finance department - accounts payable - sop

Standard Operating Procedures

Finance and Accounts Department


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Glossary

Term Expansion

KPI Key Performance Indicator

TAT Turnaround Time

GS Gate Sequence

GI Goods Inward

BL Bill Booked

PJV Payment Journal Voucher

FACE Finance, Accounting and Central Excise System

PO Purchase Order

CAN Cargo Arrival Notice

CA Clearing Agent

FFA Freight Forwarding Agent

SWIFT Society for Worldwide Interbank Financial Telecommunication

RBI Reserve Bank of India

INR Indian Rupee

RSN Return to Supplier Note

DRSN Debitable Return to Supplier Not

SDN Supplier Debit Note

BOD Board of Directors

ABL Bill Booked for sub contractors

DC Delivery Challan

AGM Assistant General Manager

VP Finance Vice President Finance

EVP Executive Vice President

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Term Expansion

DPD Days Past Due

Forex Foreign Exchange

PED Production Engineering Department

List of Finance Department Personnel

Vice President Finance and Company Secretary

Deputy General Manager

Assistant General Manager

Senior Officer

Deputy Senior Officer

Officers

Contract Employee

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Contents

Purpose 6

Scope 7

1 Payables 81.1 Process Owner 81.2 Process Objectives 81.3 Process KPI’s 81.4 Vendor invoice acceptance and payables recording – Local Direct and

Indirect Material 91.4.1 Flowchart - Vendor invoice acceptance and payables recording –

Local Direct and Indirect Material 91.4.2 Description - Vendor invoice acceptance and payables recording –

Local Direct and Indirect Material 101.5 Vendor invoice acceptance and payables recording – Import Direct

Material 121.5.1 Flowchart - Vendor invoice acceptance and payables recording –

Import Direct Material 121.5.2 Description - Vendor invoice acceptance and payables recording –

Import Direct Material 141.6 Goods Rejected 181.6.1 Flowchart – Goods Rejected 181.6.2 Description – Goods Rejected 191.7 Sub-contractor transactions 221.7.1 Flowchart – Sub-contractor transactions 221.7.2 Description – Sub-contractor transactions 231.8 General Expenses 261.8.1 Flowchart – General Expenses 261.8.2 Description – General Expenses 271.9 Payments to Vendors 291.9.1 Flowchart – Payment to Vendors 291.9.2 Description – Payment to Vendors 301.10 Provisioning for expense 331.10.1 Flowchart – Provisioning for expense 331.10.2 Description – Provisioning for expense 341.11 Vendor Reconciliation and Confirmation 361.11.1 Flowchart – Vendor Reconciliation and Confirmation 361.11.2 Description - Vendor Reconciliation and Confirmation 371.12 Write backs 391.12.1 Flowchart – Write Backs 391.12.2 Description – Write Backs 401.13 Forward Contracts 421.13.1 Flowchart – Forward Contracts 421.13.2 Description – Forward Contracts 44

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Purpose

The Finance Standard Operating Procedures Manual describes the set of procedures adopted

and used in Delphi TVS to achieve effective Financial Management. This document seeks to lay

down the procedures adopted at Delphi TVS in a manner that aids standardization of procedures

related to the Finance function. It is designed to provide a consistent accounting/financial

framework and internal controls by encapsulating the best practices relating to the Finance

function of the Company in a comprehensive document. The manual provides guidelines to

execute, maintain or change the procedures related to the Finance Department. It sets out the

basic framework within which the financial data is prepared and communicated. The document

may also be used as training material for new employees and a reference tool for existing

employees.

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Scope

This document describes in detail the Standard Operating Procedures of Delphi TVS for the

Finance and Accounting function. The Procedures covered include

Cash and Bank,

Payables,

Receivables,

Inventory,

Payroll,

Fixed Assets and

Recording and Reporting.

The different sub-processes related to these accounts have been documented and described in

detail in this document along with the authority structure and the lines of communication in

place for the same.

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1 Payables

1.1 Process Owner

Officer – Finance Department

1.2 Process Objectives

Ensure that invoice acceptance and adjustments are done on time and as per policy.

Ensure that payables are recorded correctly.

Ensure that payments to vendors are identified accurately and made on a timely basis.

Ensuring that vendor balances are confirmed, reconciled and adequate follow up is carried out on the same.

Ensure that accruals and prepaid expenses are appropriately accounted for.

1.3 Process KPI’s

Exception report of all invoices that have been recorded outside the allocated turnaround time (TAT) for the same.

Report of payables booked erroneously.

Trend analysis of delayed payments and exception report for errors in payments.

Reconciliation of vendor balances on a monthly basis. Reporting and receipt of vendor confirmations on a quarterly basis.

Follow up action in case of discrepancies and documentation of the same.

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1.4 Vendor invoice acceptance and payables recording – Local Direct and Indirect Material

1.4.1 Flowchart - Vendor invoice acceptance and payables recording – Local Direct and Indirect Material

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1.4.2 Description - Vendor invoice acceptance and payables recording – Local Direct and Indirect Material

Background

Materials procured by DTVS may be divided into Direct Materials and Indirect Materials.

Direct Materials consist of raw materials, components and sub contracting materials.

Indirect Materials consist of Capital Expenditure and payments for utilities and consumables.

The process for Capital Expenditure has been captured as a part of the Fixed Assets process.

The source of both direct and indirect materials may be local or imported though all utilities are from local suppliers.

General payments include:

– service contracts (e.g.) contract labourers (part of Party Master)

– other payments not routed through party

In case of most of the payments the vendor details are present in the Vendor Master and derived from there.

All new vendors are added to the Vendor Master by the Purchase Department. Any amendments to Vendor details like address however are carried out by the Finance Department.

When the goods enter the factory premises an entry of the same is made in the system and a Gate Sequence (GS) number given to all goods entering.

A Goods Inward (GI) is raised on the system at stores for goods entering stores.

On quality check goods acceptable are segregated from defective goods and the GI is accepted for goods meeting quality standards. The same is then updated in the system in stores.

Responsibility Senior Officer – Finance Department

Contract Employee – Finance Department

Inputs Supplier Invoice received by the Finance Department

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Rate as per Purchase Order

GS raised

GI raised and GI accepted

Application FACE 2000

List of activities

Contract employee - Finance Department enters details available in the bill in the system on receipt of invoice from the vendor. The value entered is the full value of the goods inwarded into the factory irrespective of rejections on quality check. This is the BL (Bill booked)

This entry is passed to record payables and is based on the supplier invoice, which is usually sent along with the goods and the GS entry made by DTVS.

Once the goods pass the quality check the Stores Department passes an entry to record GI for those goods that pass the quality check.

Excise Credit is taken simultaneously for goods corresponding to the value of the GI accepted as per the system on verification with transporter copy of vendor invoice by contract employee in the Finance Department.

There is a GI for every GS in the system and the two are linked in the system. Therefore every GI can be traced back to a GS.

The Payment Journal Voucher (PJV) is passed only for the GS value on verification of the following:

– Whether there is an entry for GI Accepted in the system

– Whether credit on Excise has been recorded for GI value

– Whether the invoice rate corresponds to the rate on the Purchase Order.

The passing of the PJV ensures recording of a liability in the system.

The PJV is passed for the value of goods in the Gate sequence document.

Frequency Multiple times a day

Outputs PJV for recording payables

Maintenance of excise register on FACE 2000

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1.5 Vendor invoice acceptance and payables recording – Import Direct Material

1.5.1 Flowchart - Vendor invoice acceptance and payables recording – Import Direct Material

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1.5.2 Description - Vendor invoice acceptance and payables recording – Import Direct Material

Background

The Purchase Department makes two schedules of imports.

– A 52 week schedule at the beginning of the year based on projections and Annual Plan

– A 6 month rolling schedule that is updated on a monthly basis where the orders are confirmed for the subsequent month and tentative for the balance 5 months.

Open PO s are placed with the overseas vendors on the basis of the 52 week schedule.

The price is arrived at during negotiations with the vendor at the beginning of the year and baring exceptional circumstances and re-negotiation the price remains fixed for the year.

All import payments instructions are given by DTVS but the actual payment rates to be used are identified by the Treasury Contractor.

Responsibility Officer – Finance Department


Inputs

Purchase Order

Cargo Arrival Notice (CAN) which contains

– Supplier Invoice and Packing List

– Transporter documents (Bill of Lading / Airway Bill)

– Freight Forwarding Agent (FFA) bill

Clearing Agent (CA) bill


List of activities INR and Foreign Currency transactions through FFA

The Purchase Department communicates the information regarding the schedule for clearance of goods to the Freight Forwarding Agent (FFA) as obtained from the supplier.

The FFA is responsible for clearing goods at the overseas port.

Once goods are cleared the FFA sends his bill (which includes freight charges and his commission) to the Purchase Department of

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DTVS along with the following supporting documents:

– Supplier Invoice

– Transporter documents (Bill of Lading or Airway Bill)

– Packing list

The Purchase Department verifies documents for authenticity and appropriateness and the bill to validate the charges against the contract entered into with the FFA.

Once the above are verified they are authorized and signed by the Head of Imports and the document set sent to the Finance Department.

The above documents are called the CAN (Cargo Arrival Notice)

Once the Finance Department receives the physical documents, they create a file on FACE 2000 for the CAN.

The supplier invoice can be booked only after a system file is created for every CAN.

The system takes into account the RBI rate that is updated on a monthly basis in the system by the Officer – Finance Department.

While calculating the INR value of the transaction as CAN base supplier invoices are entered in the system in foreign currency amounts.

Freight charges related to the shipment are also booked into the appropriate CAN.

CANs on FACE 2000 are supplier specific though multiple invoices may be accounted for in a single CAN.

Once the supplier invoice is recorded in the CAN the entry for Accounts Payable is automatically passed by the system.

FFA charges are booked in INR on the system

Clearing Agent

The Purchase Department sends a schedule of receipt of goods schedule to the CA.

The CA takes charge of the goods once they are received at local port and is responsible for getting the goods cleared by customs.

The CA prepares an invoice for service charges and other miscellaneous charges incurred to clear the goods. These bills are

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sent directly to the Finance department by the clearing agent.

The bill of the CA is accompanied by the following:

– Bills supporting miscellaneous charges

– Bill of entry (exchange control copy) – this document specifies the supplier Invoice number on the face of the document.

The Finance Department matches the supplier invoice number in the Bill of Entry to that in the CAN on the system and makes an entry for customs duty and CA charges under the appropriate CAN.

Payment

Finance Department sends a Debit Advice letter to the bank advising them to pay the foreign currency amount due to the overseas supplier, once the payment becomes due.The letter, which is supplier specific, contains the following details:

– Invoice details (as annexure)

– The foreign currency to be used in payment

– Name and bank details of Overseas supplier

– Overseas supplier Account code for transfer of funds

– SWIFT code

The letter is sent to the bank with the following supporting documents

– Original Bill of Entry

– Supplier invoice

– Bill of Lading or Airway Bill

– Form A-1

On submission of the relevant documents the bank processes the payment advice and sends a SWIFT advice (that transfer of funds has been initiated) to DTVS the following day.

The information about the SWIFT advice is communicated to the overseas supplier by DTVS.

The bank sends formal documentation of the payment advice within three days of fund transfer.

On receipt of bank documentation, the accounting entry is passed

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for payment to supplier on FACE 2000.

The entry for bank charges is also made at this point.

The actual payment made and the foreign exchange rate used by the bank (indicated in the bank advice) is entered in the system at this point.

The system passes two entries,

– One for the INR value of payment made using bank payment rate and

– An adjustment entry for the difference in foreign exchange gain or loss between the RBI rate booked initially and the actual payment rate.

Frequency Multiple times a day

Outputs

Payables recorded in the system

Payment recorded in the system

Customs duties and other charges recorded in the system.

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1.6 Goods Rejected

1.6.1 Flowchart – Goods Rejected

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1.6.2 Description – Goods Rejected

Background

Goods rejected by Stores Department are captured in a separate entry in the system.

Receipt of the whole shipment is acknowledged through the GS and a separate entry is passed to reverse the portion related to goods rejected by the Quality Department.

Rejections may be either on inspection of goods or from the production line.

Separate reversal entries are passed in each case.



Inputs

GS raised in the system

RSN raised by the Stores Department

DRSN raised by the Stores Department

Pack Claim raised by Stores Department in case of shortage and Quality Department in case of defective goods (Imports)


List of activities Goods rejected after quality check

Finance Department passes a separate journal entry for rejected goods (the difference between the GS and the GI accepted). This is a system generated automatic journal entry and is referred to as the SDN (Supplier Debit Note)

Stores Department raises a RSN (Return to Supplier Note), which is a physical and system note for reversal and sends it to Finance Department.

Officer - Finance Department raises an Invoice for the same in the name of the supplier in FACE.

On raising the invoice on supplier, an entry is generated by the system reversing excise credit taken to the extent of the goods rejected.

This Invoice is then printed and signed by the designated authorities (as per BOD approved list) and sent to the Stores Department.

The Stores Department verifies the details and sends the physical invoice to the supplier.

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Goods rejected during production

Once goods are rejected in the production line they are moved to a specified location in the warehouse.

The Stores Department then identifies the part number and quantity of such goods.

The Stores Department raises a DRSN (Debitable Return to Supplier Note)

The DRSN raised is sent to the Finance Department.

The Finance Department raises an invoice in the name of the vendor for this amount, prints a copy of the same and sends the signed copy of the invoice to the Stores Department.

The Stores Department sends the physical copy of the invoice to the vendor.

The physical goods that have been rejected through Quality Department or in Production line are segregated in the warehouse and subsequently shipped back to the supplier along with the rejection invoice.

On raising the invoice by the Finance Department the system passes an accounting entry that simultaneously

– Reduces the value of stock in the system

– Reverses supplier dues in the system

– Reverses excise applicable to the rejected goods

In case of shortages in imported goods a Pack claim is raised on ____ system by the Stores Department. In case of imported goods rejected the same is raised by the Quality Department.

The same is also generated as an excel sheet with details of shipment, part number and description, value, invoice number and date.

The Department raising the Pack Claim sends the information relating to the same to the overseas supplier. A copy of the e-mail sent is marked to the Finance department.

Upon confirmation from the supplier, the Finance Department adjusts the value of rejection in the subsequent payment to supplier by raising a Debit Note.

The Debit note is authorized as per authorization matrix specified.

Exception Report

On entry of goods into the factory premises the GS is booked and the bills relating to the same sent to the Finance Department. The goods are sent to the Stores Department for GI entry.

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The Finance Department books such bills on FACE 2000 which are called the BL.

On a daily basis an exception report is generated of goods for which a bill is booked (BL on GS completion) but the PJV is not passed by Finance Department.

The reason for which the discrepancy occurred is identified and selected in the system.

The report is sent to Stores Department at the end of each day to ensure that prompt follow up of the same is initiated.

If an entry is pending in the exception report for over 3 working days the same is escalated to DGM - Finance.

Frequency

RSN and DRSN - Multiple times a day

Pack Claim - As and when required

Exception report - Daily

Outputs

PJV for reversal of excise

PJV for generating a Debit note

Exception report of list of mismatches between bills booked and journal passed for goods to be recognized in the system.

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1.7 Sub-contractor transactions

1.7.1 Flowchart – Sub-contractor transactions

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1.7.2 Description – Sub-contractor transactions

Background

Sub contractor transactions are recorded in accordance with company policy.

Every time goods move from supplier to subcontractor or from one sub contractor to another, the movement of goods is recorded through DTVS system as if the goods came in to DTVS stock and subsequently issued to the sub-contractor stock.

Certain suppliers are “Self- Certified” out of the list of all suppliers of the company.

To become self certified the supplier has to demonstrate that he will supply quality goods on a continuous basis. To do this the following need to be completed

– The supplier needs to supply 6 lots of goods without any rejections to DTVS

– Pass the examination conducted by the Quality Team

– Based on fulfillment of the above two conditions, the Quality Team makes a recommendation to the Top Management.

– The approval of the Top Management is necessary for a supplier to be given the status of “Self Certified”

– The details of the supplier are then updated in the system by the Quality Department

Responsibility Officer - Finance Department

Inputs Billed booked (ABL)

Delivery Challan (DC)


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List of activities

Only self certified suppliers sends goods directly to the sub-contractor.

When goods are sent to the sub-contractor self-certified supplier sends a copy of the Delivery Challan (DC) with sub-contractor acknowledgement to the Stores Department of DTVS.

Sub-contractor raises a GS for total value of goods received.

A GI is subsequently raised for the same value as the GS as there is no expectation of rejection.

The part processed by the sub-contractor may be sent to DTVS or to another sub-contractor for further processing.

If the parts are sent to DTVS they are inwarded and a GS and GI created for the same as per the usual process. This ensures the movement of goods from sub-contractor stock to DTVS stock in the system.

If the goods are sent to another subcontractor then Sub-contractor 2 makes a GS for the original number of goods ordered.

The GI however is made for the goods actually received at sub-contractor site.

The difference is sub-contractor scrap. If it is in the form of components it is to sent to DTVS and if it is in the form of borings it is to be retained by the sub-contractor.

The Finance Department conducts a monthly valuation of goods at sub-contractor site. The material and scrap are evaluated and reconciled at that time.

A limit of 2% is targeted for sub contractor scrap by the company and any excess is investigated promptly by the Quality Department.

On reporting the scrap a debit note is raised by the Finance Department on the scrap contractor once in 60 days. This is referred to as F4 documentation.

Based on credit period the dues to sub contractor for processing charges is raised as per the agreement with sub-contractor and an entry passed making payment due.

Once the payment becomes due a payment order is automatically generated by the system and is authorized by appropriate authorities.

Sub contractor payments may be made by ABN-Amro Bank Station, cheque or cheque payment in the usual method of payment.

Frequency As and when required

Outputs GS for goods received

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GI for goods at sub-contractor site.

Valuation report of goods and scrap at sub contractor site.

Payment entry for processing charges of sub contractor.

Entries for scrap receipt are covered as part of inventory

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1.8 General Expenses

1.8.1 Flowchart – General Expenses

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1.8.2 Description – General Expenses

Background

Miscellaneous expenses may fall into the following categories

– Non GI Bills received (e.g. service contracts where regular service is rendered like air ticket bills, canteen bills, cab bills)

– Bills received from employees or directly from supplier by department (Sanction related expenses where the expenditure may be either by the employee or by the department)

– Bills without Sanction (e.g. statutory expenditure)

Depending on the nature of expenditure authorization is required on the physical bill.



Inputs

Bills in line with service contract agreement

Bills from employees or suppliers duly authorized

Communication for statutory expenditures.


List of activities Non – GI Bills

These contracts do not have GIs as they are related to service rendered and not goods inwarded.

In the case of service contract related expenses the entry for recording payables are made as and when the bill is received.

As applicable TDS is deducted and entry for the same made simultaneously in the system

As service contracts are entered into with the supplier, the vendor names are part of the Party Master.

On the payment becoming due a Payment order is generated that is duly authorized in the system

Payment is done as per agreement with the servicer.

Sanction related Bills

In the case of miscellaneous sanction related expenses, the bills related to the same may be produced by a supplier or employees of DTVS

On all such bills submitted to the Finance Department for

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payment, the Sanction number has to be mentioned and the entry has to be duly authorized evidenced by a signature.

Once the Finance Department verifies the authenticity of the bill the expense entry is passed in the system.

The amount is entered under a sanction to ensure that allocation is appropriate and the sanction is reduced by the appropriate amount.

The entry is passed in two stages making the amount due to the party and recognizing the expense and subsequently the payment entry to bank

In case of employees the amount is paid along with the salary of the subsequent month

In case of suppliers a cheque is issued signed by the authorized signatories. Or an ABN Amro transaction is initiated as applicable

Payments without Sanctions

Certain general payments like statutory payments and duties are the only payments that can be made without a sanction

The authorized person calculates the amount of expense and communicates the same to the authorized person in the Finance Department.

In case of customs duties to be paid the Purchase Department communicates the same to the Finance Department.

Finance Department personnel pass the entry based on the information obtained and relevant supporting documentation.

A direct entry for expense is passed and a cheque for remittance issued in the name of the appropriate authority.

Frequency

Service contracts - Monthly or as agreed

Authorized bills - Fortnightly

Customs duties - Multiple daily

Statutory expenses - As required

Outputs Entry for recording payables

Entry for recording payment

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1.9 Payments to Vendors

1.9.1 Flowchart – Payment to Vendors

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1.9.2 Description – Payment to Vendors

Background Payment order generation and authorization


Inputs

Invoice of supplier and entry made for GS

Entry made for GI

RSN raised

DRSN raised

Advance request


Bank Station

List of activities Advance - Local

Advance payment is made primarily in the case of Indirect Material.

Request for payment of Advance is given by the Purchase Department supported by the relevant PO.

Advance request for Local Suppliers specifies the following

– The vendor to whom the advance is to be given

– The PO against which advance is to be given

– The amount of advance

The Finance Department verifies the information provided and directly issues a cheque for the required amount.

Finance Deprtment enters details of PO in advance screen.

On payment of the cheque a direct entry is passed in the name of the supplier.

Advance payments are made only through cheques.

Payments (on maturity of credit period)

On the maturity of the period of credit a payment order gets generated automatically in the system.

All payment orders generated and due for payment can be viewed on Log in by Officer – Finance Department.

The system automatically takes into account any adjustments and reversals made to vendor dues while generating the Payment Order.

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The Payment Order is authorized on the system by appropriate designated authorities.

The above does not apply in case an advance payment has been made.

In case of PO s with Advance Payments, a manual adjustment needs to be made for the relevant invoices.

As per schedule of payments (payment cycle) decided by the department a report of payments due is generated. This specifies those payments where advance against the same has been made.

When the payment on these becomes due, the manual adjustment screen is selected on FACE 2000. This lists all advance made and payments sue.

The two are matched by Officer – Finance Department and the payment order generated for the net amount.

The Payment Order is authorized as per authorization levels

If the payment is to be made through ABN Amro Bank, Bankstation is used. If payment is not through ABN Amro Bank, the agreed upon method of payment is used. The details of the same have been documented as a part of the Cash and Bank process.

Advance - Imports

When advance payments are required to be made, the supplier sends a Proforma Invoice for PO to which such advance relates.

A request is made by the Purchase Department on FACE 2000 and an Advance request number is generated.

The request is printed and signed by the Head of Purchase Department and specifies:

– The vendor to whom the advance is to be given

– The PO against which advance is to be given

– The amount of advance and the currency in which it is to me made.

– An attachment of the Supplier Pro forma Invoice.

The Finance Department generates a letter of instruction to the bank for the advance payment signed by the appropriate authorities.

The bank sends a SWIFT advice confirming the payment to the Finance Department who forward this information to the Purchase Department who in turn send this information to the Supplier.

The bank sends Debit Advice particulars to the Finance Department who pass relevant entries on receipt of the same.

Officer - Finance Department passes the entry at the rate given by the bank.

Once the goods are received, and the physical CAN is received by the Finance Department, a system CAN is created in the usual

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process.

The entry for final invoice amount is also passed in the normal mode.

The adjustment for advance is a separate entry that is passed by selecting the relevant invoice and related advance. The system passes the entry for the same automatically.

Frequency Regular payments - Multiple times a day

Advances paid - Weekly

Outputs

Payment Order for Vendor

Vendor cheques

Payment instruction through ABN Bank Station.

Advance cheques.

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1.10 Provisioning for expense

1.10.1 Flowchart – Provisioning for expense

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1.10.2 Description – Provisioning for expense

Background

All accounts are closed at month end (the last working day of the month).

An estimation of all expenses that have not been incurred but can be reasonable projected is given to the Officer – Finance Department by the respective departments.

All expenses have to be booked by the 28th of the month or the preceding working day and an estimate for the rest of the days of the month submitted to Finance Department on the same day of expense booking.

Officer – Finance Department sends a checklist for confirmation of month end activities to the relevant identified officers of the various departments prior to the 25th of the month.

The officers in charge in every department complete the checklist and update that the expense entries have been passed and that the provision amount estimated and communicated to the Finance Department.

The completed checklist from each department is received by the Officer - Finance Department on or prior to the morning of last working day of the month and maintained by him.


AGM – Finance Department

Inputs History of expense and current month expense till date.


MS - Excel

List of activities All expenses including utilities need to be booked if bills are received on or prior to the 28th of each month.

Each department submits the bills that are available up to the 28th of the month with them for booking to the Officer – Finance Department.

In case of bills (e.g.) utilities like electricity, water etc where the expense for the month is not known the department estimates the provision to be made for the remaining number of days.

The assumptions and basis of estimation of expense, the amount of provision to be made and the purpose of the provision are sent to

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the Officer – Finance Department prior to the 28th of the month.

Officer - Finance Department seeks clarification where necessary from the respective departments and makes an entry for provision for expenses on FACE 2000 prior to the last working day of the month.

Officer - Finance Department checks the basis of estimations and assumptions for appropriateness before passing the entry for provisions.

AGM – Finance Department authorizes the provision entry.

Once the bills relevant to the provision are received, the expense is booked against the specific provision instead of against the Profit and Loss Account.

If the bill is in excess of the provision the provision is exhausted first and the excess booked against the Profit and Loss Account.

The reason for excess bill is investigated if the variance is over 5% of original estimated amount and the reason intimated to the Top Management.

Frequency Monthly

Outputs

Provision entry for estimated expenses

Authorization of the entry

Booking of expense against the Provision

Variance analysis (if expense is over limit defined by the company policy)

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1.11 Vendor Reconciliation and Confirmation

1.11.1 Flowchart – Vendor Reconciliation and Confirmation

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1.11.2 Description - Vendor Reconciliation and Confirmation

Background Vendors for DTVS may be either third party suppliers or related

parties. In all cases vendor reconciliation of balances due and pending is to be carried out.

Responsibility



VP – Finance Department

Inputs Monthly system generated reports of vendor balances.

Input from Purchase Department about goods returned.


List of activities Officer – Finance Department generates the balance due to individual suppliers by the 4th of every month.

Reconciliation is carried out taking into account at a minimum the following:

– Goods received but not part of the inventory

– Goods rejected

– Goods returned

– Goods supplied directly to sub contractors.

– Other material factors

Officer – Finance Department investigates all unreconciled items and obtains and documents the reason for the same.

AGM – Finance Department reviews and signs off.the reconciliation

Any items that appear continuously for over 3 months are flagged off and indicated separately as a note to the reconciliation to AGM – Finance Department who then decides on the escalation necessary in these cases.

Once the reconciliation is complete and authorized, prior to the 10th of the month the Officer – Finance Department sends out e-mails to the vendors with a copy to the Purchase Department requesting confirmation of amounts due.

Any discrepancy in vendor balances will be resolved by consensus between the vendor, Purchase Department and Finance Department.

All confirmations of balances are to be maintained by the Officer

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-Finance Department as required by the Policy.

Frequency Monthly

Outputs Vendor Reconciliation Statement

Vendor’s confirmation of Balance due

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1.12 Write backs

1.12.1 Flowchart – Write Backs

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1.12.2 Description – Write Backs

Background Write backs in the case of vendors is considered an exception and

extremely unusual transaction.

Responsibility




Head of Purchase Department

EVP

Inputs Input and verification from the Purchase Department


List of activities The Head of Purchase Department identifies on a case by case basis as required, the need for write back.

After investigation and confirmation of the reason for write back the Head of Purchase Department estimates the amount of write back.

The facts including the following details (at a minimum) are then sent as a confidential mail to the VP – Finance Department, EVP and the Board if the amount to be written off exceeds Rs. __________

– The name of the vendor

– Relevant contact details

– Amount of write back

– Table indicating the period the same have been outstanding (DPD over 30, 90, 180 days etc)

– Reason for the write back

– Sources of investigation and confirmation

– The relevant invoice numbers to be written off and corresponding amounts should be given as Appendix 1

– The reports of investigation aand confirmation should be attached as Appendix 2

The decision to write back vendor dues can and be made only on concurrence with the Top Management.

The minutes of meeting and original relevant reports in this regard are to be maintained by the Purchase Department and a copy

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of the same maintained by the Finance Department.

Once the decision to write back has been arrived at, the VP – Finance Department communicates the same to Officer - Finance Department specifying the invoices to be written back and the amount of such write back.

The Officer – Finance Department passes the entry for the same on FACE 2000 after checking for appropriate authorization of the write back.

The entry is then authorized by DGM - Finance Department who also verifies the documents relating to the entry.

A confirmation of the entry passed is sent to all the members involved in making this decision through e-mail by DGM – Finance Department on the same day that the entry is passed.

Frequency As required

Outputs

Entry to record write back on the system

Record of the justification for the write back

Any minutes of meetings pertaining to the decision

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1.13 Forward Contracts

1.13.1 Flowchart – Forward Contracts

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1.13.2 Description – Forward Contracts

Background A company that engages in import and / or export activities is exposed to foreign exchange fluctuation risk for the following reasons:

– Payment and receipts are denominated in foreign currencies

– There is a time lag between placing an order and making the payment related to the transaction.

The purpose of booking Forward Contracts is to avoid or reduce volatility in expected costs and revenues in foreign exchange denominated transactions.

Forward Contracts enable a company to price its product as per requirement but the company will not be able to take advantage of market movements to engage in activities related to investment.

A company may adopt one of three strategies to counter foreign exchange fluctuation risk. They are:

– Eliminate the risk completely by booking forward contracts on all transactions based in forex that are entered into by the company

– Not hedge at all and accept the risk completely

– Hedge partially through forward contract booking as per company policy and risk appetite

Currently DTVS has the following policy with regard to foreign exchange transactions:

– On all revenue transactions 50% of total foreign exchange exposure to be hedged through the use of forward contracts. Exceptions need to be authorized by VP – Finance Department.

– On all capital transactions 100% of foreign exchange exposure to be hedged through the use of forward contracts

– Only forward contracts may be used in hedging risk. No other derivative instruments are permissible

Currently Forward Contracts relate primarily to imports as exports are minimal.

Per unit or per kilogram rates are fixed by DTVS with the supplier at the beginning of the year. The rate revision takes place only once a year.

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As the financial reporting year (set between April and March) is different from the management functional year (set between January and December) a minimum of one price revision can be expected per supplier per part.

Responsibility


Treasury contractor of DTVS


Inputs

Six-month schedule of import orders to be placed

Purchase Orders accepted by DTVS

Changes to import schedules

Application

FACE 2000

MS Excel

MS Outlook

List of activities Annual Activity

At the beginning of the Management year (January) the Purchase Department finalizes the Annual Plan for the year based on which Open Purchase Orders are placed with suppliers and prices of supplies fixed.

This information regarding schedule of orders and payments is communicated through e-mail to the VP – Finance Department and Officer -Finance Department by the PED.

The Officer - Finance Department segregates the purchases schedule into Capital and Revenue based schedules and submits the same to VP – Finance Department for approval.

The Officer – Finance Department sends this information to the Treasury Department (or in this case the Treasury contractor) on approval of the VP – Finance Department. This information must be sent to the Treasury Contractor or on or prior to January 10th.

At the beginning of the year on receipt of the schedule of imports and the 6 month schedule the Treasury Department communicates the benchmark rate that they have arrived at to the VP – Finance Department.

The appropriateness of the benchmark rate is to be evaluated on a quarterly basis.

Any revision in the benchmark rate and the reasons behind the same will be communicated to the VP – Finance Department of DTVS by the Treasury Contractor. In case there is no communication the benchmark rate of the last quarter will be used

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in evaluation.

Monthly Activity – Contracts

On a monthly basis, on or prior to the 5th of the month the following information is sent by the Finance Department to the Treasury Contractor:

– Purchase contracts and forex value

– Date of contract initiation (Date of PO acceptance)

– Date of contract maturity

The information from the Purchase Department of the rolling six month forecast (one month confirmed orders and five months tentative schedule) is also sent on a monthly basis to the Treasury Contractor by Officer – Finance Department on or prior to the 5th of the month.

Forex exposure arises as of the date the commitment to import is made and this needs to be incorporated in the information given to Treasury Contractor for effective hedging.

The company also needs to update the Treasury Contractor on any consignments sent on open PO s so the risk profile of the same can be updated and taken into consideration while booking or cancelling Forward Contracts.

In case of any changes to PO information (like price or terms of payment) such information also needs to be communicated to the Treasury Contractor by Officer – Finance Department within 3 days of occurrence of such change.

Based on the currency, outlook, value date of initiation of forex risk and maturity date of the contract the Treasury Contractor books or cancels Forward Contracts through a bank as agreed with DTVS.

The bank sends copies of the contract to DTVS at agreed intervals and these details are communicated by Officer – Finance Department to the Treasury Contractor who checks the validity of both booked and cancelled contracts.

The VP – Finance Department authorizes the transactions every month.

In case the Treasury Contractor wants any deviation from the policy, clearance should first be obtained from the VP – Finance Department.

Though initial clearance can be through a phone call there should be an e-mail to follow up on the same the following working day to confirm the same.

The Officer - Finance Department inputs the details of Forward Contracts booked and cancelled in the system on a daily basis as soon as such information is sent across by the bank.

Monthly Activity - Payments

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As and when payments become due the DTVS is informed of the same by the customer. DTVS in turn instructs the bank to make payments.

The bank, on standing instructions from DTVS, contacts the Treasury Contractor and requests information about whether they are to use one of the existing Forward Contracts or the spot rate to make payments.

The Treasury Contractor gives such information to the bank, who then executes the transaction in accordance with instructions.

The bank communicates the details of contract or spot rate used to make payment to DTVS the following day.

The information is updated in the system by Officer – Finance Department and the information forwarded on the day it is received to the Treasury Contractor.

In case of any errors by the bank the Treasury Contractor is given the responsibility to deal with the same and correct the situation after informing DTVS Officer Finance and VP – Finance Department of such error through e-mail.

Information on any errors needs to be communicated to DTVS within 3 working days of the occurrence of the payment.

On correction, the bank informs DTVS of the same and this information is communicated to the Treasury Contractor by Officer – Finance Department on the same day it is received.

Once the payment details are finalized the difference between the benchmark rate and payment rate is calculated to determine whether there is a positive or negative value from the transaction.

The above is a report of the notional profit or loss made due to hedging operations.

Monthly Activity – Reporting and Exceptions

On a monthly basis the Treasury Contractor sends the report of monthly activity and movement of foreign currency exposures.

The report is sent across to the Officer – Finance Department and VP – Finance Department to be incorporated in the MIS for the month.

This report should reach be sent on or prior to the 5th of the month for prior month transactions.

Capital and Revenue forex exposures will be segregated and compliance with policy indicated. If there is a deviation from policy, the e-mail relating to the same must be attached to the report.

The MIS report will summarize the transactions during the month, payments made and the notional gain / loss (measured against specified benchmark rate) through hedging.

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Frequency As and when required (Minimum Monthly)

Outputs

List of forward contracts booked and cancelled.

List of payments made and the value of the same

Monthly MIS report with evaluation of performance of Treasury Contractor.

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finance department - accounts payable - sop

Documents

description provisioning

flowchart provisioning

flowchart general expenses261

description payment

flowchart payment

flowchart goods rejected181

flowchart forward contracts421

description goods rejected191