiped by him at the gate every time he went to the factory. He needed to create an ‘environment of security’ at the factory to be respected by his top management team.

There was a need to introduce best procurement practices and discipline/blacklist vendors who were indulging in malpractices.

Then there was also the need to ensure that security staff was paid minimum wages, in time and was respected by all concerned in the factory. There was also the need for ensuring that the working hours were reduced from twelve to eight — hence the Security Agency should be required to have ‘three shift’ operation, instead of the present two. These were the preliminary suggestions of the CIA pending detailed review.

Conclusion :

The MD wholeheartedly agreed to act upon the issues raised by the internal audit team, as it was a question of the very survival of this plant against competitive forces. After the MD agreed to adopt the above measures, other management staff fell in line and action on these issues led to improved security. The Managing Director appreciated the efforts of the internal audit team.