stores spares loose tools

8/22/2019 Stores Spares Loose Tools

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Annual Internal Audit Plan

Internal Audit Program/ChecklistStores, Spares & Loose Tools

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1 Purchases are approved and processedaccurately.

1.1 Management establishes measures todetermine the requirement forordering parts. Authorization levelsexist which specify the amounts up towhich individuals are authorized toapprove purchase requisitions.

a) Interview management and document theordering process for inventory.

b) Obtain the authorization levels for purchaserequisitions.

c) Select a sample of recent purchase requisitionsand ensure that they are approved bymanagement.

1.2 Purchase orders are reviewed andapproved by management.

a) Select a representative sample of purchasedinventory.

b) Verify whether the purchase orders arereviewed and approved by management prior tothe receipt of the inventory.

1.3 Purchase order entry data is

compared to source documents byindividuals who are independent ofthe purchase order entry process.

a) Verify whether the purchase order entry data iscompared to source documents by individualswho are independent of the order entry process.


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b) Using the same sample from 1.2 above, reviewthe details on the purchase order to the dataentered into the system to ensure it is accuratelyinput.

2 All valid inventory movements are recordedaccurately and in the appropriate period.

2.1 Inventory movements are tracked toensure that only authorizedpersonnel have the capability tomodify inventory records.

a) Discuss with management and understand howinventory movement is controlled and tracked.

b) Select a sample of transactions (i.e. receiving,shipping, returns) and verify whethermanagement review and approve the inventorymovement to ensure accurate and timelyrecording.

c) Verify that only authorized personnel has thecapability to modify inventory records.

2.2 Inventory reconciliation isperformed on a regular basis.Management review thereconciliation for mathematicalaccuracy and to detect any unusual

activity.

a) Select a sample of inventory reconciliationsand ensure that:

i - It is completed timely.ii - Is mathematically correct.iii - Is approved by management.


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iv - Variances are identified and resolved.v- Overall appears reasonable.

3 Physical inventory verification of quantitiesand financial records are adequately andappropriately performed.

3.1 Physical verifications of inventoryare compared to the financialrecords and reviewed bymanagement.

a) Obtain an understanding of the physicalverification process (i.e. how often, what iscounted, cycle counts, etc.).

b) Interview management about the proceduresin place to determine how all inventory/materialtypes are verified. Determine if an overallverification plan is established and adhered to.

c) Verify whether the planned physicalverifications are properly performed, reconciled tofinancial records and reviewed by management.

3.2 Management is provided with astatus report of the inventoryverification plan to determinewhether the plan is on schedule ornot.

a) Assess the process used to track theverifications performed against the plan.

b) Obtain status reports and review forreasonableness.

c) Determine whether the status reports indicatethe plan is on schedule or not


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4 Consignment inventory is managed andaccurately recorded.

4.1 Management has measures in placeto identify materials consigned tooutside parties.

a) Interview management about the measuresused to identify materials consigned to outsideparties.

b) Obtain evidence and determine how additionalvalue (or costs) being added to the parts (if any)is being accounted for.

4.2 Processes are implemented toensure that inventory quantities atoff-site locations (if any) as well asmovements between off-sitelocations and the main facility arecontrolled and monitored.

a) Inquire as to the existence of off-site inventory.Understand the process for controlling inventoryquantities at off-site locations as well asmovements between off-site locations and themain facility.

b) Obtain evidence and verify whether

management monitors the inventory quantities atoff-site locations as well as movements betweenoff-site locations and main facility.

4.3 Consigned and off-site inventory isverified on a regular basis to ensurethat it is consistent with thefinancial records.


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a) Examine documentary evidence (e.g. physicalinspection/reconciliation report duly signed off byappropriate management) and verify whether thediscrepancies identified are investigated andresolved timely.

4.4 Consigned and off-site inventory isperiodically confirmed.

a) Examine documentary evidence (e.g. inventoryon consignment report received from theconsignee) and determine whether thediscrepancies identified are investigated andresolved timely.

5 Excess and obsolete stock/reserves are validand recorded completely and accurately inthe appropriate period.

5.1 Management implements measuresin order to determine whetherinventory valuation,reserves/provisions areappropriately established toprudently revise the value ofinventories for obsolete, surplus andscrap items.

a) Inquire as to the measures implemented inorder to determine whether inventory valuation

reserves/provisions are appropriately establishedto prudently revise the value of inventories forobsolete, surplus and scrap items.

b) Obtain the necessary documentation and verifythe reasonableness of step (a).

c) Determine whether management reviews E&O


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inventory and reserves on a regular basis.

5.2 Reserves are recorded for slowmoving, obsolete, or excessinventory.

a) Understand the locations method of identifyingand estimating reserves for slow moving,obsolete, or excess inventory. Assess whetherthere are any lower of cost or market issues.

5.3 Management uses pre-definedassumptions and factors to calculatethe E&O reserve.

a) Review the calculation of the E&O reserve.Ensure the methodology to calculate isreasonable, documented and consistent with themanagement's assumptions.

b) Ensure that management assumptions arereviewed and approved.

5.4 Management is informed of anycancelled and discontinued ordersto assess the implication on thereserve calculations.

a) Inquire about inventory related to anycancelled and discontinued orders.

b) b) Obtain and verify whether suchinformation is being routed to managementin a timely manner and assess theimplications on the reserve calculations.

5.5 Slow moving, obsolete, or excessinventory is adequately segregated


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from other inventory and ismonitored to ensure it is scrappedor reworked on a timely basis.

a) Inquire about inventory segregation as slowmoving, obsolete, or excess inventory.

b) Observe whether the slow moving, obsolete, orexcess inventory is adequately segregated fromother inventory.

c) Verify whether final disposition (scrap orrework) is reviewed and approved on a timelybasis.

1 New tooling projects are adequatelyevaluated for feasibility and profitability.

1.1 Policies and procedures are established bymanagement to evaluate incomingrequests or orders to ensure feasibility andprofitability of each project.

a) Through inquiry and observation determine ifthere is a formal process in place to evaluateincoming requests or orders to ensure feasibilityand profitability of each project.

b) For a sample of tooling agreements verify,before entering into an agreement, or submittinga bid to a customer, whether appropriate

personnel evaluate to ensure that the order is inaccordance with the policies and proceduresestablished by management.

c) Determine whether the policy and procedureon evaluation includes the following:- technical feasibility of the tooling order (byEngineering);


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- resources and time required for making the tool;- cost estimate of the project (design, material,labor, installation and testing, and overhead);- tooling price and profitability of the project;- make vs. buy decision.

1.2 Management establishes procedures fornew contract acceptance including reviewand approval by all affected departmentssuch as the Legal and FinanceDepartments.

a) Through inquiry and observation determine ifthere is a formal process for new contract reviewand approval, including the review of customercontract terms and provisions by Legal andFinance Departments.

b) Obtain a representative sample and verifywhether the customer contract terms andprovisions are reviewed by Legal and FinanceDepartments.

2 Baseline requirements are established fornew projects and baseline costs are valid.

2.1Baseline requirements for all projects areestablished and documented. Any deviationfrom the established baseline requirements isexplained, documented and approved by anappropriate level of management.

a) Select a representative sample of ongoing andcompleted tooling projects.

b) Determine if managements establishes anddocuments the baseline requirements for allprojects selected.


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b) Verify whether any deviations are justified andapproved by management.

2.2Management approval is required prior tobeginning any project and initiating projectspending.

a) Using the same sample selected in step verifythat there is proper approval and that the startdate is authorized prior to beginning the projectand initiating project spending.

b) Determine whether signed/approved customerorder/contract is obtained.

2.3Management has measures in place that helpmonitor projects baseline costs to ensurethat costs are valid and within budget.

a) Using the same sample selected in step b)1,verify that total costs do not exceed the baseline(or adjusted baseline) cost requirements for allprojects. Assess the adequacy of any baselineadjustments documentation.

b) Verify whether management monitors thecosts to ensure that they are within the approvedlimits.

3 All purchase requisitions are valid.

3.1Appropriate level of management approvalmust be obtained prior to forwarding the

purchase requisition to the purchasingdepartment. The requisition and procurementfunctions are segregated.

a) Select a representative sample of toolingpurchase requisitions.

b) Verify whether appropriate and timely approval


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is obtained prior to forwarding the purchaserequisition to the purchasing department.Determine whether proper segregation of therequisition and procurement functions exist.

3.2Management reviews the purchaserequisitions to ensure that adequatesupporting documentation is maintained forall purchase requisitions.

a) Through inquiry, obtain an understanding ofthe established controls to ensure adequatesupporting documentation is maintained.

b) Using the sample in c)1, verify whether thetooling documentation is reviewed bymanagement for adequacy and reasonableness.

3.3Management has established andimplemented procedures to ensure thatappropriate funds are available to supportthe requisition at the time of approval.

a) Interview management as of the procedures inplace used to ensure that appropriate funds areavailable to support the requisition at the time ofapproval.

b) Obtain evidence and verify the reasonablenessas determined in step a)

4 Purchase orders are placed only forapproved requisitions.

4.1Purchase orders are reviewed and approvedby management prior to mailing to thesupplier.


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a) Select a representative sample of purchaseorders.

b) Verify whether they are supported withappropriate purchase requisitions and areapproved by authorized personnel.

c) Compare the PO to the original purchaserequisition details to ensure consistency..

4.2Appropriate personnel verifies that the termsof the purchase order are in agreement withthe terms in the customer purchaseorder/contract.

a) Using the sample selected in step 4.1 reviewpurchase order for stated terms. Determinewhether the terms of the purchase order selectedare in agreement with the terms in the customerpurchase order/contract.

b) Verify whether terms are in accordance withthe organization's corporate guidelines.

5 All project related expenses incurred arevalid.

5.1Management periodically reviews all projectrelated expenses to ensure that they areauthorized. Unrelated expenses arethoroughly investigated and resolved.

a) Select a representative sample of toolingprojects and obtain a list of all expenses incurredwith the project.

b) Verify whether management reviews andapproves all expenses.


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c) Obtain evidence that all unrelated expensesare thoroughly investigated and resolved.

5.2Status reports are reviewed to ensure propercompletion of the projects and closing ofjobs/accounts.

a) Select a representative sample of toolingstatus reports.

b) Verify whether management periodicallyreviews the status reports.

5.3Tooling projects are regularly measured toassess whether the anticipated costs arelikely to be exceeded.

a) Obtain evidence and verify whethermanagement periodically monitors each toolingproject to assess whether the anticipated costsare likely to be exceeded.

b) Determine if appropriate action is taken withrespect to over-budget projects.

6 Only valid vendor invoices are properlyprocessed and paid in time.

6.1Prior to extending payment to vendors,invoices are matched with purchase orders,

purchase requisition and the receivingdocuments (if applicable).

a) Select a representative sample of cashdisbursements to vendors.

b) Verify whether a match is performed betweenthe invoice, the purchase order/purchase


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requisition and the receiving documents (ifapplicable).

6.2Vendors are paid only after the approval ofinvoices by the program manager withinreasonable time.

a) Using the sample selected in step 6.1, reviewthe documentation showing timely approval ofvendor invoices by the program manager.

6.3An appropriate authority reviews thatinvoices are scheduled to be paid inaccordance with the terms stated on thepurchase order.

a) Using the same sample selected in step 6.1,note scheduled payment date of the invoice.

b) Verify that the invoice was scheduled to bepaid in accordance with the terms stated on thepurchase order.

c) Determine whether the invoices paymentschedules are prepared and reviewed.

7 Engineering change notices (ECN's) arevalid.

7.1 Management has mechanism in place fortracking ECN's.

a) Determine how management track and monitorECN's.

7.2 ECN's are approved by managementdepending upon the feasibility reviewperformed by the engineering department orthe program manager.


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a) Select a representative sample of ECN's.

b) Verify whether the ECN is approved bymanagement and determine if a feasibility reviewis performed by the Engineering department orthe program manager.

c) Determine whether the date of themanagement approval is after the feasibilityreview date.

7.3 Additional costs resulting from ECN's areaccurately recorded and reviewed byappropriate personnel on a periodic basis.

a) Interview management about the procedures inplace to ensure proper tracking ofadditional ECN costs.b) Select cases where ECN's resulted in additionalcosts, determine if cost changes are recordedaccurately and timely and reviewed byappropriate personnel.

8 Customer billings are generated inaccordance with valid purchase orders andpayment is received in a timely manner.

8.1 Appropriate personnel review that customerpurchase orders are input accurately.

a) Interview management as to the proceduresused to ensure that customer purchase orders areinput accurately into the designated database.

8.2 Invoices are reviewed and approved toensure that customer billing is in accordancewith the customer purchase order.


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a) Select a representative sample of billedinvoices.

b) Verify whether management reviews andchecks that appropriate billing practices arefollowed. Determine if customer billings are inaccordance with the customer purchase order.

8.3 Procedures are in place to ensure thatpayment is received timely for billings inaccordance with the customer agreement.

a) Interview management as to the measures inplace to ensure payments and open accounts areadequately accounted for.

b) Determine what controls are in place to ensuretimely collection of customer billings.

c) Determine what actions management takeswhen the customers do not pay timely or aredelinquent in paying for their billings.

9 Revenue is recognized in accordance withthe policy in place and rules set by FASB.

9.1 Revenue is recognized in accordance withEITF 99-5.

a) For a selected sample determine whether

revenue recognition is in compliance with EITF 99-5, Accounting for Pre-Production Costs Related toLong-Term Supply Arrangements.

b) Obtain evidence and verify whethermanagement reviews the application of revenuerecognition for compliance with EITF 99-5.


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9.2 Capitalized tooling gains or losses arerecognized in accordance with FAS 121

a) For a selected sample determine whether thecapitalized tooling gains or losses are recognizedin accordance with FAS 121 - "Accounting for theImpairment of Long-Lived Assets".

b) Verify the process used by management toreview the tooling gains/losses to ensure thatthey are recognized properly.

9.3 Management review and approval arerequired for the close-out of projects.

a) Select a representative sample of closedproject during the year under examination.

b) Verify that the close-out of the project isappropriately reviewed and approved bymanagement.

10 Physical location of tools are identified andproperly accounted for.

10.1Management has established measures toadequately track the physical location of thetools.

a) Interview management about the measures

implemented to track the physical location oftools.

b) Obtain evidence and verify whether thetracking system in place is able to respond tocustomer requests.

c) Verify whether management reviews the


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tracking mechanism on a periodic basis.

10.2Tools on consignment are identified,tracked, periodically confirmed, and properlyaccounted for.

a) Obtain a list of all tools on consignment (i.e. inthird party's custody) and determine if measuresare in place to ensure that tools on consignmentare identified, tracked, periodically confirmed,and properly accounted for.

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