Audit Practice

Question 11.0 Nature of the Shell Refining CompanyOur group has selected Shell Refining Co. Bhd (F.O.M) as our assignment topic’s company. It’s a Malaysian based company located in Port Dickson which produces wide range of petroleum products, mostly consumed within Malaysia. It was incorporated in Malaysia on 19 September 1960 and was listed on KLSE on 29 October 1962. Its parent company is Royal Dutch Shell PLC.

The company vision is to be the top performing and most admired refinery in Asia. Their main mission is to continue to deliver shareholder value by developing and distributing oil products and service that satisfy the needs of consumers and constantly strive for operational excellence. The company is devoted to bring excellence in business performance by focusing to meet customer’s expectation and to bring profits for their shareholders as this has been set as their main objective. The main activity of the company is to refine and manufacture petroleum products.

The company’s products include gasoline, diesel, liquefied petroleum gas (LPG), propylene, jet fuel, aviation turbine fuel and sulfur. It’s divided into 2 operations which are Upstream and Downstream operations. Their Upstream International operation concentrates on the efficient development and extraction of natural gas and crude oil offshore Sarawak and Sabah. Its operation also converts natural gas to liquid hydrocarbon products and markets the products globally. On the other hand, the downstream activity is mainly focus on manufacturing, trading, supply, distribution, and marketing with selling gasoline, aviation fuel, diesel, fuel oil, liquefied petroleum gas (LPG), bitumen, lubricants and others.

Their Projects & Technology department provides some business which includes technical services, technology capability and major project delivery in both activities. Shell Refining Co.’s main competitor in Malaysia is PETRONAS and Petron Corporation. The main way Shell stands out from his competitors is by implementing Corporate Social Responsibility (CSR) which can rise up their company’s reputation and directly impact well-being of the company in future

Question 22.0 CSR Activities Done by Shell Refining Co2.1 Marketplace

2.1.1 Corporate GovernanceI. Policy/statement clearly statedBy adopting Shell of General Business Principles (SGBP), Shell Group had review their policies and performance to govern their business activities. The SGBP, which first came into being in 1976, promotes the core values of honesty, integrity and respect for people. This business principle ensures the company compliance with laws and regulations with the entire range of activities they undertake and all the employees operate in line with the SGBP.

Besides, Shell implemented Health, Safety, Security, Environment and Social Performance (HSSE & SP) as a control framework which need to be complied by all employees, contractors and those joint ventures. Furthermore, Shell has introduced Code of Conduct, a channel to guide employees and contractors to meet their expectation with the policies and standards. The company believes that their company reputation will rise if they act accordance with law and the business principles. II. Board composition

The board composition is done by complying with the Company’s Memorandum and Articles of Association. The roles and responsibilities of the board are clearly distinct and separate between Non-Independent Non-Executive Chairman and the Managing Director to ensure a balance of power and authority. III. Risk analysis/management framework

Shell Group Risk Management Manual has been adopted by the company as their risk management framework. This process is regularly reviewed by the Board and the Audit Committee, as part of their normal governance process, taking cognizance of changes in the regulatory, business environment and also current market situations. This is done to ensure the adequacy, integrity and evaluation of the system of risk management and internal controls.

2.1.2 Stakeholder EngagementThe company is engaged with the stakeholders in a timely, effective and transparent manner. This is done with effective communication and disseminating quality and accurate information about their operations. It provides the projects and financial performance quarterly financial announcements, analyst meetings as well as press releases. These shows the transparency in the reporting and compliance with the Corporate Disclosure Guide issued by Bursa Securities in 2011. In 2012, Shell organized several events to engage with socially responsible institutional investors on the sustainability aspects of their operations worldwide, such as London, Nigeria and the Netherlands.

2.1.3 Product ResponsibilityShell Group is implementing product stewardship to the related department. This impacts the health, safety and environment of the products and components over their lifecycle and supply chain. Everything from product labelling to compliance to national and international products with HSSE regulatory requirements, underpins the license to operate and is critical to the brand and reputation.

Product responsibilities require a long-term commitment. Safe, Reliable and LEAN mindset should be emphasized in every employees in order to supply the best quality of product. Shell has improved their energy performance to the optimal usage by implementing tactics such as CO2 and Energy Management Information System (CEMIS) and Capital for Energy Efficiency (CAFEE).

2.2 Environment2.2.1 Environmental Policy Clearly StatedShell Group has adopted a systematic approach for pursue progressive on reduction of emissions, effluents and discharges of waste materials. The management of emissions and effluents discharge is designed to ensure compliance and continuous improvement in line with the HSSE & SP Commitment and Policy. They follow the environmental standards stipulated by the Shell Group and completely follow with the Malaysian legislations and other related international conventions and protocols. 2.2.2 Measurement Systems in Place to Measure

I. Emission of carbon dioxide and/ or other greenhouse gases  Since 2002, when making all major investment decisions, Shell Group incorporated the potential impact of CO2 emissions on project costs. Before begin a new projects, environmental, health and social impact assessment is conducted to ensure negative impacts have been reduced. II. Energy consumption

Industry standard Solomon Associates Energy Intensity Index (EII) is used to measure and rank the energy efficiency of refinery. In 2012, there was improvement in performance due to best usage of site fuel and also with stricter implementation of the CO2 and Energy Management Information System (“CEMIS). The company keeps track of the energy use and efficiency and a five-year Energy Management Plan is in place. This is done to keep improving their process to maximize the efficiency of energy use and throughput. III. Water consumption

In 2012, Shell Group continue to monitors the quality of treated effluent water which release via pipelines some 1km offshore at the Shell jetty to ensure to keep it at bar or below legislative limit of 10mg/l set by Environmental Quality Regulations 1979. This treated effluent water is also used as fire-fighting water supply for the group. Shell also monitors the sea water quality near the final discharge point and its surroundings to make sure fully compliance to the legislations. IV. Waste production and management

To dispose all hazardous wastes, government approved and licensed contractors have been used to look for an effective ways in recover the waste generated. In 2012, all spent catalysts is fully reuse as raw feedstock in the cement industry. A significant reduction in spent caustic and oil sludge generation are due to effective process optimization and waste elimination initiatives. 2.2.3 Set Targets for Improvements and/or Significant Initiatives to Reduce The Above

In order to perform better, the company takes seriously on the complaint made by their stakeholders. Prompt action and response is ensured for each complain which was documented and filed. Public Affairs Duty Officer is responsible to attend toward the complainant, investigate and notify for corrective action. In 2012, the company received 1 public complaintregarding their operations compared to 10 received in 2011 and the matter was resolve 48 hours upon receipt. The company uses LEAN methodology to eliminate waste, optimize operating costs and are able to do more with less time, effort and long-term frustration and emotional stress to employees. The company makes organizational synergy by having a systematic and sustained effort to eliminate these wastes.

2.2.4 Company’s Impact on Biodiversity, Environmental Impact Assessment I. In-house mapping system can help identify environmentally sensitive sites and map these sites against existing activities. This system can help Shell identify potential areas of high biodiversity value at an early stage when developing projects. II. An approach is set out in Shell Group Biodiversity standards, which conduct environmental assessment to identify potential impact on biodiversity and try to focus attention to the management of activities in internationally recognized hotspots.

2.3 Workplace2.3.1 Health & Safety (H&S) IssuesI. H&S management system in placeShell Group has a systematic approach to HSSE & SP management designed to ensure compliance with the law and to achieve continuous performance improvement. “Goal Zero” is a vital message formulated to help them achieve HSSE rules which mean zero deaths and zero injuries in the workplace. Yet, Goal Zero reminds us that safety must always take priority. Thus, asset design, operations and maintenance as well as inspection, will contribute to zero process safety incidents, however, if supported by leadership behavior, which demonstrates understanding of the requirements and assurance of implementation. II. Staff education & training on H&S

Shell Group follows HSSE Golden Rules and Life-Saving Rules strictly to provide a framework for all the members of Shell to behave properly all the time in the workplace. The HSSE Golden Rules rule the way the employee work. 2.3.2 Human Capital Development

I. Staff training

To increase the awareness of employees about the environmental laws on the refinery, Shell Group had carried out various HSSE trainings which include Permit-to-Work (OTW), Environment Quality Act (EQA) 1974, Emergency Response (ER) and Occupational Safety and Health (OSH) for employees in year 2011. In 2012, Shell Group carried out safety and emergency exercises and drills such as Positive Intervention Walk (PIW) and Emergency Exercises. PIW advocates the important of personal and process safety which encourages a culture of intervention and action in day-to-day operations involving employees of all departments.

Other than that, Shell Group conducted two Tier 3 Emergency Response (ER) to test both preparedness and effectiveness of the ER plan. Besides that, in order to increase knowledge and technique of their employees, Shell Group tend to maximize potential through training and life-long career planning. In 2012, the company continue to invest in the development for their employees with a focus on building technical capability, safety-critical competencies and skills, as well as coaching on LEAN initiatives. 2.3.3 Work-Life Balance

I. Ensuring employee’s quality of lifeShell Group emphases safety as their top priority. Shell Group develops and operates projects and facilities with the aim of preventing incidents that may harm employees or cause environmental impact. Shell Group continues to improve the level of safety for the employee. If incidents do occur, the company put well-prepared plans into action immediately to deal with them.

Shell Group conducted fire and explosion campaign to increase awareness and mind-set of preventing fire incidents. Furthermore, Shell Group offers remuneration packages with flexible work options and employees are encouraged to participate in company organized leisure and sports activities to allow individuals with similar interests to pursue their passions with their peers. 2.3.4 Diversity in the Workplace

I. Providing equal opportunitiesShell Group have met environmental and social challenges which aims to create an inclusive work environment with equal opportunities. Shell Group measures diversity by including the representation of women and locals with senior leadership positions. By the end of 2011, the proportion of women in senior leadership positions at Shell was 16.6%, up 1.3% from 2010. In 34% of countries where Shell operate, local nationals filled more than half the senior leadership positions – down 2% from 2010. In 2011, more than 90% of the employees worldwide were nationals. 2.3.5 Employee Welfare

The Employee Share Purchase Plan is created for employee to buy ordinary shares of company stock at a discount through after-tax payroll deductions. Other than that, up to an annually employees at Shell are compensated by company-paid life insurance, company-paid occupational accident, business travel insurance and supplemental employee-paid personal accident insurance at twice employee base pay with the option of additional employee-paid coverage at discounted rates including spouse and child coverage.

2.4 Community2.4.1 Employment of Local Workforce Its OperationsThrough the company’s operations, Shell Group look to create lasting social benefits through initiatives such as employing local people and using local contractors and suppliers in order to set a good example through business practices and ethics. Shell Group has employed and trained local employees whereby they operate with low wages. As local employees spend locally, this may result in benefits beyond the direct payments and salaries.

Shell also provides training to more than 400,000 contractor staff in their global tendering and contract management process as well as supporting to achieve the standards required. These training are provided to help local suppliers compete for contracts. 2.4.2 Internship or Graduate Placement Schemed

As part of CSR initiatives, Shell Group implemented Community Internship Program which targeted at the younger age group residing around the area of Port Dickson. This program allowed the interns to participate in live projects specifically matched to the employees’ abilities with a good pay as well. The employees’ direct supervisor will have a regular performance assessment on them. The duration of internships may be from eight weeks to twelve months. If the interns successfully completed their internship program, Shell also will offer a full-time position in their company once they have officially graduated.

Other than that, Shell also carried out Shell Graduate Programme which has been proven to be industry leading development framework. This programme is carry out real responsibilities and structured training for the commercial graduates. Those accepted into this programme, will become completely independent Shell professionals in two to three years. 2.4.3 Details on The Company’s Community Investment Initiatives

Social Investment (“SI”) is Shell’s voluntary contribution to support communities and the broader society in which they operate. Effective social investment delivers business value. Shell operates the community development, health, environment and safety-related issues as well as enterprise development and capacity building through Social Investment (SI). Shell works with the community on projects that address issues directly linked to our business, like access to energy or education. They also seek to give local people control of the project, and wherever possible, to involve development experts from Non-government Organization (NGOs).

2.4.4 Encouraging Employee VolunteerismShell Group has partnered with Port Dickson Residents Association, PD Women Association, PD Rotary Club, Malaysian Nature Society, PDK Curahan Kasih, School and other to implement few communities outreach programs. Through the programs, they have encourage employees’ to voluntarily participate in them. For example, “We Care, We Share” (“WCWS”) is a community outreach program which help raise the quality of life in the communities where they operate. All the staff, family members, retirees and members of the community have been volunteering their time for participated in WCWS programs.

With the full support of Shell, employees have been helping in many ways, such as celebrate Mooncake festival with senior citizens, sponsorships offered to the less fortunate within the Port Dickson community, organized excursions for orphans and less fortunate kids and joining local communities in keeping public surrounding clean.

Question 33.0 Audit Procedures

3.1 Marketplace

3.1.1Corporate governance1. Inspection of records or documents such as Shell of General Business Principle to understand how the Shell runs its business and how they work with each other’s. 2. Face to face inquiry with the management team or secretary about the current policies that they are applied. 3. Set a standard performance measurement and use the result as evidence whether the employees are comply with the rules and standards. 4. Update the latest information of board composition from the authorize party such as Securities Malaysia and Companies Commissions of Malaysia (CCM) and compare it with the Shell report. 5. Review back the minutes of the meeting.

6. Refer to the guidelines of risk management report before make any opinion in the audit report. 7. Seek professional advice is useful to examine useful of Shell Group Risk Management Manual. 8. Meeting with Risk Management Committee about their job scope and inspect the Risk Register and Assurance Plan to get confirmation.

3.1.2 Stakeholder’s engagement1. Consult with the stakeholders and review the question and answer that given to them in order to investigate whether the organization is maintaining a good relationship with their shareholders. 2. Review and examine the agenda and revise the attendance of the shareholders. If the attendance of the shareholders is low, it may indicated that the shareholders are not satisfy or not confidence with the information that is provided by management.

3.1.3 Product responsibility1. Observation as one of the way to investigate necessary action has been take into consider by Shell during the process of producing petrol and lubricant. 2. Identify whether the process of production is environmental friendly. 3. Interview authority party to provide guidance or knowledge about the duty care and compare it with the management report.

4. Request a confirmation by sending a letter regarding the process of production taken by the Shell to the authority party to confirm whether Shell follow the procurement policies. 5. Make sure the material chose are friendly to the user by using the inspection to the document or get confirmation letter from the supplier. 6. Take reasonable step for examination to the potential product risk.

3.2 Environment3.2.1 Environmental Policy Clearly Stated1. We need to inspect any documents and reports regarding the policy taken by the company. 3.2.2 Measurement Systems in Place1. Examine whether the company adopted any policy or regulation to ensure the project run in good condition. 2. Review the documents regarding the unit’s shutdown for the maintenance. 3. Scanning the projects organize whether useful to the company in long run. 4. Inspect the documents approved by the government and the documents regarding with the licensed contractors. 3.2.3 Set Targets for Improvements and/or Significant Initiatives to Reduce The Above 1. Inquiry the managers to obtain evidence about the actions will be taken by the company.

3.2.4 Company’s Impact on Biodiversity, Environmental Impact Assessment 1. Review the documents regarding to the projects that can make the Shell identify potential areas of high biodiversity value. 2. Investigate the approach set out by the Shell Group to ensure that the company is conduct the environmental assessment.

3.3Workplace3.3.1 Health & Safety (H&S) Issues1. Verify the effort of the Shell to compliance with the HSSE rules through inquiring the leader. 2. Understand how well the leader spread the required safety knowledge to the employee. For example, how a safety leader give advice and guidance to the employee to handle inflammable or explosive material as paint vapor. 3. Prepare quick test or questionnaire for the employee. If the test result is satisfied, auditor may assume that the employees are fully understand the safety knowledge that promote by the Shell such as “Goal Zero”.

4. Site inspection to factory. Auditor can have better understand how well the asset design compliance with the law, daily operation process and maintenance action to ensure the safety of employees. 3.3.2 Human Capital Development

1. Inspection on document such as the activity report of any programs conducted by the Shell. 2. Review the activity report is one of the ways to ensure Shell does really put effort on the employee training. 3. Receipt or the bank payment reference number also will be the persuasive evidence to the effort of Shell on H&S knowledge. 4. Recalculate the total amount of cost that paid out with the number of employee who attends the training and compare it with the organizer records. 5. Attend the programs or training. It is the best way for auditor to observe whether the teaching material prepared is useful to improve employees’ competency and abilities in workplace.

3.3.3 Work-Life Balance1. Physically examine the assets of the company whether the Shell prepare any suitable facility for the employees such as gym facility for sport purpose. 3.3.4 Diversity in the Workplace1. Access to the Shell’s employee database. The database included all the information of the employee. By this, auditor is able to make a report about the diversity of workplace and compare it with the company’s statement. 3.3.5 Employee Welfare

1. Confirmation from outsider such as insurance company or employee should also perform. 2. Re-perform the internal control process are required to confirm there was reasonable cost incurred and employee’s benefit are always guaranteed.

3.4 Community3.4.1 Employment of Local Workforces Its Operations1. Auditor may use sampling method to calculate the number of the local employees compare with the foreign employee. 3.4.2 Internship or Graduate Placement Schemes1. Auditor may consult with the person who is in charge with CommunityInternship program to get further understanding. 2. Collect data from interns regard to the interests, abilities and their qualification that they request and the position they are holding. 3. Investigate how the Shell set the standard requirement or format when recruiting new interview as Shell professionals. 3.4.3 Details on the Company’s Community Investment Initiatives 1. Site inspection to the construction site is the best ways to confirm that the building is exist. 2. Confirmation from the receiver or inspection of the receipt as a written acknowledges proving the donation is made.

Question 44.0 Weaknesses and Recommendation4.1 MarketplaceWeaknesses1) The way Shell conduct the CSR management and reporting did not clearly mention about the policy statements or state commitments to the user of report. Thus it lack of the information on the adoption of any reporting guideline. 2) Shell are well guided in their process of product but they didn’t concentrate on how they acquire the resources needed by the company to produce the production. Besides, shortage of these policies may lead to company being involved in bribes activities happening within the higher level of management. Recommendations

1) Shell should make a statement on what policy and state their commitments in reporting sustainability report which is done to make their user understand on which reporting guideline are being adopted to complete their CSR activities. Moreover, the CSR reporting and management should be audited by third party to ensure it provides a true and fair view report to other user. 2) Shell should develop a procurement policy with the compliance with laws and the procedures of purchasing resources are transparent and fair to environment. It can provide the equal opportunities for suppliers to a fair competition. The procurement policies used by the company is done to seek opportunities and minimize expenses when purchasing those resources and prevent from any bribes crime happening in the organization.

4.2 EnvironmentWeaknesses

1) Activities done by Public Affairs Duty Officer in investigating corrective methods of shareholder’s complain is not monitored by Shell. Thus lack of segregation of duty whereby fraud or manipulation of data can occur. 2) No specific target for improvements is set by Shell in order to reduce environmental issue. This is important so that it can give a clear path for Shell to achieve a more sustainable environment. 3) Shell still utilize the system of flaring and burning gas from oil extracting sites of dealing with unwanted by-products of its process. This is environmentally offensive by many parties.

Recommendation1) A monitoring model should be established by Shell. This is done so that the company can keep an eye on the potential risk areas. Shell also should benchmark their performance with its competitor to remain competitive in the industry. 2) Shell should set specific targets for improvements to reduce the environment impact. With these, it would make the objective of Shell easier to accomplish. 3) Shell should actively response to criticisms of unfriendly environment activities and be more involved in environment friendly events. Other than that, the unwanted by-products should be disposed in a proper way to protect the environment.

4.3 WorkplaceWeaknesses1) Shell did mention provides an inclusive work environment with equal opportunities towards the group of women, employees of different racial backgrounds and locals in senior leadership position, but do not give the same opportunity for disabled people. 2) Shell did realize the need of talent and skillful employee in growth markets and regions, however, there are no any responses or activities had been adopted. 3) Shell did not provide counseling program to concern those employees that facing problem, working and living lifestyle. This lead to ineffective productivity as the employees cannot concentrate on their tasks. Recommendation

1) Shell may consider organize certain activities such as talks and campaign to encourage community to attend. This may enhance the chance for Shell to deliver the effective performance of their employees and how they operate the community. Furthermore, Shell should prohibited the discrimination in workplace by strengthen equal opportunity legislation, especially should provide opportunity to disabled person. 2) Shell should actively motivating and encouraging forming a new talent for company. In the term of reward, Shell should compensate for those who successfully excavation talent which is match with the company position or business line.

3) Shell should offer an appropriate counseling program in the working environment by hiring few expert counselors in this field to provide consultant service for employees. Shell should take this advantage to help those employees who facing problem, so as to ensure employees’ quality life in workplace are guarantee, boost their confidentiality, commitment and loyalty toward company. This might help to increase company productivity indirectly if employees feel company is concern about their welfare.

4.4 CommunityWeaknesses1) There is a limitation in organizing Internship Program by Shell. Shells focus only a single place which is Port Dickson and the opportunity of internship has been restricted. This impact may cause for loss of potential student who are willing to work for Shell in the future. 2) Another weaknesses is Shell has organized the internship program to encourage the youth group participate in live projects specifically in year 2009.

However, in year 2010, Shell has stopped the program, this lead to the youth group or undergraduate student loss of opportunity of internship. Eventually, Shells might face shortage on human resource of new training or potential student to work for Shell in the future. 3) Employee may become de-motivated during their performance due to lower wages. Although local employees spend locally, there still have talented employees and potential staff who need motivation or incentive to achieve the standards requirement of the company.


1) Shell should expand more learning opportunity to youth group for internship program not just focus only a single place. Shell should expand to other states for instance, Penang, Johor Bahru, Sabah. This can be widening out more people have opportunity to learn at the Shell. 2) In year 2011, Shell should continue organize and not give up on organizing the internship program. By conducting surveys to obtain and observer the response in order to consider the need of giving up organizing this program.

There may be an opportunity market for those undergraduate students to gain extra experience and may generate new development in the future. 3) Shell should give intrinsic or extrinsic reward and contribution to employees who putting the effort in performing the task given. For example, there have a vacation plan for the employee who has perform well during their task.

Question 55.0 ConclusionIt is the responsibility for a company to fulfill the CSR requirement. By performing CSR, it is believed that it can enhance a company reputation. There are 4 key areas emphasized by Shell which are workplace, marketplace, community and environment. Degrees of credibility of the CSR are able to be enhanced by using audit procedure. Nowadays, in order to survive in this global market, Shell need to put effort in performing CSR activities.

From this assignment, we found that there are some improvement that can be made by Shell. Shell may give opportunities to disable person. They have to believe that disable person is also competence as the others. Besides, in today’s world, there is