Operating Expenses Narrative

The Operating Expenses process covers the following sub-processes: Initiation and Authorization Invoice Processing and payments Reporting

Initiation and Authorization The Stores department sends a material requisition form to the purchase department for procuring goods/service. A purchase requisition is created by the Purchase Requisition Clerk and approved based on the local procurement policy. If the amount is greater than thresholds limits, Centralized Procurement Policy is used to obtain proper level of approval. As per the procurement policy, quotations are sought from the approved vendors and product/service confirmed based on terms and procedure mentioned in the policy. Upon approval of the price and product specification, a purchase order is created in the system by Purchase Requisition Clerk. Once the purchase orders are generated, it is faxed to the respective vendor. The system is configured to prohibit POs from being generated for unauthorized vendors. Invoice Processing and Payments Invoices are sent directly from the vendor to the AP department. Upon receipt of the invoice, the Accounts Payable Clerk enters the invoice details in ERP. The ERP system is configured to perform a 3way match for goods purchased (R_OPE_1), (C_OPE_1). The invoice, purchase order (PO) and GRN for the good received are matched within the system prior to payment (R_PAO1_3), (C_PAO1_1). Payments are blocked when there is a difference (outside the allowable tolerances) between the price and/or quantity amongst the PO, GRN, and/or invoice; blocked invoices are sent to the AP Manager for review via workflow. The AP manager has the ability to unblock the invoice. For invoices received related to services, a two-way match is performed by the Accounts Payable Clerk comparing the invoice and PO within the system. The Accounts Payable Clerk also obtains necessary approval from the respective department on behalf of whom the expenses were incurred. The two-way match is approved by the accounts payable manager within the ERP system prior to payment. When the accounts payable department processes an invoice related to goods/services received against a PO, ERP automatically debits the GR/IR account and credits A/P Trade. Accounts Payable and Operating Expenses are recorded by ERP System upon match. The system is also configured to prevent duplicate invoices from being processed through the check invoice option for all vendors. Reporting On a monthly basis, the Accounting Manager runs a departmental expense report to compare currentmonth operating expenses to the budgeted expenses for that month. The Accounting Manager checks
Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

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whether operating expenses are recorded in the correct GL Account (C_OPE_2), (R_OPE_3). The Accounting Manager then prepares a trend analysis, variances are calculated and unusual relationships are investigated (C_OPE_2, (R_OPE-2), (C_OPE_4), (R_OPE_7). Variances greater than the defined threshold limit, and those demonstrating unusual relationships, are sent out to each department manager for investigation. These are also sent to the Senior Accountants in the Finance department to compile explanations (C_OPE_1), (R_OPE-1). Each variance exceeding the mentioned thresholds requires an explanation to be part of the report. The Accounting Manager also utilizes this analysis to check whether any prepaid expenses have been removed from the GL when a prepaid asset still exists (C OPE_3), (R_PDO_6). The complete analysis with comments related to the variances are discussed at a monthly meeting and reviewed by the Assistant Controller. The monthly meeting is attended by respective Department Heads, the Accounting Manager, and the Assistant Controller. Any issues arising from this analysis are resolved as part of these discussions. IPE:

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Notes:

OPE_IPE_1 Departmental Expense Report OPE_IPE_2 Trend Analysis

1. The following risks have not been mapped in this narrative as they have been mapped in
Prepaid Expense narrative: a. R_PDO_2

b. R_PDO_3
c. R_PDO_4 d. R_PDO_8 e. R_PDO_9 f. R_PDO_10

g. R_PDO_11 2. The following risks have not been mapped in this narrative as they have been mapped in Accounts Receivable (Revenue) narrative :

a. R_REC_2 b. R_REC_3
3. The following risks have not been mapped in this narrative as they have been mapped in Property Plant, and Equipment narrative: a. R_PPE_3
Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

b. R_PPE_4 c. R_PPE_5 d. R_PPE_6 e. R_PPE_8 4. The following risks have not been mapped in this narrative as they have been mapped in Goodwill and Intangible Assets narrative: a. R_GIO_1 b. R_GIO_2 c. R_GIO_6 d. R_GIO_7 e. R_GIO_9 f. R_GIO_10

g. R_GIO_11 h. R_GIO_12 i. R_GIO_13

5. The risk R_PAO1_1 has not been mapped in this narrative as it has been mapped in Accounts Payable narrative. 6. The following risks have not been mapped in this narrative as they have been mapped in Accrued Expenses narrative: a. R_OPE_4 b. R_OPE_5 c. R_OPE_6
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Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.