AUDIT PROGRAM OIL REFINERIES The audit program is furnished as a general guide and the audit steps detailed should normally be performed where applicable, but they are not absolutely binding or mandatory. It is expected that the auditor will apply his initiative, resourcefulness, imagination, and professional judgment in performing whatever auditing procedures may be required by the individual circumstances in the plant under audit. However, the Manager - Internal Auditing should be advised of any unusual or excessively or time consuming deviations from the audit program. Audit tests of the various records, procedures and transactions should generally be based upon a sample which, in the auditors judgment, is representative. When an audit test indicates unsatisfactory conditions, the auditor should consider expanding his examination sufficiently to determine the extent and effects of the errors or mishandling as well as to place the responsibility therefore. Similarly where audit tests, (as they proceed), indicate very good handling, the auditor may consider whether the projected extent of his representative sampling might not, be reduced. General At. the start of the audit the auditor should arrange for a tour of plant facilities. The tour should be conducted by a senior staff member, nominated by the Plant Manager, so that it may be as comprehensive and informative as possible. The purpose of the tour is to give the auditor a working knowledge of plant operations and to familiarize him with specific nomenclature, operating terms, and the location of sub-plants and buildings. This is also the time to be introduced to Department Managers and Supervisors with which he will be dealing with during the audit. Request a gate pass. The auditor should explain the general scope of the audit to the Plant Manager during their first contact. This will be necessary in order to have the Manager gain an understanding of the auditor's points of reference and areas of interest. It will be beneficial to arrange for the Manager to insert a small announcement in the plant news letter, If one is issued, stating the auditors by name and asking for cooperation by all. employee. The idea is to get the word out that the auditors are in the plant and will be requesting various data and backup information concerning operations as well as for financial records. Become familiar with the office layout and internal organization. Read job descriptions. The auditor should arrange to obtain a set of Standard Plant Instructions. These instructions cover a variety of subjects and will be useful to evaluate established controls and will be a guide for the correct approach to various audit tests. The auditor will also find informative material in the plant training library. Cash Records The objective in cash auditing is to determine that the cash position is accurately stated and that funds are fully protected and controlled. Any cash working funds on hand in the plant should be verified by actual count at the beginning of the audit and reconciled with cash book or other cash records Examine all unreimbursed cash vouchers for authenticity and propriety. Examine the most recent reconciliation of the bank account balance. Review local disbursements to determine: 1. That they are in accordance with instructions. 2. That the local bank account is not being used beyond its intended purpose or for payments normally handled through disbursing offices of the Comptroller's Department. 3. Whether the bank balance maintained is in excess of requirements. Examine the cash book, test footings and review for unusual entries. Review banking files to determine that signatories are current. The condition of these signatories should be confirmed by correspondence. Checks should be examined for a selected period to verify that cheek signers agree with the list of authorized signatories. Is there a receipt signed by employees responsible for Petty Cash? What are the controls over supplies of blank checks? Are they controlled by persons other than the cashier? Who may reorder blank checks? Are bank reconciliation's made by persons other than the cashier? Review past hank reconciliation's to determine that they have been made on a timely basis and that any questions developed have been resolved. Various Charges Review records of travel and vacation advances to determine that they were made in accordance with instructions, properly approved and that they were repaid within the time limits prescribed by instructions. Review the procedures for purchasing U.S. Savings Bonds for employees with payroll deductions. Review charges to other departments, plants, employees and outsiders for services and materials through examination of invoices, forms and determine that the transactions and prices charged were properly approved. At various refineries arrangements have been made for the sale of gas, water, electricity, exhaust steam, etc. In outside parties. There may be arrangements whereby Company docks and other facilities are used by others for a stipulated consideration. Such arrangements, agreements or contracts should be reviewed and records of utilization or consumption examined to determine their adequacy and accuracy and that invoices have been rendered accordingly. Review the records of gate passes and the controls exercised over these serially numbered forms to determine that all numbers have been accounted for in accordance with instructions. A representative number of gate passes should be examined to determine that charges have been rendered or collections effected for all sales and that equipment loaned or sent out for repair has been returned. The original of applicable gate passes should be noted as to the date such material or equipment is returned. Determine the number of cottages, garages, etc. which are rented. Examine tenancy agreements and garage rental cards to determine that the approved rental rates have been consistently remitted and that any charges for utilities stipulated in Tenancy Agreements are collected. Petroleum Re-Export Duty Drawback Under the duty drawback regulations it is~ possible for ~ to receive a refund of up t& 99% of the duties paid on crude oil against exports of products produced in the United States either, with the use of imported crude oil or with use of "substituted" domestic crude. All exports when in sufficient quantity generally qualify for duty drawback claim. Sales made to vessels or aircraft for use on board qualify for duty drawback if the vessel or aircraft is engaged in the following business or trade: 1. Fisheries 2. Whaling 3. Trade between Atlantic and Pacific parts of the United States 4. Trade between the United States and any of its possess ions 5. Foreign trade 6. Trade between Alaska or Hawaii and any other part of the United States During audits of refineries where qualifying sales or shipments are possible, auditors should ask for the instruction file related to petroleum re-export duty drawback. Before commencing the actual audit examination, the auditor should discuss the procedures with the appropriate employee to determine whether or not claim forms are being filed for any sales or shipments for the account of ~or others. Thereafter, audit examination of the records should be made to determine that claims are filed consistent with instructions. In the event it appears that qualifying sales have been made for which claims have not been prepared, the auditor should determine the sales that qualify and document these on a test basis in support of appropriate comments in his audit report. The auditor should examine three months' cargo reports noting whether applicable claim forms have been filed covering export shipments and bunkering vessels. It will be necessary to examine the shipping statements to determine if any shipments were made for the account of or any other foreign affiliates for which duty drawback claim forms should have been filed. The detail of the shipping statement may be used to tie the individual shipments to the totals shown as shipped and for use in verifying that claim forms have been processed for all shipments that qualify. The auditor should explore the possibility of filing duty drawback claim forms on deliveries that may have been missed at the time of delivery. Tardy claims can be filed under certain circumstances. Plant Yields Company has certain standard yields for the type of crudes run at each refinery. These standard yields are determined by laboratory analysis and refinery test. runs. The actual plant yields should be compared to the standards to detect any trends toward consistent deviation. The audit findings should be discussed and reviewed with the Process Engineer. Of particular importance is to evaluate the non-technical operating controls used by the plant to ensure that the best possible yields are produced, and to evaluate the timeliness and adequacy of corrective measures. Control Over Scrap The audit objective in this area is to confirm that scrap materials are identified, protected from loss, and disposed of in the best interest of the Company. Items considered as scrap are those which cannot be used in plant activities because by reason of technical changes they are no longer needed or items that were removed because of maintenance changes and redesigns. Pipes, tubing, valves, steel plates, and steel construction supports are an example of the items most often found in scrap yards. Each plant should have a designate area for accumulating and storing scrap materials. It may be beneficial for the storage area to provide separate storage for saleable scrap and worthless junk. This is advantageous because mixed scrap does not demand premium prices. Where separate storage is provided, test the controls that protect against saleable scrap leaving the plant as worthless junk. The auditor should review instructions for the disposition of scrap and should test the plant's compliance with them. Bids received are normally approved by the Purchasing Department. Bidding procedures should be similar to those governing construction projects. The most desirable way of controlling scrap ~les is by weight. Review weight tickets and the scales used. Where possible the auditor should witness scrap loading and.weighing. If Company scales are not used the auditor must be more alert to the possibility of incorrect weights. Determine how scale accuracy is tested. Plant Security During all phases of the audit the auditor should evaluate the protection given to Company assets, files and documents. All letters, cables, files, documents and other important material should be kept under lock and key after the close of business. Plant Safety Read safety regulations and test the plant ~s compliance by observing the working habits of both contractors' and Company employees. Review safety committee reports to evaluate the follow- up taken on its recommendations. Seals and Seal Records As soon as practicable after arrival at the plant, the truck loading rack and other product dispensing facilities should be inspected to observe whether meters, valves, etc. are adequately sealed. This inspection should be accompanied by a review of sealing records and procedures and a comparison of seal numbers in use with those recorded. Several seals are generally required to effectively seal a meter. Seals are required on various parts of the meter mechanism as well as on the recording and printing meter heads. A partially sealed meter does not offer protection against unauthorized and,unrecorded withdrawal of product. A permanent. record should be maintained in a bound book o1 all seals used, the number of each, the meter, valve, etc. on which applied, the date applied and the date each was broken together with the reason, i.e. accidental breakage, repair or adjustment of meters, etc. The seal wires should be of a pliable twisted type that will indicate, through changes in their appearance, any tampering such as their removal and reinsertion through the unbroken seal. A supervisory employee should be charged with the responsibility for applying and breaking seals as needed and for making frequent regularly scheduled inspections of all seals to determine that they are intact and, through comparison of seal numbers in use with those recorded, that seals have not been surreptitiously broken and replaced with others. Records should be maintained o~ dates on which such inspections are made. Metered lines are sometimes equipped with meter by-pass lines. Seals should be applied to the valves of such by-pass lines even though they are secured by locks because the possibility of their unauthorized opening defeats the purpose of meter seals. The application of seals to any other facilities through which product can be withdrawn should be considered even though product is not normally withdrawn through them. It is generally necessary to break seals for meter tests repairs, adjustments, etc. ; however, new seals should be applied as soon as practicable after completion of the function for which the seals were broken. Any undue delay in resealing facilities weakens controls. Shipping Statements Shipments reflected on Shipping Statements and included in the Yield and Stock Report should be verified by examination of the various documents covering individual deliveries and shipments by truck, tank car, pipeline and marine equipment. Net quantities reported on individual shipping documents should. be verified, as appropriate, through reference to: Recorded meter readings Tank car calibration tables Recorded scale weights Recorded rotary gauge readings for LPG trucks Original oil height gauges for barge or shore tanks Original temperature gauges Laboratory reports of specific gravity Barge or shore tank calibration charts Volume correction tables Tank Truck Shipments Truck shipping documents should be examined, verified fo~ inclusion in the shipping statement and checked against the Visitor's Register where maintained to determine that all trucks which entered the plant were accounted for on the shipping statements. Any trucks leaving the plant empty require special handling and approval. During the audit, the auditor should make a surprise visit to the truck loading area immediately after truck loadings have been completed for the purpose of observing whether trucks are overloaded. Note the accuracy of meters by comparison of meter readings with truck capacities. Review daily reconciliation of metered products. Tank Car Shipments Examine reports of tank cars on hand and their movements. Observe that the tank cars reported on hand are actually in the plant and determine that shipping documents have been prepared and included, in the shipping statements for all cars leaving the plant. The auditor should inspect the filling of a number of tank cars immediately after they have been loaded and sealed. Overloading tank cars can result in losses of product and may be in violation of I.C.C. regulations. As a control feature the plant should have a copy of tank-car capacity charts. LPG Shipments The most accurate method of computing butane or propane' shipments is the conversion to gallons through use of scale weights and laboratory reports of specific gravity. In those instances where scales are not available, quantities shipped should be computed from the recorded rotary gauges of the tank into which delivery is made. Examine any records of LPG shipping losses. Tanker and Barge Shipments Review instructions concerning the method of determining quantities of product delivered into tankers and barges, i.e. whether on the basis of shore tank or ship tank gauges. Determine that tank calibration charts are on file at the refinery for all barges into which product is regularly delivered. Pipe Line Shipments When pipe line shipment quantities are determined by meters which do not print meter tickets, the meter readings should be jointly witnessed by refinery and pipe line personnel. When correction factors for other than temperature are used, determine that net gallons shipped are computed by use of the correction factors indicated by the last meter tests. Determine whether refinery personnel witness the meter tests. Compare the quantities shipped according to the meters with the quantities indicated by tank gauges and investigate any significant variations. Deliveries are often made to adjacent terminals of the Sales Department through pipe lines. Examine the procedures for controlling these shipments. Examine the variations between Sales terminal shipping figures and the refinery meter readings. Test the continuity of the meter readings. In certain instances, refineries rely on meters located in the terminals for a determination of quantities delivered. In such cases, the auditor should review procedures for determining the accuracy of such meters and procedures for sealing them and should inspect such meter seals and records. Coke Shipments Certain refineries produce coke as a by-product of the refining process and ship it to purchasers. Coke is invoiced on the basis of net weight of shipments. The net weight computations should be verified by reference to scale tickets and laboratory reports of moisture content. Shipments should be checked against railroad car movement; reports t.o determine that invoices were prepared for all shipments. Shipment Adjustments Refineries occasionally are notified by receiving points of excessive in-transit losses on shipments together with a request that 'loading records be reviewed for possible errors or circumstances that would permit corrected or adjusted billings. Such corrections or adjustments should be reviewed to determine.the basis on which they were made, i.e. whether they were justified by the records or made on an arbitrary basis without supporting documentation. Stock Records The audit approach to this area should be to verify the movement of merchandise stock through the refinery by starting with a test of crude receipts, and ending with a verification of finished product shipments, as well as any intermediate movement. Gauges and Gauge Book Determine whether automatic tank oil height gauges are compared and adjusted monthly to keep them within a reasonable approximation of manual gauges. Review meter charts for clarity. Are they functioning properly? Are appropriate maintenance schedules followed? Review instructions pertaining to the manual gauging of storage tanks. Examine gauge books and other records to determine that storage tanks have been manually gauged at prescribed intervals or under prescribed circumstances and that manually obtained oil height, B.S,&W. and temperature gauges are used in computations where required. For example, instructions may require that manual gauges be obtained on specified days or dates, possibly each Monday and the first day of each month, regardless of whether there has been product movement into or out of the tanks. Manual gauges are also required under certain other circumstances, generally governed by product movements. Examine original gauge books and other records to determine that automatic oil height and temperature gauges together with a previous B.S,&W. gauge have not been used in lieu of manual gauges where required. It is particularly important that gauges be obtained manually on the first or last day of each month. The use of a previously obtained B.S.&W. gauge for determining •first-of-month inventory can materially affect crude charges and result in misstatement of other inventories. Examine gauge books to determine that they have been properly used for recording original gauges of oil height, B.S,&W. and temperature. The initials of the gauger, and the time of obtaining the gauges should be indicated. A clean neat gauge book may indicate that original gauges were recorded elsewhere and subsequently transcribed to the gauge book in violation of instructions. Re-Runs While reviewing stock accounting and the transfers from intermediate to finished stocks the auditor should summarize those instances when re-runs of intermediate or finished products occurred. Re-runs of this type are usually necessary when products are off test. The causes of these reruns should be determined to disclose any inherent operating faults. Review the plant manager's follow- up on those re-runs. Was corrective and preventive action taken? There may be an internal plant report file detailing re-runs, their causes and corrective action taken. Thermometer Tests Review records of thermometer tests, including case thermometers for manual use, pipeline recording thermometers and permanently installed tank temperature gauges, and determine whether they have been conducted at intervals prescribed by instructions. Gauge Tape Tests Review records of gauge tape tests, including plumb bobs, and determine that they have been conducted in accordance with instructions. Meter Tests Review records of meter tests, including loading rack meters and pipe line meters, to determine that they have been conducted at intervals and under circumstances prescribed by instructions. Determine whether refinery personnel witness the meter tests. Truck Scale Weights Review records of scale testing and determining whether scales have been tested at intervals required by instructions. Observe procedures for weighing trucks and whether consistent practices are observed. For example, if the driver remains in the truck while it is weighed before loading, he should likewise remain in the truck while it is weighed after loading and vice-versa. Laboratory Reports Examine the various laboratory reports and determine that they are issued promptly at regular intervals and on specific occasions required by instructions. Determine that the latest applicable laboratory reports are used in conversions and computations. Incorrect computations of quantities with resultant incorrect invoicing and freight payments can result from failure to use the latest applicable laboratory reports. Product Specifications Laboratory ports supporting tank releases should be compared with acceptable range of standard specifications. Attention should be paid to the lead levels in gasolines. A trend toward excess lead will signal a give-away of lead which is most expensive component of gasolines. Determine that the required departmental approval was obtained prior to the shipment of any off test products. Samples Review plant procedures for the taking of samples and the period of time which the various samples are retained to determine whether they are in compliance with instructions. Floating Roof Tanks Review records of product receipts and shipments for floating roof tanks to determine that none were made which involved a beginning or ending oil height gauge located in the critical zone where tank gauges are unreliable because the roof is only partially displacing product. The quantities of any shipments which involve a gauge in the critical zone must be determined on the basis of meter readings or of ship tank gauges, etc. Refining Stock Sheets Test the entries, extensions and computations on Forms R-14, Refining Stock Sheets, by reference to original gauges, tank. charts, laboratory reports and volume correction tables. Review the Refining Stock Sheets for unusual variations in individual tanks. Consistent compensating overages and shortages in tanks could indicate careless gauging or failure to gauge tanks when required. Review overall shipping losses and investigate any which are considered to be excessive. Test Inventories During the course of the audit, the auditor should wit- jy~ C the gauging of a representative number of storage tanks, including oil height, B~S.&W. and temperature, in order to observe the actual procedures. The gauges which were witnessed should be subsequently traced through all related records to determine that they were accurately recorded. The auditor should personally observe procedures for loading barges and tankers as well as for the receipt of tanker cargoes during the audit. Note any areas of possible losses or opportunities for the circumvention of product controls. In this connection, the auditor should also inspect all plant facilities in order to evaluate the effectiveness of controls which have been initiated by plant management. Purchased Products Test the accuracy of computing and recording receipts of Iso-Butane, Condensate, etc. Review the controls over such merchandise stock items and procedures for physically inventorying them. Review the procedures to control, cost and account for chemicals. Verify quantities and values reflected on Forms R-472, Consumption of Chemicals, by reference to receiving documents, cost records and opening and closing inventories. Verification of Opening Inventories Test the opening and closing monthly inventories reported on Stock and Capacity Statements and on Yield and Stock Reports by reference to Original tank oil height, B.S.&W. and temperature gauges Approved capacity lists for stills, treating vessels, etc. Laboratory reports Tank calibration tables Volume correction tables Recorded line inventories and unit operating capacities Crude Oil Select a sample of crude receipts and verify the correctness of receiving reports by reference to gauge books, ships' tables, and laboratory reports. The auditor should make a surprise inspection of a tanker while unloading to determine gauging procedures and general handling. Plant Losses Verify the net plant loss by use of opening and closing monthly inventory figures, receipts and shipments. Determine that actual loss figures were reported to departmental management. Storehouse Stock Records The audit objective in this area of review is to examine the control exercised over purchases, receipts, inventory and issue, and to prove the recorded value of materials and supplies. The total monetary value of storehouse stocks at certain ref i nč ries, generally the smaller ones, is determined once annually, at October 31, and the storehouse inventory is arbitrarily carried on the books at this value until the following October 31. At other refineries, detailed perpetual inventory records are maintained. As his initial step, the auditor should review the procedures for physical inventories. Under the perpetual inventory record system, physical inventories may be made either on a cycle basis in accordance with a prescribed schedule of commodity classifications to be inventoried each month or once each year at October 31. When inventoried on a cycle basis, determine that it is in accordance with the prescribed schedule and that differences are adjusted currently on storehouse records. Adjustment of monetary differences between storehouse records and general ledger balances is made only at October 31 and the reconciliation of these two records should be examined. Adjustments should he examined to evaluate the nature of physical and monetary differences. Under the frozen balance system, quantity records are not maintained and physical inventories must be made on an annual basis with the total monetary value being determined by use of cost records maintained for each item. When the perpetual Inventory system is used, the auditor should test the recorded quantities by physically inventorying a representative number of both large and small storehouse stock items. The auditor should determine that maximum security storage is afforded small but relatively expensive items such as paint, paint brushes, flashlights, hand files, etc. which are subject to personal peculation. Examine purchase orders, invoices, and receiving reports and test the posting to inventory cards and computation of unit costs. Review Storehouse Charge Slips for propriety, Current handling, pricing (where applicable), approvals, etc. and note whether erasures and alterations on charge slips have been initialed by an authorized employee. Review "charge direct" charge slips to determine that they cover only items for which costs were charged directly to an estimate or expense classification. Under the frozen balance system, charge slips are not generally priced; however, issues chargeable to investment should be priced and credited to expense. Examine the procedure for controlling gasoline issues for use in plant automobiles and equipment. Physically inventory the gasoline stocks and reconcile with stock records. Review the gasoline losses sustained by the yard tank to determine that they are reasonable. Examine toolroom procedures and records to determine whether adequate controls are exercised to insure the return of temporary issues. Are surplus stocks being identified and are disposal orders followed? Review the Container Deposit Suspense account to determine that it has been reconciled with Houston machine run balances and that annual inventories and adjustments have been made in. accordance with instructions. Review the Catalyst Suspense account to determine that it has been handled in accordance with instructions and that estimates of use were prepared by the plant engineers. Review local purchasing practices and procedures to determine their compliance with instructions, that they represent sound business practices and do not circumvent Purchasing Department controls. Examine purchase requisitions to determine that any recommendations of a particular vendor are based on legitimate Company interests such as maintenance of equipment uniformity, exclusive source of supply, etc. Determine whether any large number of local purchase or release order forms are prepared after the purchase has actually been made. This may be indicated by an undue volume of confirming orders or rush and emergency orders. Review the procedures for servicing invoices for payment and evaluate their adequacy for the prevention of duplicate payments. Examine the files of delivery tickets being held pending receipt of invoices and determine whether they contain older duplicate items which could serve to weaken controls against duplicate payments. Determine whether plant personnel regularly review these invoice servicing files to investigate any old or questionable contracts. In this connection, correspondence files concerning duplicate payments should be reviewed. Examine the files of paid invoices for indications of unusual or questionable purchases and the presence of duplicate invoices. Review the controls over old and slow moving Items. Inspect shelf stocks for any sign of deterioration or corrosion caused by a lack of protective coating. Give special attention t.o items in outside storage. Property Plant and Equipment Records Selected Investment Ledger balances at the most recent December 31 should be compared with the balances for the previous December 31 and the net change analyzed to determine that additions and deletions are proper and have been handled in accordance with instructions, Form Company Estimate of Cost, should be examined for authenticity and compared to approved Estimates, Form Company Job Completions Statements, Form~, should be examined to determine that appropriation cancellations or supplemental appropriations were obtained where the variation between expended and appropriated amounts exceed the limitations prescribed in Comptroller 's Letter No. 9. Determine whether appropriations have been closed within a reasonable approximation of the prescribed time after physical completion of the projects. Physical completion dates are reported by plant engineers on Forms~ Construction Report. Determine that the investment ledger balances, including equipment not in commission, have been reconciled to, or are in agreement with, the Houston machine run control balances. CONTRACTS Miscellaneous Work Agreements Review the overall contracting procedures, including competitive bidding, to determine that they are reasonable, represent good business practices and are in accordance with instructions. Where individual job and term contracts have been awarded without competitive bidding, determine the basis on which they were awarded and evaluate the reasons given for not obtaining bids. The lack of competing sources or satisfaction with the current supplier or service company has frequently been cited as the reason for not obtaining competitive bids. Such explanations should not necessarily be taken at face value, as very often in past audits the auditor by a few brief inquiries was able to locate capable competitive sources. Operating personnel for convenience may be reluctant to develop new sources for services and supplies satisfactorily provided over the years by a particular vendor, but the lack of initiative in this direction does not give the company any opportunity to contact and utilize more economical sources whose services may be as fully satisfactory if tried as the incumbent vendor. For standard services utilized with great frequency, there may be situations where obtaining of bids for each contract would be an overly cumbersome procedure. In such cases it may be a sufficient procedure to obtain written price quotations at reasonable intervals, the length of which may vary according to the service or item involved and according to local competition, but which in any event should not exceed one year. Past audits have indicated a failure to obtain such quotations with reasonable currency or in writing. Where contract prices have increased during intervals between obtaining quotations, the auditor should question why new quotations were not obtained at the time of the price increase. While the purpose of bidding is to award the contract to the lowest bidder, there may be occasions where this may not be practical because of failure of the low bidder to meet bond or other requirements. The auditor should scrutinize awards to other than the low bidder closely to satisfy himself that this has been done for good and sufficient reasons. The auditor may also question the reasons for soliciting bids from unqualified contractors. Where a significant number of contracts have been awarded on the basis of verbal bids or where unsuccessful written bids have not been retained in the files, reference to these facts should be made in the audit report. Determine the procedures for selecting bid recipients and whether bids were requested from a representative and sufficiently large number of the qualified contractors available. Determine whether all bids received in connection with a particular contract are based on uniform work specifications. Where specifications are incompletely or loosely detailed in the bid requests, the bids received may be diverse in coverage and the apparent low bid may include less work than intended. Bid requests should specify the last date on which bids can be submitted for consideration and the date on which they will be opened. Bids should be received and retained in sealed envelopes until the specified opening date when they should be opened in the presence of witnesses. Notations should be made on bids indicating the date and time of opening and the witnesses present. A large number of unusually high bids and refusals to bid on a contract; repetitious instances of either response by individual contractors or the practice of repeatedly inviting bide from a small circle of contractors when there are other qualified contractors available in the area may indicate circumvention of bidding procedures whereby the benefits of competitive bidding are lost. Concentration of contracts with a particular contractor in an area may also indicate a lack of effective competitive bidding. Such circumstances should be carefully examined to determine that they are not the result of personal relationships not in the best interests of the Company. Determine that all contracts have been properly approved in accordance with Refining Department instructions. Examine contractors' invoices to determine that charges are in accordance with contract provisions, Evaluate the reasonableness of time charged and verify time charges by reference to time clock cards 'which should be utilized by each employee of contractors. Where a contractor is simultaneously performing work on a lump sum or turn key basis and on an hourly basis, the auditor should closely examine charges for possible duplication. Determine whether invoices have been properly approved and processed on a current basis. Where the examination of a contractor9, invoices reveals indications of overcharges or other irregularities, the auditor should consider whether an examination of the contractor's records is justified. Certain contracts provide for examination of the contractor '~ records at the option of the Company while others do not. The auditor should not hesitate, regardless of contract provisions, to request access to contractor's records when the circumstances warrant. Requests to examine contractor's records should ho made through the Refinery Superintendent or Chief Clerk. Major Construction Contracts Major construction contracts originate at Houston and are handled by the Engineering Department. The auditor should, however, examine copies of contractor's invoices to determine that charges are correct and in accordance with contract provisions~ PAYROLLS hourly Employees Selected groups for one pay period should be extensively checked. Examine time cards for proper handling and authorization. Verify the posting of hours worked to the Payroll Register. Verify the pay rates by reference to Forms Approved Rate Sheets, or Forms Payroll Authorizations. Determine that properly signed authorizations are on file for payroll deductions such as GLIPP, savings plan, etc. and verify the accuracy of deductions by reference to authorized deduction tables. For multiple-rated employees, determine that computation of vacation, and accident and sick benefits is in accordance with instructions. Determine that instructions have been complied with in connection with changes in employee pay classification for administration of Group Life Insurance, Pension and Savings Plans for multiple-rated employees. Verify computation of overtime, emergency call-out and shift differential pay for compliance with instructions or Union Agreements. Verify garnishment deductions where applicable by reference to Legal Department authorization and trace through the cash book. The payrolls for most plants are prepared mechanically or electronically and it will not be necessary to test extensions, etc; however, amounts should be scanned for obvious machine errors. Note any indication of excessive use of overtime and its justification. Verify the postings to absentee records and determine compliance with instructions. Review a sample of employee folders to determine that the required contents are complete. Salaried Employees Payrolls tests similar to those for hourly rated employee, where applicable, should be made of any salaried payrolls prepared by the plant. Separation Payments Verify the computation of termination pay, including vacation accumulated, for employees separated from service during the audit period. Cafeteria Operations Where plant cafeterias are operated, the auditor should examine the cost and operating records. Review purchasing procedures and activity to determine whether they represent good purchasing practices and are in accordance with Purchasing Department instructions. Review and evaluate the controls exercised over food items and cash collections. Review procedures for controlling unissued cafeteria coupon books and for cancelling coupons which are exchanged for meals. Check cash register readings and trace to the cash book. Examine cafeteria expense records, including purchases and labor, to determine profits or losses from operation of the cafeteria. Expense Controls Throughout the audit the auditor should be alert to evidence of waste , excessive costs or attempts to evade budgetary controls, such as improperly charging the cost of work or materials to an estimate or expense classification other than the one for which it was incurred. The purpose of the overall review of expenses is to determine if they have been incurred in the best interest of the Company and that they have been properly approved, classified, and reported. The auditor should be alert to this theme during all phases of audit work and should bring to attention those areas where savings can be realized and efficiency improved. Identify the underlying causes for excessive overtime and the failure to meet reporting deadlines. Test the preparation of Form, Labor and Material Recap. Review the procedures for obtaining average labor rates and for reconciliation of total labor costs distributed with the payroll account.