Global Internal Audit

Internal Audit Engagement Letter

Review of Procure-To-Pay (P2P) Processes for Youngone Bangladesh

30th August 2023

Internal audit engagement letter for performing Procure-To-Pay (P2P) Processes for
Youngone Bangladesh

Dear Colleagues,

Within the 2023 Global Internal Audit (GIA) plan, BD IA team will perform reviews of “Procure-to-Pay” (P2P)
processes for Youngone Bangladesh operations. This engagement letter therefore sets out the background,
scope of work, entities/units within scope, deliverables, project timeframe & the engagement audit team for
this review.

Background
Based on Internal Audit risk assessment of business processes, we evaluated that the P2P processes are
of high significance to the control environment of BD operations, hence, this audit project is thereby identified.

Scope of Work
The general scope of review will cover the P2P value chains: primarily to ascertain the key controls &
workflows of the procurement lifecycle that encompasses sourcing, evaluation and selection of vendors &
sub-contractors, tendering & price quotations process, purchase requisitioning & ordering; goods/service
receiving & receipting processes; the accounts payable, vendor invoice reconciliation to payment
authorization & approval processes.

More specifically, the audit scope of work will look into the following aspects of the P2P processes:

1. Evaluate whether defined workflows & hence procedures are adequately in place to cover those existing
processes to ensure proper governance, efficiency and effectiveness of procure-to-pay value chains.

2. Assess that procurement activities are performed as per defined and approved policies & procedures
(P&Ps), & whether those P&Ps are adequate and still relevant as at the current date.

3. Review that reliable & competitive vendors are properly vetted & selected to qualify for inclusion in the
Company’s approved vendors list (AVL) for fulfilling the company’s goods/services requirement,
mitigating potential production or operational disruptions caused by inefficiencies and/or defective
supplies; and to identify if there are still the use of non-approved vendors &/or blacklisted vendors in
actual practice.

4. Assess that procure-to-pay processes are operating in line with the relevant law/statutory requirements
& accounting standards.

5. Ascertain the existence of proper segregation of duties in the procure-to-pay value chains (e.g. purchase
orders issuance, receipt of goods/services, payment authorizations, & etc…)

6. Verify there are adequate level of process controls performed on critical transactions which should be
operating effectively (e.g. creation / modification of a supplier account, supplier bank details, direct
booking of supplier invoices by-passing the relevant sourcing departments are checked, controls over
the account codes used for procure-to-pay transactions are secured, & etc…)

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7. Check the security of payments to suppliers (e.g. protection of supplier’s payments, validation of
payment files before transfer to banks, & etc…)

8. Process walkthrough to verify financial internal controls of sub-contractor/supplier’s payment, bank/cash

ledgers, accounts payable & payment-related journal entries, other non-PO goods & service provider’s
related expenses and payment vouchers, & etc.

9. Analyze consistency of the implementation of procure-to-pay operating procedures in practice across

the different plants selected for this review.

10. Assessment of protection over data confidentiality, administration of the procure-to-pay system & its
access controls (user access to vendor master data bases/files, & etc…).

11. Follow-up of issues noted in the known audit/investigation reports, whistle blower’s complaints,
anonymous emails, legal cases & disciplinary violations concerning procure-to-pay cycle, including but
not limited to those related matters as highlighted for management actions plan, and review of any
additional matters as may be identified and detected during the audit fieldwork.

Entities/Units Within Audit Scope of Work

For this review, the selected BD entities which will be subject to the detailed audit procedures are included
in the table below.

Nevertheless, if subsequent audit evaluation has detected the other entities to be inevitable during our
general audit procedures in the project execution phase of this review, they will also be added &
included under the audit scope of detailed audit procedures.

DEPZ Units KEPZ Units

SL Legal Entity Unit Division
SL Legal Entity Unit Division
1 Youngone Hi-Tech Sportswear YHT Garments 1 Karnaphuli Shoe Industries Ltd, KSI-GARMENT Garments
2 SAVAR DYEING & FINISHING INDUSTRIES LTD. SDF Materials 2 Karnaphuli Shoe Industries Ltd, KSI-SHOE Shoes
3 YOUNGONE SYNTHETIC FIBRE PRODUCTS INDUSTRIES LTD. YSF Materials 3 Karnaphuli Shoe Industries Ltd, KSI-OUTSOLE Shoes
4 Sungnam Textile Mills Ltd. STL Materials 4 Karnaphuli Shoe Industries Ltd, KSI-BP Shoes
5 Karnaphuli Shoe Industries Ltd, KSI-PADDING KSI-PADDING
CEPZ Units 6 Karnaphuli Shoe Industries Ltd, KSI-SWEATER Garments
SL Legal Entity Unit Division 7 Karnaphuli Shoe Industries Ltd, KSI-WSP Others
1 Youngone (CEPZ) Ltd YCL Garments 8 Karnaphuli Polyester Products Company
KPP Ltd. Material
2 Titas Sportswear Ltd. TSL Garments
3 Kharnafuly Sportsware Industries Ltd KSL Garments
4 Youngone Sports Shoe Industry Ltd YSS Shoes
5 Youngone Padding Ltd YPL Material
6 Youngone Garment Accessories Industries Ltd YGA Material
7 Shinhan Emulsion Co., Ltd. SEL Material

Deliverables & Project Timeframe

The fieldwork phase of this audit will commence from 31st August 2023, until end of December 2023. There
will be an audit debriefing meeting with the local BD management to discuss the initial findings & audit
recommendations towards the completion of the audit fieldwork. Thereafter, the audit team will continue to
work with the relevant process owners to finalize their management actions plan & agreed implementation
dates.

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The post review process will be explained at the closing meeting but includes:

(i) Issue of a draft report to which management comments, action plans, implementation dates and
responsible process owners shall be required;

(ii) A quarterly follow up process on the progress of implementations.

Our review will result in a final internal audit (IA) report that will assist management to conclude on the overall
effectiveness of their system of internal controls and procedures. The IA report will specifically comment on:

1) The appropriateness and effectiveness of internal controls and procedures over the system.
Recommendations, which will improve the effectiveness of these controls, will be made where
appropriate.

2) Instances of non-compliance with the Company’s policies & procedures (P&P). Recommendations for
changes to existing local P&P will be made where appropriate.

3) Any identified opportunities for control effectiveness and/or process efficiency improvements.

Engagement Audit Team

The audit team is spearheaded by Mr. Chris Lee, the Managing Director of Internal Audit (IA) Team and he
is also supported by Matthew Yap, the Singapore based Global IA Director, as well as the six BD IA team
members whom will be performing the onsite fieldwork.

In the meantime, please ensure your key personnel of the relevant departments/entities to be available
throughout the entire audit period. Accordingly, the BD IA team will proceed to liaise & work out the meeting
schedule with the relevant process owners respectively.
Please feel free to contact me directly, should you have any questions or comments.

Thanks & best regards,

Matthew Yap
Director of Global Internal Audit

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<Attachment> Distribution List

Distribution List:
CEPZ
To
Quamrul Islam, Senior GM, Admin, YCL
A.R.M. Iqbal, Senior GM, Admin & Sales, TSL
Md. Mohiuddin Chowdhury, Senior GM, Admin &
Sales, KSL
Md. Akhter Hossain, AGM, Purchase, YSS
Mohammad Fokhrul Islam, AGM, MCD, YCL
Sujat Anwar Siddiquee, DGM, IT, YCL
Ifte Khairul M. Rashed, AGM, Accounts and Finance,
YCL
Pankaj Baran Das, DGM, Accounts and Finance, TSL
Rafiqul A.Khan, Senior Manager, MCD,KSL
Shamir Roy, Senior Manager, MCD, YCL
Md. Anisul Islam, AGM, Admin, TSL
Mujubul Hoque, DGM, Admin, Material.
Abdullah Al Mamun, MMCD, TSL
Kazi Shazzad Hossain, Senior Manager, A & F, YSS
Tareq Iqbal, Senior Manager, MCD, TSL
KEPZ
Ratan Mitra, Senior GM, Production, KSI GMT
Bikash Kusum Chakraborty, GM, Sales, KSI GMT
Md. Shamsur Rahman, GM, Admin, KSI GMT
Dilip Ranjan Gangully, Manager, Maint, KSI GMT
Obaidul Hoque, Senior, Manager, MCD, KSI GMT
Arup Ratan Deb Das, Manager, IT, KSI GMT
Dhiman Kanti Barua, DGM, Production, KSI Shoes
Abdullah-Al-Mamun, AGM, Accounts, KSI Shoes
Mobarak Hossain, AGM, Admin, KSI Shoes
Mohammad Ashrafuzzaman, AGM, Sales, KSI Shoes
Shamsul Karim Mahmud, Manager, MCD, KSI Shoes
Shahed Uddin Ahmed, DGM, Production, KSI Shoes
Md Aslam Azad, GM, Production, KPP
Mohammad Aftab Uddin Chowdhury, Manager,
Admin,KPP
S.M.Monjur Morshed, Senior Manager, Commercial, KPP
Md.Zahurul Islam, Senior Manager, KPP
Md.Nurul Islam Chowdhury, Senior Manager, Accounts,
VXP, WSP, KSI GMT

DEPZ
Md. Golam Mostafa, DGM, Accounts and Finance,
YHT
Md. Nazrul Islam, DGM, Accounts and Finance, YSF
Khandokar Rabbi, Senior Manager, YHT
Eng Kamal, GM, Admin and Production, Material
Hasan Md Hossain Chy, Senior Manager, MCD, YHT
Motiur Rahman, DM, MMCD, YHT
Reazul Alam, DGM, Import, YHT
Shahjalal Haidar, GM, Admin, YHT
Abu Nasr, AGM, Material

Ms Rae Eun Sung, Vice Chairman, Youngone Corporation

Lee Min Sukh, President, Youngone Corporation
Sean Shin Suk Been, CFO, Youngone Corporation
Chris Lee, Managing Director, Internal Audit Team, Youngone Corporation
Bernard Kwok, Managing Director, Corporate Strategic Planning & Development, Youngone Corporation
Shaikh Shahinur Rahman, Managing Director, Chattogram, Youngone Bangladesh
Cc Sabyasachi Chowdhury, Managing Director, Dhaka, Youngone Bangladesh
John Dimick, Vice President, Material Division, KPP
James Roy, Director, Factory Operations, KSI Sweater
Stefan Bischoff, Director, Factory Operations, KSI Garments
Md. Shiblee Azam, Director, HR, YHT
Hasan Md. Ibrahim, General Manager, Accounting & Finance, YGA

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