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Introduction
This report chiefly focuses the finance system of Pakistan Revenue Automation (Pvt)
limited as whole in general. The brief history and overview of the organization has been
provided in report. General management philosophy has briefly been discussed. Efforts
have also been made to cover the organizational behavior towards allocation of funds to
different assets. Accordingly to necessities, aid of chart and graphs has also provided.
The components of the report have been stream lined according to the technical
specification provided by University. It has also been strive to arrange the report in
accordance with internship report format.
Last section of report under consideration contains shortfall, weaknesses &
recommendation for improvement in prevailing system.
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Objective Of Studying The Paksitan Revenue
Automation (Pvt) Limited
In accordance with the MBA program of Allama Iqbal Open University, it is the
requirement of the university to carry out internship in any professional organization for a
period from 6 to 8 weeks. The objective of studying is to obtain practical application
knowledge in the area of specialization that pertains to the student doing MBA. It also
promotes the student’s personal development and professional preparation. It also allows
students to supplement their formal education with practical experience.
As I did my MBA-Finance and already working in Pakistan Revenue Automation (Pvt)
Limited as Assistant Manager Accounts/Finance. Being an employee of Pakistan
Revenue Automation (Pvt) Limited I am familiar with the culture of the organization and
have access to the data of organization that was necessary for report generation. Because
of this I preferred to do Internship in my native organization by studying its
Finance/Accounts system. Also, I got permission from MBA Department of AIOU,
Islamabad.
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Overview Of The Organization
Brief History
Pakistan Revenue Automation (PVT) Limited (PRAL), has been in operation since 1994,
and has completed several projects of automation on both direct and indirect taxes being
administered by the Central Board of Revenue (CBR), Govt. of Pakistan. In addition it
has completed a few projects for other Government Agencies. The company is wholly
owned by the Government through the CBR and is governed by a Board of Directors
comprising the Chairman, CBR as its Chairman and line members of different taxes as its
Directors. Since its creation, the funding of Pakistan Revenue Automation (Pvt), Limited
from Finance Division has continued in the shape of lump-sum grants.
Nature of the Organization
Pakistan Revenue Automation (Pvt.) Ltd. (PRAL) is a computer consultancy company
owned by the Government of Pakistan. The main purpose of the company is to enhance
the efficiency and effectiveness of the Information Systems prevailing in public and
private sectors by applying relevant state-of-the-art technologies related to computer
software, hardware and data communication. All the efforts being made in the field of
Information Technology by PRAL, now has been duly recognized by ISO 9001: 2000
certification in software design and development.
Business Volume
For much of our 10 years, we have been successfully operating in commercial projects as
well as government agencies to provide them practical, innovative and appropriate
solutions for their present & upcoming prospects. More over, PRAL has distinctive
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position as a group of technology-based problem solvers driven to over-all utility and
cost-effective solutions. This has been demonstrated on projects large and small -- from
Rs. 50,000 to Rs. 50 Million. PRAL is engaged in developing various computer-based
applications for Central Board of Revenue and allied revenue collecting agencies. Most
of the work being carried out is related to Income Tax, Customs and Central Excise, and re-
engineering of procedures/ processes for enhancing the efficiency of the departments.
Number of Employees
Pakistan Revenue Automation (Pvt.) Limited, is an ISO 9001-200 Certified information
technology solution provider company, being the Largest IT company in Pakistan with
about 1400 employees. It has presence in 13 cities and in the very near future will be
providing services in 3 more towns.
Product Lines/Services Provided By PraL
PRAL remains engaged in different types of Information Technology-related projects. Major
portion of our projects is CBR, Govt. of Pakistan. PRAL has great experience of working on
high, medium and small projects. There are following major projects of PRAL.
Services Provided To CBR, Govt Of Pakistan
Pakistan Revenue Automation (Pvt) is a computer consultancy company owned by CBR, Govt. of
Pakistan. The main purpose of the company is to enhance the efficiency and effectiveness of
Information Systems prevailing in CBR by applying relevant state-of-the-art technologies related
to computer software, hardware and data communication. In simple words the purpose of PRAL
is the automation of the taxes of CBR, Govt. of Pakistan. Besides CBR’s Website and its
maintenance, support on Internet facilities to all officers, Preventive maintenance of personal
computers, printers, stabilizers, UPSs in CBR and Its field organizations the brief contribution of
PRAL in CBR Can be presented below.
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1) Income Tax
PRAL is providing services to CBR related to computer applications developed and implemented
at various locations of the Income Tax Department which is divided into the following two broad
parts from the points of view of the scope of work and methodology.
a) Maintenance support relating to existing applications developed by M/s PRAL
b) Operational support at all the computer installations of Income Tax.
Income Tax Return Management System (ITMS)
The main features of ITRMS is that all the income tax returns i.e. salaried individual, business
individual, companies, etc., from all over the country have been processed/entered in one
centralized software at Islamabad. This enable CBR, Government of Pakistan to get under one
roof the most important statistics/data such as:
i) who are the genuine tax payers
ii) what is the amount of tax collected through these returns
iii) tax payers who have neither submitted returns nor deposited tax
iv) such statistics can be very useful for future analysis/decision making
Tax Accounting System (TAS)
The main utility of this system is that all the tax which is deposited by the tax payers directly in
the banks has been entered in this system. This data has been entered on the basis of tax
challans/reports submitted by the banks. The main benefit of this system to CBR can briefly be
presented as below.
i) When any tax payer wants to claims any refund from income tax department on
the basis of paid tax challans its authenticity can be verified. This system has
eliminated the chances of refund of tax through bogus challan.
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ii) Though this system CBR can verify the amount of tax being paid by a particular
tax payer or company.
iii) CBR can make analysis regarding total deposit of tax.
National Tax Number (NTN)
At presently PRAL is issuing National Tax Number at more than 16 cities of the country. To
facilitate the tax payer, now NTN is being issued within only 24-48 hours on purely merit basis at
free of cost. This system has greatly helped in widening the tax base of the country because
every NTN holder will have to submit income tax return. PRAL is playing a very key role in the
maintenance of NTN Master Index because previously huge numbers of duplicate NTN
Certificate has been issued on the same NIC.
Tax Management System (TMS)
The development of Tax Management System (TMS) is in the final stages. The Assessment of
all the income tax returns would be carried out on this system. The demands against tax payable,
notices for non-compliance and appeals procedures would be carried on this system.
Audit Management System (AMS)
Development of Audit Management System (AMS) is also in the final stages. The main
objective of which is the cross verification of payment of Income Tax, Sales Tax and Customs
Duty of any particular tax payer/company through 360 degree view. This system is being for
audit purposes.
Operational Support At All The Computer Installations Of Income Tax
PRAL is also providing operational support at all the computer installations of Income Tax at
Karachi, Hyderabad, Sukkur, Multan, Faisalabad, Bahawalpur, Sargodha, Sahiwal, Lahore,
Gujranwala, Sialkot, Rawalpinid, Quetta, and Peshawar where ITMS is working. The support is
being provided in following areas.
i) Basic machine operations
ii) User/Group Profile management
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iii) Granting of authorities
iv) Bank UP/Restore functions
v) Troubleshooting
vi) Configuration of Terminals/Other Devices
vii) Hardware problem reporting to vendor
viii) Training of DPC/ Circle staff on the Application software
ix) Responsibilities regarding New Software Development on the request of relevant
field Offices
a. Evaluation of the requirement
b. Coordination with the user to prepare comprehensive requirement definition
document for the approving authority
c. Testing of the application software in the light of requirement of the users
d. Training/Implementation of the application
2) Sales Tax
Sales Tax Automated Refund Repository (Starr)
The name of software which is development by PRAL for the Sales Tax Department of CBR is
called Sales Tax Automated Refund Repository (STARR). To understand the benefits of this
system knowledge of payment of sales tax/submission of sales return is must.
Every registered sales tax payer is required to submit sales tax return on monthly basis. He has to
report the sales tax paid on his purchases in sales tax return which is called input sales tax. He is
also required to report the sales tax charged on his sales which is called output sales tax. In simple
words input sales tax is charged to tax payer on his purchases where as sales tax output is charged
by tax payer on its sales to purchaser. If output sales tax is greater than input sales tax then the
tax payer has to deposit the difference with the sales tax return to the sales tax department. If the
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input sales tax is greater than output sales tax then the difference is claimed as refundable from
sales tax department by the tax payer.
Before the implementation of this application there was no system of cross verification of input
sales tax and output sales tax. Sales Tax Department will have to pay a huge amount of sales tax
refund claims on flying/fake invoices.
After the implementation of STARR, CBR now has an authentic/reliable system of cross
verification of input sales tax and output sales tax. This system has unearthed many cases of fake
sales tax refund claims, resultantly saving a huge amount of tax of Government of Pakistan.
3) Customs
To provide facilitation to importer and exporter, on the direction of CBR, PRAL has
establishment Custom Facilitation Centers (CFCs) at all the Airports, Sea ports and Dry ports of
the country. PRAL has also developed computer application for processing of custom documents
on all the Air ports, Sea ports and Dry ports of the country. The main features of these Customs
Facilitation Centers (CFCs) can be summarized below:
i) Develop computer applications for processing of tax documents.
ii) Provide, under one roof, a facility for tax payers for receipts of tax documents,
bank branches for tax payments, registration as taxpayers and issuance of NTN-
certificate
iii) Minimize personal interaction between taxpayers and tax collectors, particularly
as these centers will be managed by persons (PRAL officials) who will not hold
jurisdiction over any taxpayer.
iv) Provide services to taxpayers in congenial environment
v) Procure and install all necessary computer hardware, communication equipment
for smooth functioning of the Tax Service Centers.
vi) Publication of daily imports and exports lists for traders
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Commercial Projects
Besides providing services to CBR, PRAL is also working on commercial projects with the
permission of CBR. The brief introduction of some of these projects is presented below.
Agreement With M/S National Highway Authority (NHA)
PRAL has entered into an agreement with M/s NHA for development of Software and for smooth
operations, maintenance and technical support for Lahore–Islamabad Motorway (M-2),
Islamabad-Peshawar (M-1), Pindi Bhatian-Faisalabad (M-3). PRAL‘s responsibilities can
briefly be described as under:
i) Development of Software
ii) Ensure continuous and uninterrupted running of the computerized networking system
iii) Maintain al interchanges and the central server site 24 hours a day for smooth
functioning of the computerized network system through professionally qualified
people
iv) Be responsible for maintaining, repairing, servicing of computer and related
equipment at all interchanges and the central server site
v) Be responsible for central site data backups and storate
vi) Report on monthly basis all routine and emergency technical support provide
Agreement with M/S Pakistan Museum of Natural History Islamabad (PMNH)
PRAL has entered into an agreement with M/s PMNH for the software development of
“Biodiversity of Pakistan Database and Global Networking (BGN) Project PMNH”. PRAL‘s
responsibilities can briefly be described as under:
i) System study, design and application software development
ii) Implementation of the software development
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iii) Conducting hands-on training of PMNH personnel
iv) Provide source code of the application software
v) Provide technical manual of database design, instructions for technical maintenance
of the database
vi) Provide user manual containing step-by-step instructions for operating the
system/software
Agreement with Islamabad Club
During the Computerization of Islamabad Club PRAL has developed the following six Software
systems.
Member’s Profile
Member’s Billing System
Personnel/Payroll System
Inventory Control System
Automation of Guest House and Library
During the computerization of above referred systems of Islamabad Club PRAL has worked in
the following fields of above referred systems.
System Study
System Design
System Development
System Implementation
System Training
System Documentation
Agreement with CBR
In addition to main services to CBR, PRAL has entered into an agreement with CBR for
maintenance and repair of CCTV System and X-Ray machine installed at Karachi, Lahore,
Islamabad, Quetta and Peshawar Airports and Wagha Railway Stations.
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Agreement with Govt. Of NWFP
Broadly speaking PRAL has carried out system study, sytem design and application development,
data entry, assessment survey, data compilation, processing and automation of taxation system, in
relation to Immoveable properties in NWFP. PRAL had the following responsibilities.
i) Supply of area information and property tax calculation in respect of these units
ward-wise
ii) Supply of print outs of the Demand Notices.
iii) Supply of prints outs, updation of of PT-1 Registers maintained by the Excise and
Taxation Department on electronic media
iv) Consultancy services in procurement , installation and site preparation for hardware
and software
Agreement With Excise And Taxation Sindh
PRAL has entered into an agreement for providing services related to electronically processed
Insfrstruture Cess Challan and computer generated daily reports of issuance of such challans and
other reports necessary for reconciliation of payment of challans with the daily Banks scroll of
challans.
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Organizational Structure
At the time of creation of Pakistan Revenue Automation (Pvt) Limited (PRAL) its
hierarchy consists of Matrix Organizational Form.
The Organizational Structure in its current updated form is available at the end of this
report. (Annex-A page 1-5/6)
Main Offices
To cope with the requirements /demands of Central Board of Revenue, Pakistan Revenue
Automation (Pvt) Limited functions throughout the country. PRAL has the offices in all
major cities of Pakistan. Major Offices of PRAL are situated in the following cities.
i) Airport Karachi
ii) Port Qasim Karachi
iii) Custom House Karachi
iv) Income Tax Building Karachi
v) Large Tax Payers Units
vi) Airport Lahore
vii) Dry Port Lahore
viii) Thokar Niaz Baig Lahore
ix) Airport Peshawar
x) Custom House Peshawar
xi) Dryport Peshawar
xii) Dryport Islamabad
xiii) Airport Islamabad
xiv) Dryport Faisalabad
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xv) Dryport Sialkot
xvi) NTN Islamabad
xvii) NTN Karachi
xviii) NTN Lahore
xix) NTN Faisalabad
xx) NTN Sargodha
xxi) NTN Rawalpind
xxii) NTN Bahawalpur
xxiii) NTN Sukkur
xxiv) NTN Peshawar
Comments On The Organizational Structure
As it is already mentioned that PRAL has the Matrix Organizational structure. The main purpose
of matrix organizational form is an attempt to combine the advantages of the pure functional
structure and the product organizational structure.
All the major decisions of the company are carried out under the supervision of Board of
Directors. Board of Directors consists of six members who work under Chairman Central Board
of Revenue, Govt. of Pakistan, Member Direct taxes, Member Administration, Member Central
Excise, Member Sales tax, Member IMS; CEO-PRAL has the ownership of one share each of
denominations of Rs. 10/-.
Board of Directors has sub delegated certain powers to Board of Management to run the affairs of
the company efficiently and effectively. Board of Management consists of all the three General
Managers and CEO as its chairman.
Organizations are continually restructured to meet the demands imposed by the environment.
Restructuring can produce a major change in the role of individuals in both the formal and the
informal organization. In the current meeting of the Board of Directors, PRAL BOD very kindly
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approved the new organogram for the Company and also accorded approval for creation of
different essentially required positions. The detail requirements of human resource for various
functional activities of the Company, basis for this working paper is extended scope of work
assigned to PRAL in light of CBR reform/reorganization activities.
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Diagram of Finance/Accounts Deptt
NUMBER OF EMPLOYEES WORKING IN THE FINANCE DEPTT
Finance and Accounts department does not exist separately in Pakistan Revenue
Automation (Pvt) Limited. Detail list employees working in finance/accounts department
is as under: (Organogram of Accounts departments is also attached at annex-A Page 1/6)
S.No. Designation Approved Strength Working Strength
01 GM Finance 01 01
02 Manager Finance 01 01
03 Dy. Manager Finance 02 02
04 Accounts Officer 09 04
05 Junior Executive 04 04
06 Record Supplier 01 01
There is no denying the fact that Finance Department in any company occupies a key
position. But unfortunately no importance has been given to this critical department.
This is because of the fact that the software professionals occupied all the top positions.
No separate department exists for Finance and accounts operations but working of both
the departments are carried out under-one roof.
Five positions of Accounts Officers are lying vacant which relates to Lahore and Karachi
Regions.
Structure/hierarchy of the Finance Department is very tall which consists of at least four
levels which is evident from the diagram of finance department at annexure- . In the
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present age tall structure of any department is neither efficient nor effective because of
the following facts.
Tall structure of any department takes more time to accomplish any
specific assignment given by top level.
Involvement of more persons may results in creating misunderstanding
about the given task
People takes less responsibility in the accomplishment of a given task
Finance And Accounting Operations
At the time creation of PRAL the Govt. of Pakistan provided the owner’s equity. Major
cash inflow is from Central Board of Revenue, Govt. of Pakistan against approved
budget. The company has also commercial projects from which substantial cash inflows
come. The Major investment of the company is in Computer Hardware Networking
equipments to automate the revenue collection of Govt. of Pakistan. Another major
revenue expenditure of the company is on salaries of employees who were posted on all
the major installation of CBR.
Some of the operations of accounting departments are as under:
Maintenance and monitoring of computerized accounting software
All the General Entries like Journal Vouchers (JVs), Disbursement Vouchers
(DVs) and Receipts Vouchers (RVs) are processed through Computerized
accounting software. There is no system of manual accounting in PRAL. After
processing of every entry General Ledger and Trial Balance would automatically
be updated. There is strong system of checks and balances in this accounting
software. No entries would be accepted by the accounting software unless its
debit and credit effects are equal.
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Preparation of monthly payroll
Processing of monthly payroll is also takes place through computerized software.
Human Resource Department of PRAL issues every month office orders
regarding new appointments, resignations, stoppage of salary, annual increments,
transfer grants, earned leaves, leaves without pay etc. These adjustments are
incorporated by the Dy. Manager every month. Then directions for transfer of
salaries are conveyed to the bank along with lists consisting of Names of the
employees, their bank accounts and branch name Staff of PRAL is scattered
through out the country. Salaries have been transferred in the accounts of
respective employee through online branches of HBL.
Processing the payments of utilities bills received throughout the country
All the payments of utilities like telephone bills, Electricity, Gas, Water are
processed through head office at Islamabad. Demand Draft of respective
department (PTCL, NTC, Wapda etc) are prepared from Head Office and
dispatched to the relevant station where this Demand Draft is being deposited by
the staff of PRAL.
Preparation of payments to vendors
Processing of payments to vendors from all over the country is carried out at Head
Officer after completion of codal formalities and deduction of withholding tax.
Preparations of cheques
Payment to vendors is done through crossed cheques. Delivery of cheques to local
vendors is done by hand while cheques of outstations are delivered through
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courier companies. Payment of open/cash cheques is discouraged. Signature of
two persons out of three is must on cheques.
Preparation of drafts/pay orders
Payment of utilities and imprests are carried out through drafts /Payorder.
Bank Reconciliations
M/s PRAL has more than thirty bank accounts through out the country. Bank
Reconciliations are prepared on monthly basis and adjustments thereof are also
made on monthly basis.
Coordination with banks
Coordination with banks are made on daily basis on issue like, confirmation of
bank balances, preparation of Demand Drafts/Pay orders, transfers of salaries,
bank reconciliations etc.
Coordination with external auditors
Coordination with external auditors are made on yearly basis to provide them
information, facilitate them and to resolve their queries.
Deposit of tax with the govt. treasury
Deposit of Withholding tax against salaries of staff and from vendors against
provision of supplies/services are deposited in Government treasury through
crossed cheque within seven days of deductions
Preparation of Budget
Budget is prepared every year and got approved from the Board of Directors.
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Preparation of invoices against services provided by PRAL
Invoices are prepared as per agreement against services provided to CBR and
against commercial projects by the accounts departments. Receivables are
created in the books of accounts which are adjusted at the time of their receipts.
Submission of company income tax/sales tax returns
Income tax returns are submitted before 30th September of every year on the
basis of provisional/audited accounts. Sales tax return is submitted on monthly
basis.
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Functions Of The Finance Department
Accounting System Of The Organization
The accounting system of PRAL is based on double entry system. Traditionally, after
occurrence of any transaction that affects financial statements of the organization in
monetary terms, is recorded, as Journal Entry, then General Ledger is prepared after
which Trial Balance is prepared. Any Accounts Officer passes actually only Journral
Entry. General Ledger and Trial Balance is automatically updated.
At the end of financially year some adjustment were made and adjusted Trial Balance is
prepared. From that Adjusted Trial Balance Financial Statements such as Profit & Loss
A/c, Balance Sheet and notes to the accounts are prepared.
Finance System Of The Organization
Broadly speaking the main purpose of finance system of PRAL is to provide an
understanding of how the company raises funds and how they are allocated. Thus, the
decision function of finance manager in PRAL can be broken down into three major
areas:
Investing
Financing
Assets management
Investment decision is the most importance of the company’s three major decision.
Through this decision it is determined of the total amount of assets needed to be held by
the company to cope with the demands of CBR. Majority of the funds are allocated for
the purchase of computer hardware so that the system of the CBR can be computerized.
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Another major portion of the funds are allocated for salaries of those employees who are
employed on CBR installations.
The second major decision of the company is the financing decision. Here the financial
manager is concerned how the expenses needed above would be financed. Some
companies have relatively large amounts of debt, while others are almost debt free. M/s
PRAL is a debt free company. A major portion of the total funding of the company
comes from CBR against contract services provided by PRAL to CBR. Besides this
PRAL has also commercial projects from which substantial funds are generated. The
names of all those projects which were discussed in detail previously are mentioned
below.
i) Agreement with M/s NHA against Motorway M-1, M-2, M-3
ii) Agreement with M/s Pakistan Musuem of Natural History Islamabad
iii) Agreement with M/s Islamabad Club.
iv) Agreement with CBR against CCTV Project
v) Agreement Govt. of NWFP
vi) Agreement with Excise and Taxation Sindh
The third important decision of the company is the assets management decision. Once
assets have been acquired and appropriated financing provided, these assets must still be
managed efficiently. Finance manager in PRAL must be more concerned with
management of fixed assets as well as current assets.
Use Of Electronic Data In Decision Making
In this Global arena every organization is relocating from manual system to most
dynamic and sophisticated ones. In CBR M/s PRAL has introduced the concept of ONE
CUSTOM in custom department. According to which all the sites of Pakistan
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customs is linked with each other. One Customs is a comprehensive end-to-end solution
with built in automated all customs processes and procedures.
One custom is developed in Ms Dot net technologies on front end and DB2 as back end
in OS 400 environment on IBM iseries. Through user interface/language of Ms Dot net
technologies on front end it will enable Web/paperless environment. After about 10 years
of successful implementation/operation and continuous improvements under the guidance
of seasoned customs officials the system kept abreast with the requirements of Pakistan
Customs. The system has the capability of paperless processing of goods clearance
through web, eliminating the physical documents. The system can handle full container
load (FCL), lose container load (LCL) as well as bulk cargo.
Now CBR can generate the revenue reports of customs duty at any time without the
wastage of any minutes. Any importer/exporter that has made any default/black listed by
Govt. of Pakistan due to any reasons at one port/airport cannot make any transaction in
any other Port/airport. Because the system introduced by M/s PRAL would
automatically blocked him due online information/checking. In CBR M/s PRAL has
introduced STAAR Project to block the fake refund of sales tax through flying invoices.
Flying invoices are those faked invoices against which no transaction/sale has been taken
place
Mobilization Of Funds
The major funds of the company are mobilized in purchasing computer accessories and
its allied equipments to automate the revenue collection of Central Board of Revenue,
Govt. of Pakistan. Another major portion of the funds are being utilized for
disbursements of salaries of staff deputed in Head Office and field stations of Central
Board of Revenue.
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Generation Of Funds
Broadly speaking generation of funds in the company is done through two main resources
which can be classified as under.
Central Board of Revenue, Govt. of Pakistan
Commercial projects in private sector-which were already discussed in detail
CENTRAL BOARD OF REVENUE
Pakistan Revenue Automation (pvt) limited is providing services to automate the revenue
collection of CBR throughout the country. Against these services M/s PRAL has been
entered into a agreement with CBR. Invoices has been raised to CBR against payment is
received.
COMMERCIAL PROJECTS
Besides income from CBR, M/s PRAL is also providing computer software related
services in the private sector with the permission of CBR. Out of total expenditure of the
company more than 50% expenditure is provide by these projects. Some of these projects
are under.
Motorway Project M-2 (Islamabad-Lahore) from NHA
Motorway Project M-1 (Islamabad-Peshawar) NHA
Weighbridge Project from NHA
Issuance of NTN throughout the country
CESS-Govt of Sindh-Data entry of challans in software
CCTV-Camer Project on all Airports of the country
CSC-Custom House Karachi
Daily List Project-Custom House Karachi
Courier Project
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CFCs-South
CFCs-North
Allocation Of Funds
The Management of the company allocates a very small portion of the funds to different
categories of assets. Most portions of funds which is allocated against assets of company
is consumed on salaries, purchase of fixed assets such as computer accessories, entitled
vehicles for employees and furniture and fixtures. About 60% of the total spending of the
company goes against salaries expenditure because it is a service provider company.
Another important portion of the spending of the company goes against
operational/utilities expenditure.
Budget of the company has been prepared before the start of financial year on the basis of
past expenditure. Funds have been allocated according to that approved budget. Broadly
speaking the allocation of funds can be classified into the following three mainly
ategories i.e. Salaries and allowances, Fixed assets and Operational Costs.
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Critical Analysis of PRAL
The “financial statement reports” on an organization’s position at a certain point of time
and its operation over that period are valuable in predicting the firm’s future earnings as
well the risks that may be involved from an investors/bankers point of view. Predicting
the future is all that is to be ascertained. The management as well as external
stakeholders is always interested to evaluate a firm’s financial condition and
performance. Critical/SWOT analysis is as under.
Critical/SWOT Analysis
Strength
Business (automation of taxes) is already in hand given by CBR
M/s PRAL has the monopoly in CBR as far as the automation of taxes is
concerned and does not have any fear of losing the business. What ever
automation of taxes is carried out would be only through PRAL. This means stage
is already set to perform efficiently and effectively.
Commitment, Support and Positive expectations from CBR
The role/coordination of top management of CBR towards PRAL is very positive
and supportive. Suggestion/recommendations given by PRAL regarding
automation of taxes is implemented in true spirit.
Core Group of domain knowledge technical resources
PRAL has sufficient technical staff that has domain knowledge of taxes of CBR.
Several systems and initiatives already in place
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Most of the software development by PRAL is already operational in CBR
various airports, seaports, dry ports and departments of income tax, sales tax and
customs. What ever further is required is more innovation and improvement.
Weakness
Manpower attrition
There is a lack of justice in PRAL. There is a huge list of employee where new
inducted employees are getting more salaries than the previous existing
employees while working on the same post with similar qualification and
experience. Because of this problem the existing employees are in stress and
tension.
Low productivity and motivation levels
It is already pointed out that the salaries of the employees are not fixed according
to their qualification and experience and domain knowledge. There is a culture of
nepotism/discrimination in PRAL. The employees who are very close to the
senior management are better rewarded. Performance evaluation/appraisal is not
carried on merit. Because of this factor productivity and motivational level of the
employee is very low.
Organizational structure not optimally aligned with CBR needs
Most of the development of software’s/automation of taxes is carried out at head
office of PRAL through interaction of senior management of PRAL and CBR.
While these software’s needs to be installed at field offices of CBR. The officers
of CBR at field offices are not very cooperative and committed.
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Opportunities
Plenty of problems to fix
Majority of the people in business sector don’t realize that tax evasion is a crime
which can only be controlled through automation and strong internal controls
Full authority for improvement in the current system through automation.
M/s PRAL has the full authority to bring any sort of automation / improvement in
the current revenue collection of CBR so the revenue collection of the country can
be increased.
Threats
Lack of coordination and team work with in PRAL
M/s PRAL has internal threats. The management of company is divided and
employees are working in different teams and groups with different objectives
which is against the interest of the company.
Lack of support from field offices of CBR
Field officers of CBR are not cooperative because of the feeling that their
authority would be challenged if the tax system is automated.
Financial Analysis
The firm itself and outside providers of capital (i.e. creditors and investors) all undertake
financial statements analysis. The type of analysis varies according to the interests of the
party. Trader creditors are primarily interested in the liquidity of a firm. Investors in a
company’s common stock are principally interested with present and expected future
earnings as well as with the stability of these earnings about a trend line.
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To make rational decision about performance of the organization, financial analysis has
its own significance. Financial statements are quite helpful in predicting the performance
of any organization but extra prudence should always be taken when making any decision
based upon financial analysis because statements have some inherent limitations.
Ratio Analysis
An index that relates two pieces of financial data by dividing one quantity by the other is
called financial ratios. The main purpose of these ratios is to evaluate a firm’s financial
conditions and performance.
Liquidity Ratios
Liquidity Ratios measure a firm’s ability to meet short-term obligations. These ratios
compare short-term obligations to short-term resources available to meet these
obligations.
1) Current Ratios
Current assets devided by current liabilities. It shows a firm’s ability to cover its current
liabilities with its current assets
Current Assets
Current Ratio = ----------------------
Current Liabilities
115,333,998/-
= --------------------- = 3.881
29,720,309/-
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The higher the current ratio, the greater the ability of the firm to pay its bills; however,
this ratio must be regarded as a crude measure because it does not take into account the
liquidity of the individual components of the current assets.
Descriptions 2002 2003 2004 2005 2006
Current Ratio 03.881 03.339 02.718 03.605 04.979
2). Acid-Test (or Quick) Ratio
Current assets less inventories divided by current liabilities. It shows a firm’s ability to
meet current liabilities with its most liquid (quick) assets.
Current Assets – Inventories
Acid-Test Ratio = -------------------------------------
Current Liabilities
115,333,998 – 9,190,131
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= ------------------------------------- = 3.571/-
29,720,309
This ratio serves as a supplement to the current ratio in analyzing liquidity. This ratio is
the same as the current ratio except that it excludes inventories – presumably the least
liquid portion of current assets. This ratio concentrates primarily on the more liquid
current assets- cash, marketable securities, and receivables –in relation to current
obligations.
Descriptions 2002 2003 2004 2005 2006
Acid-Test/Quick Ratio 03.571 03.137 02.565 03.433 04.811
Financial Leverage (Debt) Ratios
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Debt-to-Equity Ratio shows the extent to which the firm is financed by debt.
3) Debt-to-Equity Ratios
Debt to Equity Ratio is used to assess the extent to which the firm is using borrowed
money.
Total Debt
Debt to Equity Ratio = ----------------------
Shareholder’s Equity
33,491,154
= ------------------------ = 0.1913 or 19.13%
175,014,122
This ratio tells us that creditors are providing 19 cents of financing for each Rs. 1 being
provided by shareholders. Creditors would generally like this ratio to be low. The lower
the ratio, the higher the level of the firm’s financing that is being provided by
shareholders
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Descriptions 2002 2003 2004 2005 2006
Debt-to-Equity Ratios 0.1913 0.2567 0.3606 0.2773 0.2115
4) Debt-to-Total-Assets Ratio
This ratio highlights the relative importance of debt financing to the firm by showing the
percentage of the firm’s assets that are supported by debt financing.
Total Debt
Debt-to-Total Assets Ratio = ----------------------
Total Assets
33,491,154/-
= ------------------- = 0.1606 or 16.06%
208,505,276/-
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This ratio serves a similar purpose to the debt-to equity ratio. In the year 2002 16.06 % of
the total assets are supported by the debt while the remaining 83.94 % of the financing
comes from share-holders’equity.
Descriptions 2002 2003 2004 2005 2006
Debt-to-Total-Assets Ratio 0.1606 0.0820 0.2650 0.2171 0.1746
Coverage Ratios
This ratio relates the financial charges of a firm to its ability to service, or cover, them.
5) Interest Coverage Ratio
Earning before interest and taxes (EBIT)
Interest Coverage Ratio = ---------------------------------------------------
Interest expenses
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9,946,281/-
= ------------------- = 5.760 times
1,726,730/-
This ratio serves as one measure of the firm’s ability to meet its interest payments and
thus avoid bankruptcy. In general, the higher the ratio, the greater the likelihood that the
company could cover its interest payments without difficulty. It also sheds some light on
the firm’s capacity to take on new debt. The coverage ratios of M/s PRAL can be
considered very well.
Descriptions 2002 2003 2004 2005 2006
Interest Coverage Ratios 5.760 5.965 Loss 187.054 No Interest
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From the data it is very clear that interest coverage of M/s PRAL is very unpredictable.
In the year 2002 and 2003 the interest coverage ratio is very reasonable. But
unfortunately in the year 2004 M/s PRAL sustained a loss of Rs. 13,043,601 where as
interest expenses is Rs. 838,257/-. So PRAL can not pay this interest expenses.
However in the year 2005 the situation is tremendously very favorable. In the year 2006
there is no interest expenses where as EBIT is Rs. 73,071,271/-.
Activity Ratios
Activity ratios, also known as efficiency or turnover ratios, measure how effectively the
firm is using its assets
6) Receivable Activity
Annual net credit sales
Receivable Activity = ---------------------------
Accounts Receivables
166,271,264/-
= ------------------- = 2.516 times
66,077,347/-
Days in the year
Receivable Activity in days = ----------------------------
Receivables activity
365
= ------------------ = 145.071 days
2.516
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Receivable Activity provides insight into the quality of the firm’s receivables and how
successful the firm is in its collections.
This ratios tells us the number of times accounts receivable have been turned over (turned
into cash) during the year. The higher the turnover, the shorter the time between the
typical sale and cash collection. From the analysis it can be concluded that M/s PRAL is
not successful in its collections and many receivables are outstanding since long.
Descriptions 2002 2003 2004 2005 2006
Receivable Activity 2.5163 2.8405 2.9395 2.5109 2.3438
Receivable Activity (in days) 145.071 128.50 124.172 145.364 155.726
Note: Analysis of payable activity and inventory activity can not be worked out as in
PRAL there is no involvement of credit purchases and cost of goods sold.
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7) Total Asset (Capital) Turnover
The relationship of net sales to total assets is known as the total asset turnover, or capital
turnover ratios.
Net sales
Total assets turnover = ---------------------------
Total assets
166,271,264/-
= ------------------- = 0.7974
208,505,276/-
Descriptions 2002 2003 2004 2005 2006
Total Assets Turnover 0.7974 0.7956 0.8376 0.9295 1.0087
The total assets turnover ratio tells us the relative efficiency with which a firm utilizes its
total assets to generate sales. M/s PRAL is more efficient than the in this regard in the
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year 2006. From the investigation it is concluded that there is also an increase in assets
but increase in sales is much more that increase in assets.
Profitability Ratios
8) Gross Profit Margin
This ratio tells us the profit of the firm relative to sales, after we deduct the cost of
producing the goods. It is a measure of the efficiency of the firm’s operations.
Net sales – Cost of goods sold
Gross profit margin = ------------------------------------
Net sales
9,505,440/-
= ------------------- = 5.71 %
166,271,264/-
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Descriptions 2002 2003 2004 2005 2006
Gross Profit Margin 5.71 % 3.96 % 6.97%(Loss) 11.36 % 22.43 %
Gross Profit of the firm in the year 2002 and 2003 can be considered as neither good nor
bad. But in the year 2003 firm is facing loss the main reason of which was the firm’s
direct expenditure were increased substantially plus income is recognized on receipts
basis instead of accrual basis. However in the year 2006 Gross Profit of firm is
substantially increased because revenue of the firm has been increased due to booking on
receipts basis instead of accrual basis
9) Net Profit Margin
The net profit margin is a measure of the firm’s profitability of sales after taking account
of all expenses and income taxes.
.
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Net profit after taxes
Net profit margin = ------------------------------------
Net sales
7,198,633/-
= ------------------- = 4.33 %
166,271,264/-
Descriptions 2002 2003 2004 2005 2006
Net Profit Margin 4.33 % 3.52 % 7.30%(Loss) 11.30 % 23.09 %
If the gross profit margin is essentially unchanged over a period of several years but the
net profit margin has declined over the same period, we know that the cause is either
higher indirect (non-production expenses relative to sales or a higher tax rate.
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One abnormal change has been observed i.e. in the year 2006 Net Profit ratios is above
the Gross Profit ratio. This is because of the fact that no provision for taxation has been
created and the firm has earned a very huge interest income
10) Return on Investment
This ratio relates the net profit after taxes to total assets or return on assets
Net profit after taxes
Return on investment (ROI) = ------------------------------------
Total assets
7,198,633/-
= ------------------- = 3.45 %
208,505,276/-
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Descriptions 2002 2003 2004 2005 2006
Return on Investment (ROI) 3.45 % 2.80 % 6.12%(Loss) 10.50 % 23.29 %
Return on Investment of the firm in the year 2002 and 2003 can be considered as neither
good nor bad. But in the year 2003 firm is facing loss the main reason of which was the
firm’s direct expenditure were increased substantially. However in the year 2006 Return
on Investment of firm is substantially increased because revenue of the firm has been
increased plus the firm is earning interest on bank deposits.
Horizontal Analysis
It is important to compare the financial ratios for given company overtime. In this, the
analyst is able to detect any improvement or deterioration in a firm’s financial condition
and performance.
To illustrate above, below mentioned shows selected financial ratios for PRAL over the
period from to 2002-2006.
2002 2003 2004 2005
2006
Liquidity
Current Ratio 03.881 03.339 02.718 03.605 04.979
Acid-test Ratio 03.571 03.137 02.565 03.433 04.811
Leverage
Debt-to-Equity Ratio 19.13 % 25.67 % 36.06 % 27.73 % 21.15
Debt-to-Asset Ratio 16.06 % 08.20 % 26.50 % 21.71 % 17.46
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Coverage
Interest Cov. Ratio 5.760 5.965 Loss 187.054 NoInt
Activity
Receivable activity 2.5163 2.8405 2.9395 2.5109 2.3438
Avg.Collection Period 145 days 129 days 124 days 145 days
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Total Assets turnover 0.7974 0.7956 0.8376 0.9280 1.0087
Profitability
Gross Profit/(Loss) Margin5.71% 3.96% (6.97%) 11.36% 22.43%
Net Profit Margin 4.33% 3.52% (7.30%) 11.30% 23.09%
Return on Investment 3.45% 2.8% (6.12%) 10.50% 23.29%
COMMENTS ON HORIZONTAL ANALYSIS
As can be seen from the above comparison over a period of five years, current and acid-
test ratios have fallen from the year 2002 to 2004 but it again climb in the year 2005-
2006. The trend here tell us that in the year 2002-2004 cash and bank balances have been
decreased where as sundry creditors and advances against contracts increased. Similarly
in the year 2005-2006 cash and bank balances have been increased whereas sundry
creditors have been decreased.
Average collection period in days have been increased in the year 2006 as well as
receivable activity is decreased in the 2006. The trends here tell us there has been
relative build up in receivables and inventories. The only conclusion possible is that a
problem exists. The management must investigate the credit policies, the company’s
collection experience and its bad-debt losses. Moreover management should investigate
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inventory management and obsolescence of inventory because apparent deterioration in
receivables and inventory is a matter of great concern.
Debt-to-equity ratios have been increased in the year 2004. The trend here tells that
there is an increase in the sundry creditors and decrease in share holder’s equity because
the company has sustained a loss.
Gross profit margin, Net profit margin and Return on investment is in negative
position because there is an increase amounting to Rs. 30 million in selling , general and
admin expenses which needs to be controlled.
The total assets turnover ratio tells us the relative efficiency with which a firm utilizes
its total assets to generate sales. M/s PRAL is more efficient than the in this regard in the
year 2006. From the investigation it is concluded that there is also an increase in assets
but increase in sales is much more that increase in assets.
Vertical Analysis
In addition to financial analysis over time, it often useful to express balance sheet and
income statement items as percentages. The percentages can be related to totals, such as
total assets or total net sales or to some base year, called common size analysis.
ASSETS
Regular (in thousands) Common-Size (%)
Years/Descriptions 2004 2005 2006 2004 2005 2006
Current Assets
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Accounts Receivable 64,656,578 91,081,967 134,997,058 28.49 37.02 43.03
NTN Cards-Stock 9,190,131 9,190,131 9,190,131 04.05 03.74 02.94
Advances, Deposits &
Prepayments 71,630,277 46,749,396 71,158,499 31.57 19.00 22.68
Cash and Bank Balances 17,976,131 45,564,682 57,305,870 07.92 18.52 18.27
Total 163,453,117 192,586,176 272,651,558 72.03 78.28 86.92
FixedAssets
Tangible Fixed Assets 63,306,995 53,422,006 41,032,618 27.90 21.71 13.08
Intangible Fixed Assets 157,574 27,351 13,875 00.07 00.01 00.00
Total 63,464,569 53,449,357 41,046,493 27.97 21.72 13.08
TOTAL ASSETS 226,917,686 246,035,533 313,698,051 100 100 100
LIABILITIES AND SHAREHOLDER’S EQUITY
Years/Descriptions 2004 2005 2006 2004 2005 2006
Current Liabilities
Leased Liability 1,682,909 - - 00.74 00.00 00.00
Advance Against Contract 32,277,183 32,277,183 32,527,183 14.22 13.12 10.37
Sundry Creditors, Accrued
and Others
23,971,339 18,929,132 20,024,886 10.56 07.69 06.38
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Provision for taxation 2,211,766 2,211,766 2,211,766 00.98 00.90 00.71
Total 60,143,197 53,418,081 54,763,835 26.50 21.71 17.46
Share’s Equity 166,774,489 192,617,452 258,934,216 73.50 78.29 82.54
Long Term Liabilities
- - - - -
TOTAL LIABILITIES 226,917,686 246,035,533 313,698,051 100 100 100
INCOME STATEMENTS
Years/Descriptions 2004 2005 2006 2004 2005 2006
Net Sales 190,055,539 228,701,383 316,414,513 100 100 100
Selling, General & Admin.
Expenses 203,301,250 202,719,461 245,448,305 106.97 88.64 77.57
Operating Profit/(Loss) (13,245,711) 25,981,922 70,966,209 (06.97) 11.36 22.43
Other Income 202,110 - 2,105,062 00.11 - 00.67
EBIT (13,043,601) 25,981,922 73,071,271 (06.86) 11.36 23.01
Interest Expenses 838,257 138,900 - 00.44 00.07 -
EBT (13,881,858) 25,843,022 73,071,271 (07.30) 11.29 23.01
Provision for taxation - - - - - -
Earning after Taxes (13,881,858) 25,843,022 73,071.271 (07.30) 11.29 23.01
COMMENTS ON VERTICAL ANALYSIS
We see that over the three-year span, the percentage of current assets have been
increased, that is particularly true because of increase in account receivables and
advances deposits and prepayments. On the liability and equity portion of the balance
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sheet, share holder’s equity has substantially been increased over a three years span. This
is particularly true because the revenue of the company has been increased as well as
percentage of selling, general and admin expenses have been decreased. Percentage of
fixed assets has also been decreased because new fixed has not been purchased instead
value of fixed assets has been decreased due to depreciation.
Common-size income statement shown above shows the substantial improvements in
gross profit margin due to better relative control over selling general and admin expenses
which were decreased from 107% - 77 % over the period of three years.
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Organization’s Analysis With Reference To
Industry
As stated in the initial section of the report that Pakistan Revenue Automation (PVT)
Limited (PRAL), has been in operation since 1994, and has completed several projects of
automation on both direct and indirect taxes being administered by the Central Board of
Revenue (CBR), Govt. of Pakistan. In addition it has completed a few projects for other
Government Agencies. The company is wholly owned by the Government through the
CBR and is governed by a Board of Directors comprising the Chairman, CBR as its
Chairman and line members of different taxes as its Directors. Since its creation, the
funding of Pakistan Revenue Automation (Pvt), Limited from Finance Division has
continued in the shape of lump-sum grants.
PRAL is the sole player regarding the automating of revenue of CBR/enjoying monopoly
in the automation of the revenue of Govt. of Pakistan. By virtue of this reason, analysis
within the industry is not possible.
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Future prospects of the organization
The prospect of M/s Pakistan revenue Automation (Pvt) limited is very bright because of
significant contribution by PRAL in the recent few years. Revenue of the Govt. of
Pakistan has been substantially increased because certain checks have been created by
M/s PRAL on tax evasion.
M/s PRAL has introduced in Karachi the Pakistan Automated Custom Clearance System
(PACCS) that makes random checking of consignments. After the implementation of this
system the revenue of Pakistan have substantially been increased because of the
following the facts.
All the steps taken by the CBR to restrict the contact of taxpayer with tax
collectors, only PACCS has been institutionalized.
PACCS, that make random checking of consignments-unearthed more
irregularities than the frauds identified through manual customs that mandates 100
per cent checking.
Genuine importers have been spared the hassle of import procedures and penalties
they had to pay as demurrage due to delays caused through no fault of their own.
Their consignments are released immediately on ships arrival.
Another positive aspect of PACCS is that its computer immediately points out any
wrong released and lists out other similar instances where goods were wrongly
released. The custom officials could now make recoveries from all such
importers
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Appraisers cannot creat problems for genuine importers nor could they spare the
defaulters as the system has inbuilt capacity to photograph all opened
consignments from all angles and store in the system
This system would reduce the clearance time of exports and imports to a few
hours from six to seven days in the manual clearance system. It has proved
globally that clearance delays increase costs by almost 15 per cent.
Furthermore, on all the major Airports, Dry ports, Seaports all the documents
processing of imports and exports are carried out by the personnel of PRAL in
computerized environment. Certain checks and balances have been created on
Airports, Dry ports, Seaports for depositing the genuine taxes.
It is also very important to mention here that a centralized data processing center has also
been established for the computerization of tax returns from all over the country.
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Shortfall/Weaknesses of Finance Deptt.
Some of the shortfalls/weak areas of Finance/Accounts Department of PRAL during the
studied period are the following.
Because M/s PRAL is an Information Technology Company, due importance to
Accounts/Finance Department were not given and most of the top positions of the
company’ Structure are occupied by the IT Professionals.
The position of General Manager Finance remains vacant for the last so many years.
However it has been filled recently on the personal intervention of the Chairman, CBR.
Finance Department is assumed to obey the orders and instructions issued by the senior
management. The lack of independence causes delay in accomplishment of tasks in a
professional way.
There was a shortage of professionals and qualified personnel in Finance department.
Proper compensation is also not given to staff working in finance department as
compared to IT Professionals. Because of this discrimination qualified and professional
staff relating to accounts is also not ready to stay here in PRAL.
Finance sections in major regions such as Lahore and Karachi are working in isolation.
At times lack of integration and coordination creates problems in achieving the desired
results in time.
Due to lack of staff most critical activities of accounts departments i.e. Bank
Reconciliation statements, Finalization of tax assessment of the company, Fixed assets
register, Monitoring of various assets and liabilities, proper filing of Journal Vouchers,
Receipts Vouchers, Disbursement Vouchers were not carries out.
Reconciliation of receipts against different projects throughout the country was not
carried out and income has been booked on the basis of receipts provided by the accounts
officer of the concerned region.
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Conclusions and Recommendations For
Improvement
Pakistan Revenue Automation (Pvt) Limited is only company owned by CBR- Govt. of
Pakistan, whose main responsibility is the automation of the taxes.
No doubt, Pakistan Revenue Automation (Pvt) Limited is a progressive organization but
there are some areas that needs to be improved. Following are the recommendations to
overcome the weaknesses of such areas of Pakistan Revenue Automation (Pvt) Limited.
There exists frustration among old employees due to higher wages/salaries and other
benefits of newly appointed professionals/experts. Salaries of employees should be
rationalized and decided on the basis of qualification, experience and output.
Just like public sector organization, PRAL is abundant with poor resource utilization and
overstaffed with poor quality personnel. Some personnel are overburden and some are
totally work free. There must be equal distribution of work.
Deep rooted bureaucratic approval and delays in decision making. Board of Directors
should sub-delegate maximum decision powers to Board of Management for smooth
functioning of the operations. PRAL must have freedom to decide independently.
Finance section is also ignored in making financial decision which ultimately impact
negatively on the working of finance deptt. It is strongly suggested that Finance
department should be given due importance in taking financial decision.
All the activities of the finance/accounts department should also be carried out in
professionally way.
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Internal politics in PRAL, at all the times, remains very active between senior
management. CEO being head of the organization, instead of supporting selected
General Managers / Senior Managers should take the decisions across the board.
Distressed Senior Managers, instead of leg pooling of each, should remains positive
because ultimately it is your organization which suffers.
There is a lack of coordination between finance deptt. and administrative staff at field
offices.
In short all the above stated facts damage the steady progress of the organization. So these
shortfalls can serve as guide to improve the performance of the organization.
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References and Sources Used
In the preparation of this Internship Report, the help has been sought from the following
publication and website
Pakistan Revenue Automation (Pvt) Limited. Annual Financial Statements
(Five years financial statements are annexed at the end of this report)
Pakistan Revenue Automation (Pvt) Limited. , “http://www.pral.com.pk
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