Sample Flow Chart

Tab DescriptionIndex

A Revenue cycleB Customer set up & changesC A/R & bad debt reconciliationD A/R credit memo processE Cash receipts & cash applicationsF Purchasing & Receiving cycleG Vendor set up & changesH A/P vouchering & reconciliationI A/P disbursementJ Payroll CycleK Payroll - CommissionsL PricingM Fixed assetsN Inventory VerificationO Treasury cycle - open/close/changing a bank accountP Treasury cycle - bank account reconciliationQ Financial reportingR G/L chart of accounts maintenanceS Intercompany balance reconciliation & confirmationT Production Cycle

1 Process for Customer Returns2 Preliminary lien notice process flow3 Order Entry / Credit Hold / Work Order flow4 Receiving process

EXHIBIT A

of 26

Process Flowchart - REVENUE CYCLE

CUSTOMER/SALESMAN

CUSTOMER SERVICE

CREDIT

PRODUCTION

SHIPPING

PLANTCONTROLLER

ACCOUNTING

Process Flowchart - SIGNIFICANT CONTROL ACTIVITIES

1 Invoices reflect current approved prices and include explanations and approvals for deviations from list prices.2 Customer orders, contracts and subsequent modifications are approved in accordance with authorized approval levels.34 Sequentially controlled shipping documents are verified against customer orders prior to delivery and invoicing.5 Revenue is recognized only when delivery has occurred, the customer has taken title and has assumed the risks and rewards of ownership of the product.6 Revenue associated with maintenance/service agreements is recognized over the contract period.7 Ensure duties are segregated within the customer order process such that the following activities are independently performed: 1) order initiation and approval 2) shipping 3) invoicing 4) cash collection 5) cash application.8 Inventory costs are relieved and appropriately matched to sales transactions in the proper period.

Salespeople, both internal and external, quote customer jobs per approved list prices and customer discount multipliers. Either customer or salesman calls in or faxes order to customer service. If product is shipping from a representative warehouse, the order is forwarded to Credit for review [3]. If order is approved by credit, the rep faxes the order with credit approval to Customer Service.

If order is shipping from a representative whse, C/S verifies that credit approval is attached. If approval is not attached, the order is forwarded to Credit for approval prior to entry [3].

The system applies all applicable discounts for the customer [1 & 2]. If the order is entered with special pricing, C/S verifies that all approvals are present and in accordance with company policy [1 & 2]. Documantation is obtained for all deviations greater than 1%. After the order is entered, the system prints an order acknowledgement which shows the order details and pricing. The acknowledgement is compared to the customer PO and, if there are any variances, authorization and agreement are documented and attached to the order [1 & 2].

Rep warehouses fax shipping logs to customer service to ensure that shipped orders are shipped and invoiced in the system.

If product is shipping from a representative warehouse, the order is forwarded to Credit for review [3]. If order is approved by credit, the rep faxes the order with credit approval to Customer Service

Upon entry of the order, if the customer is past due, over limit or is flagged as “always hold” the order is placed on credit hold, pending review by the Credit Analyst [3]. Analysts review orders being held on an hourly basis to ensure that same-day orders are given priority.

If agreement has been reached between Credit and the customer on correcting past-due and over-limit situations, Credit has the ability to release an order for manufacturing by taking it off of credit hold and placing it back on manual hold. This will allow product to be manufactured to meet the due date, while allowing the customer time to bring their account into good standing.

If the product needs to be produced, the system creates a work order which is reviewed & released by engineering. Upon release, the order is scheduled for production by Production Control.

Once an order is ready to ship, Shipping prints the system generated sequentially controlled shipper [4] & bill of lading. If an order is on credit hold, the system will not allow the shipper to print and the order can not be invoiced. Outside rep warehouses use their own shipping forms and fax shipping logs to C/S. Once production has been reported and credit has been satisfied, Shipping allocates the inventory and ships the order in the system.

Periodically, and specifically at month end, the Plant Controller verifies the manual shipping log against the invoicing registers to ensure that all shipments are properly accounted for. All orders are shipped FOB origin; title to the equipment passes to the customer and revenue is recognized upon shipment. [5]

During the month end process, the Plant Controller accrues any sales that were shipped but not billed and defers any orders that were invoiced and not shipped, and defers warranty revenue over the life of the contract. Revenue, A/R, inventory and COGS transactions are system generated and posted in the period that the transactions occur. [8]

Price over-rides (locks) are reported weekly to the Sales Mgr & CFO for approval [1]. General Accounting posts the system-generated journal entries as of the actual fiscal month end cut-off [4 & 8]. All back up for the system-generated entries is filed and retained pursuant to records retention policies.

Revenue for warranties are deferred by the Staff Accountant over the life of the contract [6]

A formal credit policy exists and includes: 1) Annual review of customer credit limits 2) management approval is required for changes in terms and limits 3) credit limits are reviewed prior to order acceptance.

START

Customer or salesman faxes or calls in order

Order entry & Pricing process (See exhibit M)

If order is shipping from a rep whse, is credit approval attached?

Credit reviews for credit approval

Is cust past-due or over-limit?

Does order need to be produced?

Production schedules and produces product

Is order on credit hold?

Credit reviews account and contacts cust for payment if necessary and releases order to production/shipping when accepted

Shipping sends product to customer and ships in the system. Invoices produced nightly by system

Plant Controller compares invoicing and shipping logs to one another to identify discrepancies.

Plant Controller accrues any shipped orders that were not invoiced, and defers any invoiced orders that were not shipped.

Accounting posts system generated sales related entries.

Staff Acct defers service & warranty revenue over contract life

1

4

2

5

6

7

START(Changes)

Customer or salesman faxes or calls in change

Accrual approved by CFO/Controller

Plant Controller reviews "shipped not invoiced," "alloacated not shipped," "closed work orders," and "shipped work orders" reports prior to month end.

Errors found?

No

Yes

Yes

No

No

Yes

3

4

Yes

No

Yes

No

System generates price over-ride report to be reviewed & approved weekly by CFO & Nat'l Sales Manager1

8

8

START(Rep Whse)

Customer or salesman faxes or emails order to Credit

Credit reviews for credit approval & informs rep of the decision

Rep faxes order & credit approval to Customer Service

Rep faxes shipping log periodically to customer service to have orders shipped and invoiced in the system.

EXHIBIT B

of 26

Process Flowchart - CUSTOMER SET UP AND CHANGES

NO NO

CREDIT

YES YES

NO

YES

CONTROLLER


1

2

3

4 An edit report containing all additions, changes or deletions to customer and pricing masterfile information is generated and independently reviewed.

New customers are identified by salesmen who provide the customer with an company credit application and blanket resale certificate. The customer must fill out the credit application (larger customers are allowed to submit their corporate credit information in lieu of the company application) and the resale certificate if their account is to be non-taxable. After credit evaluation the customer is set up in the system by the Credit Analyst and confirmed to the customer by mail [1]. New customer files are created at least weekly. A weekly email is sent to the customer service managers to verify customer pricing, sales territories and salesmen associated with new customers.

Customers for new ship-to locations for existing customers are usually driven by the sales force. Additional ship-to’s for existing customers do not require their own credit application and folder but may, in certain instances, require additional tax exemption certificates. When new customers are set up the tax software is also updated with the exemption information for the states specified as well as Alabama (01), North Dakota (35), Arizona (03), Ohio (36), Arkansas (04), South Carolina (41), Colorado (06), Utah (45), Connecticut (07), Virginia (47), Florida (10), Washington (48), Georgia (11), West Virginia (49), Iowa (16), Wyoming (51), Kansas (17), Minnesota (24), New Jersey (31), and North Carolina (34) all of which accept home state certificates.

Customer changes can be initiated by the salesman, customer or the annual credit review [2]. All changes to the customer master file are performed by the Credit Analysts. Any changes to terms or limits will be documented and authorized by a customer status change form [2].

Each new customer with credit terms will have a credit application, results from credit references, a Dunn & Bradstreet report and new customer approval form on file. As part of the process, an email is sent to the credit group requesting any credit experience. The credit group distributes the email to credit personnel across all divisions. Per credit policy, standard terms are net 30 with any deviations being approved by Credit in advance of accepting orders [3]. Credit evaluation is performed by the Credit Analysts and approved in accordance with the company Credit Policy and stated approval matrix [3].

A review of all active customers is required by company policy. The annual credit review is performed by obtaining a database of credit information from Dunn & Bradstreet, merging it with internal payment experience and producing a single sheet review page. These pages are reviewed at the appropriate authorization level, at which time additional information may be requested [1].

Weekly customer change detail reports are produced by the Staff Accountant identifying changes to customer records and the addition of new customers [4]. These reports are reviewed to verify that changes are made only by authorized individuals and any terms or limit changes are properly authorized. These are filed, and final reviewed, by the Controller.




START

Update information in customer masterfile

Is this a new customer?

Obtain: Credit references Credit Group Email D&B Report

**Evaluate Credit on New customers and for annual credit review per policy

Update customer masterfile

Verify sales information fields with cust svc manager

Notify customer & Cust Svc of credit decisions

Review weekly report of changes to customer masterfile

2

4

Approve or reject credit line:

≤ $50,000 Analyst ≤ $100,000 Credit Manager > $250,000 CFO & Controller

Is this a line increase or annual review?

Credit Approved?

3

Run annual customer review report

1

EXHIBIT C

of 26

Process Flowchart - A/R & BAD DEBT ALLOWANCE RECONCILIATION

CREDIT

SUPERVISOR

STAFF

ACCOUNTANT

CONTROLLER

CFO


1 A detailed aged AR trial balance is maintained and reconciled to the general ledger on a monthly basis (including investigation of reconciling items).2 Management periodically makes an assessment of the allowance for doubtful accounts in accordance with company policy.3 Customer accounts are monitored and delinquent accounts are identified and followed up timely.

During the final week of the fiscal month the Credit & Collections Supervisor runs a summary aging by customer. This aging is compared against and is used to update the bad debt calculation spreadsheet. In this spreadsheet is listed each customer which is a known credit risk and all customers with balances over 360 days past due per Carrier Finance Manual section 5.2A [2].

Accounts Receivable is reconciled each month end as part of the standard month-end processes. The A/R Department produces a month-end cut-off aging files copies for future reference and forwards a copy of the summary report to the Staff Accountant [1].

Each Credit Analyst produces a detailed A/R aging of their accounts for follw-up during the month [3]. Review of A/R performance is reviewed on a monthly basis with the Controller and Credit Supervisor.

On a monthly basis, the Staff Accountant prints the general ledger detail and identifies all reconciling items. The staff accountant reconciles the detailed A/R aging to the general ledger on a monthly basis [1]. The reconciliation is approved by the Controller.

The Controller provides the Credit & Collection Supervisor the detail posting to the bad debt reserve on a monthly basis. The C&C Supervisor produces detailed analisys schedules and reconciles the allowance for doubtful accounts, which is approved by the Controller.

The Controller produces journal entries based upon the bad debt calculation to adjust the allowance accounts accordingly.

When month-end financials are finalized the reconciliation is finalized and forwarded to the Controller for review and approval and are then forwarded for filing with the month-end reconciliations.

A detailed reconciliation of the bad debt account is produced monthly by the Controller, is approved by the CFO and is filed with the monthly working papers [2].

Reconcile A/R detail to G/L

A/R reconciliation

Review and approve bad debt & customer dispute entries

1

Review allowance for doubtful accts. Identify specific accounts to be reserved for.

2

Prepare entries for Bad Debts and Customer Dispute Reserves

Review and approve A/R reconciliation

File in month end recon files

START

Run A/R Agings for month end processes & file.

Identify delinquent accounts for follow-up

3

Enter JE's

Reconcile bad debt accounts to G/L

File in month end JE files

EXHIBIT D

of 26

Process Flowchart - CREDIT MEMO PROCESS

EMPLOYEEor Sales Rep

NO YES

CUSTOMERSERVICE

NO

YES

CREDIT

CONTROLLERor designee

NO

YES

CM ENTRY

JR. ACCOUNTANT


1 Adjustments to customer accounts (e.g. credit memos) are properly supported and approved in accordance with the authorization matrix.

2

Sales & pricing Allowances & Sales Concessions adjustment credits can be initiated by any Sales, Customer Service or Accounting employee. The employee initiating the credit is responsible for obtaining any necessary approvals from Sales & Customer Service. The employee initiating the credit verifies the pricing and commissions on the credit and forwards to Collections for review.

All warranty credits are initiated by the respective Warranty Department. Warranty Department personnel verify the existence of the warranty, that the claim charges are within the parameters of the warranty terms and adjust the claim amount as necessary. Claims are signed off, entered into the warranty claim database, and forwarded to Collections for review [1].Return credits can be initiated by any Customer Service or Accounting employee. The employee initiating the credit is responsible for obtaining verification that the merchandise has been received from the customer. The employee initiating the credit verifies the pricing and commissions on the credit and forwards to Collections for review [1].

Sales tax & freight credits can be initiated by any Customer Service or Accounting employee. The employee initiating the credit is responsible for verifying shipment weight, etc.. for freight credits and obtaining copies of resale certificates for tax credits. The employee initiating the credit verifies the pricing on the credit and forwards to Collections for review.

All credits with the exception of rebates goes through Collections who verify that the credit has not already been issued, pricing is correct, commissions are correct and that the correct boxes are check to ensure the correct coding. After review & approval by Collections, the credits are forwarded to the Controller or designee for final review. The information is verified, approved and forwarded to data entry or to a higher approval authority based upon the company Authorization Matrix [1].

Data entry verifies appropriate approvals based upon the company Authorization Matrix, codes based upon the boxes check on the request form, and enters into the system [1].

Rebate credits are initiated by Accounting personnel based upon the rebate agreements provided by the Sales Department and may be monthly, quarterly or annual. After rebates are calculated, approval is obtained from the Regional Sales Manager responsible for the account. Rebates are forwarded with all substantiating paperwork to the Controller for approval prior to entry.

The Customer Service/Warranty Department maintains off-line databases of certain credits for quality discussions. These databases provide no accounting related data and are outside of the internal control environment.

START

Verify existence of warranty

Is this a warranty issue?

Ensure amount being credited is correct and within policy.

Enter into offline database if applicable.

Is CM approved?

Verify prices, customer, invoice, PO, reasons, commisions and that it's not a duplicate credit

Verify prices, customer, invoice, PO, reasons & commisions.

CM

amount within authorization

limit?

Forward for additional authorizations per matrix

Enter CM's per information provided. Note CM order number on CM request to prevent duplication and provide audit trail.

File with original invoice

1

1

1

Notify Originator

Complete credit memo request form

2

Audit random sample of 5 credits monthly to ensure proper documentation and approvals.

Forward results of audit to Controller for approval

Review and approve results of monthly credit memo audit.

File approved results in management testing files.

1

EXHIBIT E

of 26

CASH APPLICATIONS PROCESSResponsibility CASH RECEIPTS CREDIT CARD CASH APPLICATION Narrative

CUSTOMER

CONTROLLERS

LOCKBOX

CREDIT

CASHAPPLICATIONS

ACCOUNTING


1 All cash receipts are sent directly to a lockbox or company bank account. Any payments received on site are logged and then forwarded/deposited to the lockbox or company bank account on a daily basis.2 Cash is applied to customer accounts timely and unmatched receipts are investigated and resolved on a timely basis.3 CIA are properly recorded as contra-assets and are properly liquidated in accordance with sales contracts.

4

Customer payments are sent directly to the company lock box and in the event that a check is received at a company location, they are logged and forwarded by personnel who lack the ability to apply checks in the system. Cash is applied based upon customer information from collections. Reconciliations are performed by personnel who lack the ability to apply checks in the system and are approved by the Controller.

All payments are sent directly to the lock box. In the event that a check is received at one of our physical locations the Plant Controller, or Corporate Controller at the corporate office, logs the receipt of the check and forwards directly to the lock box. [1]

The lock box processes all payments and forwards a copy of the check and any accompanying back up to Cash Applications in the corporate offices on a daily basis [1].

A credit card authorization form is faxed to the customer by either collections or customer service as appropriate identifying the sales order(s) or invoice(s) being paid and the amount. The customer fills in the card information, signs the authorization, and faxes back to collections. Collections personnel process the card through the credit card machine prior to any orders being released to ensure that it is not declined. Collections maintains a spreadsheet listing of credit card transactions to aid in research and applications. Batches and the accompanying spreadsheet are forwarded to Cash Applications on a weekly basis at a minimum [4].

A Federal Express package arrives each morning with the previous days lock box activity, credit card processing information is forwarded from collections each Friday at the minimum, and wire application information is forwarded from collections the morning after receipt by the bank. All cash receipts are applied and balanced on a daily basis based upon customer information provided by collections and miscellaneous cash is applied to general ledger accounts based upon coding from the Controller or designee [2 & 3]. All deposits to both the lock box and credit card accounts are swept to the Carrier cash concentration system nightly.

Each morning Accounting prints the previous days banking activity which lists all wires received. A copy of each wire is forwarded to the appropriate Analyst to identify the customer and invoices to apply the wire to. This information is forwarded to Cash Applications within an hour.Cash receipts and bank deposits are balanced on a daily basis by Accounting. Month to date postings to the general ledger are balanced to month to date bank deposits on a weekly basis [2]. Monthly general ledger postings are balanced to the daily activity and to cash concentration information provided monthly by Carrier Corporate Accounting.

All bank accounts for customer collections are automatically swept daily into a main concentration account, using fixed banking instructions defining the source and destination bank accounts. All cash inflow and outflow is summarized daily in a cash journal and compared to incoming and outgoing funds as reported by corporate in its daily sweep activity. Thus, differences in receipts and disbursements are accounted for prior to preparing the bank reconciliation.

Send payment.

Process payment received.

Copy check & stub.

Staff Accountant reconciles cash applications to bank deposits on a daily basis

1

Logs & forwards checks received to Lock Box

Obtain Customer Approval

Process through machine

Enter into spreadsheet

Print spreadsheet for cash application

Analysts identify customers

C/A applies credit to A/R.

Bank mails to company

Jr. Acct prints daily banking activity from Bank One

2

32

1

Sweep funds to Carrier cash concentration account on a daily basis

4

EXHIBIT FProcess Flowchart - PURCHASING & RECEIVING

REQUIRING DEPT /MRP

PURCHASING

VENDOR

RECEIVING

Process Flowchart - SIGNFICANT CONTROL ACTIVITIES

1 The 4 key areas of the expenditure cycle (Purchasing, Receiving, AP Processing, and Cash Disbursements) are segregated.2 All purchase orders are numerically controlled and are properly approved according to the authorization matrix.3 For certain types of expenditures that may not have a Purchase Order, a proper approval needs to be obtained before goods or services are purchased.4 Access to the Receiving database is restricted to Receiving personnel only (password protected).5 Receiving personnel inspects incoming goods for discrepancies with the corresponding Purchase Order.6 A numerically sequenced document is generated for the receipts of materials, stating actual quantities received.7 Debit and credit memos are properly documented and authorized.

This narrative covers the purchasing & receiving components of the expenditure cycle. Purchasing functions are segregated from receiving functions through a series of approval matrices and system controls.

The purchasing cycle begins when a department on the floor identifies a material need: Material Control identifies material need through the MRP process, or maintenance identifies the need for a repair or purchase. The purchasing department is notified through a system-generated requisition, an MRO form, email, or by telephone. System-generated requisitions are restricted to those with the proper access level, as defined by the Company approval matrix. MRO forms require the signature of an approved manager and emails and telephone requests only originate from approved managers.

The purchaser confirms that the requisition has the proper approval level and than check s if the requirement should be filled via an existing blanket purchase order. If so, the release of quantities on the blanket purchase order is authorized and the order is placed. If there is not an existing purchase order to fulfill the requirement, then the requisition is converted into a purchase order, either electronically or manually (depending on whether or not the requisition was system-generated or not).

A PO number is sequential and is automatically assigned by the system. The system will then provide a price history by vendor and “vendor preference” level for each product for the purchaser’s reference. The purchaser must then select an approved vendor for the PO. (See “Vendor Masterfile” section for further information). The PO automatically prints from the system, and the purchaser contacts the vendor to place the order. Price confirmations / audits are a new process currently underway to ensure consistent and accurate PO pricing.

The receiving cycle begins when items are delivered to receiving/warehouse. The fork operator checks the amount offloaded against the freight bill / packing slip (“P/S”) for the proper quantities. If there is an overage / shortage, it is noted on the P/S and signed. During offloading, the items are also inspected for damage. If damage has occurred, it is noted on the P/S. Damaged items will still be received for supplier payment. The LTL carrier is responsible for paying claim damages.

Once the offloaded product has been inspected and audited against the P/S, items are received into the system by a warehouse / receiving person with the appropriate system-level access. Items must be received against the originating PO, and part numbers must match; the system will not allow items not on a PO to be received. A receiver is generated by the system and numerically sequenced and prints automatically. An individual that did not receive the product audits the printed receiver against the P/S. Any issues are resolved and the packing slip and receiving tickets are forwarded to accounts payable (offsite) for payment.

Requiring dept submits

requisition

MRP process or Mat'l Control identifies needs

Approval match written guidelines?

Existing Blanket Order?

Purchase order

Obtain necessary approvals

Buyer manually enters PO or converts electronic requisition to PO. All PO & req numbers are auto assigned by the system.

Packing slip, P/O & rec'd qty within established tolerance?

Enter receipt into production

system

Investigate and resolve issues

1

1

2

4

5

Receiver is created from system and is numerically sequenced.

6

START

Items are received from vendor

Damage?

Inspect items for any damage

Work with Purchasing to obtain debit memo or vendor credit.

Forward documentation to Accounts Payable.

7

Is there a need for a blanket

order?

Buyer will create blanket order

Existing Blanket Order?

Receives PO or blanket release from Purchasing

Vendor ships to plant

3

Yes

Yes

Yes

Yes

No

No

No

No

No

No

Yes

Yes

FOB Origin?

File freight claim.

Yes

No

Requirement is placed with supplier as to qty and date needed

2

EXHIBIT G

of 26

Process Flowchart - VENDOR SET UP AND CHANGES

PURCHASING

A/P MANAGER

CONTROLLER


II_1.2 Access to vendor master file is segregated from the receiving, purchasing functions. **

II_1.3

II_1.4 VM changes done by A/P at direction of Purch. Mgr & reviewed by Controller

Request for changes or additions must be in writing, approved by a supervisor, and sent to the Accounts Payable Dept.

Access to the Vendor Master File is limited to accounts payable personnel only. Purchasing, receiving, and accounting personnel are able to view data. Any changes made to the Vendor Master File are compared to the original request document.

An audit of the Vendor Master is performed monthly. By the Staff Accountant and is reviewed & approved by the Controller.

A list of approved vendors (e.g. vendor masterfile) is maintained. All additions and changes to the masterfile are approved by an individual independent of the purchasing and accounts payable processing functions.

START

Update Vendor Master as necessary

Review monthly report of changes to vendor masterfile

2

Buyer completes Vendor Master add/change request 1

File vendor masterfile audit report

3

3

EXHIBIT H

Process Flowchart - ACCOUNTS PAYABLE ENTRY & RECONCILIATION

A/P PROCESSORS

PLANT CONTROLLER

STAFF ACCOUNTANT

CONTROLLER/CFO


1 Proper approval is obtained for all non-PO expenditures. 2 Vendor invoices are entered into the A/P database on a timely basis to ensure recording in the proper period.3 A/P performs a 3-way match prior to the processing of invoices for payment. All discrepancies are reviewed, investigated, and resolved on a timely basis.4 There is a process that ensures that goods and services received/rendered but not invoiced by the supplier are accrued at month-end.5 Reconciliation of Accounts Payable subledger to the G/L is performed monthly and differences are investigated and timely dispositioned. 6 Disbursements are authorized pursuant to an appropriate approval matrix.7

Certain types of non-inventory expenditures will not have a Purchase Order, such as seminars, dues, and professional fees. These items must be approved before goods or services are purchased and have a completed Check Request with appropriate approvals attached in order to be processed by the Accounts Payable Department. The Controller reviews all check requests before they are entered into the accounts payable system.

Reconciliation of Accounts Payable Trial Balance (sub ledger) to the General Ledger is performed at month end. Any differences are investigated and if necessary, corrected so that the Accounts Payable balance reflected in the general ledger is accurate. Any reconciling items and the action taken are noted on the Reconciliation. During reconciliation debit balances are also reviewed. A listing of the debit balances is created and submitted to the Controller and Accounts Payable Supervisor for disposition.

On an ongfoing basis, Controller or designee reviews & approves non-PO check requests and ensures correct GL coding.

Controller reviews & approves month end accounts payable reconciliation.

Receiving variances at all plants have a zero tolerance - all invoices with a receiving variance are referred to plant personnel. Price variances have a +/- $25 invoice total tolerance.

A/P Reconciliation

Review and approve J/E's and recons.

Add to month-end reconciliation book.

Reconcile A/P to G/L on monthly basis & differences investigated.

Invoices rec'd by Accts Payable

PO Item?

Obtain proper approvals based on approval guidelines

Obtained approval

1

START

END

Receivers from warehouses

Match receivers to invoices

Match A/P voucher to purchase order receipts in system. System calcs pay date based upon terms in vendor masterfile (see exhibit J)

Enter non-PO vouchers, including payment terms, in system

Are receiving & PO variances

within tolerance?

Forward to Purchasing or Receiving for correction

2

Receipts not vouchered report

Accrue RNV at month end4

5Misc. A/P Reconciliation

3

Yes

No

No

Yes

Yes

No

6

Review and approve Non-PO check requests

7

EXHIBIT I

Process Flowchart - CASH DISBURSEMENT (Selection) Process Flowchart - CASH DISBURSEMENT (Check issuance) Narrative

A/P PROCESSORS

STAFF ACCOUNTANT

CONTROLLER


1 Payments are processed by individuals independent of the requisitioning, purchases, receiving, and accounting functions and are made only to vendors included in the vendor masterfile.2 Checks are mailed / wires or electronic funds are released by individuals who are independent of those who process and record disbursements.3 Checks are physically secured, numberically controlled, never issued to bearer (or cash), never signed blank, and not signed w/o evidence of proper support. 4 All authorized bank account signatories are current employees of the Company, signatory lists are updated to reflect organizational changes, and banks are promptly notifed with sample signatures. 5

6 All checks over $10,000 undergo a detailed review and require two manual signatures from authorized check signatories.

7 Check signing machine requires the entry of a PIN code known only to the Staff Accountant and Jr. Accountant

Disbursements are authorized pursuant to an appropriate approval matrix. Checks are normally run once per week by the accounts payable staff. The Controller will grant the AP supervisor access to the blank check stock. Once the checks are run, accounts payable personnel will submit the checks for signature to a staff accountant.

The staff accountant will proceed with the check signing process in accordance with Internal Control Check Signing Procedures. A staff accountant will prepare a listing of all check numbers utilized during the month on a weekly basis. This list will include voided checks, manual checks, and system check numbers. This information will be used with the bank reconciliation procedures.

Controller reviews & approves the payment selection. A/P has the keys to the check drawer, but can not get into the vault and the Controller has keys to the vault but can not get into the check drawer. Retrieving and putting away the checks requires two people to be present. Controller maintains manual log for the signature machine and a log balancing the payment selections to the check registers.

Signature plates for the check signing machine are in the custody of the Controller, who does not have access to the physical checks. Checks are ran through the signature machine by an employee who does not have access to the physical checks nor to computer access to Accounts Payable. The control log is maintained by the Controller and compares the number of checks issued per the computer to the total number of checks signed per the check signing machine.

Review payment selection for errors

START

Run payment selection in system based on payment date

Is the selection correct?

Make changes to selection

Finalize payment selection Are there

changes?

Print Checks

Run through signature machine

Post checks & generate check register

Match backup to checks

Is check <$10,000?

Forward with back-up for review and for 2 manual signatures

Review randomly selected checks

Forward to mail room to mail checks

Maintain control log

Verify checks against control log

Verify check register & control log

1

2

No

Yes

No

Yes

No

Yes

Selected for audit

review?

No

Yes

5

6

Retrieve checks from vault. Access restricted to Cntrlr.

Locked check cabinet restricted to Staff Accountant.

Return checks to vault.

4

File copies by vendor

33

7

Approve payment selection

EXHIBIT J

of 26

Process Flowchart - Payroll

NON-EXEMPTEMPLOYEES

SUPERVISOR

PAYROLL

GENERALACCOUNTING


1

2

3 Final calculated payroll is reconciled to source documentation (e.g. total earnings, total hours, total deductions), and is approved by a supervisor prior to release. 4

5 An analytical review (e.g. actual to budget, actual to prior period, etc.) is performed to ensure payroll expense is properly recorded and distributed.6

7

Each location has a Payroll Clerk who performs the necessary plant-level duties to ensure an accurate payroll cycle.

For hourly payroll, time & attendance information is collected through an automated T&A system and is imported into the payroll software. On-site payroll makes necessary changes authenticated with the Supervisor and Human Resources.

Payroll processing for salaried personnel is performed by ADP. Non-exempt employees complete time sheets using Webtime, which is forwarded to their supervisor for approval and upon approval is automatically included in the ADP payroll processing.

Non-standard payments are initiated by the department manager, approved by business unit manager and, if over $250, is approved by V.P. of H.R.

Payroll checks at plants are distributed through department supervisors. Salaried personnel with direct deposit do not receive a payroll check but may view their payroll stub on-line.

Payroll is reconciled & verified by Plant Controllers each month and a confirming email is sent to the Corporate Controller each month when complete. All related accrual accounts are reconciled on a monthly basis by corporate accounting personnel. Payroll is reviewed for reasonability by both corporate and plant level accounting personnel.

All on-site payroll & HR records are kept in a secure area with controlled access.

Inputs and changes to payroll / human resource masterfile(s) are made on a timely basis and are authorized in writing (or electronically) by the hiring manager and one independent approver (e.g. Human Resources), e.g.: (1) Entry of new hires, pay rates and human resource information , (2) Deletion of employees, (3) Other changes

Time records are maintained to substantiate work performed and are approved by the employee's Supervisor (in writing or systematically): (1) Time sheets for hourly (non-exempt) employees, (2) Time sheets on an exception basis for exempt employees, (3) Time record changes are timely & approved by employee & supervisor

Account reconciliations are performed at least quarterly for all payroll general ledger accounts, and are reviewed by an individual other than the preparer. Reconciling items are resolved timely.

Adequate segregation of duties exists among the following functions: (1) Payroll authorization (time records), (2) Payroll calculation / processing, (3) Accounting / account reconciliation, (4) Check signing, (5) Check distribution

Electronic payroll and human resource files are password / ID protected.*** All payroll and HR software programs are passwrod protected and controlled by Human Resources

START(Hourly)

Time & Attendance info collected through automated time system

Checks delivered within 72 hours

3

Import into payroll system weekly

Make changes as necessary & approve

ADP processes payroll

Sort by dept and forward to managers for distribution to employees

P/R Reports to Accounting for reconciliation and G/L distribution

2

4

Reconcile accounts on a monthly basis

Analytical review performed during monthly close

56

4

3

2

1

START(Salaried non-exempt)

Time & Attendance info input into WebTime

2

Approve timesheet

7

Exempt employees automatically paid through ADP

START(Exempt)

START(Adds, chgs, dels)

Approve adds, changes & deletions and forward to P/R

P/R verifies necessary management and HR approvals and completes changes in HR systems.

Corporate Human Resources reviews changes on a monthly basis.

1

Corp Controller reviews changes on a monthly basis.

EXHIBIT K

of 26

Process Flowchart - Commissions, Bonuses & other non-standard payments

PAYROLL

CONTROLLER

ACCOUNTS PAYABLE


1 Final calculated payroll is reconciled to source documentation (e.g. total earnings, total hours, total deductions), and is approved by a supervisor prior to release. 2 Account reconciliations are performed at least quarterly for all payroll general ledger accounts, and are reviewed by an individual other than the preparer. Reconciling items are resolved timely.

3 Accruals are recorded as appropriate (e.g. for time worked but not paid, bonuses, etc.).4 An analytical review (e.g. actual to budget, actual to prior period, etc.) is performed to ensure payroll expense is properly recorded and distributed.5

6

CUSTOMER SERVICE

Each location has a Payroll Clerk who performs the necessary plant-level duties to ensure an accurate payroll cycle.

Payroll processing for salaried personnel is performed by ADP. Non-exempt employees complete time sheets using Webtime, which is forwarded to their supervisor for approval and upon approval is automatically included in the ADP payroll processing.

Non-standard payments are initiated by the department manager, approved by business unit manager and, if over $250, is approved by V.P. of H.R.

Payroll checks at plants are distributed through department supervisors. Salaried personnel with direct deposit do not receive a payroll check but may view their payroll stub on-line.

Payroll is reconciled & verified by Plant Controllers each month and a confirming email is sent to the Corporate Controller each month when complete. All related accrual accounts are reconciled on a monthly basis by corporate accounting personnel. Payroll is reviewed for reasonability by both corporate and plant level accounting personnel.

All on-site payroll & HR records are kept in a secure area with controlled access.

GENERAL ACCOUNTING

Adequate segregation of duties exists among the following functions: (1) Payroll authorization (time records), (2) Payroll calculation / processing, (3) Accounting / account reconciliation, (4) Check signing, (5) Check distribution

Electronic payroll and human resource files are password / ID protected.** All payroll and HR software programs are passwrod protected and controlled by Human Resources

START(Commissions)

Approve commission check requests

2

Commission reports produced as part of month end process

1

C/S enters order with commission rates per rep agreement or with deviation with Sales Manager approval

Review reports for errors

Produce summary for General Accounting

Produce check requestrs for approval

Cut checks to outside salesmen

Enter into HR system for inclusion in ADP

payroll**

Outside salesman?

Payroll accounts reconciled monthly

No

Yes

3

Analytical review performed during monthly close

4

5

5

Accrue Commissions

Outside salesman?

Obtain Human Resources approval for inside commissions, bonuses and other non-standard payments.

No

Yes

START(Other)

CFO & GM approve other non-standard payments and pass to Payroll for payment

6

EXHIBIT L

of 26

Process Flowchart - PRICING CONTROL PROCESS

SALES & MKTG

CUSTOMER SVC

CONTROLLER

NO

YES

CFO


START

Product Manager establishes list prices for each product & prepares mass-update Excel file.

Sales reps establish discount levels for each customer with approval of Regional Sales Managers

Regional Sales Managers establish contract prices for specific customers

Mass-update system list prices.

Enter new customer discounts & changes to existing customers at the direction of the Regional Sales Managers

Create uploadable file to update contract pricing

Monthly review of changes to customer discount levels

Muliplier less than .17?

Review & approve all multipliers less than .17

File approved report in pricing review binder

Run query to verify hash totals Run query to verify

hash totals

EXHIBIT M

of 26

Process Flowchart - FIXED ASSETS

EMPLOYEE

PLANT CONTROLLERS

NO

YES

NO

YES

NO

Approval Requirements:NO

> 25,000 = CorporateYES YES

2,500 - 25,000 = Local NO

< 2,500 = Expensed

YES

STAFF ACCOUNTANT

CORPORATE CONTROLLER


1 Fixed asset subledger is reconciled monthly to the general ledger.2 All capital additions and leases are supported by a properly authorized CAR.3 Assets are capitalized, depreciated, and disposed in accordance with company policy, and are authorized in accordance with appropriate matrix.4 Accumulate capital expenditures by project and begin depreciation when assets are placed into service.5 Amounts recorded for capital assets are assessed for impairment when factors indicating potential impairment are present.6 Access to the fixed asset subledger is restricted to authorized individuals by Corporate Fixed Assets Department to avoid improper additions/deletions/changes.7 Capital assets are properly tagged with an ID number that traces to the fixed asset subledger.8 Physical verification of assets is conducted once every five years in accordance with company policy.

All expenditures for fixed assets greater than $2,500 require a Capital Appropriations Request (CAR). CAR’s are initiated at the plant level, forwarded to the CFO for approval and then finally approved at the Corporate level.

The Corporate Fixed Asset Department issues a series of fixed asset tags to each division’s Accounting Department for the tracking of fixed assets. These tags are then controlled and issued by the Accounting department for each fixed asset received and are physically applied by plant personnel to the assets.

Upon initiation of the CAR, Accounting enters it into a CAR status spreadsheet used to track the CAR through the approval processes. After approval by Corporate copies of the CAR is forwarded to the Accounting Department and Purchasing Department (to issue a purchase order (PO).) When the asset is physically received, it is received against the PO and the receiver forwarded to the Accounts Payable Department for payment. When the fixed asset is received it is annotated as complete in the CAR status spreadsheet and entered into the Construction in Progress (CIP) spreadsheet where expenditures are accumulated by project until it is put into service. When the asset is put into service it is annotated as complete in the CIP spreadsheet and entered into the Corporate Fixed Asset System for tracking and depreciation calculations.

All incoming fixed assets flow through the CIP account in the general ledger (G/L) which is reconciled monthly by the Accounting Department. Fixed assets are segregated in the G/L based upon the Corporate asset class. As assets are placed into service they are moved via journal entry out of CIP and into the appropriate fixed asset account. In addition they are added to the Corporate Fixed Asset System.

Access to the Corporate Fixed Asset System is limited to one accounting department employee and entry to and maintenance of this system is controlled by the Corporate Fixed Asset Department. All assets are capitalized, depreciated and disposed of based upon a matrix provided by Corporate Fixed Assets in accordance with company policy. Amounts recorded for capital assets are assessed for impairment when factors indicating potential impairment are present. Each month end a report is generated by the Corporate Fixed Asset System that provides detail and totals for monthly depreciation, accumulated depreciation and gross asset value by location, by asset class. This is reconciled to the G/L on a monthly basis and is approved by the Controller.

Physical verification of assets is supervised by the Corporate and Plant Controllers and in conjunction with the Plant Managers. A physical audit is conducted, at minimum, once every five years in accordance with policy. Physical inventory of the fixed assets is conducted by dividing the plant into zones and identifying the fixed assets by tag number and description. Two exception lists are then generated from this count: (1) Tags (assets) that were expected to be on the floor that weren’t counted and (2) Tags that were not in the system but were counted. A specific search for both of the exception types is conducted to identify the course of action to be taken. All necessary accounting and fixed asset system entries are made in the first period following reconciliation of the physical fixed asset inventory.

START(Adds)

Over $25,000?

Reconcile Corp system to G/L on a monthly basis.

1

2

Review project to date spending to identify when project is final (begins depreciation) 3

3

3Review PPE activity for reasonableness

4

4

END

Issue asset tags to all assets received.

Apply asset tag to fixed asset.

Approved by Sr. Mgmt?

Initiate requisition for a fixed asset item by completing requisition & justification form

Prepare CAR & financial analysis for proposed capital expenditure to be presented to Corporate

Prepare approved CAR file for each approved purchase

Run monthly report that lists all purchases of capital entered into G/L. Monitor progess on project to date spending

Input into Corp fixed asset system once spending is complete

Over $2,500?Expense

Approved?

Approved by Corp?

END

END

7

START(Disposals)

Plant management identifies assets requiring disposal

Collect all necessary information regarding asset, including gross & net values, asset numbers, sales price, gain/loss on sale, etc...

Enter disposal into Corp fixed asset system.

Calculate & enter journal entry reconizing disposal, proceeds received and gain/loss on sale

Approve journal entries

START(Depreciation)

Monthly process that calculates monthly depreciation & asset balances run by Corp and emailed to Staff Accountant & Controller. Forward to Plants for impairment review

Complete & enter journal entry for depreciation based upon data from Corp system

3

3

START(Asset physical)

Plant Controllers coordinate and manage the physical in cooperation with Plant Managers

Results of physical reported to Staff Accountant by Plant Controller

Staff Accountant summarizes any necessary adjustments and forwards to Corporate Controller

Review and direct additional verification as necessary. Approve when complete.

Calculate & enter journal entry recognizing the results of the physical

3

8

Review asset listing for potentially impaired assets and report results to Corp Controller

5

Calculate & enter journal entry reconizing addition6

EXHIBIT N

Process Flowchart - INVENTORY VERIFICATIONCYCLE COUNTS PHYSICAL INVENTORY

PRODUCTION INVENTORY COUNT TEAM

PLANT CONTROLLER

CFO


1 Periodically conduct physical inventory verification in accordance with formal instructions (e.g. wall to wall, cycle counts), including off-site inventory, and reconcile to inventory records. Investigate and reconcile differences between physical results and accounting records.

2 Reconcile inventory system subledgers to general ledger.3 Periodically review inventories for excess, obsolete or damaged items and for lower of cost or market valuation and proper adjustments or reserves established.4 Physical inventory double checked by audit teams to ensure accuracy5 Physical inventory discrepancies checked by third team, including a member from finance and/or management

Identify inventory pieces to be counted

Perfom cycle counts and turn results into Production Management

Compare counts to inventory subleger

Differences noted?

Investigate differences and determine the right count.

Prepare cycle count results .

Adjustment to subledger needed?

Cost accounting posts adjustments to subledger

Cycle count results

Review and investigate further as needed

Prepare reconciliation between Inventory subledger & G/L

Inventory reconciliation

Review, approve, and sign off

Add to month end or physical inventory file, as appropriate

1

2

Yes

Yes

No

No

Semi-annual physical inventory procedure issued to plant personnel in advance of physical.

Physical inventory conducted per instructions issued.

Compare counts to inventory subleger

Differences noted?

Third team investigates differences and determines the right count.

Prepare physical inventory results .

Adjustment to subledger needed?

Cost accounting posts adjustments to subledger

Physical count results

Yes

Yes

No

No

Inventory audit teams verify counts

Verified counts entered into system

In conjunction with Warehouse Supervisor, review inventory for excess & obsolete items and adjust E&O accrual in accordance with UTC/Carrier policy.

3

4

5

EXHIBIT O

of 26

Process Flowchart - TREASURY CYCLE- Opening/Changing/Closing a Bank Account

Acctg We do not maintain any accounts for debt and/or financing arrangements and are not authorized to do so without company approval.

Other than metals hedging, we do not participate in any financial exposure management procedures. Metals hedging is done by Corporate.

Treasury YES

NO


Key Controls:

1 The opening of any bank account requires a company board resolution, dual authorization, and approval by Treasury.

2 All bank account changes are approved by the Controller and/or CFO.

3 All bank accounts are in the name of the company and have a separate general ledger account.

4 All bank accounts and related information (e.g. signatories) are accurately and completely recorded in the Bank Registry by a staff accountant and reviewed by the Controller.

5 All banking outlines and signature cards maintained by Treasury

All bank accounts are reconciled monthly by a staff accountant and reviewed by Controller. Bank statements are given to the staff accountant unopened from the bank. Receipts and disbursements per our cash journals worksheets are reconciled daily by a junior staff accountant to the amount of the Corporate “sweeps” into the concentration accounts. These amounts are then reconciled to the total reported in the general ledger for receipts and disbursements by the reconciling accountant. All reconciling items are initially followed up within 30 days of reconciliation and updated monthly until resolution.

We have limited access to print daily cash receipts and disbursement totals from the Chaselink and lockbox systems. We have no system rights to effect changes to the balances, only print access of recent activity. Links are password protected, run daily by a junior staff accountant, and are used to prepare the daily cash journals. At month end, the daily cash totals are compared to Corporate sweep amounts. Daily the cash journal receipts totals are used to cross check cash receipt input totals into our AR system.

Present to Carrier for approval

Approve?Notify Acctg of

approval.

Create GL account for each bank account.

1

2

3

Update on-line Bank Registry for new account information.

Controller immediately notifies Treasury of necessary signatory

changes.

Notify Acctg of non-approval

End

START

End

1

Identify need to add/

change bank acct account info

5

EXHIBIT P

of 26

Process Flowchart - TREASURY CYCLE- Bank Account Reconciliation

Staff Accountant

NO YES

CONTROLLER

Process Flowchart: SIGNIFICANT CONTROL ACTIVITIES

1. All bank accounts are reconciled with bank statements monthly, are performed by an employee

independent of the cash receipts and disbursement functions, and reviewed and approved by a supervisor. Actions to clear reconciling items

are initiated within 30 days of completing the account reconcilation.

2. All bank accounts for customer collections are automatically swept daily into a main concentration account, using fixed banking instructions defining the

source and destination bank accounts. All cash inflow and outflow is summarized daily in a cash journal and compared to incoming and outgoing funds

as reported by corp in its daily sweep activity. Thus, differences in receipts and disbursements are accounted for prior to preparing the bank reconciliation.

Bank reconciliation

Approve?

Sign, date & file in month end recon book

START

1

End

Receive bank stmt unopened from

bank

Prepare or update bank account reconciliation

Daily deposits credit to depository

accounts and checks clear from checking

accounts.

Balances in all accounts are swept daily into company cash concentration

system.

2

EXHIBIT Q

of 26

Process flowchart-Financial Reporting

Plant acctg

and HQ acctg

depts

HQ acctg

dept

No

Yes

Process Flowchart-Signifcant Control Activities

1 Journal entries may only be prepared by an accountant and entered by a plant controller; staff accountant; Controller; or Assistant Controller.2 Segregation of duties exist to ensure that (1) preparation/posting aned (2)approval are not performed by the same individual.3 Standard journal entry logs or summary sheets are utilized to ensure that all standard journal entries are recorded in the general ledger.4 All entries (including significant system generated entries) are reviewed and approved by a supervisor and include supporting documentation.5 Checklists and closing procedures covering all aspects of the closing process are documented by the Controller.6 Access rights to G/L and Hyperion systems are reviewed on a regular basis, and controls over changes to prior period data access is restricted.7 Contingency plans and procedures exist and are documented to ensure timely Hyperion submission.8 Account reconciliations are performed in accordance with company policy.9 All supplemental financial disclosure data are reconciled/validated to source documentation.

10 Signficant events and commitments/contingencies are identified and reported to management in a timely manner.11 Comparison of prior period to current period amounts for balance sheet and P&L activity is done monthly.12 Reconciliation between general ledger and Hyperion balances is done at the end of each reporting period.13 Comparison of actual results to expected results and investigation of significant differences is done by the CFO and FPA director, in addition to the Controller.14 Standard tools and checklists that ensure all subsidiaries are consolidated.15 All financial information is reviewed and approved by the CFO or designee.16 Accounting memos are prepared, approved, and available for review for all signicant transactions and adjustments. JV's include an adequate description of the event that led to the transaction and the justification for recording in a particular accounting period.17 All significant estimates and accruals are supported by calculations and relevant supporting documentation with references to applicable policies and procedures.

Month-end closing schedule is reviewed and a detailed closing checklist is distributed monthly by the Controller to ensure compliance with Corporate Corporation’s closing schedule [5]. A sales transaction cut-off schedule is distributed monthly to plant personnel to ensure that all sales transactions are identified. The General Ledger and Hyperion systems are maintained at the corporate location and costing functions are performed at the plant locations. Segregation of duties exists to ensure that the same individual does not perform the preparation/posting, and approval [2]. Journal entries may only be prepared by an accountant and entered by a staff accountant, Plant Controller, or Controller [1]. A Monthly Accounting Schedule is prepared by the Controller and distributed to all finance personnel. The Schedule assigns due dates for completion of closing procedures by staff members to ensure that all transactions are identified, reviewed, and accurately recorded in the general ledger.

System generated journal entries are created prior to close to allow accountants sufficient time to review and correct system generated entries. The MIS department job streams Month End Close Menu procedures as authorized by the Controller. The fiscal period closes are established by Corp and updated by the Controller. Monthly journal entries are created for sales, A/R, A/P, Mfg and inventory control transactions. Monthly journals, which substantiate the entries, are set to print automatically.

The Controller or designate performs the External Ledger Menu procedures in order to import system-generated entries from ERP application into the general ledger application. Plant Accountants and staff accountants are notified when entries are posted so that preliminary reviews and reconciliations may be performed. In order to preserve the audit trails, system-generated entries are posted without any changes. Corrections, changes, or deletions to system-generated entries are manually prepared and posted. Additional reports are created including Accounts Receivable Aging, Accounts Payable Trial Balance, and check registers.

The Controller or designate performs a final month-end close at QE points the day after the official close. This procedure is done manually in ERP’s Month End Close Menu and generates entries for all transactions made after the initial close. The month-end Product Profitability and Purchase Price Variance entries are manually generated during the final close. The journals must be manually printed. Once the Controller or staff accountants establishes that all required entries have been generated the External Ledger Menu procedures are performed for entries generated during the final close and they are posted to the general ledger. Additional reports that must be reprinted the day after the official close are Accounts Receivable Aging, Accounts Payable Trial Balance, and the Received Not Vouchered Report.

All accountants are notified when the final close entries are posted so that additional review and preliminary reconciliations may be performed. Manual journal entries consist of standard and adjusting entries. Entries are sorted by JV number and by transaction type. Imported journal entries are also created monthly from data supplied by the Expense Reporting System.

Journal entries are labeled with a JV No., period date, and preparer’s name and are submitted to preparer’s supervisor for approval. After the Controller or CFO approves entries [4] they are given to the staff accountant who files them into a monthly Journal Voucher binder and notes the filing in the Journal Entry Log [3]. If not approved the JV is returned to the originator for correction. The Controller approves the Plant Controller’s journal entries after entry is posted and before financial statements are finalized due to offsite entry. A staff accountant maintains the journal entry log to ensure that all standard entries are recorded in the general ledger [3]. As entries are recorded and posted to the general ledger, the staff accountant checks off the entry or if not a standard, will list the entry. The journal reference, journal type, short description, and preparer’s initials are summarized. To ensure reliability, a final comparison of all Journal Vouchers to a system generated journal entry summary is performed after close. The Execute Consolidated Profiles and Rebuild Dataset functions are performed periodically after posting. This procedure updates consolidated accounts used in financial statements.

Once all entries are posted, trial balances are printed and examined for unusual items and errors. Preliminary account reconciliation’s for Accounts Receivable, Accounts payable, and the major balance sheet items are prepared and reviewed for unusual items. The Controller verifies that items up to Hyperion Transmission on the Monthly Accounting Schedule are complete. Staff accountant verifies that all entries recorded are posted, except for tax entry and executes the consolidated profile and rebuild dataset functions. The Controller maintains access rights and controls to the General Ledger system, which are reviewed on a quarterly basis [6]. The Controller, Plant Accountants, and Staff Accountants have rights to post and unpost journal entries. The CFO and FPA manager are authorized to view data. The Controller maintains the Chart of Accounts to ensure consistency and to follow through with any changes to financial statement and Hyperion mapping. Significant events and commitments/contingencies are identified and reported to management in a timely manner [10].

The financial statements and supplemental schedules are created using Excel and Global Spreadsheet Server features. Monthly and year-to-date net income on the Balance Sheet and Income Statements are verified with the General Ledger’s net income account. Supplemental schedules are also reviewed for accuracy [9]. The Controller determines when all tasks on the month end checklist have been performed and financials are complete for submission to the CFO with input from Staff [14]. The CFO or designate will review and approve if no changes are necessary [15]. If it is necessary to record additional transactions, verification of postings net income must be performed again. A comparison of prior period to current period amounts for balance sheet and P&L activity is done monthly [11].

Financial data is linked to a spreadsheet used for loading into Hyperion. All supplemental data is listed in the Excel spreadsheet and verified to source document before loading into Hyperion [9]. After data is loaded into Hyperion, the check account file is opened to verify that there are no variances and net income is compared to financial statements. After Hyperion is determined to be complete and in balance, the file is extracted and e-mailed to Corporate and also transmitted via Hyperion to Corp by the Staff Accountant with Controller acting as back-up for loading and transmission [7]. Reconciliation between general ledger and Hyperion is performed at the end of each reporting period and a copy given to the CFO, FPA, and Controller [12]. The CFO and FPA manager and Controller perform comparison of actual results to expected results. Any significant differences are investigated [13].

The general ledger and journal vouchers are printed and filed by division, by month in account order. Staff accountant reviews original journal vouchers to summarized listing of entries posted to verify completeness and accuracy. A checklist is prepared, listing all balance sheet accounts as reported in Hyperion. These accounts are reconciled in accordance with the company policy [8]. The Controller has the final review of the reconciliations along with attached documentation. Accounting memos are prepared, approved and available for review for all significant transactions and adjustments (e.g. restructuring, changes in assumptions and estimates, asset impairments…etc) [16]. All significant estimates and accruals are supported by calculations and relevant supporting documentation with references to applicable policies and procedures, (e.g. warranty, pension, reserves…etc) [17].

3

Journal entries from daily activity

prepared.

79

12

START

1

C3

System generated entries

Manually prepared entries

JE approved (Supervisor up 1 level)?

JV back to originator for corrections

Staff acct notes jv completion and entry date in JV log.

Enter JV in system;Post File with mo. End

journal entries once complete.Use to verify entries to actual input.

Once all entries are input, trial balances are run and examined for errors.

Filed by division by month in acct order

Financial statements created & are reviewed by CFO for approval.

Make necessary changes; input new jv's and rerun statements as appropriate.

Update Hyperion; check for input errors; balance Hyperion to Global, transmit.

** - Primary Hyperion responsibility rests with Staff Acct. Controller acts as back up when necessary.

Prepare Hyperion trial balance comparison to GL; copy to CFO/Controller, then file original with Hyperion transmittals

Run final ledgers; journal entry reports; and trial balances

Approved?

24

1315

1617

Prepare account reconciliations. Obtain Controller approval.

811

Month end check lists reviewed

5

Perorm annual review of access rights to G/L and Hyperion 6

FP&A Mgr distributes monthy flash identifying all significant or unusual events during the month to management.

10

Month end check lists reviewed

5

14

Yes

No

EXHIBIT R

of 26

Process Flowchart - CHART OF ACCOUNTS

No

Yes


1 Chart of accounts is maintained & appropriate procedures are in place to ensure changes are properly supported & approved. 2 Access rights to G/L system is reviewed on a regular basis, and controls over changes to prior period data access is restricted.

This procedure applies maintaining the chart of accounts in the G/L system. All changes to the chart of accounts are performed by the Corporate Controller.

The request for changes or additions to the chart of account should be done by sending an email to the Corporate Controller detailing what changes are needed and the justification for the change or addition.

Maintenance requests such as adding an existing account to another department or deactivating an account are usually made verbally and are performed by the Controller.

The Corporate Controller will either approve and make the changes, or will consult with the requestor regarding changing details of the request.

On a monthly basis the Controller will review all changes were made by authorized individuals and that all additions and changes are valid [1].

Approved reports showing changes and additions are to be maintained and available for management review. Access to prior periods is restricted to the Corporate Controller only. Access to GL is reviewed on a quarterly basis. [2]

Written request for new account to Controller

Approved?

Controller creates new a/c within G/L.

End

12

EXHIBIT S

of 26

Process Flowchart - INTERCOMPANY ACCOUNT RECONCILIATION

Corporate Subsidiary HQ

Each entity notifies the otherof intercompany activity


1 Intercompany account balances are confirmed and reconciled monthly.

For intercompany trade receivable balance, the company recognizes the intercompany cut-off five days prior to month end per company policy. On the morning after intercompany cut-off, the Credit Supervisor runs the intercompany A/R agings and produce statements to fax to those entities who have requested faxes. The intercompany aging is forwarded to the Staff Accountant who summarizes the aging by location and sends an email containing the company's interco trade A/R balances for confirmation [1].

During the month end process, the Controller creates a reversing entry balancing the interco trade A/R accounts on the G/L. At fiscal month end, the Controller runs an interco A/R aging as of true fiscal month end. The difference between these two reports is booked to the interco shipped-not-billed account.

Intercompany accounts payable are confirmed with the selling organization by a staff accountant and a JV prepared to record the reclassification on the financial statements [1]. This entry is approved by the Controller.

From late in the last week in the fiscal month, an accountant at corporate sends interco GL detail updates to all entities. The Staff Accountant reviews all of the company's activity with corporate on a daily basis to ensure that intercompany balances concur. As charges and credits are passed to the company, the Staff Accountant enters corresponding entries in the company's G/L.

When all entries are in for both the company and corporate, the balances are confirmed by the Staff Accountant [1].

All journal entries produced by the Staff Accountants are approved by the Controller. All entries produced by the Controller are approved by the CFO.

Staff Acct Reconcilesdifferences

Interco Reconciliation- first pass

Interco Reconciliation-first pass

Staff Acct prepares final reconciliation

File recon in Interco recon files End

Confirm final balance

Journal entries prepared & recon approved by Controller

JV's input to system. Copy of recon filed with jv's.

1

Process Flowchart - Production CYCLE

CUSTOMER/SALESMAN

CUSTOMER SERVICE

PRODUCTION

ACCOUNTING


1 Direct labor and material are properly authorized and are accumulated to the appropriate work order, inventory charge number, or overhead account in the appropriate period.2 Overhead application rates are periodically reviewed, approved, and appropriately applied.3 Reconcile inventory system subledgers to general ledger4 Periodically review inventories for excess, obsolete, or damaged items and for lower of cost or market valuation and proper adjustments or reserves are established.5 Inventory costs are relieved and appropriately matched to sales transactions in the proper period.6 Periodically conduct physical inventories7 Establish and approve documented standards and review at least annually8 Compute variances for each appropriate element of cost and investigate/reconcile significant variances9 Reconcile subsidiary ledger to general ledger to ensure that variances are calculated correctly and are properly allocated to the cost of sales

START

Customer or salesman faxes or calls in order

Customer Service enters order into system. System automatically creates a work order if customer is not on credit hold.

Work order is scheduled for release according to led time

for each product group.

All raw materials pulled from warehouse using supervisors's "Parts

Ordered List"

Manufacturing process complete

Quality performs review and signs off

on test report

Production supervisor marks

work order complete.

Floor closes work order.

Bill of Materials is established and all material costs are moved to WIP

All material and labor costs are backflushed when transferred to

Finished Goods.Standard material resides in

Finished Goods until shipped.

Finished Goods are shipped & Invoiced. Material costs are

relieved from finished Goods at standard cost.

Inventory close processed by Accounting.

Accounting reconciles inventory detail to

general ledger monthly

Accounting reviews labor & material cost variances monthly & reconciles to

general ledger

Accounting establishs Labor, Material &

Overhead standard rates yearly with approval

from CFOEndEnd

End

1

1

3 8, 9 2, 7

EXHIBIT 1

of 26

Process Flowchart - Return Merchandise Authorizations (RMA's)

CUSTOMER SERVICE

RECEIVING

WARRANTY

PLANT CONTROLLER

ASST CONTROLLER

DATA ENTRY

The RMA process starts when the customer notifies Customer Service or their salesman of their need to return merchandise. If the salesman is notified the request is forwarded to Customer Service (or Warranty as a subset of Customer Service) who verifies the pricing and adds any restocking charges. Restocking charges are applicable only if it is an elective return on the customers part and is not because of a failure on the part of the company.

The Receiving Department receives returned merchandise against RMA's in the system on a daily basis as they are received.

Each Monday the WTY Dept runs an Open RMA Pending Credit report. Each pending credit is reviewed and approved. If there are any returns that should not be issued credit at that time, the Warranty Dept. notes on the report not to issue credit and gives a brief explanation as to the reason. By the end of the day on Monday, the Warranty Dept. faxes the report will all comments & approvals to the Plant Controller for the warehouse receiving the merchandise. Wty Dept attaches RMA back up to report and forwards to Asst Corp Controller.

The Plant Controller notes the fiscal impact of the return & voices any concern regarding miscellaneous charges. Approves and faxes to Assistant Corp. Controller by the end of the day on Tuesday.

Assitant Controller audits pricing, commissions, & coding and verifies necessary approvals per authorization level matrix. Approves and forwards to data entry to release for credit by noon on Wednesday.

Data entry makes necessary approved changes per instructions and releases RMA for credit by the end of the day on Wednesday. All back up is stapled to weekly report and filed by date.

START

Plant receives goods against RMA as they are received

Review & Approve as appropriate and verify coding

Each Monday the WTY Dept runs an Open RMA Pending Credit report, approves as appropriate, and faxes to Plant Controller.

C/S receives call from customer and issues RMA in system.

Approve as appropriate and fax to Assistant Corporate Controller

Make necessary changes and release in system for credit issuance.

Attach all backup & file by date.

EXHIBIT 2

of 26

Process Flowchart -Preliminary Lien Notices

BUSINESS UNIT CREDIT

SERVICE PROVIDER

LIEN FILING SERVICE

Each business unit initiates a preliminary lien notice per the units' Credit Policy. B/U Credit Dept emails necessary information for the geeneration of the prelim.

As follow-up is received from the prelim service provider, B/U Credit verifies payment status and advises service provider that the invoice is paid and to end tracking or, if invoice is open, forwards to lien filing service to file mechanics lien.

Service provider receives prelim info from client B/U Credit Dept, enters information into LienTracker software and issues prelims as necessary.

LienTracker software sets automatic follow-up flags based upon construction laws in each state. Service provider contacts B/U Credit as deadlines are approaching to receive direction - either invoice paid or lien being filed.

Lien filing services files mechanics liens as directed by B/U Credit Dept and handles any necessary litigation.

START

Enter necessary information into LienTracker software & follow-up based on system queues

Print & mail preliminary lien notices based upon system parameters

Receives order within credit policy parameters for preliminary lien notices

B/U Credit emails to prelim service provider to file prelim.

Monitor status on prelim'ed orders

Terminate tracking of prelim's as necessary

Files mechanics liens in the event of non-payment

Files suit to enforce lien, if necessary

EXHIBIT 3

of 26

Process Flowchart -OE / CR / PS

CUSTOMER SERVICE

CREDIT

ENGINEERING

3:00 Pacific time is the daily deadline for sales order changes for items being finalized for production. Any changes after 3:00 requires special notification of Credit to ensure that an order gets finalized that day.

Credit must complete their review by 3:30 to allow scheduling to finalize the production schedule. Any delay past 3:30 requires special notification of scheduling to ensure items are not missed.

PRODUCTION SCHEDULING

START

C/S enters customer order or modifies an existing order.

Is cust past-due or over-

limit?

Production schedules and product is produced.

Credit reviews account and contacts cust for payment if necessary and releases order when satisfied. If there is a high confidence in the eventual shipment but the order needs to be on hold until payment is received, Credit releases sales order to generate work order and places back on credit hold.

Are there changes to orders by

Engineering?

Changes are made to order. If work order does not show up, credit is notified by email of the need for a work order.

At 3:00 Pacific time Credit runs report to identify sales orders which need work orders and releases and puts back on hold as necessary and is complete by 3:30.

Yes

Yes

No

No

EXHIBIT 4

of 26

Process Flowchart - PROPOSED RECEIVING PAPER FLOW

RECEIVING

ASYNCHRONOUS

SYSTEM PROCESSES

ACCTS PAYABLE

PLANT CONTROLLER

CORP CONTROLLER


C1: Control point to verify accuracy of vouchered receivers & invoices.

C2:

C3:

Control point to audit the accuracy of receiving report, which will feed A/P and the RNV report. This process will verify that items received in system have physical back up & will help protect against duplicate entry of receivers.

Control point to audit the accuracy of receiving report, which will feed A/P and the RNV report. This process will verify that items physically received are keyed into system & will help protect against non-entry of receivers.

START

Receive & verify product from Vendor

Enter receipt against PO in PU15

System generates two identical receivers showing PO, line number, sequence number product quantity & price. One copy prints in A/P and one copy prints in Receiving.

Staple system receiver to receiver from the vendor.

Print Daily Receiving Log, verify individual receivers and file with all receivers for the day as a package.

Receive invoices from vendor

Physically match invoices to system receivers

Receiving discrepancies?

Refer to daily receiving package to correct receiving as necessary

Yes

No

Receive in system & continue A/P process

Run quarterly receiving log & randomly select a minimum of 15 receivers to verify against back up in daily receiving file.

Select a minimum of 15 receivers on a quarterly basis to verify against the receiving log.

C1

C2

C3

Report results quarterly to Corporate Controller via email

Review & file with Sarbanes-Oxley testing records.

HTP Group Journal Entry Matrix

document.xls -- JE Matrix of 26

Effective as of MM/DD/YY

Entry of Journals ************* Approval of Journal Entries *************

Recurring & Std Adjusting System Recurring & Std Adjusting (non-std) Adjusting (non-std)

POSITION Entries Entries Entries Entries

(NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1) (NOTE 2)

CORPORATE Corporate Controller X

LOCAL MANAGEMENT Division CFO X X X Division Controller X X X X X X Assistant Controller X X Senior Accountant X X

PLANT Plant Controller X X X X Cost Accountant X X

NOTES AND RESTRICTIONS:

(1)

(2)

Entries < $250K Entries > $250K

All journal entries require approval one level up from the person preparing the entry. For example, the CFO must approve all entries from the Controller, entries from the Plant Controllers require the approval of the CFO or Corporate Controller, and Plant Accountants entries require the approval of the Plant Controllers or above.

All adjusting (non-standard) entries in excess of $250,000 require the approval of the business unit CFO or Controller AND the approval of the Corporate Controller.

Sample Flow Chart

Documents

Transcript of Sample Flow Chart