Tab
Description
Index
A
Revenue cycle
B
Customer set up & changes
C
A/R & bad debt reconciliation
D
A/R credit memo process
E
Cash receipts & cash applications
F
Purchasing & Receiving cycle
G
Vendor set up & changes
H
A/P vouchering & reconciliation
I
A/P disbursement
J
Payroll Cycle
K
Payroll - Commissions
L
Pricing
M
Fixed assets
N
Inventory Verification
O
Treasury cycle - open/close/changing a bank account
P
Treasury cycle - bank account reconciliation
Q
Financial reporting
R
G/L chart of accounts maintenance
S
Intercompany balance reconciliation & confirmation
T
Production Cycle
1
Process for Customer Returns
2
Preliminary lien notice process flow
3
Order Entry / Credit Hold / Work Order flow
EXHIBIT A
CUSTOMER/ SALESMAN CUSTOMER SERVICE CREDIT PRODUCTION SHIPPING PLANT CONTROLLER ACCOUNTING 1 2 3 4 5 6 7 8Once an order is ready to ship, Shipping prints the system generated sequentially controlled shipper [4] & bill of lading. If an order is on credit hold, the system will not allow the shipper to print and the order can not be invoiced. Outside rep warehouses use their own shipping forms and fax shipping logs to C/S. Once production has been reported and credit has been satisfied, Shipping allocates the inventory and ships the order in the system.
Salespeople, both internal and external, quote customer jobs per approved list prices and customer discount multipliers. Either customer or salesman calls in or faxes order to customer service. If product is shipping from a representative warehouse, the order is forwarded to Credit for review [3]. If order is approved by credit, the rep faxes the order with credit approval to Customer Service.
Inventory costs are relieved and appropriately matched to sales transactions in the proper period.
Sequentially controlled shipping documents are verified against customer orders prior to delivery and invoicing.
A formal credit policy exists and includes: 1) Annual review of customer credit limits 2) management approval is required for changes in terms and limits 3) credit limits are reviewed prior to order acceptance. Revenue is recognized only when delivery has occurred, the customer has taken title and has assumed the risks and rewards of ownership of the product.
Ensure duties are segregated within the customer order process such that the following activities are independently performed: 1) order initiation and approval 2) shipping 3) invoicing 4) cash collection 5) cash application. Invoices reflect current approved prices and include explanations and approvals for deviations from list prices.
Revenue associated with maintenance/service agreements is recognized over the contract period.
Customer orders, contracts and subsequent modifications are approved in accordance with authorized approval levels.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES Process Flowchart - REVENUE CYCLE
Periodically, and specifically at month end, the Plant Controller verifies the manual shipping log against the invoicing registers to ensure that all shipments are properly accounted for. All orders are shipped FOB origin; title to the equipment passes to the customer and revenue is recognized upon shipment. [5] During the month end process, the Plant Controller accrues any sales that were shipped but not billed and defers any orders that were invoiced and not shipped, and defers warranty revenue over the life of the contract. Revenue, A/R, inventory and COGS transactions are system generated and posted in the period that the transactions occur. [8]
Price over-rides (locks) are reported weekly to the Sales Mgr & CFO for approval [1]. General Accounting posts the system-generated journal entries as of the actual fiscal month end cut-off [4 & 8]. All back up for the system-generated entries is filed and retained pursuant to records retention policies. Revenue for warranties are deferred by the Staff Accountant over the life of the contract [6]
If order is shipping from a representative whse, C/S verifies that credit approval is attached. If approval is not attached, the order is forwarded to Credit for approval prior to entry [3].
The system applies all applicable discounts for the customer [1 & 2]. If the order is entered with special pricing, C/S verifies that all approvals are present and in accordance with company policy [1 & 2]. Documantation is obtained for all deviations greater than 1%. After the order is entered, the system prints an order acknowledgement which shows the order details and pricing. The acknowledgement is compared to the customer PO and, if there are any variances, authorization and agreement are documented and attached to the order [1 & 2].
Rep warehouses fax shipping logs to customer service to ensure that shipped orders are shipped and invoiced in the system.
If product is shipping from a representative warehouse, the order is forwarded to Credit for review [3]. If order is approved by credit, the rep faxes the order with credit approval to Customer Service
Upon entry of the order, if the customer is past due, over limit or is flagged as “always hold” the order is placed on credit hold, pending review by the Credit Analyst [3]. Analysts review orders being held on an hourly basis to ensure that same-day orders are given priority.
If agreement has been reached between Credit and the customer on correcting past-due and over-limit situations, Credit has the ability to release an order for manufacturing by taking it off of credit hold and placing it back on manual hold. This will allow product to be manufactured to meet the due date, while allowing the customer time to bring their account into good standing.
If the product needs to be produced, the system creates a work order which is reviewed & released by engineering. Upon release, the order is scheduled for production by Production Control.
START
Customer or salesman faxes or calls in order
Order entry & Pricing process (See exhibit M) If order is shipping from a rep whse, is credit approval attached?
Credit reviews for credit approval Is cust past-due or over-Does order need to be produced?
Production schedules and produces product
Is order on credit hold? Credit reviews account and contacts cust for payment if necessary and releases order to production/shipping when accepted
Shipping sends product to customer and ships in the system. Invoices produced nightly by system
Plant Controller compares invoicing and shipping logs to one another to identify discrepancies.
Plant Controller accrues any shipped orders that were not invoiced, and defers any invoiced orders that were not shipped.
Accounting posts system generated sales related entries.
Staff Acct defers service & warranty revenue over contract life 1 4 2 5 6 7 START (Changes) Customer or salesman faxes or calls in change
Accrual approved by CFO/Controller Plant Controller reviews "shipped not
invoiced," "alloacated not shipped," "closed work orders," and "shipped work orders" reports prior to month end. Errors No Yes Yes No No Yes 3 4 Yes No Yes No
System generates price over-ride report to be reviewed & approved weekly by CFO & Nat'l Sales 1
8
8 START
(Rep Whse)
Customer or salesman faxes or emails order to Credit
Credit reviews for credit approval & informs rep of the decision Rep faxes order & credit
approval to Customer Service
Rep faxes shipping log periodically to customer service to have orders shipped and invoiced in the system.
EXHIBIT B
NO NO CREDIT YES YES NO YES CONTROLLER 1 2 3 4A formal credit policy exists and includes: 1) Annual review of customer credit limits 2) management approval is required for changes in terms and limits 3) credit limits are reviewed prior to order acceptance.
A formal credit policy exists and includes: 1) Annual review of customer credit limits 2) management approval is required for changes in terms and limits 3) credit limits are reviewed prior to order acceptance.
An edit report containing all additions, changes or deletions to customer and pricing masterfile information is generated and independently reviewed. Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
Process Flowchart - CUSTOMER SET UP AND CHANGES
Weekly customer change detail reports are produced by the Staff Accountant identifying changes to customer records and the addition of new customers [4]. These reports are reviewed to verify that changes are made only by authorized individuals and any terms or limit changes are properly authorized. These are filed, and final reviewed, by the Controller.
A formal credit policy exists and includes: 1) Annual review of customer credit limits 2) management approval is required for changes in terms and limits 3) credit limits are reviewed prior to order acceptance.
New customers are identified by salesmen who provide the customer with an company credit application and blanket resale certificate. The customer must fill out the credit application (larger customers are allowed to submit their corporate credit information in lieu of the company application) and the resale certificate if their account is to be non-taxable. After credit evaluation the customer is set up in the system by the Credit Analyst and confirmed to the customer by mail [1]. New customer files are created at least weekly. A weekly email is sent to the customer service managers to verify customer pricing, sales territories and salesmen associated with new customers.
Customers for new ship-to locations for existing customers are usually driven by the sales force. Additional ship-to’s for existing customers do not require their own credit application and folder but may, in certain instances, require additional tax exemption certificates. When new customers are set up the tax software is also updated with the exemption information for the states specified as well as Alabama (01), North Dakota (35), Arizona (03), Ohio (36), Arkansas (04), South Carolina (41), Colorado (06), Utah (45), Connecticut (07), Virginia (47), Florida (10), Washington (48), Georgia (11), West Virginia (49), Iowa (16), Wyoming (51), Kansas (17), Minnesota (24), New Jersey (31), and North Carolina (34) all of which accept home state certificates.
Customer changes can be initiated by the salesman, customer or the annual credit review [2]. All changes to the customer master file are performed by the Credit Analysts. Any changes to terms or limits will be documented and authorized by a customer status change form [2]. Each new customer with credit terms will have a credit application, results from credit references, a Dunn & Bradstreet report and new customer approval form on file. As part of the process, an email is sent to the credit group requesting any credit experience. The credit group distributes the email to credit personnel across all divisions. Per credit policy, standard terms are net 30 with any deviations being approved by Credit in advance of accepting orders [3]. Credit evaluation is performed by the Credit Analysts and approved in accordance with the company Credit Policy and stated approval matrix [3].
A review of all active customers is required by company policy. The annual credit review is performed by obtaining a database of credit information from Dunn & Bradstreet, merging it with internal payment experience and producing a single sheet review page. These pages are reviewed at the appropriate authorization level, at which time additional information may be requested [1]. START Update information in customer masterfile Is this a new customer? Obtain: Credit references Credit Group Email D&B Report **Evaluate Credit on New customers and for annual credit review per policy
Update customer masterfile Verify sales information fields with cust svc manager
Notify customer & Cust Svc of credit decisions
Review weekly report of changes to customer masterfile
2
4 Approve or reject credit line:
≤ $50,000 Analyst ≤ $100,000 Credit Manager > $250,000 CFO & Controller
Is this a line increase or annual review? Credit Approved? 3 Run annual customer review report 1 Page 3 of 26
EXHIBIT C
CREDIT
SUPERVISOR
STAFF
ACCOUNTANT
CONTROLLER
CFO
1
2
3
Customer accounts are monitored and delinquent accounts are identified and followed up timely.
During the final week of the fiscal month the Credit & Collections Supervisor runs a summary aging by
customer. This aging is compared against and is used to update the bad debt calculation spreadsheet. In this
spreadsheet is listed each customer which is a known credit risk and all customers with balances over 360
days past due per Carrier Finance Manual section 5.2A [2].
Accounts Receivable is reconciled each month end as part of the standard month-end processes. The A/R
Department produces a month-end cut-off aging files copies for future reference and forwards a copy of the
summary report to the Staff Accountant [1].
Each Credit Analyst produces a detailed A/R aging of their accounts for follw-up during the month [3].
Review of A/R performance is reviewed on a monthly basis with the Controller and Credit Supervisor.
Process Flowchart - A/R & BAD DEBT ALLOWANCE RECONCILIATION
On a monthly basis, the Staff Accountant prints the general ledger detail and identifies all reconciling items.
The staff accountant reconciles the detailed A/R aging to the general ledger on a monthly basis [1]. The
reconciliation is approved by the Controller.
The Controller provides the Credit & Collection Supervisor the detail posting to the bad debt reserve on a
monthly basis. The C&C Supervisor produces detailed analisys schedules and reconciles the allowance for
doubtful accounts, which is approved by the Controller.
The Controller produces journal entries based upon the bad debt calculation to adjust the allowance accounts
accordingly.
When month-end financials are finalized the reconciliation is finalized and forwarded to the Controller for
review and approval and are then forwarded for filing with the month-end reconciliations.
A detailed reconciliation of the bad debt account is produced monthly by the Controller, is approved by the
CFO and is filed with the monthly working papers [2].
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
A detailed aged AR trial balance is maintained and reconciled to the general ledger on a monthly basis (including investigation of reconciling items).
Management periodically makes an assessment of the allowance for doubtful accounts in accordance with company policy.
Reconcile A/R
detail to G/L
A/R
reconciliation
Review and approve
bad debt & customer
dispute entries
1
Review allowance for
doubtful accts. Identify
specific accounts to be
reserved for.
2
Prepare entries for Bad
Debts and Customer
Dispute Reserves
Review and approve
A/R reconciliation
File in month
end recon files
START
Run A/R Agings
for month end
processes & file.
Identify delinquent
accounts for follow-up
3
Enter JE's
Reconcile
bad debt
accounts to
G/L
File in month
end JE files
Page 4 of 26
EXHIBIT D
EMPLOYEE
or Sales Rep
NO
YES
CUSTOMER
SERVICE
NO
YES
CREDIT
CONTROLLER
or designee
NO
YES
CM ENTRY
JR. ACCOUNTANT
1
2
Adjustments to customer accounts (e.g. credit memos) are properly supported and approved in accordance with the authorization matrix.
The Customer Service/Warranty Department maintains off-line databases of certain credits for quality discussions. These databases provide no accounting related data and are outside of the internal control
environment.
Sales & pricing Allowances & Sales Concessions adjustment credits can be initiated by
any Sales, Customer Service or Accounting employee. The employee initiating the credit
is responsible for obtaining any necessary approvals from Sales & Customer Service. The
employee initiating the credit verifies the pricing and commissions on the credit and
forwards to Collections for review.
Process Flowchart - CREDIT MEMO PROCESS
All warranty credits are initiated by the respective Warranty Department. Warranty
Department personnel verify the existence of the warranty, that the claim charges are
within the parameters of the warranty terms and adjust the claim amount as necessary.
Claims are signed off, entered into the warranty claim database, and forwarded to
Collections for review [1].
Return credits can be initiated by any Customer Service or Accounting employee. The
employee initiating the credit is responsible for obtaining verification that the merchandise
has been received from the customer. The employee initiating the credit verifies the
pricing and commissions on the credit and forwards to Collections for review [1].
Sales tax & freight credits can be initiated by any Customer Service or Accounting
employee. The employee initiating the credit is responsible for verifying shipment weight,
etc.. for freight credits and obtaining copies of resale certificates for tax credits. The
employee initiating the credit verifies the pricing on the credit and forwards to Collections
for review.
All credits with the exception of rebates goes through Collections who verify that the
credit has not already been issued, pricing is correct, commissions are correct and that the
correct boxes are check to ensure the correct coding. After review & approval by
Collections, the credits are forwarded to the Controller or designee for final review. The
information is verified, approved and forwarded to data entry or to a higher approval
authority based upon the company Authorization Matrix [1].
Data entry verifies appropriate approvals based upon the company Authorization Matrix,
codes based upon the boxes check on the request form, and enters into the system [1].
Rebate credits are initiated by Accounting personnel based upon the rebate agreements
provided by the Sales Department and may be monthly, quarterly or annual. After rebates
are calculated, approval is obtained from the Regional Sales Manager responsible for the
account. Rebates are forwarded with all substantiating paperwork to the Controller for
approval prior to entry.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
STARTVerify existence of warranty Is this a
warranty issue?
Ensure amount being credited is correct and within policy.
Enter into offline database if applicable.
Is CM approved?
Verify prices, customer, invoice, PO, reasons, commisions and that it's not a duplicate credit
Verify prices, customer, invoice, PO, reasons & commisions.
CM amount within
authorization limit?
Forward for additional authorizations per matrix
Enter CM's per information provided. Note CM order number on CM request to prevent duplication and provide audit trail. File with original invoice
1
1
1
Notify Originator Complete credit
memo request form
2
Audit random sample of 5 credits monthly to ensure proper
documentation and approvals. Forward results of audit to
Controller for approval
Review and approve results of monthly credit memo audit.
File approved results in management testing files. 1
EXHIBIT E
Responsibility
Narrative
CUSTOMER
CONTROLLERS
LOCKBOX
CREDIT
CASH
APPLICATIONS
ACCOUNTING
1
2
Cash is applied to customer accounts timely and unmatched receipts are investigated and resolved on a timely basis.
3
CIA are properly recorded as contra-assets and are properly liquidated in accordance with sales contracts.
4
CREDIT CARD
CASH RECEIPTS
CASH APPLICATION
All bank accounts for customer collections are automatically swept daily into a main concentration account, using fixed banking instructions defining the source and destination bank accounts. All cash inflow and outflow is summarized daily in a cash journal and
compared to incoming and outgoing funds as reported by corporate in its daily sweep activity. Thus, differences in receipts and disbursements are accounted for prior to preparing the bank reconciliation.
A Federal Express package arrives each morning with the previous days lock box activity, credit card
processing information is forwarded from collections each Friday at the minimum, and wire application
information is forwarded from collections the morning after receipt by the bank. All cash receipts are applied
and balanced on a daily basis based upon customer information provided by collections and miscellaneous
cash is applied to general ledger accounts based upon coding from the Controller or designee [2 & 3]. All
deposits to both the lock box and credit card accounts are swept to the Carrier cash concentration system
nightly.
Each morning Accounting prints the previous days banking activity which lists all wires received. A copy of
each wire is forwarded to the appropriate Analyst to identify the customer and invoices to apply the wire to.
This information is forwarded to Cash Applications within an hour.
Cash receipts and bank deposits are balanced on a daily basis by Accounting. Month to date postings to the
general ledger are balanced to month to date bank deposits on a weekly basis [2]. Monthly general ledger
postings are balanced to the daily activity and to cash concentration information provided monthly by Carrier
Corporate Accounting.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
All cash receipts are sent directly to a lockbox or company bank account. Any payments received on site are logged and then forwarded/deposited to the lockbox or company bank account on a daily basis.
CASH APPLICATIONS PROCESS
Customer payments are sent directly to the company lock box and in the event that a check is received at a
company location, they are logged and forwarded by personnel who lack the ability to apply checks in the
system. Cash is applied based upon customer information from collections. Reconciliations are performed by
personnel who lack the ability to apply checks in the system and are approved by the Controller.
All payments are sent directly to the lock box. In the event that a check is received at one of our physical
locations the Plant Controller, or Corporate Controller at the corporate office, logs the receipt of the check and
forwards directly to the lock box. [1]
The lock box processes all payments and forwards a copy of the check and any accompanying back up to
Cash Applications in the corporate offices on a daily basis [1].
A credit card authorization form is faxed to the customer by either collections or customer service as
appropriate identifying the sales order(s) or invoice(s) being paid and the amount. The customer fills in the
card information, signs the authorization, and faxes back to collections. Collections personnel process the
card through the credit card machine prior to any orders being released to ensure that it is not declined.
Collections maintains a spreadsheet listing of credit card transactions to aid in research and applications.
Batches and the accompanying spreadsheet are forwarded to Cash Applications on a weekly basis at a
minimum [4].
Send payment.
Process payment
received.
B
Process
Copy check & stub.Staff Accountant reconciles cash applications to bank deposits on a daily basis
1
Logs & forwards checks
received to Lock Box
Obtain
Customer
Approval
Process
through
machine
Enter into spreadsheetPrint spreadsheet for
cash application
Analysts identify customers
C/A applies credit to A/R.
Bank mails to
company
Jr. Acct prints daily banking activity from Bank One 2 3 2 1
Sweep funds to
Carrier cash
concentration
account on a daily
basis
4 Page 6 of 26EXHIBIT F
REQUIRING DEPT / MRP PURCHASING VENDOR RECEIVING1 The 4 key areas of the expenditure cycle (Purchasing, Receiving, AP Processing, and Cash Disbursements) are segregated. 2 All purchase orders are numerically controlled and are properly approved according to the authorization matrix.
3 For certain types of expenditures that may not have a Purchase Order, a proper approval needs to be obtained before goods or services are purchased. 4 Access to the Receiving database is restricted to Receiving personnel only (password protected).
5 Receiving personnel inspects incoming goods for discrepancies with the corresponding Purchase Order. 6 A numerically sequenced document is generated for the receipts of materials, stating actual quantities received. 7 Debit and credit memos are properly documented and authorized.
Process Flowchart - PURCHASING & RECEIVING
Process Flowchart - SIGNFICANT CONTROL ACTIVITIES
This narrative covers the purchasing & receiving components of the expenditure cycle. Purchasing functions are segregated from receiving functions through a series of approval matrices and system controls.
A PO number is sequential and is automatically assigned by the system. The system will then provide a price history by vendor and “vendor preference” level for each product for the purchaser’s reference. The purchaser must then select an approved vendor for the PO. (See “Vendor Masterfile” section for further information). The PO automatically prints from the system, and the purchaser contacts the vendor to place the order. Price confirmations / audits are a new process currently underway to ensure consistent and accurate PO pricing.
The purchaser confirms that the requisition has the proper approval level and than check s if the requirement should be filled via an existing blanket purchase order. If so, the release of quantities on the blanket purchase order is authorized and the order is placed. If there is not an existing purchase order to fulfill the requirement, then the requisition is converted into a purchase order, either electronically or manually (depending on whether or not the requisition was system-generated or not).
The purchasing cycle begins when a department on the floor identifies a material need: Material Control identifies material need through the MRP process, or maintenance identifies the need for a repair or purchase. The purchasing department is notified through a system-generated requisition, an MRO form, email, or by telephone. System-generated requisitions are restricted to those with the proper access level, as defined by the Company approval matrix. MRO forms require the signature of an approved manager and emails and telephone requests only originate from approved managers.
The receiving cycle begins when items are delivered to receiving/warehouse. The fork operator checks the amount offloaded against the freight bill / packing slip (“P/S”) for the proper quantities. If there is an overage / shortage, it is noted on the P/S and signed. During offloading, the items are also inspected for damage. If damage has occurred, it is noted on the P/S. Damaged items will still be received for supplier payment. The LTL carrier is responsible for paying claim damages.
Once the offloaded product has been inspected and audited against the P/S, items are received into the system by a warehouse / receiving person with the appropriate system-level access. Items must be received against the originating PO, and part numbers must match; the system will not allow items not on a PO to be received. A receiver is generated by the system and numerically sequenced and prints automatically. An individual that did not receive the product audits the printed receiver against the P/S. Any issues are resolved and the packing slip and receiving tickets are forwarded to accounts payable (offsite) for payment.
Requiring dept submits requisition MRP process or Mat'l Control Approval match written guidelines? Existing Blanket Order? Purchase order Obtain necessary approvals
Buyer manually enters PO or converts electronic requisition to PO. All PO & req numbers are auto assigned by the system.
Packing slip, P/O & rec'd qty within established tolerance?
Enter receipt into production
system
Investigate and resolve issues 1 1 2 4 5 Receiver is created from system and is numerically sequenced. 6
START
Items are received from vendor
Damage? Inspect items for any damage
Work with Purchasing to obtain debit memo or vendor credit. Forward documentation to Accounts Payable. 7 Is there a need for a blanket order? Buyer will create blanket order Existing Blanket Order? Receives PO or blanket release from Purchasing Vendor ships to plant 3 Yes Yes Yes Yes No No No No No No Yes Yes FOB
Origin? File freight claim.
Yes
No Requirement is placed
with supplier as to qty and date needed
EXHIBIT G
PURCHASING
Request for changes or additions must be in
writing, approved by a supervisor, and sent to the
Accounts Payable Dept.
A/P MANAGER
CONTROLLER
II_1.2
II_1.3
II_1.4
Access to the Vendor Master File is limited to
accounts payable personnel only. Purchasing,
receiving, and accounting personnel are able to
view data. Any changes made to the Vendor
Master File are compared to the original request
document.
An audit of the Vendor Master is performed
monthly. By the Staff Accountant and is reviewed
& approved by the Controller.
Process Flowchart - VENDOR SET UP AND CHANGES
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
Access to vendor master file is segregated from the receiving, purchasing functions. **
A list of approved vendors (e.g. vendor masterfile) is maintained. All additions and changes to the masterfile are approved by an individual
independent of the purchasing and accounts payable processing functions.
VM changes done by A/P at direction of Purch. Mgr & reviewed by Controller
START
Update Vendor Master
as necessary
Review monthly report of
changes to vendor masterfile
2
Buyer completes
Vendor Master
add/change request
1
File vendor
masterfile audit
report
3
3
Page 8 of 26
EXHIBIT H A/P PROCESSORS PLANT CONTROLLER STAFF ACCOUNTANT CONTROLLER/CFO 1 2 3 4 5 6 7
Process Flowchart - ACCOUNTS PAYABLE ENTRY & RECONCILIATION
Reconciliation of Accounts Payable Trial Balance (sub ledger) to the General Ledger is performed at month end. Any differences are investigated and if necessary, corrected so that the Accounts Payable balance reflected in the general ledger is accurate. Any reconciling items and the action taken are noted on the Reconciliation. During reconciliation debit balances are also reviewed. A listing of the debit balances is created and submitted to the Controller and Accounts Payable Supervisor for disposition.
On an ongfoing basis, Controller or designee reviews & approves non-PO check requests and ensures correct GL coding.
Controller reviews & approves month end accounts payable reconciliation.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES Proper approval is obtained for all non-PO expenditures.
There is a process that ensures that goods and services received/rendered but not invoiced by the supplier are accrued at month-end. Reconciliation of Accounts Payable subledger to the G/L is performed monthly and differences are investigated and timely dispositioned. Disbursements are authorized pursuant to an appropriate approval matrix.
Receiving variances at all plants have a zero tolerance - all invoices with a receiving variance are referred to plant personnel. Price variances have a +/- $25 invoice total A/P performs a 3-way match prior to the processing of invoices for payment. All discrepancies are reviewed, investigated, and resolved on a timely basis.
Certain types of non-inventory expenditures will not have a Purchase Order, such as seminars, dues, and professional fees. These items must be approved before goods or services are purchased and have a completed Check Request with appropriate approvals attached in order to be processed by the Accounts Payable Department. The Controller reviews all check requests before they are entered into the accounts payable system.
Vendor invoices are entered into the A/P database on a timely basis to ensure recording in the proper period.
A/P Reconciliation Review and approve J/E's and recons. Add to month-end reconciliation book. Reconcile A/P to G/L on
monthly basis & differences investigated. Invoices rec'd by Accts Payable PO Item? Obtain proper approvals based on approval guidelines Obtained approval 1 START END Receivers from
warehouses Match receivers to invoices
Match A/P voucher to purchase order receipts in system. System calcs pay date based upon terms in vendor masterfile (see exhibit J)
Enter non-PO vouchers, including payment terms, in system Are receiving &
PO variances within tolerance? Forward to Purchasing or Receiving for correction 2 Receipts not vouchered report Accrue RNV at month end 4 5 Misc. A/P Reconciliation 3 Yes No No Yes Yes No 6 Review and approve Non-PO check requests 7
EXHIBIT I
Narrative A/P PROCESSORS STAFF ACCOUNTANT CONTROLLER 1 2 3 4 5 6 7The staff accountant will proceed with the check signing process in accordance with Internal Control Check Signing Procedures. A staff accountant will prepare a listing of all check numbers utilized during the month on a weekly basis. This list will include voided checks, manual checks, and system check numbers. This information will be used with the bank reconciliation procedures.
Controller reviews & approves the payment selection. A/P has the keys to the check drawer, but can not get into the vault and the Controller has keys to the vault but can not get into the check drawer. Retrieving and putting away the checks requires two people to be present. Controller maintains manual log for the signature machine and a log balancing the payment selections to the check registers.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
Check signing machine requires the entry of a PIN code known only to the Staff Accountant and Jr. Accountant
Checks are physically secured, numberically controlled, never issued to bearer (or cash), never signed blank, and not signed w/o evidence of proper support.
All authorized bank account signatories are current employees of the Company, signatory lists are updated to reflect organizational changes, and banks are promptly notifed with sample signatures.
Signature plates for the check signing machine are in the custody of the Controller, who does not have access to the physical checks. Checks are ran through the signature machine by an employee who does not have access to the physical checks nor to computer access to Accounts Payable. The control log is maintained by the Controller and compares the number of checks issued per the computer to the total number of checks signed per the check signing machine.
All checks over $10,000 undergo a detailed review and require two manual signatures from authorized check signatories.
Process Flowchart - CASH DISBURSEMENT (Selection) Process Flowchart - CASH DISBURSEMENT (Check issuance)
Payments are processed by individuals independent of the requisitioning, purchases, receiving, and accounting functions and are made only to vendors included in the vendor masterfile. Checks are mailed / wires or electronic funds are released by individuals who are independent of those who process and record disbursements.
Disbursements are authorized pursuant to an appropriate approval matrix. Checks are normally run once per week by the accounts payable staff. The Controller will grant the AP supervisor access to the blank check stock. Once the checks are run, accounts payable personnel will submit the checks for signature to a staff accountant.
Review payment selection for errors
START Run payment selection in system based on payment date Is the selection correct? Make changes to selection Finalize payment
selection Are there
changes?
Print Checks
Run through signature machine
Post checks & generate check register Match backup to checks Is check <$10,000?
Forward with back-up for review and for 2
manual signatures
Review randomly selected checks
Forward to mail room to mail checks
Maintain control log Verify checks against control log
Verify check register & control log 1 2 No Yes No Yes No Yes Selected for audit review? No Yes 5 6
Retrieve checks from vault. Access restricted to Cntrlr. Locked check cabinet restricted
to Staff Accountant. Return checks to vault. 4 File copies by vendor 3 3 7 Approve payment selection
EXHIBIT J
NON-EXEMPT
EMPLOYEES
SUPERVISOR
PAYROLL
GENERAL
ACCOUNTING
1
2
3
4
5
6
7
Non-standard payments are initiated by the department manager,
approved by business unit manager and, if over $250, is approved by V.P.
of H.R.
Payroll checks at plants are distributed through department supervisors.
Salaried personnel with direct deposit do not receive a payroll check but
may view their payroll stub on-line.
Payroll is reconciled & verified by Plant Controllers each month and a
confirming email is sent to the Corporate Controller each month when
complete. All related accrual accounts are reconciled on a monthly basis
by corporate accounting personnel. Payroll is reviewed for reasonability
by both corporate and plant level accounting personnel.
All on-site payroll & HR records are kept in a secure area with controlled
access.
Process Flowchart - Payroll
Each location has a Payroll Clerk who performs the necessary plant-level
duties to ensure an accurate payroll cycle.
For hourly payroll, time & attendance information is collected through an
automated T&A system and is imported into the payroll software. On-site
payroll makes necessary changes authenticated with the Supervisor and
Human Resources.
Payroll processing for salaried personnel is performed by ADP.
Non-exempt employees complete time sheets using Webtime, which is
forwarded to their supervisor for approval and upon approval is
automatically included in the ADP payroll processing.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
Inputs and changes to payroll / human resource masterfile(s) are made on a timely basis and are authorized in writing (or electronically) by the hiring manager and one independent approver
(e.g. Human Resources), e.g.: (1) Entry of new hires, pay rates and human resource information , (2) Deletion of employees, (3) Other changes
Time records are maintained to substantiate work performed and are approved by the employee's Supervisor (in writing or systematically): (1) Time sheets for hourly (non-exempt) employees,
(2) Time sheets on an exception basis for exempt employees, (3) Time record changes are timely & approved by employee & supervisor
Electronic payroll and human resource files are password / ID protected.
*** All payroll and HR software programs are passwrod protected and controlled by Human Resources
Final calculated payroll is reconciled to source documentation (e.g. total earnings, total hours, total deductions), and is approved by a supervisor prior to release.
Account reconciliations are performed at least quarterly for all payroll general ledger accounts, and are reviewed by an individual other than the preparer. Reconciling items are resolved
timely.
An analytical review (e.g. actual to budget, actual to prior period, etc.) is performed to ensure payroll expense is properly recorded and distributed.
Adequate segregation of duties exists among the following functions: (1) Payroll authorization (time records), (2) Payroll calculation / processing, (3) Accounting / account reconciliation,
(4) Check signing, (5) Check distribution
START
(Hourly)
Time & Attendance info
collected through
automated time system
Checks delivered
within 72 hours
3
Import into
payroll system
weekly
Make changes as
necessary &
approve
ADP processes
payroll
Sort by dept and forward to
managers for distribution to
employees
P/R Reports to Accounting
for reconciliation and G/L
distribution
2
4
Reconcile accounts
on a monthly basis
Analytical review
performed during
monthly close
5
6
4
3
2
1
START
(Salaried non-exempt)
Time & Attendance info
input into WebTime
2
Approve timesheet
7
Exempt employees
automatically paid
through ADP
START
(Exempt)
START
(Adds, chgs, dels)
Approve adds, changes
& deletions and forward
to P/R
P/R verifies necessary
management and HR
approvals and completes
changes in HR systems.
Corporate Human
Resources reviews
changes on a monthly
basis.
1
Corp Controller reviews
changes on a monthly
basis.
EXHIBIT K
CUSTOMER SERVICE
Each location has a Payroll Clerk who performs the necessary plant-level duties to ensure an accurate payroll cycle.
PAYROLL
Payroll processing for salaried personnel is performed by ADP. Non-exempt employees complete time sheets using Webtime, which is forwarded to their supervisor for approval and upon approval is automatically included in the ADP payroll processing.
Non-standard payments are initiated by the department manager, approved by business unit manager and, if over $250, is approved by V.P. of H.R.
CONTROLLER ACCOUNTS PAYABLE GENERAL ACCOUNTING 1 2 3 4 5 6
Accruals are recorded as appropriate (e.g. for time worked but not paid, bonuses, etc.).
Payroll checks at plants are distributed through department supervisors. Salaried personnel with direct deposit do not receive a payroll check but may view their payroll stub on-line.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
Final calculated payroll is reconciled to source documentation (e.g. total earnings, total hours, total deductions), and is approved by a supervisor prior to release.
Payroll is reconciled & verified by Plant Controllers each month and a confirming email is sent to the Corporate Controller each month when complete. All related accrual accounts are reconciled on a monthly basis by corporate accounting personnel. Payroll is reviewed for reasonability by both corporate and plant level accounting personnel.
All on-site payroll & HR records are kept in a secure area with controlled access.
Process Flowchart - Commissions, Bonuses & other non-standard payments
An analytical review (e.g. actual to budget, actual to prior period, etc.) is performed to ensure payroll expense is properly recorded and distributed.
Adequate segregation of duties exists among the following functions: (1) Payroll authorization (time records), (2) Payroll calculation / processing, (3) Accounting / account reconciliation, (4) Check signing, (5) Check distribution
Electronic payroll and human resource files are password / ID protected. ** All payroll and HR software programs are passwrod protected and controlled by Human Resources
Account reconciliations are performed at least quarterly for all payroll general ledger accounts, and are reviewed by an individual other than the preparer. Reconciling items are resolved timely.
START (Commissions) Approve commission check requests 2 Commission reports produced as part of month end process
1 C/S enters order with commission rates per rep agreement or with deviation with Sales Manager approval
Review reports for errors
Produce summary for General Accounting
Produce check requestrs for approval
Cut checks to outside salesmen
Enter into HR system for inclusion in ADP
payroll Outside salesman? Payroll accounts reconciled monthly No Yes 3 Analytical review performed
during monthly close 4 5 5 Accrue Commissions Outside salesman? Obtain Human Resources
approval for inside commissions, bonuses and other non-standard payments. No Yes START (Other)
CFO & GM approve other non-standard payments and pass to Payroll for payment
6
EXHIBIT L
SALES & MKTG
CUSTOMER SVC
CONTROLLER
NO
YES
CFO
Process Flowchart - PRICING CONTROL PROCESS
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
STARTProduct Manager establishes list prices for each product & prepares mass-update Excel file.
Sales reps establish discount levels for each customer with approval of Regional Sales Managers
Regional Sales Managers establish contract prices for specific customers
Mass-update system list prices.
Enter new customer discounts & changes to existing customers at the direction of the Regional Sales Managers
Create uploadable file to update contract pricing
Monthly review of changes to customer discount levels
Muliplier less than .17?
Review & approve all multipliers less than .17
File approved report in pricing review binder Run query to verify
hash totals Run query to verify
hash totals
EXHIBIT M EMPLOYEE PLANT CONTROLLERS NO YES NO YES NO Approval Requirements: NO > 25,000 = Corporate YES YES 2,500 - 25,000 = Local NO < 2,500 = Expensed YES STAFF ACCOUNTANT CORPORATE CONTROLLER
1 Fixed asset subledger is reconciled monthly to the general ledger. 2 All capital additions and leases are supported by a properly authorized CAR.
3 Assets are capitalized, depreciated, and disposed in accordance with company policy, and are authorized in accordance with appropriate matrix. 4 Accumulate capital expenditures by project and begin depreciation when assets are placed into service.
5 Amounts recorded for capital assets are assessed for impairment when factors indicating potential impairment are present.
6 Access to the fixed asset subledger is restricted to authorized individuals by Corporate Fixed Assets Department to avoid improper additions/deletions/changes. 7 Capital assets are properly tagged with an ID number that traces to the fixed asset subledger.
8 Physical verification of assets is conducted once every five years in accordance with company policy.
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
Access to the Corporate Fixed Asset System is limited to one accounting department employee and entry to and maintenance of this system is controlled by the Corporate Fixed Asset Department. All assets are capitalized, depreciated and disposed of based upon a matrix provided by Corporate Fixed Assets in accordance with company policy. Amounts recorded for capital assets are assessed for impairment when factors indicating potential impairment are present. Each month end a report is generated by the Corporate Fixed Asset System that provides detail and totals for monthly depreciation, accumulated depreciation and gross asset value by location, by asset class. This is reconciled to the G/L on a monthly basis and is approved by the Controller.
Physical verification of assets is supervised by the Corporate and Plant Controllers and in conjunction with the Plant Managers. A physical audit is conducted, at minimum, once every five years in accordance with policy. Physical inventory of the fixed assets is conducted by dividing the plant into zones and identifying the fixed assets by tag number and description. Two exception lists are then generated from this count: (1) Tags (assets) that were expected to be on the floor that weren’t counted and (2) Tags that were not in the system but were counted. A specific search for both of the exception types is conducted to identify the course of action to be taken. All necessary accounting and fixed asset system entries are made in the first period following reconciliation of the physical fixed asset inventory.
Process Flowchart - FIXED ASSETS
All expenditures for fixed assets greater than $2,500 require a Capital Appropriations Request (CAR). CAR’s are initiated at the plant level, forwarded to the CFO for approval and then finally approved at the Corporate level.
The Corporate Fixed Asset Department issues a series of fixed asset tags to each division’s Accounting Department for the tracking of fixed assets. These tags are then controlled and issued by the Accounting department for each fixed asset received and are physically applied by plant personnel to the assets.
Upon initiation of the CAR, Accounting enters it into a CAR status spreadsheet used to track the CAR through the approval processes. After approval by Corporate copies of the CAR is forwarded to the Accounting Department and Purchasing Department (to issue a purchase order (PO).) When the asset is physically received, it is received against the PO and the receiver forwarded to the Accounts Payable Department for payment. When the fixed asset is received it is annotated as complete in the CAR status spreadsheet and entered into the Construction in Progress (CIP) spreadsheet where expenditures are accumulated by project until it is put into service. When the asset is put into service it is annotated as complete in the CIP spreadsheet and entered into the Corporate Fixed Asset System for tracking and depreciation calculations.
All incoming fixed assets flow through the CIP account in the general ledger (G/L) which is reconciled monthly by the Accounting Department. Fixed assets are segregated in the G/L based upon the Corporate asset class. As assets are placed into service they are moved via journal entry out of CIP and into the appropriate fixed asset account. In addition they are added to the Corporate Fixed Asset System.
START
Over $25,000?
Reconcile Corp system to G/L on a monthly basis. 1
2
Review project to date spending to identify when project is final (begins depreciation) 3 3 3 Review PPE activity for reasonableness 4 4 END
Issue asset tags to all assets received.
Apply asset tag to fixed asset.
Approved by Sr. Mgmt? Initiate requisition for a fixed asset item by completing requisition & justification form
Prepare CAR & financial analysis for proposed capital expenditure to be presented to Corporate
Prepare approved CAR file for each approved purchase
Run monthly report that lists all purchases of capital entered into G/L. Monitor progess on project to date spending
Input into Corp fixed asset system once spending is complete
Over $2,500? Expense Approved? Approved by Corp? END END 7 START Plant management identifies assets requiring disposal
Collect all necessary information regarding asset, including gross & net values, asset numbers, sales price, gain/loss on sale, etc...
Enter disposal into Corp fixed asset system.
Calculate & enter journal entry reconizing disposal, proceeds received and gain/loss on sale
Approve journal entries START
Monthly process that calculates monthly depreciation & asset balances run by Corp and emailed to Staff Accountant & Controller. Forward to Plants for impairment review
Complete & enter journal entry for depreciation based upon data from Corp system
3 3
START
Plant Controllers coordinate and manage the physical in cooperation with Plant Managers Results of physical reported to Staff Accountant by Plant Controller Staff Accountant summarizes any necessary adjustments and forwards to Corporate Controller
Review and direct additional verification as necessary. Approve when complete.
Calculate & enter journal entry recognizing the results of the physical
3 8 Review asset listing for potentially impaired assets and report results to Corp Controller 5
Calculate & enter journal entry reconizing addition 6
EXHIBIT N
PRODUCTION INVENTORY COUNT TEAM PLANT CONTROLLER CFO1 Periodically conduct physical inventory verification in accordance with formal instructions (e.g. wall to wall, cycle counts), including off-site inventory, and reconcile to inventory records. Investigate and reconcile differences between physical results and accounting records.
2 Reconcile inventory system subledgers to general ledger.
3 Periodically review inventories for excess, obsolete or damaged items and for lower of cost or market valuation and proper adjustments or reserves established. 4 Physical inventory double checked by audit teams to ensure accuracy
5 Physical inventory discrepancies checked by third team, including a member from finance and/or management Process Flowchart - INVENTORY VERIFICATION
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
CYCLE COUNTS PHYSICAL INVENTORY
Identify inventory pieces to be counted
Perfom cycle counts and turn results into Production Management Compare counts to inventory subleger Differences noted? Investigate differences and determine the right count. Prepare cycle count results . Adjustment to subledger needed? Cost accounting posts adjustments to subledger Cycle count results Review and investigate further as needed Prepare reconciliation between Inventory subledger & G/L Inventory reconciliation Review, approve, and sign off
Add to month end or physical inventory file, as appropriate 1 2 Yes Yes No No
Semi-annual physical inventory procedure issued to plant personnel in advance of physical. Physical inventory conducted per instructions issued. Compare counts to inventory subleger Differences noted?
Third team investigates differences and determines the right count.
Prepare physical inventory results . Adjustment to subledger needed? Cost accounting posts adjustments to subledger Physical count results Yes Yes No No Inventory audit teams verify counts
Verified counts entered into system
In conjunction with Warehouse Supervisor, review inventory for excess & obsolete items and adjust E&O accrual in accordance with UTC/Carrier policy.
3 4
EXHIBIT O
Acctg We do not maintain any accounts for debt and/or financing arrangements and are not authorized to do so without company approval.
Treasury YES
NO
Key Controls:
1 The opening of any bank account requires a company board resolution, dual authorization, and approval by Treasury. 2 All bank account changes are approved by the Controller and/or CFO.
3 All bank accounts are in the name of the company and have a separate general ledger account.
4 All bank accounts and related information (e.g. signatories) are accurately and completely recorded in the Bank Registry by a staff accountant and reviewed by the Controller. 5 All banking outlines and signature cards maintained by Treasury
We have limited access to print daily cash receipts and disbursement totals from the Chaselink and lockbox systems. We have no system rights to effect changes to the balances, only print access of recent activity. Links are password protected, run daily by a junior staff accountant, and are used to prepare the daily cash journals. At month end, the daily cash totals are compared to Corporate sweep amounts. Daily the cash journal receipts totals are used to cross check cash receipt input totals into our AR system.
Process Flowchart - TREASURY CYCLE- Opening/Changing/Closing a Bank Account
Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES
All bank accounts are reconciled monthly by a staff accountant and reviewed by Controller. Bank statements are given to the staff accountant unopened from the bank. Receipts and disbursements per our cash journals worksheets are reconciled daily by a junior staff accountant to the amount of the Corporate “sweeps” into the concentration accounts. These amounts are then reconciled to the total reported in the general ledger for receipts and disbursements by the reconciling accountant. All reconciling items are initially followed up within 30 days of reconciliation and updated monthly until resolution.
Other than metals hedging, we do not participate in any financial exposure management procedures. Metals hedging is done by Corporate.
Present to Carrier for approval
Approve? Notify Acctg of approval.
Create GL account for each bank account.
1 2
3
Update on-line Bank Registry for new account
information. Controller immediately notifies Treasury of necessary signatory changes. Notify Acctg of non-approval End START End 1 Identify need to add/ change bank acct
account info
5
EXHIBIT P
Staff Accountant
NO YES
CONTROLLER
1. All bank accounts are reconciled with bank statements monthly, are performed by an employee
independent of the cash receipts and disbursement functions, and reviewed and approved by a supervisor. Actions to clear reconciling items are initiated within 30 days of completing the account reconcilation.
2. All bank accounts for customer collections are automatically swept daily into a main concentration account, using fixed banking instructions defining the source and destination bank accounts. All cash inflow and outflow is summarized daily in a cash journal and compared to incoming and outgoing funds
as reported by corp in its daily sweep activity. Thus, differences in receipts and disbursements are accounted for prior to preparing the bank reconciliation.
Process Flowchart - TREASURY CYCLE- Bank Account Reconciliation
Process Flowchart: SIGNIFICANT CONTROL ACTIVITIES Bank reconciliation
Approve?
Sign, date & file in month end recon book START 1 End Receive bank stmt unopened from bank Prepare or update bank account reconciliation Daily deposits credit
to depository accounts and checks
clear from checking accounts.
Balances in all accounts are swept daily into company cash concentration
system.
2
EXHIBIT Q
Plant acctg and HQ acctg depts HQ acctg dept No Yes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17Process flowchart-Financial Reporting
Process Flowchart-Signifcant Control Activities
Accounting memos are prepared, approved, and available for review for all signicant transactions and adjustments. JV's include an adequate description of the event that led to the transaction and the justification for recording in a particular accounting period.
Journal entries are labeled with a JV No., period date, and preparer’s name and are submitted to preparer’s supervisor for approval. After the Controller or CFO approves entries [4] they are given to the staff accountant who files them into a monthly Journal Voucher binder and notes the filing in the Journal Entry Log [3]. If not approved the JV is returned to the originator for correction. The Controller approves the Plant Controller’s journal entries after entry is posted and before financial statements are finalized due to offsite entry.
A staff accountant maintains the journal entry log to ensure that all standard entries are recorded in the general ledger [3]. As entries are recorded and posted to the general ledger, the staff accountant checks off the entry or if not a standard, will list the entry. The journal reference, journal type, short description, and preparer’s initials are summarized. To ensure reliability, a final comparison of all Journal Vouchers to a system generated journal entry summary is performed after close. The Execute Consolidated Profiles and Rebuild Dataset functions are performed periodically after posting. This procedure updates consolidated accounts used in financial statements. Once all entries are posted, trial balances are printed and examined for unusual items and errors. Preliminary account reconciliation’s for Accounts Receivable, Accounts payable, and the major balance sheet items are prepared and reviewed for unusual items.
The Controller verifies that items up to Hyperion Transmission on the Monthly Accounting Schedule are complete. Staff accountant verifies that all entries recorded are posted, except for tax entry and executes the consolidated profile and rebuild dataset functions. The Controller maintains access rights and controls to the General Ledger system, which are reviewed on a quarterly basis [6]. The Controller, Plant Accountants, and Staff Accountants have rights to post and unpost journal entries. The CFO and FPA manager are authorized to view data. The Controller maintains the Chart of Accounts to ensure consistency and to follow through with any changes to financial statement and Hyperion mapping. Significant events and commitments/contingencies are identified and reported to management in a timely manner [10]. The financial statements and supplemental schedules are created using Excel and Global Spreadsheet Server features. Monthly and year-to-date net income on the Balance Sheet and Income Statements are verified with the General Ledger’s net income account. Supplemental schedules are also reviewed for accuracy [9]. The Controller determines when all tasks on the month end checklist have been performed and financials are complete for submission to the CFO with input from Staff [14]. The CFO or designate will review and approve if no changes are necessary [15]. If it is necessary to record additional transactions, verification of postings net income must be performed again. A comparison of prior period to current period amounts for balance sheet and P&L activity is done monthly [11].
Financial data is linked to a spreadsheet used for loading into Hyperion. All supplemental data is listed in the Excel spreadsheet and verified to source document before loading into Hyperion [9]. After data is loaded into Hyperion, the check account file is opened to verify that there are no variances and net income is compared to financial statements. After Hyperion is determined to be complete and in balance, the file is extracted and e-mailed to Corporate and also transmitted via Hyperion to Corp by the Staff Accountant with Controller acting as back-up for loading and transmission [7]. Reconciliation between general ledger and Hyperion is performed at the end of each reporting period and a copy given to the CFO, FPA, and Controller [12]. The CFO and FPA manager and Controller perform comparison of actual results to expected results. Any significant differences are investigated [13].
System generated journal entries are created prior to close to allow accountants sufficient time to review and correct system generated entries. The MIS department job streams Month End Close Menu procedures as authorized by the Controller. The fiscal period closes are established by Corp and updated by the Controller.
Monthly journal entries are created for sales, A/R, A/P, Mfg and inventory control transactions. Monthly journals, which substantiate the entries, are set to print automatically.
The Controller or designate performs the External Ledger Menu procedures in order to import system-generated entries from ERP application into the general ledger application. Plant Accountants and staff accountants are notified when entries are posted so that preliminary reviews and reconciliations may be performed. In order to preserve the audit trails, system-generated entries are posted without any changes. Corrections, changes, or deletions to system-generated entries are manually prepared and posted. Additional reports are created including Accounts Receivable Aging, Accounts Payable Trial Balance, and check registers.
All accountants are notified when the final close entries are posted so that additional review and preliminary reconciliations may be performed. Manual journal entries consist of standard and adjusting entries. Entries are sorted by JV number and by transaction type. Imported journal entries are also created monthly from data supplied by the Expense Reporting System.
Contingency plans and procedures exist and are documented to ensure timely Hyperion submission. Account reconciliations are performed in accordance with company policy.
Reconciliation between general ledger and Hyperion balances is done at the end of each reporting period.
Comparison of actual results to expected results and investigation of significant differences is done by the CFO and FPA director, in addition to the Controller. Standard tools and checklists that ensure all subsidiaries are consolidated.
All financial information is reviewed and approved by the CFO or designee.
All supplemental financial disclosure data are reconciled/validated to source documentation.
Signficant events and commitments/contingencies are identified and reported to management in a timely manner. Comparison of prior period to current period amounts for balance sheet and P&L activity is done monthly.
The Controller or designate performs a final month-end close at QE points the day after the official close. This procedure is done manually in ERP’s Month End Close Menu and generates entries for all transactions made after the initial close. The month-end Product Profitability and Purchase Price Variance entries are manually generated during the final close. The journals must be manually printed. Once the Controller or staff accountants establishes that all required entries have been generated the External Ledger Menu procedures are performed for entries generated during the final close and they are posted to the general ledger. Additional reports that must be reprinted the day after the official close are Accounts Receivable Aging, Accounts Payable Trial Balance, and the Received Not Vouchered Report.
The general ledger and journal vouchers are printed and filed by division, by month in account order. Staff accountant reviews original journal vouchers to summarized listing of entries posted to verify completeness and accuracy. A checklist is prepared, listing all balance sheet accounts as reported in Hyperion. These accounts are reconciled in accordance with the company policy [8]. The Controller has the final review of the reconciliations along with attached documentation. Accounting memos are prepared, approved and available for review for all significant transactions and adjustments (e.g. restructuring, changes in assumptions and estimates, asset
impairments…etc) [16]. All significant estimates and accruals are supported by calculations and relevant supporting documentation with references to applicable policies and procedures, (e.g. warranty, pension, reserves…etc) [17].
Month-end closing schedule is reviewed and a detailed closing checklist is distributed monthly by the Controller to ensure compliance with Corporate Corporation’s closing schedule [5]. A sales transaction cut-off schedule is distributed monthly to plant personnel to ensure that all sales transactions are identified. The General Ledger and Hyperion systems are maintained at the corporate location and costing functions are performed at the plant locations. Segregation of duties exists to ensure that the same individual does not perform the preparation/posting, and approval [2]. Journal entries may only be prepared by an accountant and entered by a staff accountant, Plant Controller, or Controller [1]. A Monthly Accounting Schedule is prepared by the Controller and distributed to all finance personnel. The Schedule assigns due dates for completion of closing procedures by staff members to ensure that all transactions are identified, reviewed, and accurately recorded in the general ledger.
All significant estimates and accruals are supported by calculations and relevant supporting documentation with references to applicable policies and procedures. Journal entries may only be prepared by an accountant and entered by a plant controller; staff accountant; Controller; or Assistant Controller.
Segregation of duties exist to ensure that (1) preparation/posting aned (2)approval are not performed by the same individual. Standard journal entry logs or summary sheets are utilized to ensure that all standard journal entries are recorded in the general ledger. All entries (including significant system generated entries) are reviewed and approved by a supervisor and include supporting documentation. Checklists and closing procedures covering all aspects of the closing process are documented by the Controller.
Access rights to G/L and Hyperion systems are reviewed on a regular basis, and controls over changes to prior period data access is restricted.
3
Journal entries from daily activity prepared
.
7 9 12 START 1 System generated entries Manually prepared entries JE approved (Supervisor up 1 level)? JV back to originator for corrections Staff acct notes jv completion and entry date in JV log. Enter JV insystem;Post File with mo. End
journal entries once complete.Use to verify entries to actual input.
Once all entries are input, trial balances are run and examined for errors.
Filed by division by month in acct order Financial statements
created & are reviewed by CFO for approval.
Make necessary changes; input new jv's and rerun statements as appropriate.
Update Hyperion; check for input errors; balance Hyperion to Global, transmit.
** - Primary Hyperion responsibility rests with Staff Acct. Controller acts as back up when necessary. Prepare Hyperion trial balance comparison to GL; copy to CFO/Controller, then file original with Hyperion transmittals
Run final ledgers; journal entry reports; and trial balances Approved? 2 4 13 15 16 17 Prepare account reconciliations. Obtain Controller approval. 8 11 Month end check
lists reviewed
5
Perorm annual review of access rights to G/L and Hyperion 6 FP&A Mgr distributes monthy flash
identifying all significant or unusual events during the month to management.
10 Month end check
lists reviewed 5 14 Yes No
