Introduction to Standard Operating Procedure - SOP

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

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