INTERNAL AUDIT OF MATERIALS MANAGEMENT

1. Northern India Regional Council of ICAI Presents INTERNAL AUDIT OF MATERIALS MANAGEMENT Presented by: Sardari Agarwal slagarwal@snbindia.com SAHNI NATARAJAN & BAHL Dated: October 10, 2009 Hotel The Park

2. INTERNAL AUDIT OF MATERIALS MANAGEMENT • RELEVANCE – 60-70% OF NSV – A CRITICAL FUNCTION • SAVINGS CONTRIBUTION TO PBT • MAJOR CONSTITUENT OF WORKING CAPITAL • ESSENTIAL ELEMENTS • ORGANIZATION STRUCTURE / BOARD LEVEL • COORDINATION • RISK MANAGEMENT • CHECKS AND BALANCE

3. INTERNAL AUDIT OF MATERIALS MANAGEMENT BASIC OBJECTIVES • SAFEGUARD FROM FRAUD, WASTAGES, AVOIDABLE LOSSES • ACCURACY & TIMELINES OF DATA • EFFICIENCY & EFFECTIVENESS OF OPERATIONS • ADHERENCE TO LAID DOWN SYSTEMS & PROCEDURES

4. INTERNAL AUDIT OF MATERIALS MANAGEMENT MATERIAL REQUIREMENT PLANNING • RELEVANCE • PLANNING (PRODUCTION) WEEKLY/ MONTHLY/ ANNUAL • COORDINATION WITH MARKETING, PRODUCTION & STORES • STOCK LEVELS / LEAD TIMES • INVENTORY HOLDING COSTS • CHANGES IN PACK DESIGN / FORMULATION • ACTUAL PRODUCTION AGAINST PLAN / IMPACT ON STOCKS • SLOW MOVING& OBSOLETE ITEMS • KANBAN / ZERO INVENTORY

5. INTERNAL AUDIT OF MATERIALS MANAGEMENT PURCHASE REQUISITIONS • DELIVERY SCHEDULE / DELIVERED FREE / EX SUPPLIER / LOGISTICS • AUTHORITY SCHEDULE • MATERIAL UNDER DIRECT CONTROL OF PURCHASING • DIRECTLY BEING CONSUMED

6. INTERNAL AUDIT OF MATERIALS MANAGEMENT PURCHASING (A SEPARATE SUBJECT) • PURCHASING RIGHT MATERIAL • PURCHASING AT RIGHT TIME • PURCHASING FROM RIGHT SOURCE • PURCHASING AT RIGHT (COMPETITIVE PRICE) • MAKE / BUY DECISIONS • VENDOR DEVELOPMENT • VENDOR RELATIONSHIPS / CATALOGUE

7. INTERNAL AUDIT OF MATERIALS MANAGEMENT RECEIVING - ORGANIZATION • INDEPENDENT OF PURCHASING • ADEQUATE WEIGHING / MEASURING / COUNTING FACILITIES • INDEPENDENT SAMPLING / QC FACILITIES • POST ACCEPTANCE SAMPLING / ANALYSIS • CONTROL OVER EMPTIES / TRUCKS RETURNED TO SUPPLIERS

8. INTERNAL AUDIT OF MATERIALS MANAGEMENT RECEIVING - RECEIPTS QUANTITIES • SEPARATE AREA FOR PENDING ACCEPTANCE • ACCURACY OF WEIGH SCALES • INDEPENDENT CHECKING OF QUANTITY • TIMING OF RECEIPTS (OFFICE HOURS) • DISCOURAGING DIRECT RECEIPTS BY PRODUCTION. • CHECKING RECEIPTS WITH P. O. / SET OFF AGAINST CORRECT P.O • UPDATING STOCK RECORDS (AFTER QUALITY ACCEPTANCE) • ISSUE OF GOOD RECEIPT REPORTS • CLAIMS FOR SHORTAGES / DAMAGES FOR EX SUPPLIER DELIVERIES

9. INTERNAL AUDIT OF MATERIALS MANAGEMENT ISSUES • AGAINST AUTHORISED REQUISITIONS ONLY • QUANTITIES TO BE VERIFIED BY PRODUCTION • ISSUES DURING WORKING HOURS / NIGHT ISSUES UNDER SUPERVISION • FIFO

10. INTERNAL AUDIT OF MATERIALS MANAGEMENT PHYSICAL VERIFICATION • PERPETUAL INVENTORY / STORAGE TANKS • SELECTED ITEMS TO BE CHECKED DAILY • INVESTIGATE LARGE DIFFERENCES • WRITE OFF WITH BOARD APPROVAL

11. INTERNAL AUDIT OF MATERIALS MANAGEMENT SCRAP • CONTROL OVER ACCRUALS • SEGREGATION / SEPARATION INTO DIFFERENT MATERIALS • MARKET PRICES • SUPERVISION AT REMOVAL TIME • SECURITY DEPOSIT FROM CONTRACTORS • REVERSE AUCTION

12. INTERNAL AUDIT OF MATERIALS MANAGEMENT MIS • REBATE SCHEDULE • SOA • DANGEROUSLY LOW STOCK STATEMENT • P. O OUTSTANDING FOR DELIVERY • PR NOT CONVERTED INTO PO • MATERIALS PENDING Q/C • HIGH STOCK LEVELS CONT…..

13. INTERNAL AUDIT OF MATERIALS MANAGEMENT CONT….. MIS • OBSOLETE MATERIALS • WEIGH SCALE TEST REPORTS • STOCKS NO LONGER REQUIRED • ANALYSIS OF OVER CONSUMPTION • STOCK DIFFERENCES • ACCRUAL / DISPOSAL RECONCILIATION OF EMPTIES / SCRAP

14. INTERNAL AUDIT OF MATERIALS MANAGEMENT THANK YOU