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Sugar Industry IV
Sugar Industry IV
Definition
Sugar is produced from harvested sugar cane or sugar beets and processed by a sugar mill.
The milling process extracts juice from the beets and cane with grinding pressure. Extracted sugar
proceeds through a purification process that removes impurities. Sugar is further refined to
different granule grades and bleached with limestone as appropriate. Beet pulp can be sold for a
filler in cattle feed and cane pulp can be burned as a biomass fuel.
Audit Procedures
Audits of sugar mills test for quality standards, accuracy and regulatory compliance:
Verify that farm sources of sugar cane are supplying the contracted amounts of sugar cane.
Confirm accounting invoices that reflect that the mill is paying the contracted rate for the
sugar cane.
Check equipment functioning capacity. Validate equipment maintenance records. Ensure
that cold digesters, boilers, distillers and other equipment meet local ordinances and state
regulations for what is acceptable and what is required in manufacturing sugar.
Interview a sample of random employees to verify that employees are similarly trained in
company quality control measures. Ask about any safety incidents that have occurred over
the previous year. Verify whether these incidents have been documented on an Occupational
Safety and Health Administration (OSHA) accident incident report.
Confirm the types of sugar that the mill produces. Brown sugar, turbinado, "raw" sugar and
white table sugar are prepared by different methods. Evaluate the methods for producing the
different sugar products manufactured by the mill. Compare these methods to industry
standards. Brown sugar, for example, is made by leaving some amount of molasses in the sugar
when it goes through the centrifuge. Turbinado is steamed rather than boiled to reduce
impurities. So called "raw" sugar is sugar that has not been bleached or refined to a fine grain.
Estimate whether the quality of the products produced meets the company's documented
quality standards for the number of impurities that pass through the final quality inspection.
Identify the packaging for each type of sugar. Measure the labeling on consumer retail
packaging against the Federal Drug Administration requirements for labeling and nutrition.
Sales Processes
Risk Implication
Sales expenses incurred are in excess of budget Budget overrun
Financial loss if payments are
Unauthorized orders/transactions are executed
not received
Units are unaware of the orders they are required to deliver Delays in dispatch
Loss due to non-payment by customers/ bad debt Financial loss
Delay in processing of orders - late delivery penalty Financial loss
Duplication of processing of orders – lack of controlling on
Financial loss
processing dispatch
Delay in processing of invoice incompleteness of recording Bad debts/delay in payments.
Transactions are not recorded in an appropriate period Statutory Non- compliance
Incorrect processing of discount transactions Loss of discount
Incomplete/incorrect processing of accounts Financial Loss
Incorrect bank accounts disclosure Statutory Non- compliance
Incorrect provisioning of doubtful debts Statutory Non- compliance
Incorrect/ unauthorized write off of accounts Financial loss
Customer complaints feedback/ resolution not present Customer dissatisfaction
Internal Controls
Cane Survey or Pre-procurement Process
Whether a detailed listing has been prepared for all the villages to be surveyed
Is all relevant information being captured in the survey?
Are all changes in the survey register duly authorized?
What are the controls to deal with data entry errors? A sample checking should be done for
effectiveness of these controls
Whether audit log is being maintained for all the changes in data fed into IT System
Are all the timelines specified by the government being adhered to?
Whether proper verification process exists, before adding/deleting any grower code to database.
Whether relevant documents are being obtained from grower before addition?
Whether any check is being done to identify duplicate grower codes in the data?
Has the bonding been done as per the directions from the government?
Manufacturing Process
Actual to budgeted comparison for various efficient norms set by the management. Some key
parameters to look at are:
Power/steam consumption per quintal of cane crushed.
Recovery ratio.
Sugar losses in bagasse and molasses.
Fuel consumption per unit of electricity generated (Power Plant).
Steam generated per quintal of fuel consumed (Power Plant).
Percentage of make-up water (Power Plant).
Steam/power consumption in Distillery
Statutory compliances with respect to operation of machineries like, boiler, vacuum pans, etc. and
other clearances from the government.
Environment, Health and Safety standards are adhered to in day-to-day functioning, running of
ETP plant, disposal of boiler ash, flue gas and spent wash.
Log books are being filled properly and are also capturing deviations
Recording of overtime by the workers.
Recording of finished goods is as per excise rules.
Control over gunny bags movement.
Segregation of duties between production and quality
Root cause analysis for any break downs.
Trend analysis with previous year results.
Planning with regards to off-season and season maintenance schedule
Cost/budget of maintenance (year to year comparison).
Whether annual maintenance contracts have been entered for key machineries
In case of power plant and distillery are separate entities, whether bagasse, sugar and molasses
have been transferred at arm's length principle?
Whether overheads have been allocated properly while accounting for cost of manufacturing?
1. In a sugar industry, large amount of data is involved. Typically, a factory might be dealing with close
to 50,000 to 1 lakh growers, and so it becomes essential to deploy what resources to facilitate the
process?
a. IT Resources
b. Processing Resources
c. Internal Control Resources
d. Database Resources
Most sugar industries have multiple units thus, the use of IT resources such as ERP manages
the processes across various unit. The overall objective and scope of an internal audit does not
change in an IT environment however, the use of computer changes the processing, storage,
retrieval, and communication of information and interplay of processes, systems, and control
procedures that would affect the internal control employed by the entity.
2. All of the following are the periods in which specific process is to be covered and planned in the
engagement letter, except?
a. Cane Development
b. Cane Procurement
c. Merchandising
d. Off Season maintenance
Sugar Industry is seasonal in nature with calendar of activities spread throughout the year
therefore, engagement letter should clearly state the scope that will be covered, along with quarters/
period when audit is to be conducted specifically, the period in which specific process is to be
covered and must be accordingly be planned. Suitable period for covering key areas is Cane
development, cane procurement, manufacturing during the crushing season, off season maintenance
just after the crushing season, and sales throughout the year.
3. Fine by state government will be mandated in what key risk in the cane survey process?
a. Duplicate grower codes existing in the data
b. Incorrect bonding being done with growers
c. Unauthorized changes in the survey data
d. Non- adherence to timelines
Duplicate grower codes existing in the data implies incorrect planning for procurement while
incorrect bonding being done with growers and unauthorized changes in the survey data implies
Statutory Non- Compliance/ favorable treatment given to some growers. Only non-adherence to
timeliness is fined by the state government in the cane survey process.
4. What risk constitutes to fraud or incorrect payments?
a. Clerk at out centers doing incorrect weighment
b. Biased distribution of supply tickets
c. Supply of fictitious supply tickets
d. Payments being done without adjusting for loans
Supply of fictitious supply tickets is a risk that constitutes to fraud or incorrect payments. On
the other hand, clerk at out centers doing incorrect weighment may result to statutory no-
compliance, biased distribution of supply tickets may imply fine by state government and payments
being done without adjusting for loans may lead to incurrence of financial loss.
5. Internal auditor needs to ensure that the following controls are operating effectively in cane
procurement process, except?
a. Verify transporter contracts and payments
b. Check for records of calibration of weighing bridges
c. Checking whether audit log is being maintained for all the changes in data fed into the IT
System
d. Reconcile payments made with supplies
Verifying transporter contracts and payments, checking for records of calibration of weighing
bridges, and reconciling payments made with supplies are all controls to be audited by the internal
auditor to ensure effective operations in cane procurement process. Checking whether audit log is
being maintained for all the changes in data fed into the IT System is included in the cane survey/
pre-procurement process.
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