Objectives
The purpose of this post series is to provide employees of a company with a reference manual containing guidelines, procedures and internal controls established by the management of the Company. These guidelines, procedures, and internal controls apply uniformly to all the divisions, departments, and employees of the Company. All the divisions and departments shall make a concerted effort to see that these guidelines and procedures reflect the most current practice of their divisions and departments. It is emphasized that no procedure be changed without approval of the management, and the approved change shall be incorporated in this manual. This document sets out the standard operating procedure that the administration expects to be in place for the following areas.
- System management
- Process management
- Budgeting
- Procurement process
- Inventory management
- Machinery and vehicle hiring
- Fixed assets
- Payment process
- Invoicing and debt collection
For brevity, an attempt has been made to include only that information that will be used under normal operating circumstances within the company. In the case of special situations, it is recommended that the appropriate department be contacted. Process flow charts given in this manual may contain deviations from the standard flowcharting rules as per the requirements of the company.
Guidelines, Procedures and Internal Controls
The objective of guidelines procedures and internal controls are to have reliable financial reporting, effective and efficient operations and compliance with laws and regulations. Internal Control is affected by people, and it’s not merely regulations, but People's actions at every level of the Company. Main components involved in Internal Controls are;
- Preventative control activities
- Detective control activities (Monitoring)
- Information and communications
- Risk assessment
- Control environment
This SOP encompasses Preventative Controls, which try To control or deter undesirable acts from occurring. They are proactive Controls, designed to avoid a loss, error, or omission. Examples of preventive controls are:
- Segregation of duties
- Proper authorizations
- Adequate documentation
- Physical security over cash and other assets
Segregation of duties
Distribution of duties is essential to effective internal control. It reduces the risk of both erroneous and inappropriate actions. It is a deterrent to fraud. The essential functions that must be adequately separated are described below. When it is complicated to separate these functions, a detailed supervisory review of related activities or transactions is required as a compensating control activity. To ensure proper separation of duties, a person shall never approve a transaction for which they are the payee.
- No single person shall (but not limited to):
- Record transactions and reconcile balances.
- Handle cash and verify deposits.
- Handle assets and reconcile permanent records to physical counts.
- Shall never approve a transaction for which he/she is the payee
- Not share user security passwords of SAP or any other IT systems.
Approvals
The approval authority shall only be given to individuals with sufficient power and knowledge to recognize and challenge Unusual transactions. The Higher Authority shall approve the limits on both Transaction amount and number of employees granted authority. Basically, the approver shall exercise followings;
- Confirm payment documents comply with relevant financial, legal, and contractual requirements
- Review supporting documentation to verify certifications/recommendations by competent staff
- Confirm compliance with Company policies and procedures
- Confirm compliance with regulatory requirements
- Timely review main transaction information to confirm it is appropriate, reasonable, and complete
- Verifies through inquiry or has direct knowledge that the goods were received or the service was performed
- Confirm transactions are within approved contract amounts and/or budgetary allocations
- No approval is granted exceeding approved contract amounts and/or fiscal allocations unless exceeded amounts are sanctioned by the Higher Authority
- No sharing of passwords
- Approval limits vested by the Higher Authority are not violated
- No splitting of transactions to avoid higher approval levels
Abbreviations
Abbreviation | Description | Abbreviation | Description | Abbreviation | Description |
AE | Accounts Executive | GR | Goods Returns | QA | Quality Assurance |
AP | Accounts Payable | GRN | Goods Received Note | QS | Quantity Surveyor |
AUC | Asset Under Construction | GM-PMD | General Manager - PMD | RPM | Request for Purchase Material |
BOD | Board Of Directors | LC | Letter of Credit | RRN | Reimbursement Return Note |
CAPEX | Capital Expenditure | MAT | Material | RSR | Reimbursement Summary Report |
CED | Construction Equipment Division | MDM | Master Data Management | SA | Site Accountant |
CEO | Chief Executive Officer | ME | Mechanical Engineer | SAN | Service Acceptance Note |
CGU | Cash Generating Unit | MMER | Material/ Machinery and Equipment Requisition | SE | Site Engineer |
CO | Corporate Office | NIC | National Identity Card | SER | Service |
COO | Chief Operating Officer | P&M | Planning and Monitoring | SES | Service Entry Sheet |
CPV | Cheque Payment Voucher | PBE | Performance-Based Equipment | SGM | Senior General Manager |
CSR | Cooperate Social Responsibility | PC | Petty Cash | SK | Store Keeper |
CWIP | Construction Work In Progress | PCV | Petty Cash Voucher | SO | Site Office |
ECP | Easy Cost Planning | PE | Planning Engineer | SPO | Service Purchase Order |
ERP | Enterprise Resource Planning | PI | Physical Inventory | SUB | Subcontracting |
FA | Fixed Asset | PM | Project Manager | VMDC | Vendor Master Data Controller |
FSV | Financial Statement Version | PMD | Project Management Division | WBS | Work Breakdown Structure |
GI | Goods Issue | PO | Purchase Order | WO | Work Order |
GL | General Ledger | PR | Purchase Requisition | ||
GM | General Manager | PU | Pilling Unit | ||
GMT | Goods Machinery Transfer note | PV | Payment Voucher |
We will discuss further in detail in the coming post series. Subscribe us to keeping touch.
Very useful article. Thanks for sharing and waiting for next posts.
ReplyDeleteThanks for the encouragement.........
DeleteThanks
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