Haier Pakistan (Private) LimitedInternal Audit Department

M. Waqar TaqiB. Com. – (Punjab College of Commerce) Page 1

Haier Pakistan (Private) LimitedInternal Audit Department

Table of contents

1. The Exordium…………………………………………………… 3

2. The internship……………………………………………………4

3. About Haier………………………………………………………..5

4. Ariel View of the Factory……………………………………..11

5. The Internal Audit Department……………………………..12

6. Working experience……………………………………………..13

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Haier Pakistan (Private) LimitedInternal Audit Department

1 The Exordium

“In the Name of ALLAH the Compassionate

the

Merciful”

All the acclamation and admiration is for Almighty Allah

the most Merciful, Gracious and Beneficent, Who is

entire source of all the knowledge and wisdom endowed

to mankind. I offer my humblest thank from the core of

our heart to Holy Prophet Muhammad (Peace Be Upon

Him), who is forever source of guidance and knowledge

for the humanity.

“Praise to Allah, Lord of the creation, the

Compassionate, the Merciful, the King of the Judgment

day! Alone.”

(Al Quran)

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Haier Pakistan (Private) LimitedInternal Audit Department

2 The internship

In this modern age of business, all world class universities require their degree

students to obtain practical training in various business entities. This helps the

students to obtain practical insights of what they have learned during the

studies.

University of the Punjab, Lahore, also requires their Commerce Graduates to

obtain three months practical training.

It was a great pleasure for me to be chosen in Haier Pakistan (Private) Limited

for internship program. This opportunity not only did help me in applying my

knowledge gained from the optional paper of “Principles of Auditing” in the final

year of my B. Com, but this also helped me to understand organizational culture

of Haier and moreover strong brand loyalty for the Haier’s products.

Further I am extremely thankful to Haier’s Management especially HR and

Internal Audit Departments, who provided me an opportunity to see practical

side of a such a large Multinational Company.

With regards,

M. Waqar Taqi

B. Com. (2005-07)

Punjab College of Commerce (PCC)

Roll Number – 8004 – Section A 14

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Haier Pakistan (Private) LimitedInternal Audit Department

3 About Haier

Salient Information

Haier Group

Type Government Owned

Founded1984 (adopted current name in 1992), Qingdao, China

Headquarters

Qingdao, China

Key peopleZhang Ruimin: Chairman and CEOYang Mianmian: PresidentWu Kesong: Vice-Chairman

IndustryElectronics, White Goods, Financial Services

Products

Major appliancesSmall appliancesCommercial heating and cooling systemsConsumer electronics

Revenue $13.3 billion (2005)

Employees 50,000

SubsidiariesHaier Electronics Group Co. (SEHK: 1169)Qingdao Haier Co. (SSE: 600690)

Website www.haier.com

3.1 History

Haier's history begins long before the actual founding of the company, in 1920's Qingdao where a refrigerator factory was built to supply the Chinese market. After the 1949 establishment of the People's Republic of China, Haier was then taken over and turned into a state-owned enterprise. By the 1980s, the factory was in debt for over CNY ¥1.4 million and suffered from dilapidated infrastructure, poor management, and lack of quality controls; resulting from the planned economic system and relevant policies. Production had slowed to a trickle, rarely surpassing 80 refrigerators a month, and the factory was close to bankruptcy. In desperation, the Qingdao

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Haier Pakistan (Private) LimitedInternal Audit Department

government turned to a young assistant city-manager, Zhang Ruimin, responsible for a number of city owned appliance companies. Zhang was appointed the managing director of the factory in 1984.

3.2 Zhang Ruimin and the corporate legendZhang was an avid reader who had studied Western and Japanese business practices and management techniques. When he arrived in 1984, Zhang realized that the poor condition of the factory's quality controls was endangering its continued survival.

In 1985, a customer brought a faulty refrigerator back to the factory and showed it to Zhang. Zhang and the customer then went through his entire inventory of 400 refrigerators looking for a replacement. In the process he discovered that there was a 20 percent failure rate in his merchandise. To drive home the importance of product quality, Zhang had the 76 dud refrigerators lined up on the factory floor. He then distributed sledgehammers to the employees and ordered them to destroy the refrigerators. The workers were hesitant; the cost of a refrigerator at the time was about 2 years worth of wages. Seeing their distress, Zhang said: "Destroy them! If we pass these 76 refrigerators for sale, we'll be continuing a mistake that has all but bankrupted our company." The refrigerators were smashed to pieces. One of the hammers is on display at company headquarters as a reminder to posterity.

3.3 Founding a new companyHaier was founded as Qingdao Refrigerator Co. in 1984. With China opening up to world markets, foreign corporations began searching for partnerships in China. One of these, Germany's Liebherr Group, entered into an agreement with Qingdao Refrigerator Co., offering technology and equipment to its Chinese counterpart. Refrigerators were to be manufactured under the name of Qingdao-Liebherr pinyin: Qingdao-Libohaier). Combined with Zhang's disciplined management techniques, which broke from the tradition of the Iron rice bowl in Chinese state-owned enterprises, the company began to turn around. By 1986, Qingdao Refrigerator had returned to profitability and sales growth averaged 83 percent per year. With sales of just CNY ¥3.5 million in 1984, sales rocketed to CNY ¥40.5 billion by 2000; a growth of more than 11,500 percent.

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Haier Pakistan (Private) LimitedInternal Audit Department

With the success of Qingdao's refrigerator company, the municipal government asked it to take over some of the city's other ailing appliance makers. In 1988, the company assumed control of Qingdao Electroplating Company (making microwaves) and in 1991, also took over Qingdao Air Conditioner Plant and Qingdao Freezer.

3.4 The Haier BrandHaving diversified its product line beyond refrigerators, the company adopted a new name in 1991. Borrowing from the German name of its partner, "Haier" came from the last two syllables of the Chinese transliteration of Liebherr (pronounced "Li-bo-hai-er"). Qingdao Haier Group was further simplified in 1992 to Haier Group, the company's current name.

The company set out to establish itself as the country's leading brand, focusing upon reliability and product quality. Diversification would also allow Haier to spread out its risk among various product lines. So, in 1995 Haier bought out its chief rival in Qingdao, Red Star Electric Appliance Factory. In 1997, the company moved into television manufacturing with the acquisition of Huangshan Electronics Group. By the end of the 1990s, Haier was the most recognized brand in the country with products ranging from mobile phones to computers; it had also captured a dominant market share in its core white goods division.

3.5 International expansionIts place in the domestic market secure, Haier moved onto the international stage with the goal of building a global brand name. The company opened a production facility in Indonesia in 1996, and the Philippines and Malaysia in 1997. Haier's move into the U.S. market was cautious at first; it focused upon two niche markets in compact refrigerators and electric wine cellars. Both markets were underdeveloped, but Haier believed that they both had growth potential and were being largely neglected. The company's sales figures soon proved this belief correct, allowing Haier to firmly establish itself in its US niche.

With this success, Haier looked to make further inroads in the North American market by moving into the full-sized refrigerator category. This would bring it into direct competition with established American giants: GE,

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Haier Pakistan (Private) LimitedInternal Audit Department

Whirlpool, Frigidaire, and Maytag; not to mention foreign competitors like LG and Samsung. As part of its strategy, Haier decided to build a production facilty in the United States at Camden, South Carolina, opened in 2000. By 2002, US revenues reached USD $200 million, small when compared to its overall revenue of $7 billion, but Haier set an ambitious sales goal $1 billion and 10 percent of the US refrigerator market. Also in 2002, Haier moved into the Landmark Building in downtown Manhattan. Formerly the headquarters for the Greenwich Bank, the 52,000 square foot building was built in 1924 in the neo-classical style.

Haier continued its expansion into other international markets as well. Production facilities were constructed in Pakistan in 2002 and Jordan in 2003, greatly strengthening its position in the Middle East market. In Africa, Haier has plants in five countries: Tunisia, Nigeria, Egypt, Algeria and South Africa. The company also purchased a factory in Italy, as part of its continued drive into the European market. Haier has been successful in placing its products in most major European retail chains, either under its own brand or under OEM agreements with foreign partners.

3.6 Ownership structure

Although under partial public ownership, Haier is still technically a "collective" company, meaning that it is supposed to be owned by its employees. However, its actual ownership situation is opaque; the employees receive no dividends and do not know how much they own in reality. Interference from officials is also a risk for SOE's like Haier. Various levels of government often try to push their ailing companies upon successful ones, often resulting in failure; Haier was once talked into acquiring a pharmaceutical company, even though it had no prior experience or infrastructure in biotechnology.

(Source: www.wikipedia.org the Internet’s largest encyclopedia)

3.7 Salient Features

It is about 400 Km north-east of Beijing, with originally the domestic

refrigeration production facility.

Key features that resulted in competitive advantage include technical

innovation, scientific management, mergers and acquisitions, and multinational

expansion.

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Haier Pakistan (Private) LimitedInternal Audit Department

Long march from a small enterprise burdened with 1.47 million Yuan in debts

to reach its present position as the No 1 domestic electrical appliance producer in

China.

5th producer of electric appliances in the world by volumes.

From start 800 staff but not has more than 20,000 employees.

9,000 products in 42 categories.

Haier achieved several international Certifications such as ISO9001 (in 1992)

and ISO14001 (in 1996).

3.8 HAIER IN PAKISTAN

The Company was incorporated in Pakistan under the

Companies Ordinance, 1984 as a private limited

company under the name of H.R. Manufacturing

Company (Pvt.) Limited on 22nd May, 2001 and

subsequently its name has been changed to HNR

Company (Pvt.) Limited. It is principally engaged in the

manufacturing, assembling and sale of Electrical Home

Appliances. Haier Pakistan (Pvt.) Ltd. is the Sales &

Marketing division of the international Haier Group. The joint venture between Ruba

General Trading Company and Haier Group of China has brought Haier to Pakistan with

an initial investment of about US$35 million and a commitment to provide world-class

innovative products based on uncompromising quality to the Pakistani consumer.

The plant spreads over a vast area of 63 acres with a covered area of 0.6 million

square feet including a workers colony on Raiwind Road, Lahore.

The project is expected to produce 0.9 million pieces of household

appliances per year with plans to export to the Middle East and all

over Asia. In the first year of its operations, Haier will generate

employment opportunities to 600 individuals with potential to grow

up to 1200 within the next five years. Furthermore, Haier will

supplement income of 1000 to 1500 families providing indirect earning and

employment possibilities.

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Haier Pakistan (Private) LimitedInternal Audit Department

3.9 Branch network

LAHORE KARACHI

PESHAWAR BAHAWALPUR

SAHIWAL GUJRANWALA

GUJRAT JEHLUM

MULTAN SARGODHA

FAISALABAD RAWALPINDI

HYDERABAD SUKKUR

QUETTA

RAIWIND

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Haier Pakistan (Private) LimitedInternal Audit Department

4 ARIAL VIEW OF THE FACTORY

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Main Gate

A/C Hall

Refrigerator & Deep

Freezer Hall

Washing Machine &

Kitchen Appliances Hall

Lahore ~ Raiwind Road

Workers’ Colony

Stores of relevant

Production Halls.

Haier Pakistan (Private) LimitedInternal Audit Department

5 Internal Audit Department

I was appointed by the Human Resource Manager in consultation with Deputy Manager

Audit (DMA) Mr. Naeem Kadri in the Audit Department on August 08, 2007. I started

working from the 1st day of my appointment as an internee. First of all I was attached

with Hafiz Jahangir Khan (the Audit Executive) by DMA who gave me briefing of tasks

normally performed by the internal audit department and informed me about the areas

where I was supposed to assist the department.

On the second day of my internship I was introduced with the colleagues in Audit

Department. I found all of them very helpful and cooperative.

Day after day I continued to visit different Departments and collect information

according to the schedule and got it verified from the DMA Haier Pakistan.

My Colleagues were:

HPL HNR

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Dy. Manager Audit(Mr. Naeem Kadri)

Sr. Audit Executive (Mr. Zafar Iqbal)

)

Sr. Audit Executive (Mr. M. Yasin)

)

Audit Executive (Hafiz Muhammad Jahangir)

)

Audit Executive (Ishtiaq Ahmad)

)

Audit Officer (Mr. Shahzad Khan)

)

Haier Pakistan (Private) LimitedInternal Audit Department

6 Working experienceI worked on the tasks as mentioned below and the detail of each task is also given:

6.1 Debtor Reconciliation

6.2 Accounts Receivable Aging

6.3 Bank Reconciliation

6.4 Branch Expenses

6.5 Journal Vouchers

6.6 Gate Activities

6.7 Stock Taking (Inventory Counts)

6.8 Purchase Vouchers

6.9 Payroll (HPL & HNR)

6.10 Over Time Checking (Logistics)

The above mentioned sections in I worked are explained as under:

6.1 Debtor Reconciliation

Debtor reconciliation involves the confirmation of balances as per books and as per customer and to investigate reason for the difference, and identification of old outstanding balances.

6.2 Accounts Receivable Aging

This involves age analysis of old outstanding balances. This helps to identify old balances and to do efforts for their recovery.

6.3 Bank Reconciliation

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Haier Pakistan (Private) LimitedInternal Audit Department

It includes the finding reasons of difference between the bank report and the company’s accounts. It is performed on monthly bases.

6.4 Branch Expenses

This includes the verification and checking that these expenses are valid or not and properly approved before the payment.

6.5 Journal Vouchers

Journal vouchers are brought to the department after posting in journal ledgers. It helps to see whether accounting has been done in a proper way and only approved JV’s are entered in GL.

6.6 Gate ActivitiesThe first task I was given working on Cancel IGP (Inward Gat Pass) for the last seven months starting from January 1st to July 31st. Cancel IGP is a document which is prepared at the gate for the goods which are brought into the factory and the person on the gate make a record of all the items on a paper which is called IGP while making this document if he makes any mistake he cancels this IGP and send it to the relevant store so it is known as a Cancel IGP.

For this purpose I went to the Gate. I collect the data from the gate because IGP is drawn on the gate followed by four copies and then from its four copies they, the gate man, keep one copy with him and send other three copies to the relevant store after this the store keeper keeps two copies in his records and attach them with the relevant documents. Then send the last fourth copy to the Accounts department.

Then I went to all the stores like Air conditioner store, Refrigerator store, Micro wave oven store, Main store, Deepfreeze store, Washing machine store and checked all the IGP’s physically. After all these activities I prepare the report and got signed by the managers of all the stores and submitted to Mr. Naeem Qadri. For this purpose Mr. Hafiz Jahangir Khan guide me to complete this entire task.

After this used to I keep on checking the IGP records for the month of August, September and October and maintained the report whose format is attached after this page.

6.7 Stock Taking Stocking taking which is considered to be an important part of Internal Audit was done by me during the course of my internship at lest four times. Stock take is a process in which the stock is counted and reconciled with the report of the relevant department

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Haier Pakistan (Private) LimitedInternal Audit Department

which is prepared through physical counting by them during this process the Bin Cards are signed and at the end Ledgers are closed. The stock take report is also reconciled with the software. This task is conducted mostly at the end of the month.

My first stock take was conducted with Mr. Hafiz Jahangir Khan. We went to Air Conditioner Hall for stock take. First of all we count the entire stock placed in the ware house according to their different models on a particular date while this stock take we signed the Bin Cards as well.

After completing the physical counting of stock we went to reconcile the stock report, prepared by the ware house In-charge, with the software. Right after this we close the ledgers by reconciling them with the software. This task could take a working day or more.

6.8Working on Purchase VouchersWorking on purchase vouchers means to recheck the vouchers prepared by the accounts department. These vouchers are supported by the following documents:

Goods Receipt Note (GRN)

Invoice (Inv)

Purchase Order (PO)

Inward Gat Pass (IGP)

Inspection Report (IR)

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Stores

Air Conditioner

Incharge: Khursheed

CKDCBU

LocalCommercial OvensKitchen Appliances

LocalCBUTVDryerDishwasher

Refrigerator

Incharge: Sultan

Washing Machine

Incharge: Mujeeb

Haier Pakistan (Private) LimitedInternal Audit Department

Goods Receipt Inspection Report (GRIR)

If there is any Purchase Return then other two documents are prepared which are as follows:

Debit Note (DN)

Outward Gate Pass (OGP)

Accounts department receive all the above documents from relevant departments and attach them with the voucher. They also mention the serial numbers of the attached documents in the narration. When the voucher is completed the it is signed by the following persons:

Entered by:

Verified by:

Checked by:

Approved by:

6.8.1 Document Circle of Purchase

Demand: - Requirement of Department

Purchase Order: - Made by PPC for Local Purchase

Delivery Challan: - Send by Vendor

Inward Gate Pass: - Made by Main Gate in Support of DC

Gate Pass: - Made by Main Gate

Verification: - Concern Store confirm the Quantity

Quality Inspection: - Quality Department Check the Quality of Goods

Goods Receiving Note: - Each Store Prepare its own serial # GRN

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Haier Pakistan (Private) LimitedInternal Audit Department

Inventory Department: - Documents than send to Inventory for Soft Ware

Entry

PPC: - Cross Check, Rejection and Adjustment Note.

Accounts: - Preparation for PJV and Fund Management

6.9 Working on PayrollThe process in which the accounts department makes the salary calculation is checked by audit department. This report contains the following data

Attendance Record

New joining Record

Resignation Record

Deductions

Full and Final Settlement

Salary Sheet

The Salary Sheet contains the following main heads

6.10 Working on Over TimeOver time is basically given mostly to the Production and Logistics department. The time they spend in the factory for some special task more than their duty hours is over time. It is calculated on per hour bases and the amount which is given to the worker is 15% more than their per hour salary to egg on them.

End of report

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