MABS & J Partners Mahfel Huq & Co.

Chartered Accountants Chartered Accountants

Contents
Transmittal letter..................................................................................................................................4
Executive summary..............................................................................................................................6
About the auditors & competence................................................................................................6
Identification of client and any other intended users................................................................8
Nature of the business....................................................................................................................8
Composition of team.......................................................................................................................8
Audit methodology.......................................................................................................................11
Details of key findings.......................................................................................................................12
1. Outstanding Rent Receivables..............................................................................................12
1.01 Outstanding Rent Receivables are carried forward for a long period..................12
1.02 There was a mismatch between accounts & schedule................................................12
2. Rental Income..........................................................................................................................13
2.01 Amount for the Rental Income in accounts did not agree with supporting
documents..................................................................................................................................13
3. Reserve for exceptional loss..................................................................................................13
3.01 The reserve for exceptional loss is overstated........................................................13
4. Negative Net Premium in Engineering.................................................................................14
4.01 There is higher re-insurance ceded than re-insurance premium underwritten in
Engineering.................................................................................................................................14
5. Investment...............................................................................................................................16
5.01 There is no investment committee in SBC...............................................................16
6. No tax was deducted at sources...........................................................................................17
6.01 No tax was deducted at sources from the payments of Re-insurance Premium
to overseas insurance broker/company.................................................................................17
7. General Reserve......................................................................................................................17
7.01 Mispresentation of the accounts...............................................................................17
8. Fixed Assets are not revalued...............................................................................................18
8.01 No revaluation of fixed assets has been done since inception..............................18
9. Underwriting...........................................................................................................................19
9.01 Inability to provide documents for Premium Deposit.............................................19
10. Written policy for Commission on Re-insurance............................................................20
10.01 There is no written policy for payment of commission rate..................................20
11. Fire Commission Paid.........................................................................................................20

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10.01 Fire commission paid is overstated in the accounts..................................................20

11. Loss in Fire Revenue Account.............................................................................................21
11.01 There is a significant loss incurred in Fire Revenue Account...................................21
12. Accrual basis is not followed in Re-insurance.....................................................................21
12.01 Re-insurance Premium underwritten does not match accounting period of SBC.21
13. Bridge Loan..........................................................................................................................23
13.01 Bridge Loan carried forward for a long period of time..............................................23
13.02 Difference in accounts & schedule...............................................................................23
14. Management Expense........................................................................................................24
14.01 Non-compliance with the circular of IDRA.................................................................24
16. Amount due from other person..........................................................................................24
16.01 There was a mismatch between accounts & schedule..............................................24
17. Amount due to other persons or bodies carrying on insurance business.....................25
16.01 No explanation for the liability.....................................................................................25
17. Property, plant & equipment................................................................................................25
17.01 Fixed Assets register, Assets Identification Tag & Fixed Assets Management
Policy were not maintained properly......................................................................................25
18. Assets & Liabilities carried forward.....................................................................................26
18.01 Debenture Loan carried forward for a long period of time......................................26
18.02 Crop Insurance Department carried forward for a long period of time..................27
19. General.....................................................................................................................................27
19.01 Accounting Software (ERP)...........................................................................................27
19.02 There was a lack of sufficient security of business information..............................28
19.03 No audit was conducted for the Provident fund & Pension Fund...........................28
19.04 There was no internal audit report for the Head Office...........................................29
20. Miscellaneous.........................................................................................................................29
20.01 Expense exceeding the Budget.....................................................................................29
20.03 There was a mismatch between accounts & its supporting documents.................30
20.04 Lack of Training Requirements on posting of entries, Change Management Policy,
Acquisition and Development Policy, Incident and Problem Management and
Administration Activities Monitoring......................................................................................30
20.05 Some expenditures are falsely treated........................................................................32
20.06 Cash book register was not updated...........................................................................32
20.07 Mismatches among accounts, ledgers & registers.....................................................33
21.01 Accrual basis is not maintained.....................................................................................33
21.02 Lack of proper maintenance of accrual concept........................................................34
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21.03 Failure to provide documents.......................................................................................34

21.04 Insurance Stamp & Cash defalcation...........................................................................35
21.11 Inappropriate accounts..................................................................................................35
21.05 Lack of proper documentation and policies................................................................36
21.06 Wrong treatment of items.............................................................................................36
21.07 Lack of proper maintenance of accounts....................................................................37
21.09 Inconsistent method of paying remuneration............................................................37
21.10 Failure to comply with the Budget...............................................................................38
21.12 No Internal Audit Report was found............................................................................38
22.01 Non-compliance in claims paid.....................................................................................39
22.02 Non-compliance in fire claim........................................................................................39
22.03 Lack of proper documents.............................................................................................40
22.04 Rules violation in employment......................................................................................40
23.01 Income Recognition........................................................................................................41
23.02 Inadequate maintenance of ledgers.............................................................................41
23.03 Delayed deposits............................................................................................................42
23.04 Lack of proper documentation and policies................................................................43
23.05 Mismatch between trial balance & supporting documents......................................43
23.06 Non-compliance with Accrual concept........................................................................44
23.07 Expenses exceeding the Budget...................................................................................44
23.08 Deviation in Claims paid between Trial Balance & its supporting documents.......45
23.09 Misstatement in Interest income..................................................................................45
23.10 Expenses mismatched with supporting documents...................................................46
24. ECGD Observations..............................................................................................................46
24.03 Lack of proper documents and procedure..................................................................47
Conclusion:..........................................................................................................................................49

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Transmittal letter

Date: August 01, 2022

Managing Director
Sadharan Bima Corporation
33, Dilkusha, C/A, Motijheel, Dhaka-1000

Subject: Management Report on the External Audit of Sadharan Bima Corporation for the
year ended December 31, 2021.

Dear Sir,
In terms of your appointment letter dated January 03, 2022, we, the undersigned, have audited the
accounts of Sadharan Bima Corporation for the financial year 2021. We have examined the
accounting records, registers, and financial statements on a test basis as considered necessary to
satisfy ourselves. We have reviewed the internal control system as applied by the management in
the maintenance of accounting records and the preparation of financial statements.

We set out in the following pages our management letter containing certain matters concerning the
internal control, accounting practices, and procedures of your company that came to our attention
during our audit. To facilitate the prioritization of resources within Sadharan Bima Corporation to
address these observations, we have assigned a risk grading to each observation on the following
basis:

Grade Basis
Significant control weakness or business risk that requires immediate management
A
attention.
Control weakness that should be included in management's plan to address in the
B
forthcoming year.

C The matter, which is procedural in nature or observation only.

Each point contained in this report is divided into seven sections outlining the following:

 Observation
 Risk
 Exposure rating
 Recommended action plan
 Management response
 Implementation date
 Individual responsible for the implementation

It is pertinent to mention here that our audit procedures are designed and performed primarily to
obtain reasonable assurance about whether the financial statements are free from material
misstatements, whether caused by error or other irregularities. Accordingly, we have carried out
tests and evaluations of your systems only to the extent necessary for us to decide on reliance to be
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placed on your procedures and controls in the process of arriving at the above opinion. Thus, such
tests and evaluations may not bring to light all the weaknesses that might exist in the systems of
internal control and accounting procedures, which a more exhaustive special review of the system
might reveal. Please also note fraudulent collusion can override the effectiveness of most controls.

We would like to take this opportunity to express our thanks to the management and staff of the
company at all levels for the co-operation and assistance that they have extended to us during our
audit.

Please do not hesitate to contact us should you require further clarification regarding any of the
matters discussed in this report.

Thank you.

Yours faithfully,

J C Biswas FCA Md. Abdus Satter Sarkar FCA

Partner Partner
MABS & J Partners Mahfel Huq & Co.
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Executive summary

About the auditors & competence

MABS & J Partners Chartered Accountants

MABS & J is one of the oldest audit firms in Bangladesh with around 42 years of professional
experience and Central Banks ranking as one of the top six firms at their last ranking done in March
2017. Recently, BB has published their latest enlistment of CA firms in Alphabetic Order and
discontinued the ranking of firms. However, we are in the latest list in Alphabetic Order; MABS & J
attends upon and meets the demand of the diversified services of its valued clients. It has developed
expertise in Audit & Assurance, Forensic & Investigative Audit, Accounting Services, Taxation,
Secretarial work, Corporate Finance, Stocks & Securities Management, Management Consultancy,
Human Resources Consultancy, Information Technology Consultancy, Initial Public Offering (IPO) &
Fund Raising, Outsourcing & Payroll Services, Feasibility & Market Study, Review of Financial
Management System and Performance Audit of various national and multinational organizations.
Our continuous efforts to ensure quality, practical advice, ethical solutions, and integrity have
resulted in a magnificent growth of the firm over the last few years.

Mahfel Huq & Co. Chartered Accountants

Mahfel Huq & Co. was established in 1974 by Mr. Howlader Mahfel Huq as a sole practitioner
accounting firm and became the first accounting firm registered in the independent Bangladesh. In
2002, the firm was converted into partnership by a merger with Abu Mohammad Kaiser & Co but
retained its first name. For the last four decades the firm has evolved to provide unmatched client
services and has grown considerably to be able to provide top class client services which is
unparalleled in the industry.

We offer a full range of bookkeeping, auditing (internal & external), accountancy, taxation, VAT
compliance, payroll, company formations, financial accounts, management accounts, business
planning and cash flow forecasts.

Since then it has grown to be a respectable Grade – A firm by Bangladesh Bank and also enlisted
with Bangladesh Securities and Exchange Commission (BSEC), Micro Credit Regulatory Authority,
NGOAB, PKSF, IDCOL & LGSP. Customer satisfaction is our top priority and we pride ourselves
on building long lasting relationship with our clients. We provide a fast, reliable, friendly and
professional service at an affordable price. We have the skills to match your requirements.

We are available during normal office hours, but are happy to arrange out of the hour’s appointments
to suit your needs. Mahfel Huq & Co is an independent member firm of AGN International, one of
the Top 5 international associations of accounting and consulting firms. Headquartered in London,
United Kingdom, AGN International’s 184 member firms are represented in 90 countries around the
globe by over 12,000 staffs generating an aggregate income in excess of US$1.6 billion.

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Member Firms of AGN International assist clients in meeting the challenges posed both by local and
cross border ventures. These firms advise companies on the diverse financial and tax rules governing
all forms of commercial activities across the globe.

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Identification of client and any other intended users

Sadharan Bima Corporation (popularly known as SBC) is the only state-owned non-life insurer and
reinsurer in Bangladesh under the Ministry of Finance, Government of the People's Republic of
Bangladesh. Both Sadharan Bima Corporation, the non-life insurer, and Jiban Bima Corporation, the
life insurer, were created under the Insurance Corporation Act (Act No. VI) Of 1973 of Bangladesh.

The office of the Corporation is situated at Sadharan Bima Bhaban, 33, Dilkusha C/A, Dhaka.

Nature of the business

The services provided by Sadharan Bima Corporation include insuring public and private property
risks, providing liability insurance coverage, reinsurance of the risk underwritten by private non-life
insurers, providing Risk Improvement Services, Industrial Development through Equity participation,
and Human Resources Development for the Insurance Industry. Moreover, Sadharan Bima
Corporation itself makes retro-cession to different overseas re-insurers.

Composition of team
Considering the importance of the work and the internal control system needed to be reviewed as
well as the financial statements, a team consisting of members with different esteemed professional
backgrounds and experience was formed. The team consisted of the following professionals:

Assigned
Name of professional Qualification Experience
position
MABS & J Partners
Mr. S.H. Talukder, FCA,
FCA, CMA (ANZ) Review Partner 28 Years
CMA (ANZ)
Engagement
Mr. J. C. Biswas, FCA FCA 8 Years
Partner
Engagement
Mr. Mostafizur Rahman ACCA Afiliate 7 Years
Manager

Mr. Mizanur Rahman ICAB certificate level Senior Associate 2.5 Years

Mr. Abdur Rahim Munshi ICAB certificate level Mid-level Senior 1.5 Years

Mr. Hasibur Rahaman ICAB certificate level Junior Associate 1.5 Years

Mr. Mohiuddin Rashed ICAB certificate level Junior Associate 1 Year

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SBC Head office Team

Engagement
Mr. Mostafizur Rahman ACCA 2 Years
Manager

Mr. Mizanur Rahman ICAB certificate level Senior Associate 3 Years

Mr. Abdur Rahim Munshi ICAB certificate level Mid-level Senior 2.5 Years

Mr. Hasibur Rahaman ICAB certificate level Junior Associate 1.5 Years

Mr. Mohiuddin Rashed ICAB certificate level Junior Associate 1 Year

SBC Dhaka Zonal Office

Mr. Mizanur Rahman ICAB certificate level Senior Associate 3 Years

Mr. Abdur Rahim Munshi ICAB certificate level Mid-level Senior 2.5 Years

SBC Khulna Zonal Office

Mr. Abdur Rahim Munshi ICAB certificate level Mid-level Senior 2.5 Years

Mr. Hasibur Rahaman ICAB certificate level Junior Associate 1.5 Years

Assigned
Name of professional Qualification Experience
position
Mahfel Huq & Co.

Howlader Mahfel Huq FCA FCA Review Partner 48 Years

Md. Abdus Satter Sarkar Engagement

FCA 8 Years
FCA Partner

Md. Abbas Ali Mallik ACCA Afiliate Director 7 Years

Samiul Islam ACCA Afiliate Senior Manager 5 Years

Engagement
Ali Mortuza CA(CC) 4 Years
Manager

Anisur Rahman ICAB certificate level Senior Associate 1.5 Years

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Shitina Das Tumpa ACCA Junior Associate 1 Years

Karuna Noore Hoque Trainee Auditor Junior Associate 1 Year

SBC Head office Team

Engagement
Ali Mortuza CA (CC) 4 Years
Manager

Anisur Rahman ICAB certificate level Senior Associate 1.5 Years

Shitina Das Tumpa ACCA Junior Associate 1 Years

Karuna Noore Hoque Trainee Auditor Junior Associate 1 Year

SBC Dhaka Zonal Office

Anisur Rahman ICAB certificate level Senior Associate 1.5 Years

Shitina Das Tumpa ACCA Junior Associate 1 Years

Karuna Noore Hoque Trainee Auditor Junior Associate 1 Years

SBC Narayanganj Zonal Office

Anisur Rahman ICAB certificate level Senior Associate 1.5 Years

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Audit methodology

We apply a five-step method that helps us to quickly understand your business and to deliver results
at speed.

Evaluation Conclusion
Risk Audit
Planning of internal and
assessment testing
controls reporting

Step one: Planning

Here, our expert teams work to understand your operations, internal controls, and information
systems. We then construct an audit timetable that meets your requirements. The result: a tailored
audit strategy is made that is structured around your business or organization.

Step two: Risk assessment

Next, we use this knowledge to assess your financial reporting risk – particularly in business-critical
areas. We identify issues early to allow time for thorough investigation and resolution.

Step three: Evaluation of internal controls

Robust internal controls are the key to a more stable organization. Where possible we test your
internal controls and suggest improvements.

Step four: Audit testing

Our teams use sophisticated tools, including data interrogation software, to analyze your balances
and transactions, and enhance your operations.

Step five: Conclusion and reporting

In this step, we apply an additional check to ensure the accuracy of our work. We then turn the raw
results into actionable insights, so you can rapidly drive improvements across your organization.

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Details of key findings

1. Outstanding Rent Receivables

1.01 Outstanding Rent Receivables are carried forward for a long period.

Observation:
1. An amount of BDT 17.05 crore is shown as Outstanding Rent Receivables from different
tenants of SBC. Rent income for the year 2021 was BDT 13.23 crore therefore outstanding
rent receivable should be around BDT 1.1 crore which is equivalent to one month rent
income. The total outstanding rent receivable balance amount has been carried forward in the
financial statements since long. IFRS 09 requires to measure and recognize lifetime Expected
Credit Loss (ECL) for the financial assets with significantly increased credit loss. However, no
such loss allowance has been measured and recognized in the financial statements of the
corporation as on 31 December 2021 although there is a significant credit loss is evident
against the receivable.
Risk:
 Asset in the financial statements has been overstated by the long pending outstanding rent
receivable amount.
Exposure rating: A
Recommended action plan:
 The management should take proper action to recover the outstanding rent receivables. If the
management is unable to recover the outstanding rent then the unrecoverable amount should
be written off.
Management Response:

Implementation date:
Individual responsible for the implementation:

1.02 There was a mismatch between accounts & schedule

Observation:
As per the fixed asset schedule, Outstanding Rent Receivables is BDT 170,568,720. However, the
accounts show amount of BDT 114,998,347. Outstanding Rent Receivables is understated by BDT
55,570,373.

Risk:
 Assets might be understated.

Exposure rating: A
Recommended action plan:
 Management should explain the difference in the amounts.
Management Response:

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Implementation date:

Individual responsible for the implementation:

2. Rental Income

2.01 Amount for the Rental Income in accounts did not agree with supporting documents.
Observation:
The accounts of the corporation showed that the amount earned for the rental income during the
year was BDT 131,054,697 whereas the amount in the supporting documents was BDT
132,352,117. Therefore, rental income might have been understated by BDT 1,297,420.
Risk:
 The amount may be misstated in the accounts of the corporation;
 Income of the corporation may have been understated.
Exposure rating: A
Recommended action plan:
 Management should record actual rental income in the Financial Statements and should keep
proper supporting documents for rental income.
Management Response:

Implementation date:

Individual responsible for the implementation:

3. Reserve for exceptional loss

3.01 The reserve for exceptional loss is overstated.

Observation:
According to section 06 of fourth schedule of the Income Tax Ordinance, 1984, the reserve for
exceptional loss must not exceed the premium income of that year or the average of the
preceeding three years’ premium income. Therefore, it should not exceed BDT 6,978,064,907.
However, the reserve is overprovisioned since it is shown as BDT 8,170,656,842 in the accounts.

Risk:
 Due to non-compliance with Income Tax Ordinance, 1984, the corporation might have to face
consequences from the Tax Authorites.
 This might result in the understatement of the general reserve.
Exposure rating: A
Recommended action plan:
 The management should take proper action regarding the above fact and should comply with
Income Tax Ordinance, 1984.

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Management Response:

Implementation date:

Individual responsible for the implementation:

4. Negative Net Premium in Engineering

4.01 There is higher re-insurance ceded than re-insurance premium underwritten in

Engineering

Observation:
In Engineering, re-insurance premium underwritten is less than re-insurance ceded for the period.
Hence, it results in negative net premium for the year.
The details of re-insurance premium underwritten and re-insurance ceded are written below:
[Amount in BDT]

Engineering Insurance Premium

Facultive

Quarter No. Quarter Months Amount

1st April-June 2021 7,718,402

2nd July-September 2021 34,870,450

3rd October-December 2020 21,892,133

4th January-March 2021 2,452,821

Surplus

1st April-June 2021 1,695,845

2nd July-September 2021 4,382,179

3rd October-December 2020 4,291,770

4th January-March 2021 59,944,597

PSB

1st January-March 2021 283,417,354

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2nd April-June 2021 587,448,597

3rd July-September 2021 415,937,881

4th October-December 2021 638,565,948

[Amount in BDT]

Engineering Re-insurance ceded

Facultive

Quarter No. Quarter Months Amount

1st April-June 2021 954,086,684

2nd July-September 2021 757,014,212

October-December 2020 1,186,014,208

3rd
October-December 2021 1,166,693,025

4th January-March 2021 371,597,804

Surplus

1st April-June 2021 120,457,575

2nd July-September 2021 68,920,527

3rd October-December 2020 145,499,287

4th January-March 2021 148,911,763

Auto Facultive

1st April-June 2021 128,532,012

2nd July-September 2021 80,720,902

3rd October-December 2020 127,168,686

4th January-March 2021 58,364,805

Risk:

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 It questions the sensibility and reliability of the financial statements;

 This might result in the negative balance for the reserve of unexpired risk of Misc. Account.
Exposure rating: A
Recommended action plan:
 The management should take proper action regarding the above fact.
Management Response:

Implementation date:

Individual responsible for the implementation:

5. Investment

5.01 There is no investment committee in SBC

Observation:
Investment is a fundamental function for an insurance business to generate non-operating
revenue and all decisions related to investments are taken by the Investment Committee of an
organization. Hence, we apprehend that it was a prerequisite to forming an Investment Committee
with the approval from the Board of Directors as the Committee can play a vital role on the
financial performance specially to achieve the overall return on investment. However, we
observed that no Investment Committee of SBC was established by the board of SBC.
Moreover, SBC does not have any written and approved investment policy.
Details of investment are shown in the table below:
Investment Amount in
Particular BDT
2021
Loan 1,459,960,348
Government Securities 755,047,252

Investment in shares 35,625,282,433

Bangladesh Fund 1,060,000,000

Debentures 32,337,967
Investment in FDR 17,467,700,000

Investment Properties 488,280,543

Total 56,888,608,543

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Risk:
 The shareholders’ fund may not have been invested properly, for their best interests;
 The corporations may not have received expected returns on these investments.

Exposure rating: A
Recommended action plan:
 We recommend that the Board should take initiative to establish an investment committee and
develop a written investment policy.
Management Response:

Implementation date:

Individual responsible for the implementation:

6. No tax was deducted at sources

6.01 No tax was deducted at sources from the payments of Re-insurance Premium to
overseas insurance broker/company.

Observation:
While verifying reinsurances ceded, we observed that a total amount of BDT 5,904,565,348 was
paid to a non-resident reinsurance company during the year 2021 as re insurance premium.
However, no tax was deducted at sources from the payments. Applicable tax rate is @ 10% as per
section 56 (18) of Income Tax Ordinance 1984. Hence, the uncollected tax amount stands at Taka
590,456,535 on that payment.

Risk:
 Due to non-compliance with the section 56 (18) of the Income Tax Ordinance 1984 the tax
authority may impose a penalty/fine for such non-deduction of tax at source.
Exposure rating: A
Recommended action plan:
 The management should deduct tax at source by complying with the relevant tax rules &
regulations before paying insurance premium to the non-residence reinsurance
company/broker.
Management Response:

Implementation date:

Individual responsible for the implementation:

7. General Reserve

7.01 Mispresentation of the accounts

Observation:

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The Consolidated Statement of Financial Position show various reserves which should be included
in the General Reserve to avoid mispresentation of the financial statements and to comply with
IAS 1.

Risk:
 Non-compliance with the requirements IAS 1 could adversely impact the credibility of the
financial statements.
 The General Reserve might result in being understated.
Exposure rating: A
Recommended action plan:
 The management should take appropriate actions in order to solve the issue.
Management Response:

Implementation date:

Individual responsible for the implementation:

8. Fixed Assets are not revalued

8.01 No revaluation of fixed assets has been done since inception

Observation:
As per the International Accounting Standards (IAS) 16-Property, Plant, and Equipment, fixed
assets that have significant changes in fair value should be revalued every three or five years or at
a reasonable interval. However, during our audit, we observed that no valuation of the
corporation’s fixed assets has yet been done.
Value of year-wise fixed assets have been appended value.

SL. No Year Cost WDV

1 2021 BDT 158,93,63,341 BDT 90,70,43,610

Total BDT 158,93,63,341 BDT 90,70,43,610

Risk:
 Assets in the financial statements might have been over/under stated; and
 Non-compliance with the requirements of IAS 16 could adversely impact the credibility of the
financial statements.

Exposure rating: A
Recommended action plan:
 We presume that there have been significant changes in the fair value of the company's fixed
assets as there was no revaluation conducted since inception. Hence, we recommend that the
management of SBC should take proper initiative to revalue the Corporation’s fixsed assets.

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Management Response:

Implementation date:

Individual responsible for the implementation:

9. Underwriting

9.01 Inability to provide documents for Premium Deposit

Observation:
Premium Deposit is a significant portion of the Financial Statements for SBC. It accumulates to
BDT 125,62,09,759. However, the Underwriting department was un-cooperative and we were not
given any information to verify the stated amount and conduct a fair audit.

Premium Deposit (BDT)

Particular
2021
Premium Deposit Fire 9,423,819
Premium Deposit Marine Cargo 1,237,910,956
Premium Deposit Marine Hull 384,188
Premium Deposit Motor 764,607
Premium Deposit Misc. 7,419,854
Premium Deposit WIBCI 3,738
Premium Deposit ENGG 121,619
125,62,09,759
Total

Risk:
 There can be misstatement and wrong valuation in the books of accounts;
 This can lead to other manipulations.

Exposure rating: A
Recommended action plan:
 The management should ensure that an appropriate and systematic audit can take place.
Management Response:

Implementation date:

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Individual responsible for the implementation:

10. Written policy for Commission on Re-insurance

10.01 There is no written policy for payment of commission rate.

Observation:
SBC provides commission to 45 insurance companies. However, there is not a consistent and
adequate policy which would determine the rate at which commissions should be paid. However,
the management does not maintain such policies.

Risk:
 It reflects weak internal control;
 It may create a scope for manipulation.

Exposure rating: A
Recommended action plan:
 The management should follow a specific guideline for allowing commission.
Management Response:

Implementation date:

Individual responsible for the implementation:

11. Fire Commission Paid

10.01 Fire commission paid is overstated in the accounts

Observation:
Fire commission paid is shown BDT 1,706,812,557 in the financial statements whereas it should
have been BDT 1,585,261,630 as per the Trial Balance of Re-insurance Accounts Department.
The discrepancy of BDT 121,550,927 is the amount for other commissions paid according to the
Trial Balance.
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Risk:
 There can be misstatement in the books of accounts.
 This can lead to other manipulation such as incurring loss in Fire revenue account.
 This might result in the overstatement of profit in the Misc. revenue account.

Exposure rating: A
Recommended action plan:
 The management should allocate expenses accordingly.
Management Response:

Implementation date:

Individual responsible for the implementation:

11. Loss in Fire Revenue Account

11.01 There is a significant loss incurred in Fire Revenue Account

Observation:
The loss incurred on Fire Revenue Account adversely effects the financial statements of SBC. This
might be due to the higher commission paid. On fire premium income, commission earned rate on
Re-insurance ceded is 1.496% whereas commission paid rate on Re-insurance accepted is 26.61%.
Therefore, commission paid is more than commission received.
Risk:
 It might result in incurring loss for the corporation.
Exposure rating: A
Recommended action plan:
 Management should explain the extreme commission paid.
Management Response:

Implementation date:

Individual responsible for the implementation:

12. Accrual basis is not followed in Re-insurance.

12.01 Re-insurance Premium underwritten does not match accounting period of SBC
Observation:
According to paragraph 27 of IAS 1, an entity has to prepare its financial statements using the
accrual basis of accounting. However, re-insurance premium income includes previous years’
amount. The details of Fire Premium Income are given below:

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Chartered Accountants Chartered Accountants

[Amount in BDT]

Fire Insurance Premium

Facultive

Quarter No. Quarter Months Amount

1st April-June 2021 323,825,991

2nd July-September 2021 366,950,148

3rd October-December 2020 322,681,583

4th January-March 2021 347,850,294

Surplus

1st April-June 2021 796,650,242

2nd July-September 2020 1,035,272,375

3rd October-December 2020 87,580,491

4th January-March 2021 1,091,322,357

PSB

1st January-March 2021 86,238,560

2nd April-June 2021 193,693,842

3rd July-September 2021 215,645,978

4th October-December 2021 92,786,056

Risk:
 Non-compliance with the requirements of IAS 1 could adversely impact the credibility of the
financial statements;
 There can be misstatement in the books of accounts.
Exposure rating: A
Recommended action plan:
 The management should follow accrual concept as per IAS 1.
 Transactions should be accounted for in the period in which they occurred.

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Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

13. Bridge Loan

13.01 Bridge Loan carried forward for a long period of time.

Observation:
During the course of our audit, we have found that Bridge Loan of BDT 25,792,845 was carried
forward for a long period of time and the corporation did not take any action to recover the said
amount from ICB. In this regards this arises a risk of expected credit loss because most of the
clients have no existence in real life.

Risk:
 Investment of SBC might have been overstated by the amount which is not recoverable.

Exposure rating: A
Recommended action plan:
 It is recommended to take step in order to recover the loan from ICB or make a loss allowance
as per IFRS-9 para-5.5.1.

Management Response:

Implementation date:

Individual responsible for the implementation:

13.02 Difference in accounts & schedule

Observation:
As per the Investment schedule, Bridge Loan is BDT 25,750,486. However, the accounts show
amount of BDT 25,792,845. It is overstated by BDT 42,359.

Risk:
 Assets might be overstated.
Exposure rating: A
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Chartered Accountants Chartered Accountants

Recommended action plan:

 Management should explain the difference in the amounts.
Management Response:

Implementation date:

Individual responsible for the implementation:

14. Management Expense

14.01 Non-compliance with the circular of IDRA

Observation:
In accordance with the IDRA SRO no. 280/Act 2018 dated on 26 September 2018, we calculated
management expense of SBC and we have notiched that the SBC has made excees expense of
management. Details are shown in the underneath table:

SL No. Particular Amount in BDT

1 Acual Management Expense 3,662,618,202
2 Management expense as per IDRA SRO 3,346,697,049
Excess management expense 315,921,153

Risk:
 It indicates non-compliance with the IDRA SRO resulting the Corporation may have to pay
excess Tax on disallowed expenses as per Income Tax Ordinance 1984.
Exposure rating: A
Recommended action plan:
 Management should comply the provision of section 39 of Insurance Act 2010 as amended
and relevant SRO regarding limitation of expenses of management for non-life insurance
business.
Management Response:

Implementation date:

Individual responsible for the implementation:

16. Amount due from other person

16.01 There was a mismatch between accounts & schedule

Observation:
During our audit we have found a mismatch between the accounts and the schedule balance of

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Chartered Accountants Chartered Accountants

amount due from other persons or bodies carrying on insurance business.

Details are in the below table:

SL No. Particular Amount in BDT.

1 Amount as per accounts 10,141,649,987
2 Amount as per schedule 10,172,992,069
Difference 31,342,082
Risk:
 Asset in the financial statements might be understated by the amount.

Exposure rating: A
Recommended action plan:
 Management should take proper steps to identify the reason for the difference.
Management Response:

Implementation date:

Individual responsible for the implementation:

17. Amount due to other persons or bodies carrying on insurance business.

16.01 No explanation for the liability

Observation:
During our audit, we have asked for the details of Amount due to other persons or bodies carrying
on insurance business of BDT 4,512,870,076. However, the management has failed to provide an
appropriate explanation for the amount.

Risk:
 Liabities in the financial statements might be misstated.

Exposure rating: A
Recommended action plan:
 Management should take proper steps to identify the reason for the difference.
Management Response:

Implementation date:

Individual responsible for the implementation:

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Chartered Accountants Chartered Accountants

17. Property, plant & equipment

17.01 Fixed Assets register, Assets Identification Tag & Fixed Assets Management Policy
were not maintained properly
Observation:
During the course of our audit, we found out that the Fixed Assets register, Assets Identification
Tag & Fixed Assets Management Policy were not updated accurately.
Risk:
 Assets may be disposed without authorization;
 It indicates poor Internal control;
 Absence of asset identification tag leads to the inability of identifying the specific asset from
the Fixed Asset Register (FAR). Moreover, this reduces management’s ability to track assets
including inter-plant transfers and increases the scope for asset misappropriation;
 It creates chance for misuse/loss of fixed assets;
 It reduces control over the fixed assets.
Exposure rating: A
Recommended action plan:
 The management should take proper steps in order to resolve this issue, ensure assets are
properly tagged with unique asset IDs, implement fixed asset management policy to ensure
control and proper utilization of fixed assets.
Management Response:

Implementation date:
Individual responsible for the implementation:

18. Assets & Liabilities carried forward

18.01 Debenture Loan carried forward for a long period of time.

Observation:
During the course of our audit, we have found that investment in debenture of BDT 32,337,967
was carried forward for a long period of time.
Upon discussion with the concern of SBC, we were informed that these investments were made
through ICB long ago and we are communicating with ICB to recover the investment value.
However, as there is no physicalcal existence of most of the companies therefore ICB is unable to
recover the investment value and pay it back to SBC.
Risk:
 Assets are being overstated in the financial statements of SBC.

Exposure rating: A
Recommended action plan:
 Management of SBC should take proper initiative to recover the investment value if the
investment value is not recoverable then it should be written of in the financial statements.

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Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

18.02 Crop Insurance Department carried forward for a long period of time.
Observation:
During the course of our audit, we have found that Crop Insurance Department of BDT
14,966,838 was carried forward for a long period of time and the management did not provide an
appropriate explanation.

Risk:
 Liabilities are being overstated.

Exposure rating: A
Recommended action plan:
 It is recommended to write off the amount.

Management Response:

Implementation date:

Individual responsible for the implementation:

19. General

19.01 Accounting Software (ERP)

Observation:
Integrated Books of Accounts were not maintained by Sadharan Bima Corporation (SBC).
Accounting software was not maintained by Sadharan Bima Corporation (SBC) for keeping books
of accounts.

Additionally, we have observed the following internal control deficiencies in Sadharan Bima
Corporation:

01. Segregation of duty between maker/checker was not effective.

02. No monthly review of provision balances has occurred.
03. No Aging schedule was maintained.
04. No review of nominal ledger balances at year-end has occurred
05. There were frequent changes in the trial balance and nominal ledger. Moreover, the names
used for the accounts in the ledgers does not match with its supporting documents such as cheque
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payment vouchers.
06. The corporation has used Microsoft Access for recording and accounting of transactions. This
system was not adequate to record the transactions of SBC. Additionally, the balance can be
changed easily.
07. As a reputed corporation, SBC should have sufficient and appropriate manpower in the
accounts and finance department as well as the operation department of the corporation.
However, in our professional judgment, SBC should recruit more qualified and professional
manpower in the corporation. A separate trial balance for the Head Office of SBC is not
maintained due to lack of manpower & administration.
09. During our audit, it has come to our attention that at SBC, the personal files of the employees
were not properly documented and sorted, we could not find employee NID, ID card photocopies.

Risk:
 Data accuracy of confidentiality of financial statements will be hampered due to not
maintaining accounting software.
Exposure rating: A
Recommended action plan:
 The management should implement the accounting ERP system immediately.

Management Response:

Implementation date:

Individual responsible for the implementation:

19.02 There was a lack of sufficient security of business information

Observation:
Built-in password-related rules in the system were not effective. They used MS Access for
documentation that was not secured for the accounting of financial statements. SBC didn’t have
documented IT policy for media devices, internet, spam mail, and related support.
Risk:
 In absence of an appropriate IT Security policy, sensitive business information is vulnerable to
external threats and the management may find it difficult to identify their security objectives
and there is a possibility to lose accountability, integrity, and availability of data and other
resources.
Exposure rating: A
Recommended action plan:
 Management should take steps for implementing a complete and appropriate detailed
Information Technology Security Policy.
Management Response:

Implementation date:

Individual responsible for the implementation:

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19.03 No audit was conducted for the Provident fund & Pension Fund.
Observation:
During our audit, we have requested an audited provident fund report but they failed to provide it
to us.
Risk:
 The amount for the provident fund may be misstated in the accounts of the business.

Exposure rating: A
Recommended action plan:
 SBC should have its provident fund audited to verify that no irregularities have taken place.

Management Response:

Implementation date:

Individual responsible for the implementation:

19.04 There was no internal audit report for the Head Office
Observation:
During our audit, we have requested to internal audit department to provide all the internal audit
report during 2021. However, the department has failed to provide all the audit report for the
Head Office & all of the Zonal Offices. We were only provided three internal audit report of SBC’s
Zonal Offices which does not contain proper planning and procedure.
Risk:
 It indicates inefficient internal controls since in absence of an internal audit there is poor
accountability on the part of the head office and zonal offices regarding compliance with laws,
regulations, and other external requirements.
Exposure rating: A
Recommended action plan:
 Management should ensure that internal audit is conducted with the proper planning and
procedures. The internal audit department should prepare annual audit plan which should be
approved from the board/audit committee and conduct audit accordingly.
Management Response:

Implementation date:

Individual responsible for the implementation:

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Chartered Accountants Chartered Accountants

20. Miscellaneous
20.01 Expense exceeding the Budget
Observation:
As per the Budget of Fixed Assets department of SBC, Furniture should be BDT 1,200,000.
However, the accounts show amount of BDT 1,396,122. It exceeded the Budget by BDT 196,122.
Risk:
 Non-compliance with the Budget could adversely impact the credibility of the financial
statements.
 It indicates poor internal control.
Exposure rating: A
Recommended action plan:
 The management should explain the causes for the excess amount & should accquire post
factor budget approval.
Management Response:

Implementation date:

Individual responsible for the implementation:

20.03 There was a mismatch between accounts & its supporting documents
Observation:
There are some mismatches between accounts & its supporting documents. The list is given
below:
[Amount in BDT]
As per supporting
Particular As per accounts Deviation
documents
Furniture 1,396,122 1,148,874 247,248
Photostate Machine 614,270 555,775 58,495
Aviation Claims paid 6,969,683 6,427,362 542,321
Total 8,980,075 8,132,011 848,064

Risk:
 It might lead to Assets & Expenses being overstated.

Exposure rating: A
Recommended action plan:
 The management should take proper steps to avoid such mismatch in the future.
Management Response:

Implementation date:

Individual responsible for the implementation:

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Chartered Accountants Chartered Accountants

20.04 Lack of Training Requirements on posting of entries, Change Management Policy,

Acquisition and Development Policy, Incident and Problem Management and
Administration Activities Monitoring
Observation:
Irregularities in recording transaction and reporting of Financial Statements are found frequently.
Moreover, there is no control over posting of journal entries and alteration of financial transaction,
Corporation has no change management policy related to any upgrades/changes. Responsible
Person do what they wish without any approval of Management, It does not have incident or
problem management procedure, which is a critical business driver for a successful business and
Corporation does not practice administrator activities monitoring.
Risk:
 It may become irrecoverable in absence of monitoring and necessary step to resolve;
 It indicates poor inter control;
 Due to lack of professional staff, there might be risk of error arising. Moreover, there is risk
of misstatements and manipulation in the financial statements due to absence of
accountability when it comes to posting of entries;
 In the absence of change management policy, various information risks and functions that
Sadharan Bima Corporation needs to manage may not get clear direction, which is a vital
factor for success in an organization with good profit and management;
 Without approved acquisition and development policy, management may face
inappropriate developed program releases which may cause program instability;
 In absence of incident management procedure Corporation’s information security can be
damaged if incidents arise from external or internal sources. This may result in financial loss
and loss of organization reputation. Without an effective IT help desk, it could take more
time to solve a problem which may cause business loss;
 Without regular monitoring, there is a chance of inappropriate and unauthorized access.
This may result in fraudulent activities by the Administrator to remain undetected.
Exposure rating: A
Recommended action plan:
 Strong internal control should be implemented.
 Professional staff should be trained on the laws, standards and regulations so that they are
up to date and reflect those in the financial statements.
 Sadharan Bima Corporation should have approved change management policy which
should be reviewed and updated periodically.
 Sadharan Bima Corporation should practice monitoring of administrator activities at least
twice a year.
 Management should develop an effective software acquisition and development policy.
 Sadharan Bima Corporation should develop a charter for incident management which
include operational and communication plan. Management should introduce ticketing
portal for help desk problem management.

Management Response:

Implementation date:

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Individual responsible for the implementation:

20.05 Some expenditures are falsely treated.

Observation:
Some revenue expenditures have been recorded as capital expenditures. The list is given below:
[Amount in BDT]
Particular Revenue Expenditure Amount
Office Building Vat & Tax 158,039
Photostate machine Photostate maintenance 58,495
Building Resident Honarium 4,800
Total 221,334

Moreover, a capital expenditure has been recorded as a revenue expenditure.

[Amount in BDT]
Particular Capital Expenditure Amount
Office Building Building maintenace 145,236

Risk:
 It leads to assets and profit being either overstated or understated.

Exposure rating: A
Recommended action plan:
 The management should treat expenditures properly to avoid misstatement in the
accounts.
Management Response:

Implementation date:

Individual responsible for the implementation:

20.06 Cash book register was not updated

Observation:
During the course of our audit we did not find the cash book to be updated by the corporation. In
this regard, we could not confirm the cash balance of the cash book register.

Risk:
 It indicates poor internal control.

Exposure rating: A
Recommended action plan:
 The management should maintain proper cash book.

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Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

20.07 Mismatches among accounts, ledgers & registers

Observation:
There are some discrepancies between accounts, ledgers & registers. The list is given below:
[Amount in BDT]
Particular As per Accounts As per Ledger As per Register Deviation
Books 29,899 33,984 4,085
Photostate 614,270 555,775 58,495
machine
Audit fee payable 450,500 460,000 9,500
Total 72,080

Risk:
 It indicates inconsistency in maintaining books of accounts;
 It indicates poor internal control.
Exposure rating: A
Recommended action plan:
 The management should take proper steps in order to resolve this issue.

Management Response:

Implementation date:

Individual responsible for the implementation:

21. Dhaka Zonal Observations

21.01 Accrual basis is not maintained

Observation:
According to paragraph 27 of IAS 1, an entity has to prepare its financial statements using the
accrual basis of accounting. Due to not maintaining accrual basis, Wasa bill should have been BDT
1,397,140 as per supporting documents. However, the trial balance shows BDT 1,824,758. It is
overstated by BDT 427,618.
Risk:
 Non-compliance with the requirements of IAS 1 could adversely impact the credibility of
the financial statements;
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Chartered Accountants Chartered Accountants

 Expense is overstated.
Exposure rating: A
Recommended action plan:
 The management should follow accrual concept properly.
Management Response:

Implementation date:

Individual responsible for the implementation:

21.02 Lack of proper maintenance of accrual concept

Observation:
For not following accrual concept, Electricity Charge Paid is understated by BDT 334,477 in the
trial balance. It should have been BDT 4,005,319 as per supporting documents whereas the trial
balance shows BDT 3,670,842.

Risk:
 Non-compliance with the requirements of IAS 1 could adversely impact the credibility of
the financial statements;
 Expense is understated.
Exposure rating: A
Recommended action plan:
 The management should take proper steps to avoid such mismatch in the future.
 The management should follow accrual concept properly.
Management Response:

Implementation date:

Individual responsible for the implementation:

21.03 Failure to provide documents

Observation:
During our course of audit, we asked for the deed of Office Rent of BDT 9,749,514.86 for
verification but the management did not provide it. Moreover, the ledger of Office Rent was not
found in the books.
Risk:
 There can be misstatement and wrong valuation in the books of accounts;
 It reflects poor internal control of the management.
Exposure rating: A
Recommended action plan:
 The management should be capable of providing all of the necessary documents.
 The management should implement methods of proper internal control.

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Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

21.04 Insurance Stamp & Cash defalcation

Observation:
IFRS 09 requires to measure and recognize lifetime Expected Credit Loss (ECL) for the financial
assets with significantly increased credit loss. However, Insurance Stamp defalcation of BDT
232,515,874 and Cash defalcation of BDT 1,240,425 are carried forward for a long time and is
shown as an asset. Whereas it should have been written down a long time ago since there is not
any possibility to recover the said amount.
Risk:
 Non-compliance with the requirements of IFRS-9 could adversely impact the credibility of
the financial statements;
 Asset is overstated.
Exposure rating: A
Recommended action plan:
 The management should write off the defalcated amount.
Management Response:

Implementation date:

Individual responsible for the implementation:

21.11 Inappropriate accounts

Observation:
The trial balance of Dhaka Zone does not contain all of the items such as accrued expenses, due to
not following the accounting principles.

Risk:
 There can be misstatement in the books of accounts.
 This can lead to other manipulation.
Exposure rating: A
Recommended action plan:
 The management should follow accrual concept properly.

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Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

21.05 Lack of proper documentation and policies

Observation:
During our course of audit, the management provided only one document to verify Advance
Purchase. Moreover, the document, worth of BDT 27,000, was not properly signed and narrated.
Therefore, it raises questions for its authenticity.
Risk:
 It indicates poor internal control of the management;
 This can lead to other manipulation.

Exposure rating: A
Recommended action plan:
 The management should take appropriate actions in order to solve these issues.
Management Response:

Implementation date:

Individual responsible for the implementation:

21.06 Wrong treatment of items

Observation:
In the Local Office Branch of Dhaka Zone, a transaction is wrongly posted in the Petty Cash Book,
which created a discrepancy of BDT 2,600 between the ledger and the Petty Cash Book. The
stated amount should be in Business Development Expenses whereas it is recorded in Claim Paid
Motor.

Risk:
 There is misstatement in the books of accounts;
 This can lead to other manipulation.
Exposure rating: A
Recommended action plan:
The management should maintain proper books of accounts.

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Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

21.07 Lack of proper maintenance of accounts

Observation:
Although Municipal Tax Paid of BDT 2,250,547.20 is recorded in the trial balance, the ledger could
not be found. Furthermore, all of the journal vouchers are not properly signed, which questions
internal control and policies.

Risk:
 There can be misstatement in the books of accounts;
 It indicates poor internal control of the management.

Exposure rating: A
Recommended action plan:
The management should take appropriate actions in order to solve these issues.
Management Response:

Implementation date:

Individual responsible for the implementation:

21.09 Inconsistent method of paying remuneration

Observation:
As per Income Tax Ordinance 1984, sec 30 (1) organization must pay remuneration by bank
transfer to employees having gross monthly salary of BDT 20,000 or more. However, the
organization has inconsistent method of paying remuneration. Furthermore, the salary sheet is not
updated and is not inclusive of all information.

Risk:
 It reflects weak internal control system of the Zonal Office;
 Non-compliance with Income Tax Ordinance 1984.

Exposure rating: A
Recommended action plan:
 The management should comply with Income Tax Ordinance 1984.

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

21.10 Failure to comply with the Budget

Observation:
As per the clause 13 of budget of 2021 of SBC, there should be a summary of expenses sent to
the budget department every quarter of the year. However, it is not properly maintained.

Risk:
 Non-compliance with the Budget of SBC could adversely impact the credibility of the
financial statements;
 This can lead to other manipulation.

Exposure rating: A
Recommended action plan:
 Entity should take necessary steps to settle the issue.

Management Response:

Implementation date:

Individual responsible for the implementation:

21.12 No Internal Audit Report was found.

Observation:
During our audit, we have requested for the Internal audit report. However, the management has
failed to provide it.
Risk:
 Non-compliance with laws, regulations, and other external requirements;
 It indicates poor internal control of the management.
Exposure rating: A
Recommended action plan:
 The management should take appropriate steps in order to solve this issue.

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

22. Narayanganj Zonal Observations

22.01 Non-compliance in claims paid

Observation:
According to Insurance Act 2010, claims should be paid within 90 days. However, claim no:
H-127755 amount of BDT 6,61,902 taka, which was intimated on 01.01.2019, was paid on
26.12.2021.
Risk:
 Non-compliance with Insurance Act 2010.

Exposure rating: A
Recommended action plan:
 The management must follow rules & regulations.
Management Response:

Implementation date:

Individual responsible for the implementation:

22.02 Non-compliance in fire claim

Observation:
We have observed that a few rules/formalities were not properly followed in the fire claim no: H-
127755. For example, there was a lack of policy note and proposal form.

Risk:
 It indicates non-compliance with the policy of SBC regarding claims procedure;
 It indicates poor internal control.
Exposure rating: A
Recommended action plan:
 Management should take proper measures so that policies and regulations are properly

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Chartered Accountants Chartered Accountants

followed.
Management Response:

Implementation date:

Individual responsible for the implementation:

22.03 Lack of proper documents

Observation:
Proper documents worth of BDT 22,559,949 could not be collected for the policy of Marine Cargo
No-SBC/NGJ/LOC/MC-01/02/2017. It is due to uncooperative behavior.
Risk:
 There can be misstatement in the policies.

Exposure rating: A
Recommended action plan:
 The management should be able to provide appropriate documents.

Management Response:

Implementation date:

Individual responsible for the implementation:

22.04 Rules violation in employment

Observation:
The security guard of the Zone is employed through a third party, Al-Arafat Services. However, the
employment is extended by issuing a letter from SBC. Moreover, the letter for the month of
October is missing.

Risk:
 It doesn’t comply with the policies of SBC;
 This can lead to other manipulation.
Exposure rating: A
Recommended action plan:
 The management must implement methods of proper internal control.

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

23. Khulna Zonal Observations

23.01 Income Recognition

Observation:
Premium deposited around BDT 3,881,318 have not been recognized as income for a long period of
time. Some examples are shown below:
[Amount in BDT]
MR No & Date Party name Amount
RT. No. B-340440, M\S. Jessore Jute 152,960
14.5.2013 Industries Ltd. Jessore
RT. No. B-355761, M\S. Jessore Jute 135,752
29.5.2014 Industries Ltd. Jessore
RT. No. B-407164, M\S. The Crescent Jute 260,286
09.10.2016 Mills Co Ltd. Khulna
RT. No. B-344618, M\S. Eastern Jute Mills 160,508
16.7.2013 Ltd. Khulna
RT. No. B-356089, M\S. Eastern Jute Mills 118,388
02.10.2014 Ltd. Khulna
RT. No. B-437678, M\S. Khalishpur Jute Mills 154,373
02.01.2018 Ltd. Khulna

Risk:
 Income has been understated whereas liability has been overstated;

Exposure rating: A
Recommended action plan:
 Management should take appropriate measures so that premium deposit and premium income
are carefully calculated & disclosed in the financial statements.

Management Response:

Implementation date:

Individual responsible for the implementation:

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23.02 Inadequate maintenance of ledgers

Observation:
Ledgers are not appropriately maintained. For example, interest earned on Motor Cycle Loan is
posted into Advance Motor Cycle loan. Furthermore, Motor Cycle Loan ledger of the branches
doesn’t contain an opening balance.

Risk:
 There can be misstatement since Income is included in Current Assets;
 Income is understated whereas Current Assets are overstated.

Exposure rating: A
Recommended action plan:
 The management should be capable of recording transactions properly.
 The management should implement methods of proper internal control.
Management Response:

Implementation date:

Individual responsible for the implementation:

23.03 Delayed deposits

Observation:
As per the collection statement, some money receipts (MR) were issued to the parties but the
amounts were credited to the Bank Account later than the required date. Some examples are listed
below:
[Amount in BDT]

Check issue No & Check Deposit

Name of party Amount Delay
Date date

B 506968 SSCAP Project Seed 3,546 25.05.21 6 days

19.05.21

B 537912 2,277 18.02.21 7 days

11.02.21
BDBL
B 537937 2,024 09.12.21 4 days
05.12.21
Risk:
 It reflects weak internal control.

Exposure rating: A
Recommended action plan:
 The management should implement methods of proper internal control.

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Management Response:

Implementation date:

Individual responsible for the implementation:

23.04 Lack of proper documentation and policies

Observation:
We have observed that some formalities\rules were not followed in premium collection files. Some
examples are listed below:
Type of
Name of the party Policy/Cover note No. Observation/Remarks
Policy
Khulna University, Khulna SBC/KLN/LO/PUB/MV/PV/POL-
17/01/2021
Sundarban Gas Co. LTD SBC/KLN/LO/PUB/MV/PV/POL-
07/01/2021
Project Director, Extension SBC/KLN/LO/PUB/MV/PV/POL- Motor
and Augmentation of Power 05/01/2021
Distribution System Project,
WZPDCL
Bangladesh Cable Shilpa Ltd SBC/KLN/LO/PUB/FI/F/POL- Proposal form could
07/10/2021 not be found
Bangladesh Cable Shilpa Ltd SBC/KLN/LO/PUB/FI/F/POL-
06/10/2021
M/S. Khalishpur Jute Mills SBC/KLN/LO/PUB/FI/F/POL-
Ltd. 05/07/2021
Mr. Tapan Saha, M/S. Bappi SBC/KLN/LO/PVT/FI/F/POL- Fire
Traders 44/12/2021
Md. Saiful Molla, M/S. Sonia SBC/KLN/LO/PVT/FI/F/POL-
Engineering Traders 43/12/2021
Md. Azizur Rahman, M/S. SBC/KLN/LO/PVT/FI/F/POL-
Nurjahan Tiles Centre. 42/12/2021

Risk:
 It reflects poor internal control;
 Entity might fail to identify the accurate policy and its holder.

Exposure rating: A
Recommended action plan:
 Zonal management should take appropriate measures so that premium collection procedures are
followed properly and the Head Office authority should strengthen its monitoring in this respect.
Management Response:

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Implementation date:

Individual responsible for the implementation:

23.05 Mismatch between trial balance & supporting documents

Observation:
Basic Salary (Staff) is overstated in the trial balance. It should be BDT 5,602,170 as per supporting
documents (Salary Sheet) whereas the trial balance shows BDT 5,736,325. After discussion with the
concerned person, we were informed that the difference of BDT 134,155 is the remuneration paid
to casual staff. Thus it should be included in that account accordingly.
Risk:
 Expenses might not be allocated properly;
 It reflects weak internal control.

Exposure rating: A
Recommended action plan:
 The management should maintain appropriate accounts and conform to the Budget.
Management Response:

Implementation date:

Individual responsible for the implementation:

23.06 Non-compliance with Accrual concept.

Observation:
According to paragraph 27 of IAS 1, an entity has to prepare its financial statements using the
accrual basis of accounting. However, the Zone does not abide by it. For example, the cost of Mujib
Barsa celebretion 2020 is included in the trial balance of 2021, overstating expenses by BDT
45,770.
Risk:
 Non-compliance with the requirements of IAS 1 could adversely impact the credibility of the
financial statements.
 Expense is overstated.
Exposure rating: A
Recommended action plan:
 The management should follow accrual concept properly.

Management Response:

Implementation date:

Individual responsible for the implementation:

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

23.07 Expenses exceeding the Budget.

Observation:
Some expenditures exceeded the approved Budget. The list is given below:
[Amount in BDT]
As per Trial
Name of particular As per Budget Exceeded Amount
Balance
Festival Allowance 3,761,460 3,700,000 61,460
(Staff, Officer)
Internet Expense 179,260 161,000 18,260
Lunch Subsidy 2,970,000 2,700,000 270,000
Risk:
 Non-compliance with the Budget could adversely impact the credibility of the financial
statements;
 It indicates ineffective internal control of the management.

Exposure rating: A
Recommended action plan:
 The management should take appropriate actions in order to solve these issues.

Management Response:

Implementation date:

Individual responsible for the implementation:

23.08 Deviation in Claims paid between Trial Balance & its supporting documents
Observation:
There is some mismatch between the balance of Claims paid in the Trial Balance with the supporting
documents.
[Amount in BDT]
As per supporting
Name of particular As per Trial Balance Deviation
documents
Marine Claim paid 769,767 566,728 203,039
Misc. Claim paid (Pvt) 121,503 112,500 9,003
Fire Claim paid (Pub) 175,326 168,651 6,675
Motor Claim paid (Pub) 361,876 244,125 117,751
Total 1,428,472 1,092,004 336,468

Risk:
 Claims paid are overstated;
 This might result in the understatement of profit.
Exposure rating: A
Recommended action plan:
 The management should explain the deviation.
Management Response:

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Implementation date:

Individual responsible for the implementation:

23.09 Misstatement in Interest income

Observation:
Interest on Motor Cycle Loan is understated by BDT 9,913 in the trial balance. It should be BDT
94,138 as per supporting documents whereas the trial balance shows BDT 84,225.
Risk:
 Interest earned has been understated in the financial statements.
Exposure rating: A
Recommended action plan:
 The management should maintain proper accounts.
Management Response:

Implementation date:

Individual responsible for the implementation:

23.10 Expenses mismatched with supporting documents

Observation:
According to paragraph 27 of IAS 1, an entity has to prepare its financial statements using the
accrual basis of accounting. Due to not maintaining accrual basis, Electricity Charge Paid is
overstated by BDT 21,166 in the ledger balance. It should be BDT 200,678 as per supporting
documents whereas the ledger shows BDT 221,844.
Risk:
 This might result in understating profit.

Exposure rating: A
Recommended action plan:
 The management should maintain proper ledgers.
Management Response:

Implementation date:

Individual responsible for the implementation:

24. ECGD Observations

24.01 Tax adjusted without the the approval of NBR

Observation:

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

Department had adjusted the AIT & source tax from 2008-2021 without the approval of NBR, also
there is no clearance of tax assessment of ECGD from the year 2008-2009 to 2020-2021. As per
schedule of ECGD total AIT was BDT 330,015,124 and tax provision was BDT 375,446,375.

Risk:

 The current assets and the provision for tax liability have been understated in the financial
statements.

Exposure rating: A

Recommended action plan:

 The management should take appropriate steps in order to solve this issue.

Management Response:

Implementation date:

Individual responsible for the implementation:

24.02 No calculation of right-of-use assets & lease liability

Observation:

According to the section 9 of the IFRS 16 (Leases), the ECGD shall assess whether the contract is, or
contain a lease. As per section 23 and 29 of the IFRS 16, the ECGD shall measure the right-of-use
assets and as per section 26 and 36, the ECGD shall measure the lease liability. However, in our
audit, it reveals that the standards in this regard were not being followed.

Risk:

 This can lead to assets being understated;

 The liability section of the financial statements are being understated.

Exposure rating: A

Recommended action plan:

 The management should calculate right-of-use assets & lease liability.

Management Response:

Implementation date:

Individual responsible for the implementation:

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MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

24.03 Lack of proper documents and procedure

Observation:
We have observed the following internal control deficiencies in ECGD:
01. During our audit, we asked for the photocopies of cheque to verify transactions, however,
the management did not keep any copies.
02. There are errors of commission in the books of account due to inconsistent posting. For
example, the entries of general entertainment are sometimes posted into business
development expenses.
03. Internal Audit was not conducted for ECGD.
04. The ledger is maintained inconsistently. Sometimes it’s maintained quarterly, sometimes
the full year’s balance is shown at the last date of the accounting period
Risk:
 Non-compliance with laws, regulations, and other external requirements;
 It indicates poor internal control of the management;
 There can be misstatement in the books of accounts;
 This can lead to other manipulation.
Exposure rating: A
Recommended action plan:
 The management should be capable of providing all of the necessary documents.
 The management should implement methods of proper internal control.
Management Response:

Implementation date:

Individual responsible for the implementation:

24.04 Discrepancies

Observation:

There is a mismatch between accounts & its supporting documents. The list is given below:
As per supporting
Name of particular As per Accounts Deviation
documents
Medical, conveyance,
washing & Mobile BDT 239,375 BDT 238,900 BDT 475
allowances

Moreover, there are some mismatches between accounts & ledgers. The list is given below:
Name of particular As per Accounts As per ledgers Deviation
Car maintenance BDT 61,287 BDT 55,485 BDT 5,802
Depreciation BDT 58,266 BDT 56,404 BDT 1,862
Total BDT 119,553 BDT 111,889 BDT 7,664

Risk:
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 MABS & J Partners Mahfel Huq & Co.
Chartered Accountants Chartered Accountants

 This can lead to assets being understated;

 The liability section of the financial statements are being understated.

Exposure rating: A

Recommended action plan:

 The management should calculate right-of-use assets & lease liability.

Management Response:

Implementation date:

Individual responsible for the implementation:

Conclusion:
Finally, we would like to request to consider all of our observations, effect, and our recommendation
for the better performance and control of the note of financial statements. We would also like to
thanks all of your respective officers to support us to make this assignment complete.

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