Internal Control Guidelines

Objective__________________________
To ensure control over the calculation of cost of goods sold, cost of production and evaluate
the inventory movement.
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Contents

General

• All control activities shall have the corresponding support documents.

• Any deviation from or exception to these guidelines shall be justified,

authorized and documented.

• All inventory movements should be supported by vouchers that also must

be pre-numbered.

Receiving Pricing

• It's responsibility of stock control to :

o Maintain the proper book keeping of inventory (Inventory system).

o Assure the valuation of all receptions.
o Review the receptions in terms of date, quantities, items, document
signatures, etc.
o Coordinate with procurement to receive the clearance and freight invoices as
soon as possible to include these additional costs in the items costing.
o Review prices matching between Purchase orders and invoices.
o Review the average prices at the level of product during the addition at the
current period to ensure the stability and accuracy of the evaluation
procedures.
o In the case of more than one item in the reception process, additional costs
should be distributed as follows: --
 Transportation expenses / shipping according to the size or
weight.
 Customs duties in accordance with item rate for each.
 Costs of clearing, according to the value of each item.
 Bank charges, according to the value of each item.
 Insurance expenses, according to the value of each item
o Assure the sequence and serial of vouchers and the cancelled vouchers
documents must be retained in the same sequence.
o Follow up with the warehouses to assure that reception notes of all items that

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 relate to the period are delivered without delays including those in the
inspection area.

o Reconcile the monthly added items with the general accounting section to
verify the values.

Issuances Pricing

• It is the responsibility of stock control and costing to:

o Maintain the proper book keeping of inventory (Inventory system).

o Value the issuance from stock after the valuation process of all
receptions and reconciling the value of additions with general
accounting figures.
o Verify the opening balances and reconciling the value with general
accounting figures.
o Review the receptions in terms of date, quantities, items, document
signatures, etc.
o Assure the sequence and serial of vouchers and the cancelled
vouchers documents must be retained in the same sequence.
o Follow up with the warehouses to assure that issuances notes of all
items that relate to the period are delivered without delays..
o Review carefully the work orders and cost centers information.
o Review and compare the actual issued quantities versus the planned
quantities at work orders.
o Review the average cost of the issued items to ensure the accuracy of
items costing and pricing in general.
o Review the pricing of some transactions randomly to make sure of the
integrity of the pricing policy.
o Assure that all the quantities issued are charged to work orders or
cost centers.
o Allocate and distributed to the departments and the level of cost
centers and ensure that it matched to the total number of detailed
figures
o Record the issued spare parts charging the cost to cost centers using
the parts.

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 o Assure the right recording of costs to the proper accounts (e.g.
operating accounts, suppliers, expenses, assets or projects under
progress).

o Journal vouchers should be approved by cost controller.

o Send Journal vouchers to the General Accounting for recording.
o Backup the inventory movements took place during the month as well
as the balances, this copy should also include the following data
(items / quantity / entity / value / cost center / Work order) during the
month, so it can be referenced in case of any differences in periods
later.
o Keep a copy of journal vouchers and all attachments.
o Reconcile the inventory balances vs. the general accounting balances
of inventory accounts.

Cost of Production

• It is responsibility of costing controller to:

o Follow-up finished goods additions regularity and review the additions

book sequence to assure completeness.
o Review and reconcile the receiving notes and delivery report (items,
quantities, and dates)
o Assure that all required signatures and approval of the receiving notes
and delivery report are there.
o Calculate costs according to each division of stores separately
(Transformers / overheads / coils).
o Prepare finished product reports during the financial period, the report
list the Item Code / Product Name /Unit / Quantity KVA / No. of
technical specification, these reports should be approved by
production planning and production departments.
o Review the technical specifications into a program of technical
specifications to match the product specification with the standards.

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 o Update the prices of raw materials calculated in the inventory system
and make sure they conform to the average prices in the stores at the
financial period.

o Review and check Scrap rates of all raw materials and make sure they
conform to the rates adopted by the approved (operations / production
/ quality / technical).
o Check all the prices and the cost of wood Drums / plastic / steel stored
in the system.
o Reconcile the cost of production report with the approved finished
product report
o Select a representative sample of items whose cost compose 60% to
80%, and print a detailed cost report to review all technical
specification / quantity of raw materials / raw material prices / rates of
the scraps / the cost of packing / the quantity of product / all
mathematical equations) and observations should be reported
immediately to finance head for action.
o Review with general accounts the operational direct costs
(depreciation - wages - Electricity .....) so as to be charged to the cost
of production during the period.
o Send the Journal voucher immediately to the general accounts to
record into the accounting system.

Cost of Goods Sold

• It is the responsibility of warehouse to:

o Follow-up the issuance of finished products notes regularity and

review the issuances book sequence to assure completeness.
o Review and reconcile the issuance notes and requisitions report
(items, quantities, and dates)
o Assure that all required signatures and approval of the issuance notes
and requisitions report are there.

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 o Calculate costs according to each division of stores separately
(Transformers / overheads / coils).
o Review the sales invoices serial to assure no missing invoices are
there.

o Reconcile sales invoices vs. finished products issuance note to assure

every issued product is invoiced sales invoices matches the finished
goods issue.
o Select a set of invoices that represent a large proportion of sales,
audit and reconcile the selling prices with sales orders authorized
before from finance and sales department.
o Prepare book balances report and reconcile it with the warehouse
balances periodically, to ensure compatibility with the full balance of
the stock.
o Send the Journal voucher immediately to the general accounts to
record into the accounting system.
o Keep a copy of the Journal Vouchers after registration to compare and
review it with the cost of sales statement.
Variances adjustment

• By the end of each financial period, cost controller match the inventory
book and actual balances with the work in progress inventory account
in order to determine the size of the standard deviations between the
costs of the planned orders and the actual cost in order to adjust the
differences:

• After the inventory is evaluated in accordance with the agreed process,

book balance of inventory in progress should be compared with the
actual count of this stock.

• In case of deviations, cost controller should coordinate with production

and quality departments to review and determine the rates and reasons
for the deviations of the raw materials used for those planned.

• In case the deviations did not exceed 2%, finance head can authorize
the deviation and he informs the departments concerned with the
existence of that deviation for the follow-up and to take the actions
towards identifying the causes and corrections.

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 • In case of deviations exceeded 2% , deviation shoul dbe approved by
(Production / Quality / Financial / General Manager).
• Devaited orders must by identified to explain which accounts are in
question. In case the order is still in inventory, then the deviaton should
be charged to finished product inventory accounts, in case the order is
sold already then the charges should hit the cost of sales accounts.

Other considerations
• Fragmentation of requisitions in order to circumvent higher level
authorization is not allowed.
• Follow the approval matrix.

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