Pension Fund Regulatory & Development Authority (PFRDA)

Transcription

1 Pension Fund Regulatory & Development Authority (PFRDA) PFRDA (APPOINTMENT OF INTERNAL AUDITOR) GUIDANCE NOTE

2 PFRDA (APPOINTMENT OF INTERNAL AUDITOR) GUIDANCE NOTE This Guidance Note may be referred to as PFRDA (Appointment of Internal Auditor) Guidance Note This guidance note is being prescribed with a view to standardize Internal Audit of the Pension Fund Managers (PFMs). 1. Eligibility criteria for Appointment as Internal Auditor: (a) Auditor of a PF shall be a partnership firm and it shall not be a proprietorship concern. (b) Audit entity should have a minimum of five partners. (c) The audit entity should have a ten year track record of continuous operations. (d) Any one partner of the entity shall be a Fellow member of The Institute of Chartered Institute of India (ICAI) and should have been in continuous practice for five years after enrolment as FCA. (e) During the last five years, the entity should preferably have an audit experience (f) of mutual fund and/or schemes of National Pension System. At least one partner or paid Chartered Accountant of the entity should have CISA/ISA or any other equivalent qualification and should be a part of team conducting proposed internal audit of the PFM. (g) Internal Auditor should not in any way associated with the audit of the Pension Fund Manager (PFM) or Sponsor of the concerned PFM or any other PFM or schemes of any other PFM. 2. Appointment and Fee: Appointment and audit fee shall be approved by the Board of PFM and audit fee to be borne by the PFM. 3. Tenure of Auditors: Auditors may be appointed for a normal tenure of three years. 2

3 4. Rotation of Auditors: Auditors will have a cooling period of two years in respect of the same PFM. After completion of normal tenure of three years, audit entity should not accept any audit assignment of that PFM during the next two years. 5. Minimum Scope of Internal Audit: The minimum scope of Internal Audit is detailed as per Annexure A. The list of scope is only indicative and not exhaustive and PFM/ auditor may include more parameters, in addition to the minimum scope specified in Annexure A, based on their requirements. 6. Frequency and Reporting: 6.1 Internal audit is to be conducted on quarterly basis. Internal Auditor will prepare, its report, giving an executive summary, to be followed by a detailed report. Each issue will be classified as High Risk / Medium Risk / Low Risk. 6.2 Auditor will also report on the unresolved audit issues and actions taken thereon as a separate annexure. Auditor will seek response/clarification from the PFM on his observations and include their response/clarification in the report and wherever the auditor is not in agreement with the response/clarification of the PFM, the Auditor will report the reasons for disagreement. Audit report should be signed by the partner of the firm in his/her own name along-with membership number. 6.3 The report should be considered by the Board of PF and thereafter the same, alongwith the observations of the Board and relevant extract of the Board minutes, should be forwarded to NPS Trust/ PFRDA by the PFM. 7. Certification by Internal Auditor: In addition to the quarterly Internal Audit reports, every half year i.e. 30 th Sep & 31 st March, the Internal Auditor should submit the half yearly certification (as per Annexure B) to the Board of PFM and after its consideration by the Board, PFM will send a copy to PFRDA and NPS Trust. Consideration of Audit certification should be duly recorded in the minutes of the PFM Board meeting. Observation of Board of PFM and relevant extract of the Board minutes, should be forwarded to NPS Trust/ PFRDA by the PFM. 3

4 Annexure- A Scope of Internal Audit: (Basically derived from the IMA) 1 Board Meeting Composition of Board Frequency of meeting Minutes of meeting Recommendations Delegation of Authority 2 Investment Operational Manual/ To be approved by Board/ IC Procedure Amendments, if any, to be approved by the board Frequency of review Procedure for credit appraisal and market risk Procedure for security documents execution Income recognition policy- accruals Periodic credit review 3 4 Investment Committee (IC) Composition of IC Frequency of meeting Minutes of meeting Recommendations Delegation of Authority Investment Policy (IP) Approved by BOD Valuation principles Adherence to regulatory guidelines for valuation Frequency of review Liquidity Prudential norms Exposure limits Stop loss limits in securities trading 5 Risk Management Committee Composition of Risk Committee Frequency of meeting 4

5 Minutes of meeting Recommendations 6 7 Risk Management Policy Approved by BOD Frequency of review Disaster recovery strategy Business Continuity Plan IT System audit Data Integrity Operational risk management Market risk management Credit Risk Management Counter party management Brokers Review Employee dealing Guidelines Insurance cover against risk Pattern of Investment Verify pattern of investment : *Scheme CG, SG, NPS LITE *Scheme E Tier I & II *Scheme C Tier I & II *Scheme G Tier I & II * Corporate CG scheme 8 9 Dealing Procedure (Front office) Installation of voice Recording Machine System and procedure of dealing in Equity and Debt Deployment of as Dealer/ Fund Manager Maintenance of records for investment justifications Back office procedure Deployment of separate officials No password sharing between front office and back office Accounting and settlement of deal Deal execution through STP 10 Exposure and Prudential norms Investment in promoter group Stipulated norms - Investee co. Stipulated norms - Group Co. Stipulated norms - Industry group 5

6 Limit monitoring- through system Limit and alert management- Internal Norms and Regulatory norms. 11 Custodian Controls Reconciliation of securities with SHCIL data Controls over Physical holding 12 Verification of other investments End of reporting period End of reporting period Reconciliation of Mutual Fund holding with Statement of Account received from MF Physical verification of fixed deposit receipts in respect of Fixed Deposits placed with Banks 13 Units accounting 25% Reconciliation of units with CRA on daily basis Correctness of NAV applied Appropriateness of accounting of unit premium Investment bank accounts 25% Bank Reconciliation on daily basis 25% Identification of idle funds 25% Timely deployment of fund Appointment of Guidelines on empanelment of brokers dated 14th Sep Brokers 2012 Ceiling per broker as per IMA 16 Non Performing Investments Classification Income Recognition Provisions 17 Inter Scheme Transfer Traded securities- Rates, authorisation and documentation Non traded securities- Need/Justification of off market transaction, fairness of price and internal authorisation 18 Investment Deals verification 75% Accuracy of calculation of Investable surplus 75% Review of Daily sale purchase register 75% Journal vouchers 75% Investment Ledgers 75% Verification of authorisation, price and documentation 75% Counter party confirmation 75% Contract note from brokers 75% Brokers Bills 6

7 25% Deal tickets 25% DIS/DIP statement & Intimation to the custodian 25% Verification of timely and accurate capturing of trades 19 Accounting Compliance with accounting Standards Adherence to accounting policy 50% Accounting of income receipt 25% Corporate action- bonus, rights, dividend, interest receivable 25% Reversal of brokerage on daily basis Outsourcing ( of all items under the scope of accounting, if it is outsourced) 20 NAV Valuation of investments 50% NAV Calculation 10% Accruals of coupons Scrutiny of expenses charged to scheme on daily basis (i.e Investment Management fee, Custodian charges, SEBI Charges and CCIL Charges) Outsourcing ( of all items under the scope of NAV, if it is outsourced) 21 Disclosure Daily NAV disclosure/uploading to CRA NAV History Portfolio Disclosure Half Yearly Financial statement Annual report 22 Periodical returns to Authority/ Trust Timely submission Accuracy of data Procedure of generation of data and report procedure for capturing Down grading of investment 23 Compliances Compliance to clauses of IMA Compliance to Guidelines and Guidance note Compliance to Internal Guidelines, Operational manual Adequacy and efficacy of Internal Control system and procedures 24 Internal Audit/ PFM Audit/ Scheme Audit To see the exceptions of audit & compliance there of 7

8 25 Marketing and distribution Marketing and distribution setup/ efforts Note: The above list of scope is only indicative and not exhaustive. PFM/ auditor may include more parameters based on their requirements. 8

9 On the letter head of Audit Firm Half yearly Certificate for Internal Audit To Board of PFM... Annexure B We have examined the relevant books of accounts, records and documents maintained by ( Pension Fund Manager ) for the half year ended on of FY.... The purpose of this audit is to examine that the processes, procedures followed and the operations carried out by the Pension Fund Manager, are in compliance with Investment Management Agreement (IMA) signed by the PFM with the NPS Trust. We have conducted the audit as per PFRDA (Appointment of Internal Auditor) Guidance Note Further our procedures covered all the areas listed in scope of work stipulated in Annexure A of the above Guidance Note. (Enclosed, duly signed by us under reference to this certificate.) Based on our scrutiny of the books of accounts, records and documents maintained by the PFM, we certify that the PFM has complied, in all material respect, with the relevant clauses of IMA, Guidelines / Regulations / Circulars of NPS Trust/ PFRDA and Investment Policy of the PFM to the extent covered by the scope of work stipulated in Annexure A and any additional Scope of work agreed with the Pension Fund Manager. We declare that we do not have any direct/ indirect interest in or relationship with shareholders/ directors of PFM. In our opinion and to the best of our information and according to the explanation given to us by the PFM, the internal audit report provided by us as per Annexure and subject to our observations contained therein, covers the entire scope of the Audit and is true and correct. Yours truly For (Name of Firm) Chartered Accountants Firm Regn No.. (Name of Partner) Partner Membership No: Place: Date: 9