Accounting Policy Manual

Table of Contents

1.0       Purpose. 5

2.0       Scope. 7

2.1       Responsibility. 7

2.2       Exclusions. 7

2.2.1... Internal Auditing, Finance, and Treasury. 7

2.2.2... Payroll 7

2.2.3... Information Systems. 7

2.2.4... Security Planning. 7

2.2.5... Disaster Recovery. 7

3.0       Management Responsibility. 9

3.1       Accounting Organization. 9

3.1.1... Accounting Department Organization Chart 9

3.1.2... Finance & Treasury Responsibilities. 10

3.1.3... Controller Responsibilities. 10

3.1.4... Accounting Staff Responsibilities. 11

3.1.5... Operations Staff Responsibilities. 12

3.2       Management Commitment 12

3.3       Management Accounting Policy. 12

3.4       Planning. 13

3.4.1... Accounting Objectives. 13

3.4.2... Accounting System Planning. 13

3.5       Responsibility, Authority, and Communication. 13

3.5.1... Responsibility and Authority. 13

3.5.2... Management Representative. 14

3.5.3... Internal Communication. 14

3.5.4... Referenced Procedures: 14

3.6       Management Reporting. 14

3.6.1... General 14

3.6.2... Review Input 14

3.6.3... Review Output 15

3.6.4... Referenced Procedures: 15

3.7       Ethical Business Conduct 15

4.0       Accounting Management System.. 17

4.1       Objectives. 17

4.2       Requirements. 17

4.2.1... Accounting Processes. 17

4.2.2... Internal Controls. 17

4.2.3... Audit Opinions. 18

4.3       Transactions. 18

4.3.1... Authorization. 18

4.3.2... Timing. 18

4.3.3... Amounts. 18

4.3.4... Accuracy. 18

4.3.5... Segregation of Duties (Internal Controls) 19

4.3.6... Referenced Procedures. 19

4.4       Documentation. 19

4.4.1... Accounting Policy Manual 19

4.4.2... Control of Documents. 20

4.4.3... Control of Records. 20

4.4.4... Accounting Transactions. 20

4.4.5... Referenced Procedures: 20

4.5       Security. 20

4.5.1... Physical Security. 21

4.5.2... Disaster Security. 21

4.5.3... Information Security. 21

4.6       Cost Accounting. 21

4.6.1... Costing Purposes. 21

4.6.2... Cost - Time Incurred. 22

4.6.3... Cost - Reaction to Changes in Activity Levels. 23

4.6.4... Cost - Influence on Decision Making. 23

4.7       Basis of Accounting. 25

5.0       P-rocesses and Controls. 27

5.1       General & Administrative. 29

5.1.1... Chart of Accounts. 30

5.1.2... Files and Records Management 30

5.1.3... Travel and Entertainment 30

5.1.4... Management Reports. 30

5.1.5... Period-End Review & Closing. 30

5.1.6... Controlling Legal Costs. 31

5.1.7... Taxes and Insurance. 31

5.1.8... Property Tax Assessments. 31

5.1.9... Confidential Information Release. 31

5.1.10. Document Control 31

5.1.11. Referenced Procedures: 32

5.2       Cash. 33

5.2.1... Cash Drawers and Credit Cards. 34

5.2.2... Cash Receipts and Deposits. 34

5.2.3... Problem Checks. 34

5.2.4... Wire Transfers. 34

5.2.5... Check Signing Authority. 34

5.2.6... Check Requests. 34

5.2.7... Bank Account Reconciliations. 35

5.2.8... Petty Cash. 35

5.2.9... Referenced Procedures: 35

5.3       Inventory & Assets. 37

5.3.1... Inventory Control 37

5.3.2... Inventory Counts. 37

5.3.3... Fixed Asset Control 38

5.3.4... Customer Property. 38

5.3.5... Fixed Asset Capitalization & Depreciation. 38

5.3.6... Referenced Procedures: 38

5.4       Revenue. 39

5.4.1... Sales Order Entry. 40

5.4.2... Point-Of-Sale Orders. 40

5.4.3... Customer Credit Approval and Terms. 40

5.4.4... Sales Order Acceptance. 40

5.4.5... Shipment of Goods. 40

5.4.6... Invoicing and Accounts Receivable. 41

5.4.7... Sales Tax Collection. 41

5.4.8... Progress Billing. 41

5.4.9... Account Collections. 41

5.4.10. Customer Returns. 41

5.4.11. Referenced Procedures: 42

5.5       Purchasing. 43

5.5.1... Vendor Selection. 44

5.5.2... General Purchasing. 44

5.5.3... Project Purchasing. 44

5.5.4... Receiving and Inspection. 44

5.5.5... Shipping and Freight Claims. 45

5.5.6... Accounts Payable and Cash Disbursements. 45

5.5.7... Referenced Procedures: 45

6.0       Resource Management 47

6.1       Provision of Resources. 47

6.2       Human Resources. 47

6.2.1... Accounting Staff. 47

6.2.2... Competence, Awareness, and Training. 47

6.2.3... Separation and Supervision of Duties. 47

6.2.4... Referenced Procedures: 48

6.3       Infrastructure. 48

6.4       Work Environment 48

 

Table of Figures

Fig 1. Sample Medium Accounting Department Organization

Fig 2. Accounting Management System Processes and Controls

Fig 3. General & Administrative Procedures

Fig 4. Cash Procedures

Fig 5. Inventory & Asset Procedures

Fig 6. Revenue Procedures

Fig 7. Purchasing Procedures


List of Referenced Procedures

General & Administrative

1.      G&A101 Chart Of Accounts  

2.      G&A102 Files and Records Management 

3.      G&A103 Travel and Entertainment  

4.      G&A104 Management Reports   

5.      G&A105 Period-End Review & Closing 

6.      G&A106 Controlling Legal Costs  

7.      G&A107 Taxes and Insurance   

8.      G&A108 Property Tax Assessments  

9.      G&A109 Release of Confidential Information

10.  G&A110 Document Control

Cash

11.  CSH101 Cash Drawers and Credit Cards

12.  CSH102 Cash Receipts and Deposits 

13.  CSH103 Problem Checks   

14.  CSH104 Wire Transfers   

15.  CSH105 Check Signing Authority  

16.  CSH106 Check Requests   

17.  CSH107 Bank Account Reconciliations  

18.  CSH108 Petty Cash

Inventory & Assets

19.  INV101 Inventory Control   

20.  INV102 Inventory Counts   

21.  INV103 Fixed Asset Control  

22.  INV104 Customer Property   

23.  INV105 Fixed Asset Capitalization & Depreciation

Revenue

24.  REV101 Sales Order Entry  

25.  REV102 Point-Of-Sale Orders   

26.  REV103 Customer Credit Approval and Terms

27.  REV104 Sales Order Acceptance  

28.  REV105 Shipment Of Goods  

29.  REV106 Invoicing and Accounts Receivable 

30.  REV107 Sales Tax Collection  

31.  REV108 Progress Billing   

32.  REV109 Account Collections   

33.  REV110 Customer Returns

Purchasing

34.  PUR101 Vendor Selection

35.  PUR102 General Purchasing

36.  PUR103 Project Purchasing

37.  PUR104 Receiving and Inspection

38.  PUR105 Shipping and Freight Claims

39.  PUR106 Accounts Payable and Cash Disbursements


1.0       Purpose

The purpose of this Accounting Policy Manual is to document the principles and policies governing our Company’s accounting practices. 

The principles and policies provide:

o   A foundation for a system of internal controls.

o   Guidance in current financial activities.

o   Criteria for decisions on appropriate accounting treatment. 

o   Accounting officers with direction and guidance in connection with those accounting transactions, procedures, and reports that should be uniform throughout the Company.

When consistently applied throughout the Company, these principles and policies assure that the various financial statements issued by the Company accurately reflect the results of the Company’s operations. 

Internal controls provide a system of checks and balances intended to identify irregularities, prevent waste, fraud and abuse from occurring, and assist in resolving discrepancies that are accidentally introduced in the operations of the business.

All additional departmental or functional policies and procedures written should conform to and parallel the policies in this manual.  All changes to policies and procedures are required to be reviewed to ensure that there are no conflicts with the policies stated in this Accounting Policy Manual.

2.0       Scope

The Accounting Policy Manual is an official directive of the President.  It is published and maintained by the Controller as part of the general responsibility for Company accounting policy assigned to the office of the Controller.

2.1              Responsibility

The policies stated in this manual apply to all operations and activities at our Company.  It is the responsibility of all department managers to help implement and maintain the procedures required by this manual and to ensure all processes conform to these requirements. 

It is the responsibility of all employees to follow procedures that implement these policies and to help strive for continuous improvement in all activities and processes of Our Company. 

The goal is to make the Manual as clear and useful as possible. All users are encouraged to contact the Company Controller with any suggestions for revising or improving the Manual

3.0       Management Responsibility

The accounting department is headed by the controller or Chief Financial Officer (CFO).  In a smaller Company this may be the same person.

3.1       Accounting Organization

The accounting department is organized into three main responsibilities: Finance & Treasury, Tax & Accounting, and Operations staffs.

3.1.1    Accounting Department Organization Chart

The Company’s organizational framework provides the foundation for coordinating and administrating the accounting management system.  A description of the roles and responsibilities applicable to the accounting and operations staff are provided.  Responsibilities specific to certain procedures or tasks are presented in the related procedures. 


Figure 2. Sample Medium Accounting Department Organization
shows the general organization of the Company’s accounting department.  The actual Organization Chart may vary in detail based on the size of the department or organization involved and the type of activity performed. 

[Note: in a larger Company the administrative or operations staff may report to the Vice-President of Finance and Administration in order to allow the Controller to focus on the accounting operations.]

3.1.2    Finance & Treasury Responsibilities

Finance & Treasury responsibilities are focused on raising capital, debt and or equity appropriations, cash management, Treasury investments, fund balances, and management activities. 

The Finance/Treasurer is responsible to the President for all long-range financial matters and to establish Company-wide financial and administrative objectives, policies, programs, and practices, which insure the Company of a continuously sound financial structure. 

The Chief Financial Officer controls the flow of cash through the organization and maintains the integrity of funds, securities and other valuable documents.  See ABR42, Bizmanualz® Finance Policies and Procedures Manual for a complete discussion of finance and treasury activities.

3.1.3    Controller Responsibilities

The Controller directs the accounting and control functions, reporting the results of operations and provides chronological systems.  The Controller is accountable to the President and supervises the accounting and operations staff.

Major Duties and Responsibilities:

o   Develops and implements accounting policies, coordinates systems, and procedures.  Prepares operating data and special reports as required, including interim and year-end financial statements.  Maintains the Company’s system of accounts and keeps books and records on all Company transactions and assets.

o   Establishes, coordinates, and administers, as an integral part of management, an adequate plan for the control of operations including, profit planning, programs for capital investing and financing, sales forecasts, expense budgets, and cost standards, together with necessary controls and procedures to effectuate the plan.

o   In conjunction with the President and Vice President of Finance, coordinates, reviews, and endorses budget proposals, discusses proposed changes and significant changes.

o   Compares performance with operating plans and standards, and reports and interprets the results of operations to all levels of management.

o   Provides for the control and editing of all Company orders, to insure conformity to established policies and procedures, and to facilitate data control and retrieval of records generated by these orders.

o   Establishes and administers tax policies and procedures.

o   Supervises or coordinates the preparation of reports to government agencies.

o   Coordinates all matters of business between the Company and its stock transfer agents and registrars.

o   Provides other managers and departments with information required by them to carry out their assigned responsibilities.

o   Assures protection for the assets of the business through internal control, internal auditing and assuring proper insurance coverage.

o   Assists Marketing in establishing and maintaining product pricing policies.

o   Serves as a liaison between the Company and legal counsel or outside accountant support.  Recommends the appointment of independent public accountants overseeing their audit work.

o   Provides advice on all matters to the Vice President of Finance and the President.

3.1.4    Accounting Staff Responsibilities

Accounting staff responsibilities are focused on accurately documenting the Company’s operations, collecting all money owed to the Company, and responsibly disbursing money owed to vendors. 

The accounting staff consists of the following positions:

o   Accounting Manager.  Directs and organizes all general accounting activities and accounting staff.  Prepares accounting and financial reports and ensures accurate accounting systems and record keeping.  Reports directly to the Controller.  Assists in supervision of Accounts Payable and Accounts Receivable Clerks.

o   Credit & Collections Manager.  Responsible for processing customer credit inquiries, approving credit/financing terms and collection of delinquent accounts.  Reports directly to the Controller.  Coordinates activities with Accounting and Sales.

o   Purchasing Manager.  Responsible for purchasing of all inventory, supplies, and capital goods for the Company including negotiating price, delivery, and credit terms.  Evaluates vendors and determines most cost-effective inventory and reorder levels.  Reports to the Controller.  Coordinates activities with all departments; works closely with Manufacturing, Accounts Payable, and Receiving.

o   Internal Audit Manager.  Responsible for establishing and implementing internal control mechanisms; performing audit functions on payroll, and billing; assist in developing new or refining existing accounting policies and procedures; assist in streamlining current business processes to improve the overall efficiency and effectiveness of the Company.

Note: Internal Auditing is not covered in this Accounting Policy Manual but it is an important function in larger companies.

3.1.5    Operations Staff Responsibilities

Operations staff responsibilities are focused on diligently supporting the operating transactions of the Company with assistance, training, and other services, as needed. 

[Note: In a larger Company, the administrative or operations staff may report to the Vice-President of Finance and Administration in order to allow the Controller to focus on the accounting operations.]

The operations staff consists of the following positions:

o   Office Manager.  Responsible for performing a variety of administrative, office and clerical functions.  Reports directly to Controller.  Assists and coordinates activities with the President and other managers in the Company.  Supervises Receptionist.

o   Human Resources Manager.  Develops and updates personnel policies, procedures and forms.  Assists and supports department managers and employees regarding personnel issues.  Maintains personnel records.  Reports directly to the Controller.  Coordinates activities and assists all department managers and employees.

o   IT Manager.  Responsible for overseeing network and Internet operations; determines technical goals in consultation with top management, produces detailed plans for the accomplishment of these goals; plans and coordinates the installation and upgrading of hardware and software; analyzes the computer and information needs of the organization and determines personnel and equipment requirements.

o   Warehouse Manager.  Pulls orders and packs and prepares them for shipment.  Supervises all shipping and receiving clerks and functions.  Contracts with freight carriers for the most beneficial service of the Company.  Reports to Controller.  Coordinates with Sales and Customer Service.

3.2       Management Commitment

Top Management at our Company shows its commitment to the accounting management system through the development and implementation of this accounting manual.  Additionally, management commitment is demonstrated through the Company Accounting Policy, the specific objectives that are set and reviewed during Management Review Meetings and by providing the resources required to meet our objectives for continually improving the effectiveness of our operations and accounting system.

The management team consisting of the President and all department managers is chartered with ensuring our accounting management system meets customer as well as statutory and regulatory requirements.

3.3       Management Accounting Policy

Our Company has established an Accounting Policy Manual that we feel is appropriate to our organization and meets the rules and guidelines of GAAP and IFRS.  This policy is communicated throughout the Company.  Department managers and supervisors are responsible for ensuring all employees understand the policy.  To ensure our policy remains appropriate, it is reviewed at least annually at one of our Management Review meetings.

The Company Accounting Policy:

v  It is the policy of our Company to design and produce financial statements in keeping with Generally Accepted Accounting Principles (GAAP), Financial Accounting Standards Board (FASB) Statements of Financial Accounting Concepts and comply with all statutory and regulatory requirements[1].  We accomplish this by adhering to our Accounting Management System and use operational methods as documented in our Accounting Policy Manual.

v  We strive to continually improve the effectiveness of our Accounting Management System by monitoring our performance against our established objectives and through leadership that promotes employee involvement.  This concept represents our Company’s commitment to quality accounting and the increasing need to better serve our customers, shareholders, and employees.

3.4       Planning

3.4.1    Accounting Objectives

Our Company shall establish objectives on an annual basis.  These objectives shall be measurable and consistent with the Accounting Policy and reviewed at least annually at Management Review meetings.

3.4.2    Accounting System Planning

As part of annual strategic planning meetings, our Company establishes strategic objectives and goals for revenue, profit, and expenses.  These objectives are supported by specific measures that track performance against those objectives using the budgeting process.  Department managers in turn set departmental objectives with specific performance measures and targets that support the Company objectives.

As situations arise that demand changes to the accounting management system, either to meet objectives or because of changing business conditions, all changes will be reviewed by the management team to ensure the integrity of the accounting system is maintained.

3.5       Responsibility, Authority, and Communication

3.5.1    Responsibility and Authority

Responsibilities and authorities at our Company are defined in each Job Description.  Job Descriptions are posted on the Company intranet and are also used during annual performance reviews. 

3.5.2    Management Representative

The President has appointed the Controller as the Management Representative with the responsibility and authority to:

a)      Ensure that processes needed for the Accounting Management System are established, implemented, and maintained.

b)      Report to top management on the performance of the Accounting Management System and any need for improvement.

c)      Ensure the promotion of accounting requirements throughout the organization.

d)      Serve as the liaison with external parties on matters relating to the Accounting Management System.

3.5.3    Internal Communication

In line with our Company’s policy of leadership through employee involvement, our Company’s personnel policies have established open communication throughout the organization. 

The effectiveness of our Accounting Management System is evident through Internal Audit results, Management Reports, and the departmental performance measures.  Other than confidential information, Company and departmental performance measures are posted on bulletin boards throughout our Company.  Internal Audit results are shared at departmental meetings as appropriate.

3.5.4    Referenced Procedures:

G&A104 Management Reports   

3.6       Management Reporting

3.6.1    General

The President and management team shall review the Company’s Accounting Management System, on a semi-annual basis and more frequently if needed, to ensure its continuing suitability, adequacy and effectiveness. This review shall include assessing opportunities for improvement and the need for changes to the Accounting Management System, including the accounting policy and objectives.

The Controller is responsible for maintaining records from management reviews. 

3.6.2    Review Input

The Controller and department managers provide the following information for Management Review meetings:

a)      Results of all audits

b)      Employee feedback

c)      Process performance

d)      Follow‑up actions from previous management reviews

e)      Changes that could affect the Accounting Management System

f)       Recommendations for improvement

3.6.3    Review Output

Records shall include the output from the management review and shall include any decisions and actions related to:

a)      Improvement of the effectiveness of the Accounting Management System and its processes

b)      Improvement of processes related to accounting requirements

c)      Resource needs

3.6.4    Referenced Procedures:

G&A104 Management Reports   

3.7       ETHICAL BUSINESS CONDUCT

Unethical business conduct or actions, or even the appearance of unethical behavior is unacceptable under any conditions.  The reputation of the Company depends on each employee applying common sense in situations where specific rules of conduct are insufficient to provide clear direction.  A strong sense of personal ethics, which should extend beyond compliance with applicable laws, is necessary to guide the behavior of all employees.

All employees should comply with the ethical standards of the Company as set forth in this manual.  If a situation feels awkward, then the employees should ask themselves:

o   Is my action legal and ethical?

o   Does my action comply with corporate policy?

o   Is my action appropriate in the situation?

o   Would my action be an embarrassment to the Company, if known?

o   Does my action agree with my personal ethics or behavior?

An employee should be able to answer “yes” to all of these questions before taking action.

All Managers are responsible for the ethical business conduct and behavior of their employees.  Managers should consider the appropriate courses of action in terms of both ethical and economic factors.  Each decision should be based on the guidelines provided in this Accounting Policy Manual, as well as their own personal beliefs of what’s right and wrong.


4.0       Accounting Management System

4.1       Objectives

Through this manual and associated procedures and documents, our Company has established, documented, and implemented an Accounting Management System.  The system is designed to result in improving the effectiveness of our accounting operations and in our ability to satisfy auditor requirements. 

4.2       Requirements

Maintenance of the Accounting Management System is the responsibility of the Controller/CFO in conjunction with the Accounting Department.

4.2.1    Accounting Processes

The Controller maintains all documents that identify the sequence of accounting processes and, in conjunction with the appropriate department managers, defines the interactions of the processes within the procedures defining these processes. 

Processes for management activities, provision of resources, and measurement reporting are included.  Procedures shall include the methods needed to ensure that the accountability and control of processes are effective. 

Top Management will ensure the availability of resources to support the operation and monitoring of processes through regular interaction with department managers and through review activities at Management Review meetings. 

Department Managers and the Controller will monitor, measure, and analyze processes and implement any actions necessary to achieve intended results and continual improvement of the processes.  These results will also be monitored at Management Review meetings.

Any processes that are outsourced that may affect our Company’s conformity to requirements shall be controlled.  The Controller and appropriate department manager(s) are responsible for defining the methods to control outsourced processes and procedures.

4.2.2    Internal Controls

Internal controls, procedures, and practices will be utilized to ensure that:

o   Obligations and costs comply with applicable laws.

o   All assets are safeguarded against waste, fraud, loss, unauthorized use, and misappropriation.

o   Revenues and expenditures applicable to Company operations are recorded and accounted for properly so that accounts and reliable financial and statistical reports may be prepared and accountability of the assets may be maintained.

o   Programs are efficiently and effectively carried out in accordance with applicable laws and management policy.

4.2.3    Audit Opinions

Managers are to promptly evaluate findings and recommendations reported by auditors and then determine proper actions in response to audit findings and recommendations (e.g., develop corrective actions).  Managers should complete, within established time frames, all actions that correct or otherwise resolve the matters brought to management’s attention.

The audit resolution process begins when the results of an audit are reported to management, and is completed only after actions have been taken that correct identified deficiencies, produce improvements, or demonstrate the audit findings and recommendations are either invalid or do not warrant management actions.

4.3       Transactions

All transactions recorded or posted into the Accounting Management System should be properly authorized and accurately represent the activity being documented.  Both the timing and amount of the transaction should be in accordance with Company accounting policies defined in this manual.

4.3.1    Authorization

Transactions and other significant events are to be authorized and executed only by persons acting within the scope of their authority.  It is the principal means of assuring that only valid transactions and other events are entered into.  Modification or adjustment to previously recorded transactions requires authorization.

4.3.2    Timing

All transaction dates recorded in the Company accounting system should accurately reflect the date the transaction occurred.  Revenues should be recognized when earned and expenses when incurred.  Processing, cutoff and period-end closing schedules and procedures should be documented.  Cash sales should be recorded at the time of sale and deposited.

4.3.3    Amounts

Prior or related transactions should be checked for conformity with the transaction being recorded (e.g., match invoice to purchase order).   Amount of posted transactions should be checked against source documents.  Balances with third parties should be verified as appropriate (i.e. debtors, creditors, or custodians of investments).  Transactions should be recorded in conformity with documented policies in this manual.

4.3.4    Accuracy

Transactions should be recorded in the accounting system accurately.  An approved set of general ledger and subsidiary accounts are maintained for assets, liabilities, revenues, expenses, budgetary accounts, and other accounts.

All transactions should be supported by documentary evidence, which becomes part of the accounting records.  Error transactions should be reviewed, resolved, and cleared in a timely fashion.  Manually determined control totals should be reconciled with recorded results.

The Accounting Management System utilizes standard forms and provides control and accountability over these forms.  Supervisors should review posted accounting transactions with source documents and processing documents. 

4.3.5    Segregation of Duties (Internal Controls)

Segregating Accounting duties is generally an effective internal control. It reduces the risk of mistakes and inappropriate actions. It also helps fight fraud by discouraging collusion.

            Typically, the following functions are segregated:

o   Approval

o   Accounting and reconciliation

o   Asset custody

NOTE: If these functions cannot be segregated, such as in smaller departments or companies, a detailed, periodic supervisory review of related activities or internal audit should be required.

4.3.6    Referenced Procedures

    CSH101   Cash Drawers and Credit Cards

CSH102   Cash Receipts and Deposits

    CSH107   Bank Account Reconciliations

G&A101  Chart of Accounts

G&A104  Management Reports

G&A105  Period-End Review and Closing

REV106  Invoicing and Accounts Receivable 

REV108  Progress Billing   

PUR106  Accounts Payable and Cash Disbursements

4.4       Documentation

This Accounting Policy Manual and the associated procedures are intended to satisfy the documentation requirements for an Accounting Management System.  Department managers and supervisors are responsible for identifying any additional documents needed to ensure the effective planning, operation and control of processes.

Procedures may vary in detail based on the size of the department or organization involved and the type of activity performed.  Procedure developers shall consider this as well as the complexity of the processes and interactions, and the competence of the personnel involved.

Documents may be in any medium, including software programs, electronic text files, and hardcopy documents.

4.4.1    Accounting Policy Manual

This Accounting Policy Manual provides the top-level organizational document for the Accounting Management System.  The Accounting Policy Manual defines the scope, policies and processes of our Company’s Accounting Management system as well as Management’s responsibility for the system.

4.4.2    Control of Documents

All Documents required by the Accounting Management System shall be controlled.  The Document Control Procedure defines the controls needed to:

a)      Approve documents for adequacy prior to issue.

b)      Review and update as necessary and re-approve documents.

c)      Ensure that changes and the current revision status of documents are identified.

d)      Ensure that relevant versions of applicable documents are available at points of use.

e)      Ensure that documents remain legible and readily identifiable.

f)       Ensure that documents of external origin are identified and their distribution controlled.

g)      Prevent the unintended use of obsolete documents and apply suitable identification to them if they are retained for any purpose.

4.4.3    Control of Records

Procedures define appropriate records to be maintained for the effective operation of the Accounting Management System, including evidence of conformity to requirements.  Records shall remain legible, readily identifiable, and retrievable.  The Files and Records Management Procedure defines the controls needed for the identification, storage, protection, retrieval, retention time, and disposition of records.

4.4.4    Accounting Transactions

All transactions and other significant events should be clearly documented, properly classified, and readily available for examination.

This standard applies to:

o   The entire process or life cycle of a transaction or event and includes the initiation and authorization.

o    All aspects of the transaction while in process.

o    Its final classification in summary records.

4.4.5    Referenced Procedures:

G&A102 Files and Records Management 

G&A110 Document Control

4.5       Security

Access to resources and records should be limited to authorized personnel only.  Accountability for the custody and use of resources should be assigned and maintained as well.  Periodic comparisons should be made of the resources with the recorded accountability to determine whether the two agree.  The frequency of the comparison shall be a function of the vulnerability of the asset. Restrictions of access to resources shall also depend upon the vulnerability of the resource as well as the perceived risk of loss, both of which shall be periodically assessed.

4.5.1    Physical Security

Physical security measures should be adopted to protect the assets and employees of the Company from abuse, fraud, theft, or damage.  Security procedures for the protection of assets and employees are addressed within the Company’s Security Manual.  See ABR32 Bizmanualz® Security Planning Policies and Procedures Manual.

4.5.2    Disaster Security

Disaster security measures should be adopted to enable the Company to continue the operations of the Accounting Management System with limited interruption.  Disaster procedures for operations recovery are addressed within the Company’s Disaster Manual.  See ABR33 Bizmanualz® Disaster Recovery Policies and Procedures Manual.

4.5.3    Information Security

Information security measures should be adopted to protect the Company’s information assets from unauthorized access, abuse, tampering, theft, or use.  Information security procedures for the protection and authorized use of computer and network assets are addressed within the Company’s Information Systems Manual.  See ABR34 Bizmanualz® IT Policies and Procedures Manual.

4.6       Cost Accounting

Cost is the financial measure of resources consumed or acquired in accomplishing a specified purpose, such as performing a service, providing a product, or carrying out a project or program regardless of when the resources were ordered, received, or paid for.  Cost can be defined in a variety of ways depending on the objectives or information desired.

Cost accounting is defined as a technique or method for determining the cost of a project, process, or thing.  This cost is determined by direct measurement, specific assignment, or systematic and rational allocation. Central to cost accounting is the process for tracing various input costs to the product or services of the Company. 

This section presents cost classifications based on such characteristics as time incurred, reaction to changes in activity levels, and influence on decision making.

4.6.1    Costing Purposes

The Controller should accumulate, distribute, monitor, and evaluate cost information during each accounting period, when appropriate. Management will use cost information for purposes such as:

o   Making decisions and planning future operations with the knowledge of the costs of projects, programs, and other activities.

o   Assisting in establishing standards of performance based at least partially on past cost history.

o   Determining the efficient and effective distribution and use of resources.

o   Supporting performance evaluation based on actual costs versus budgeted costs.

o   Recovering costs for products and services provided to entities.

o   Preparing reimbursable work and cooperative agreements.

o   Supporting budget formulation through responses to requests for information.

Cost accounting is not applicable to all activities.  However, for those activities that do use cost accounting, the principles in this section are designed to assure that:

o   Cost accounting information is communicated consistently throughout the Company.

o   Reviews to evaluate the cost/benefit of cost information for specific programs are based on consistent criteria.

o   Only the highest level of aggregated information required for management decisions.

The Controller is responsible for ensuring that any cost information maintained to meet customer service requirements is minimized and that recovery of the cost to provide information to customers is maximized.

4.6.2    Cost - Time Incurred

Costs may be measured in relationship to the time the cost is incurred.  In many cases, the measurement time for cost is specified in authorizing documents or contracts for a program.  In other cases, the Controller is responsible for determining which cost will be used for specific purposes, and for assuring that similar activities are treated consistently within the Company.

The three most common measurements are historical costs, current market costs, and budgeted costs.

o   Historical Cost is the cash equivalent price of goods and services at the date of acquisition. This cost does not change over time.

o   Current Market Cost (also referred to as replacement cost) is the current value of an asset. Depending on whether the asset is tangible or intangible and the availability of similar assets on the open market, current market cost may be measured by replacement cost, reproduction cost, sales value, net realizable value, or net present value of future cash flows.

o   Budgeted Cost (also referred to as standard cost) is the cost that should be incurred to produce a product or provide a service based on past experience producing or providing like-items. Thus, comparison of actual costs with the predetermined benchmark alerts program managers to those areas in which the actual costs appear excessive.

4.6.3    Cost - Reaction to Changes in Activity Levels

In any period, cost may or may not change in relationship to changes in levels of activity.  Based on the relationship to changes in levels of activity, costs are classified as variable, fixed, or mixed costs. Activity measures can include production or service levels, machine hours, or sales in units or dollars. The way a cost reacts to changes in activity is determined by how the total cost for the period, rather than the cost of a single unit of activity, changes when activity levels change.

The Controller is responsible for developing cost projections and budgets that identify costs by variable, fixed, or mixed categories.  All managers are responsible for minimizing variable and mixed costs and ensuring that fixed costs are minimized, and are fairly spread over all projects, whether or not those projects incorporate cost accounting.

o   Variable Costs are costs that vary in total in direct proportion to changes in levels of activity. If total cost varies in direct proportion to activity changes, the cost per unit is constant.

o   Fixed Costs represent all costs that remain constant within the Company’s relevant range of activity. A relevant range is a range of activity in which costs behave in accordance with the way they have been defined, generally the normal operating range.

o   Mixed Costs has both a variable and fixed component; it does not fluctuate in direct proportion with activity, nor does it remain constant with changes in levels of activity.

4.6.4    Cost - Influence on Decision Making

The Controller is responsible for classifying costs as either direct or indirect and ensuring that costs are consistently classified as either direct or indirect in similar situations.

Direct costs are all costs that can be specifically or readily identified with producing a specific product or providing a specific service.  Direct costs include direct labor, equipment purchased for use on a program, and other direct costs.  Direct labor is the portion of base wages and salaries, which can be identified with and charged to a particular activity. This includes:

o   Fringe Benefits are those allowances and services provided to employees as compensation in addition to wages and salaries, including retirement, health insurance, and life insurance. Fringe benefits are allocated as a rate applied to direct labor costs. The Controller is responsible for determining the fringe rate based on all labor and fringe costs, regardless of where an employee works. A single fringe rate must be applied to all employees in all projects, unless the Controller has developed separate cost pools that reflect a significantly different fringe cost among groups of employees.

o   Overtime and Premium Pay are charged in the same manner as the regular wage portion of an employee’s earnings for hours identified with a specific activity.

o   Other Personnel Costs are charged in the same manner as the related base labor charge, e.g., allowances for offsite pay, location allowances, hardship pay, hazardous duty pay, and uniform allowances.

Equipment used in an activity for which costs are accumulated can be charged in either of two manners: a) charging for the full acquisition cost, or b) recovery of a portion of depreciation.  The Controller is responsible for determining whether equipment can be charged in full to a project, and if not, for determining the rate and basis for charging equipment usage to projects.

Other direct cost items that are incurred or consumed exclusively for the completion of a specific activity include the following examples:

o   Miscellaneous supplies and materials

o   Equipment rentals

o   Travel

o   Purchased services (e.g., printing, ADP services, and photographic reproduction)

o   Contractual services

Indirect costs are those costs, which cannot be specifically identified with producing a specific product, or providing a specific service but which can be shown to bear some relationship to, result from, or be in support of, the product or service.

Indirect costs must be accumulated in indirect cost pools.  The Controller is responsible for clearly defining identifiable cost pools.  Indirect costs may include the following examples, if the item is not directly attributable to a specific activity:

o   Space rental

o   Utilities, including telephone expenses

o   Postage

o   Unemployment compensation benefit costs

o   Data processing, management, and control

o   Equipment rentals

o   Miscellaneous supplies and materials

o   Equipment costs (excluding those recovered as a direct costs)

o   Training, employee development, and personnel transfers, including costs of travel and time in-transit

o   Budget development and program planning

o   Research and development activities

o   Administrative support such as procurement, contracting, office services, property management, payroll, voucher processing, personnel services, records management, and document control

o   Reports, including report preparation and distribution

o   Safety management, including inspection and training

o   EEO and other affirmative action programs

The indirect cost pool will generally include costs that benefit both cost recoverable and non-cost recoverable work.  Although indirect costs are not required to be allocated to non-cost recoverable work, an allocation basis must be used that would, if applied to all projects or activities, fairly distribute the cost pool over the benefited activities.  Cost recovery projects must not be unduly burdened with indirect costs.

The Controller is responsible for developing and documenting the allocation method, using a generally acceptable and consistently applied overhead rate based on direct costs, identifiable cost pools, and the cost elements that are charges to those pools.

4.7       Basis of Accounting

There are two fundamental methodologies of accounting, each with assumptions, constraints and theories, which guide all financial recording, reporting, and measurement activities: Cash and Accrual.

o   Cash basis accounting records financial events only when cash actually changes hands in an arms-length transaction.

o   Accrual basis accounting records revenues when earned and expenses the costs associated with the revenue earned when incurred.

The Company requires the use of the accrual basis of accounting for financial transactions, unless otherwise stated in this manual.

 

5.0       PROCESSES AND CONTROLS

The Company has planned and developed the processes needed to properly document, track and control transactions for revenues, expenses, assets, liabilities, and equities.  The results of this planning are the processes and procedures defined in our Accounting Management System documentation. 

These processes and procedures include the accounting objectives and requirements for our Company, the required verification, validation, and inspection activities specific to our Company and the criteria for order acceptance verification.  The records needed to provide evidence that these processes meet Generally Accepted Accounting Practices (GAAP)[2] are defined in the procedures. 

Consideration is given for the need to establish processes, documents, and obtain resources specific to new orders as they are developed or during contract or order review.

5.1              General & Administrative

The General and Administrative procedures encompass a wide range of miscellaneous activities from defining the chart of accounts, maintaining files and records, to Period-End Review & Closing, Taxes & Insurance, and producing Management Reports.  The following General and Administrative Procedures should be utilized to control the Company’s miscellaneous accounting activities.


5.1.1    Chart of Accounts

To facilitate the record keeping process for accounting, all ledger accounts should be assigned a descriptive account title and account number, also known as a Chart of Accounts.  The Chart of Accounts provides the organization or method for assignment and maintenance of the Company’s ledger accounts, in order to produce meaningful financial data for the Company.

5.1.2    Files and Records Management

The Company will retain records in an orderly fashion for time periods that comply with legal and governmental requirements and as needed for general business requirements.  To accomplish this policy, the Company should outline the methods for filing, retaining and disposing of all business documentation generated by the Company.  However, this does not necessarily cover internal or certain day-to-day business correspondence.

5.1.3    Travel and Entertainment

The Company should provide guidelines for travel and entertainment expenses, account for all advances promptly and accurately and to communicate the procedures for reimbursement.  This applies to all departments and individuals who travel or entertain for the Company.

The Company recognizes that employees who travel far from home to represent the Company’s business interests must forego their living accommodations and may forfeit personal time.  Accordingly, the Company will make efforts to provide comfortable and secure accommodations for lodging, meals and travel for employees.  However, these items are not intended to be perquisites and the Company reserves the right to deny reimbursement of expenses that are considered lavish or extravagant.

All reservations required for business travel and entertainment should be made through the designated Travel Coordinator.  Expenses are to be within established Company guidelines and will be reimbursed with proper documentation.  Employees are expected to spend the Company’s money as carefully and judiciously as they would their own.

5.1.4    Management Reports

The Company should provide the format and content requirements for preparation of the Financial Reports.  Department Managers will prepare summary reports of vital operating statistics for the Company, including sales, current debt, operating cash, accounts receivable and projected short-term cash flows.  These reports are to be prepared in brevity and are to supplement detailed monthly and quarterly financial reports and are to be used for timely “hands-on” management.

5.1.5    Period-End Review & Closing

An orderly, timely, and comprehensive review of all general ledger accounts should be performed or directed by the Controller or CFO to ensure an accurate representation of the Company’s financial statements.  These practices are aimed at proving that the financial accounts are accurate, and if not, are properly adjusted to make them accurate, prior to closing. 

The Company should provide a general overview of the process to be completed for reviewing the accounting records at year-end or any particular month-end prior to closing.  These practices apply to all accounts.  Typically, all financial accounts are reviewed and then closed out as of the Company’s year-end. 

5.1.6    Controlling Legal Costs

All individuals with the responsibility for contracting legal services and/or approving agreements, contracts, or any other legally associated transactions should employ various methods to manage and, whenever possible, minimize legal expenses.

5.1.7    Taxes and Insurance

To ensure compliance with all Federal, state, local, and other regulatory taxation requirements, the Company should outline the general areas of taxation to be used as a checklist or guide in complying with tax requirements related to each specific location and organizational structure.  This statement applies to all the business activities of the Company.

5.1.8    Property Tax Assessments

All property tax assessments will be reviewed for accuracy and proper assessed valuations to ensure minimum property tax costs to the Company.  The Company should outline the areas for review in assessments and methods for appealing overstated assessments.  This statement applies to the property tax assessments for all sites owned by the Company.

5.1.9    Confidential Information Release

The release of financial, statistical, or other information that may be of a confidential nature to the Company should be controlled.  Individual requests should be referred to the Chief Financial Officer, Controller, or appropriate manager for disposition.

The Company should provide a means for the control of information to banks, investors, investment houses, media, credit bureaus, or other agencies and organizations.  All requests by an outsider to an employee regarding financial, sales, marketing, customers, personnel, vendors, or other Company confidential information.  If in doubt, verify with the Chief Financial Officer or Controller.

5.1.10  Document Control

All documents used to provide work direction or set policy should be reviewed, approved, distributed, and controlled by the office of the Controller.  The Company should define the methods and responsibilities for controlling documents used to provide work direction or set policy, and to define methods for document revision, approval, and distribution.  This applies to all documents required by the Accounting Management System.  Documents of internal or external origin are included.

5.1.11  Referenced Procedures:

G&A101 Chart of Accounts

G&A102 Files and Records Management

G&A103 Travel and Entertainment

G&A104 Management Reports

G&A105 Period-End Review & Closing

G&A106 Controlling Legal Costs

G&A107 Taxes and Insurance

G&A108 Property Tax Assessments

G&A109 Release of Confidential Information

G&A110 Document Control


5.2       Cash

Adequate control over all cash receipts and disbursement are a vital element of the Company’s internal accounting controls.  The following Cash Procedures should be utilized to control the flow of cash through the Company.


 

5.2.1    Cash Drawers and Credit Cards

Proper internal control should be maintained over funds received by cashiers or sales clerks at all times.  The Company should identify the practices for cash drawer control, including cash receipts, credit cards, special tender items, cash payouts, and reconciliation with deposits. 

5.2.2    Cash Receipts and Deposits 

The Company should establish the methods to be followed for receiving, applying and depositing cash receipts.  This applies to all cash receipts received by the Company.  Accurate internal control of cash receipts and deposits should be maintained at all times.  For example, cash deposits should be made on the same day as receipt.

5.2.3    Problem Checks

The Company should describe how problem checks should be handled before depositing, in order to save time in returning and following-up on unsigned checks, checks marked “payment in full,” or those returned by the bank.  This applies to all checks received by the Company.

5.2.4    Wire Transfers

The Company should provide additional payment options to customers and vendors in order to make funds immediately available to the receiving party.  Wire transfers should be treated with special care and accuracy to prevent loss to the Company or the customer.

The Company should explain the steps necessary to ensure proper procedures are followed when processing wire transfer requests.  This applies to customers who are sending or receiving wire transfers and the financial institutions, which process these requests.

5.2.5    Check Signing Authority

The Company should outline “dollar limits,” the check signing authority process, and limit the number of employees authorized to sign checks, while ensuring that there should be no fewer than three individuals at all times.

While a hired accountant, office manager, or accounting clerk may be responsible for entering bills, paying bills, and printing out checks, all printed checks and related documentation should be presented to a second individual for signing.  No one person or employee (other than perhaps the owner) should be allowed to enter invoices, select invoices for payment, then print and sign checks.  At a minimum, this process requires at least two individuals to ensure the integrity of the accounting system remains intact.  This applies to all regular bank checking accounts of the Company.

5.2.6    Check Requests

The Company should describe the process for completing a check request form to ensure the efficient processing and record keeping of all manual check requests.

5.2.7    Bank Account Reconciliations

The Company should outline the practices for preparation of a monthly bank reconciliation and ensure the accuracy of the Company’s bank account records by proving the monthly balance shown in the bank’s Account Register. This applies to all bank accounts maintained by the Company.

5.2.8    Petty Cash

A Petty Cash account facilitates quick payment of minor business expenses (for example, to buy a pack of AA batteries when they’re needed, rather than waiting for the monthly office supply order to be placed).

5.2.9    Referenced Procedures:

5.3       Inventory & Assets

Accurate reporting, classification, and valuation of inventory are critical elements of internal controls because any changes in inventory and assets can have a dramatic and material impact on the balance sheet and income statement.  The following Inventory and Asset Procedures should be utilized to account for and control all of the Company’s various assets.

 

5.3.1    Inventory Control

The investment in physical inventory will be maintained at the lowest effective level and supervised consistent with a common set of procedures and controls.  The Company should outline the actions taken for proper safekeeping and handling of inventory to ensure it is saleable, usable, and traceable for quick selection and delivery.  This applies to all inventory items including back room and warehouse storage.

5.3.2    Inventory Counts

All physical inventory will be periodically and frequently counted and reviewed under a common set of procedures and controls.  The Company should outline the actions to be taken to conduct an accurate physical count of all inventory items in order to verify the accuracy of the inventory ledger.  This applies to all inventory items including back room, warehouse storage, off-site usage, demonstration, or customer loaner purposes.

5.3.3    Fixed Asset Control

Proper control procedures will be followed for all capital asset acquisitions, transfers, and dispositions in order to provide internal control of capital equipment and to assist in reporting.  The Company should outline the procedures for acquiring, disposing, and maintaining control of capital assets.  This applies to all capital equipment with a value of $______ or more and with a useful life greater than one year.

5.3.4    Customer Property

The Company will store, as needed, a necessary level of customer property and should provide a reasonable level of protection and control for the type and value of the property.  The Company should define the methods to be used to identify, verify, protect, and safeguard customer property while it is in possession of the Company.

This applies to any items supplied by customers including: components and materials supplied for inclusion in product, tooling and fixtures used in manufacturing and inspection processes, and intellectual property for use and testing with software systems. 

5.3.5    Fixed Asset Capitalization & Depreciation

Asset acquisitions with a useful life expectancy of greater than one year and with a minimum threshold amount as specified by the Controller should be capitalized by the Company and depreciated.

The Company should delineate the capitalization and depreciation methods for various asset groups.  This applies to all acquisitions of capital assets for the Company.

5.3.6    Referenced Procedures:

INV101 Inventory Control   

INV102 Inventory Counts   

INV103 Fixed Asset Control  

INV104 Customer Property   

INV105 Fixed Asset Capitalization & Depreciation


5.4       Revenue

The proper identification and acceptance of all sales are an important element of controls for the income statement and represents the primary source of operational cash flow.  The following Revenue Procedures should be utilized to account for and recognize all sales of the Company.


5.4.1    Sales Order Entry

All customer orders will be processed in an efficient and organized manner to ensure accurate and prompt shipments.  The Company should summarize the preparation of documents, paperwork flow, and responsibilities by individuals and departments for obtaining a sales order from a customer through shipping and billing the customer.

Each individual involved in the sales order process should take the responsibility to determine that all required and necessary activities and documents are properly completed.  This applies to all individuals and departments involved in consummation of the sales process, specifically including Sales, Customer Service, Credit, Manufacturing, and Billing.

5.4.2    Point-Of-Sale Orders

The Company should provide the procedures for ensuring that all sales are proper and collectible and the effect on inventory and cash is posted correctly.  There should be proper transaction controls over sales and proper reviews and authorizations by the store manager.  This applies to all cashiers and cash handlers.

5.4.3    Customer Credit Approval and Terms

To reduce potential collection problems, new customer accounts or credit limit increases will be properly evaluated and approved prior to extending credit. The Company should outlines the activities and responsibilities involved in obtaining credit approval for a potential customer before sales orders are consummated.  These procedures are to be followed for all credit approvals requested by the Sales or Customer Service Departments for customers interested in open account, lease, or rental financing.

5.4.4    Sales Order Acceptance

To ensure the highest customer services levels and reduce potential order problems, sales orders will be properly evaluated and approved prior to entry into the accounting system and fulfillment by the Company. 

The Company should outline the activities and responsibilities involved in verifying the acceptability of all sales orders received before they are consummated.  This applies all sales orders taken by the Sales or Customer Service Departments. 

5.4.5    Shipment of Goods

All products and services should be delivered in an organized manner in order to maintain the highest customer service quality levels possible and to ensure compliance with all United States Customs laws and regulations when exporting goods and services.

The Company should outline the steps for the packaging, safe storage, control, and delivery of all products and services shipped by the Company.  This applies to all products and services distributed by the Company, sales, customer service, and shipping personnel.

5.4.6    Invoicing and Accounts Receivable

Accounting is responsible for the timely preparation and distribution of invoices to optimize cash flow and customer payments.  Accounting should also maintain accurate records over Accounts Receivable and abide by proper internal controls.

The Company should explain the methods for the preparation of invoices and accounts receivable records processing.  This applies to all product sales and services provided by the Company.

5.4.7    Sales Tax Collection

The Company is liable for collecting sales tax anytime there is selling or renting of tangible personal property through a retail sale, subject to certain exemptions and conditions, within a jurisdiction in which the Company is deemed to be engaged in business.  The Company will at all times comply with all state and local sales tax regulations and requirements.

The Company should outline the sales tax rules, rates, and exemptions for the collection of sales tax on sales and service by the Company.  This applies to individuals in Sales and Customer Service who are directly responsible for the sale of products.

5.4.8    Progress Billing

Progress billings will be made to clients on a timely basis throughout the life of the project.  These billings will be accurate and easily understood by both parties involved.

The purpose for creating progress billings is to obtain payment for the portion of labor and materials used up to a certain point in time and before the project is fully completed.  This improves the cash flow typical of long-term projects or assignments.  This procedure applies to all service agreements or projects provided by the Company.

5.4.9    Account Collections

All open accounts receivable with late or delinquent payment activity will be handled in a timely and effective manner to ensure maximum collections and an optimum accounts receivable turnover ratio.

The Company should provide the actions and methods for processing late or delinquent payments.  This applies to the Credit Department involved with collection of past due accounts receivable.  The Sales and/or Shipping Departments may be involved in reference to shipping holds or special credit arrangements.

5.4.10  Customer Returns

The Company should outline the steps and documents to be used for customers returning goods in order to provide adequate control of inventory and timely refunds to customers.  This applies to all products and service parts sold by the Company.

5.4.11  Referenced Procedures:

REV101 Sales Order Entry  

REV102 Point-Of-Sale Orders   

REV103 Customer Credit Approval and Terms

REV104 Sales Order Acceptance  

REV105 Shipment of Goods  

REV106 Invoicing and Accounts Receivable 

REV107 Sales Tax Collection  

REV108 Progress Billing   

REV109 Account Collections   

REV110 Customer Returns   


5.5       Purchasing

Proper vendor selection and utilization assist in controlling expenses and provide quaility inputs to the comapny.  The following Purchasing Procedures should be utilized to account for and control all purchases and acquisitions of the Company.


5.5.1    Vendor Selection

The Company ensures purchased products and services conform to specified requirements.  This starts with selection of appropriate suppliers that have the capability and systems to supply products, materials, and services to the Company’s specified requirements. 

The Company should strive to validate the performance capabilities of all vendors and maintain the internal controls of the purchasing functions.  Suppliers are controlled to the extent necessary based on the effect of the purchased items on the quality of the Company’s products and services.

The Company should provide the methods for determining, documenting, and, when applicable, inspecting vendors for compliance with Company policies and contract purchasing requirements.  This applies to all vendors of products, materials, and services that directly affect the quality of the Company’s products and services.

5.5.2    General Purchasing

The investment in physical inventory, supplies, and capital equipment will be facilitated through the Purchasing Department, maintained at the lowest effective level and supervised consistent with a common set of procedures and controls as required by all regulatory and customer contract requirements.

To outline the actions to be taken for 1) the procurement of all inventory, supplies and capital equipment, 2) the continuous analysis of inventory usage and balances in order to minimize the investment level, 3) the completion of related documents.

This applies to the purchase of all inventory items, supplies, and capital equipment for all departments within the Company.

5.5.3    Project Purchasing

The Company’s Purchasing Department is responsible for obtaining a competitive price on materials in correct quantities in a timely fashion, so that the flow of construction is not interrupted or impeded.

The Company should describe the procedures involved in maintaining the ordering, purchasing, and receiving functions needed for projects in the field.  This applies to the purchase of all materials, services, tools, supplies, equipment, and equipment rental for all development or construction projects.

5.5.4    Receiving and Inspection

All parts, components, goods, and materials should be received in an organized manner and inspected for conformance prior to stocking to provide an initial quality control inspection.  Any items or shipments rejected will be properly quarantined from other inventory items until disposition. 

The Company should outline the steps for the receiving and inspection of materials, components, parts, finished goods, etc., and the stocking of these items or the disposition of rejected items.  This applies to the receipt of all inventory items.

5.5.5    Shipping and Freight Claims

The Company should strive to minimize damages to goods from shipping and to recover full amounts possible for any losses incurred by shipping damage or loss of goods as allowed by the Interstate Commerce Act.

The Company should institute the methods to be followed for shipping and filing freight claims.  This applies to all goods shipped and received by domestic motor and rail common carriers.

5.5.6    Accounts Payable and Cash Disbursements

Internal controls are required to ensure that only valid and authorized payables are recorded and paid.  Accounting procedures should be implemented to ensure the accuracy of amounts, coding of general ledger accounts, and appropriate timing of payments.

The Company should explain the practices for documenting, recording, and issuing payments for accounts payable transactions.  This applies to all purchases including merchandise and non-merchandise purchases.

5.5.7    Referenced Procedures:

PUR101 Vendor Selection   

PUR102 General Purchasing   

PUR103 Project Purchasing   

PUR104 Receiving and Inspection  

PUR105 Shipping and Freight Claims 

PUR106 Accounts Payable and Cash Disbursements

6.0       Resource Management

6.1       Provision of Resources

During planning and budgeting processes, and as needed throughout the year, the President and management team determine and ensure that the appropriate resources are available to implement and maintain the Accounting Management System and continually improve its effectiveness.

6.2       Human Resources

6.2.1    Accounting Staff

Managers and employees are to have personal and professional integrity and are to maintain a level of competence that allows them to accomplish their assigned duties, as well as understand the importance of developing and implementing good internal controls.

This requires managers and their staff to maintain and demonstrate at all times:

o   Personal and professional integrity

o   A level of skill necessary to help ensure effective performance

o   An understanding of internal controls sufficient to effectively discharge their responsibilities

6.2.2    Competence, Awareness, and Training

Accounting personnel shall be competent based on appropriate education, training, skills, and experience.  The minimum competencies required for each position at our Company are defined in each position’s Job Description.  Human Resources, department managers, and supervisors are responsible for ensuring job descriptions are current and adequate.

Where otherwise qualified personnel require additional training or other action to meet the minimum competency requirements, these needs are identified.  The department provides task-specific training.  General training or education is provided or coordinated by Human Resources.  The department should evaluate the effectiveness of training or other actions taken as appropriate.

The department generates records of task-specific training.  Human Resources maintains records of all training and education, skills, and experience in accordance with Human Resources Policies and Procedures and Computer and Network Policies and Procedures.

Department managers are responsible for ensuring their employees are aware of the relevance and importance of their activities and how they contribute to the achievement of the accounting objectives.

6.2.3    Separation and Supervision of Duties

Key duties and responsibilities should be separated among individuals.  Duties and responsibilities shall be assigned systematically to a number of individuals to ensure that effective checks and balances exist.  Key duties include authorizing, approving, and recording transactions; issuing and receiving assets; making payments; and reviewing or auditing transactions.

Qualified and continuous supervision is to be provided to ensure that internal control objectives are achieved. This standard requires supervisors to continuously review and approve the assigned work of their staffs as well as provide the necessary guidance and training to ensure that errors, waste, and wrongful acts are minimized and that specific management directives are followed.

6.2.4    Referenced Procedures:

See ABR41 Bizmanualz® Human Resources Policies & Procedures Manual.

See ABR34 Bizmanualz® Computer & Network Policies & Procedures Manual.

6.3       Infrastructure

Our Company provides the infrastructure necessary to achieve conformity to accounting standards and requirements.  During the annual budgeting and strategic planning processes, buildings, workspace, and associated utilities are evaluated and provided.  When new personnel are added, Human Resources coordinates activities to ensure appropriate process equipment including hardware and software, if required, and supporting services such as telephones etc., are available based on information provided on the Personnel Requisition.

6.4       Work Environment

The management team, Controller, and Office Manager determine and manage the work environment to ensure our Company provides a safe and desirable place to work.  They ensure the environment is appropriate for achieving conformity to product, customer, and regulatory requirements.