Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

Purchases are approved and processed accurately. 1.1 Management establishes measures to determine the requirement for ordering parts. Authorization levels exist which specify the amounts up to which individuals are authorized to approve purchase requisitions.

a) Interview management and document the ordering process for inventory. b) Obtain the authorization levels for purchase requisitions. c) Select a sample of recent purchase requisitions and ensure that they are approved by management. 1.2 Purchase orders are reviewed and approved by management.

a) Select a representative sample of purchased inventory. b) Verify whether the purchase orders are reviewed and approved by management prior to the receipt of the inventory. 1.3 Purchase order entry data is compared to source documents by individuals who are independent of the purchase order entry process.

a) Verify whether the purchase order entry data is compared to source documents by individuals who are independent of the order entry process.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

b) Using the same sample from 1.2 above, review the details on the purchase order to the data entered into the system to ensure it is accurately input. 2 All valid inventory movements are recorded accurately and in the appropriate period. 2.1 Inventory movements are tracked to ensure that only authorized personnel have the capability to modify inventory records.

a) Discuss with management and understand how inventory movement is controlled and tracked. b) Select a sample of transactions (i.e. receiving, shipping, returns) and verify whether management review and approve the inventory movement to ensure accurate and timely recording. c) Verify that only authorized personnel has the capability to modify inventory records. 2.2 Inventory reconciliation is performed on a regular basis. Management review the reconciliation for mathematical accuracy and to detect any unusual activity.

a) Select a sample of inventory reconciliations and ensure that: i - It is completed timely. ii - Is mathematically correct. iii - Is approved by management.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

iv - Variances are identified and resolved. v- Overall appears reasonable. 3 Physical inventory verification of quantities and financial records are adequately and appropriately performed. 3.1 Physical verifications of inventory are compared to the financial records and reviewed by management.

a) Obtain an understanding of the physical verification process (i.e. how often, what is counted, cycle counts, etc.). b) Interview management about the procedures in place to determine how all inventory/material types are verified. Determine if an overall verification plan is established and adhered to. c) Verify whether the planned physical verifications are properly performed, reconciled to financial records and reviewed by management. 3.2 Management is provided with a status report of the inventory verification plan to determine whether the plan is on schedule or not.

a) Assess the process used to track the verifications performed against the plan. b) Obtain status reports and review for reasonableness. c) Determine whether the status reports indicate the plan is on schedule or not

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

Consignment inventory is managed and accurately recorded. 4.1 Management has measures in place to identify materials consigned to outside parties.

a) Interview management about the measures used to identify materials consigned to outside parties. b) Obtain evidence and determine how additional value (or costs) being added to the parts (if any) is being accounted for. 4.2 Processes are implemented to ensure that inventory quantities at off-site locations (if any) as well as movements between off-site locations and the main facility are controlled and monitored.

a) Inquire as to the existence of off-site inventory. Understand the process for controlling inventory quantities at off-site locations as well as movements between off-site locations and the main facility. b) Obtain evidence and verify whether management monitors the inventory quantities at off-site locations as well as movements between off-site locations and main facility. 4.3 Consigned and off-site inventory is verified on a regular basis to ensure that it is consistent with the financial records.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

a) Examine documentary evidence (e.g. physical inspection/reconciliation report duly signed off by appropriate management) and verify whether the discrepancies identified are investigated and resolved timely. 4.4 Consigned and off-site inventory is periodically confirmed.

a) Examine documentary evidence (e.g. inventory on consignment report received from the consignee) and determine whether the discrepancies identified are investigated and resolved timely. 5 Excess and obsolete stock/reserves are valid and recorded completely and accurately in the appropriate period. 5.1 Management implements measures in order to determine whether inventory valuation, reserves/provisions are appropriately established to prudently revise the value of inventories for obsolete, surplus and scrap items.

a) Inquire as to the measures implemented in order to determine whether inventory valuation reserves/provisions are appropriately established to prudently revise the value of inventories for obsolete, surplus and scrap items. b) Obtain the necessary documentation and verify the reasonableness of step (a). c) Determine whether management reviews E&O

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

inventory and reserves on a regular basis. 5.2 Reserves are recorded for slow moving, obsolete, or excess inventory.

a) Understand the locations method of identifying and estimating reserves for slow moving, obsolete, or excess inventory. Assess whether there are any lower of cost or market issues. 5.3 Management uses pre-defined assumptions and factors to calculate the E&O reserve.

a) Review the calculation of the E&O reserve. Ensure the methodology to calculate is reasonable, documented and consistent with the management's assumptions. b) Ensure that management assumptions are reviewed and approved. 5.4 Management is informed of any cancelled and discontinued orders to assess the implication on the reserve calculations.

a) Inquire about inventory related to any cancelled and discontinued orders. b) b) Obtain and verify whether such information is being routed to management in a timely manner and assess the implications on the reserve calculations. 5.5 Slow moving, obsolete, or excess inventory is adequately segregated

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

from other inventory and is monitored to ensure it is scrapped or reworked on a timely basis. a) Inquire about inventory segregation as slow moving, obsolete, or excess inventory. b) Observe whether the slow moving, obsolete, or excess inventory is adequately segregated from other inventory. c) Verify whether final disposition (scrap or rework) is reviewed and approved on a timely basis. 1 New tooling projects are adequately evaluated for feasibility and profitability. 1.1 Policies and procedures are established by management to evaluate incoming requests or orders to ensure feasibility and profitability of each project.

a) Through inquiry and observation determine if there is a formal process in place to evaluate incoming requests or orders to ensure feasibility and profitability of each project. b) For a sample of tooling agreements verify, before entering into an agreement, or submitting a bid to a customer, whether appropriate personnel evaluate to ensure that the order is in accordance with the policies and procedures established by management. c) Determine whether the policy and procedure on evaluation includes the following: - technical feasibility of the tooling order (by Engineering);

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

- resources and time required for making the tool; - cost estimate of the project (design, material, labor, installation and testing, and overhead); - tooling price and profitability of the project; - make vs. buy decision. 1.2 Management establishes procedures for new contract acceptance including review and approval by all affected departments such as the Legal and Finance Departments.

a) Through inquiry and observation determine if there is a formal process for new contract review and approval, including the review of customer contract terms and provisions by Legal and Finance Departments. b) Obtain a representative sample and verify whether the customer contract terms and provisions are reviewed by Legal and Finance Departments. 2 Baseline requirements are established for new projects and baseline costs are valid. 2.1 Baseline requirements for all projects are established and documented. Any deviation from the established baseline requirements is explained, documented and approved by an appropriate level of management. a) Select a representative sample of ongoing and completed tooling projects. b) Determine if managements establishes and documents the baseline requirements for all projects selected.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

b) Verify whether any deviations are justified and approved by management. 2.2 Management approval is required prior to beginning any project and initiating project spending. a) Using the same sample selected in step verify that there is proper approval and that the start date is authorized prior to beginning the project and initiating project spending. b) Determine whether signed/approved customer order/contract is obtained. 2.3 Management has measures in place that help monitor projects baseline costs to ensure that costs are valid and within budget. a) Using the same sample selected in step b)1, verify that total costs do not exceed the baseline (or adjusted baseline) cost requirements for all projects. Assess the adequacy of any baseline adjustments documentation. b) Verify whether management monitors the costs to ensure that they are within the approved limits. All purchase requisitions are valid. 3.1 Appropriate level of management approval must be obtained prior to forwarding the purchase requisition to the purchasing department. The requisition and procurement functions are segregated. a) Select a representative sample of tooling purchase requisitions. b) Verify whether appropriate and timely approval

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

is obtained prior to forwarding the purchase requisition to the purchasing department. Determine whether proper segregation of the requisition and procurement functions exist. 3.2 Management reviews the purchase requisitions to ensure that adequate supporting documentation is maintained for all purchase requisitions. a) Through inquiry, obtain an understanding of the established controls to ensure adequate supporting documentation is maintained. b) Using the sample in c)1, verify whether the tooling documentation is reviewed by management for adequacy and reasonableness. 3.3 Management has established and implemented procedures to ensure that appropriate funds are available to support the requisition at the time of approval. a) Interview management as of the procedures in place used to ensure that appropriate funds are available to support the requisition at the time of approval. b) Obtain evidence and verify the reasonableness as determined in step a) 4 Purchase orders are placed only for approved requisitions. 4.1 Purchase orders are reviewed and approved by management prior to mailing to the supplier.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

a) Select a representative sample of purchase orders. b) Verify whether they are supported with appropriate purchase requisitions and are approved by authorized personnel. c) Compare the PO to the original purchase requisition details to ensure consistency.. 4.2 Appropriate personnel verifies that the terms of the purchase order are in agreement with the terms in the customer purchase order/contract. a) Using the sample selected in step 4.1 review purchase order for stated terms. Determine whether the terms of the purchase order selected are in agreement with the terms in the customer purchase order/contract. b) Verify whether terms are in accordance with the organization's corporate guidelines. 5 All project related expenses incurred are valid. 5.1 Management periodically reviews all project related expenses to ensure that they are authorized. Unrelated expenses are thoroughly investigated and resolved. a) Select a representative sample of tooling projects and obtain a list of all expenses incurred with the project. b) Verify whether management reviews and approves all expenses.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

c) Obtain evidence that all unrelated expenses are thoroughly investigated and resolved. 5.2 Status reports are reviewed to ensure proper completion of the projects and closing of jobs/accounts. a) Select a representative sample of tooling status reports. b) Verify whether management periodically reviews the status reports. 5.3 Tooling projects are regularly measured to assess whether the anticipated costs are likely to be exceeded. a) Obtain evidence and verify whether management periodically monitors each tooling project to assess whether the anticipated costs are likely to be exceeded. b) Determine if appropriate action is taken with respect to over-budget projects. 6 Only valid vendor invoices are properly processed and paid in time. 6.1 Prior to extending payment to vendors, invoices are matched with purchase orders, purchase requisition and the receiving documents (if applicable). a) Select a representative sample of cash disbursements to vendors. b) Verify whether a match is performed between the invoice, the purchase order/purchase

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

requisition and the receiving documents (if applicable). 6.2 Vendors are paid only after the approval of invoices by the program manager within reasonable time. a) Using the sample selected in step 6.1, review the documentation showing timely approval of vendor invoices by the program manager. 6.3 An appropriate authority reviews that invoices are scheduled to be paid in accordance with the terms stated on the purchase order. a) Using the same sample selected in step 6.1, note scheduled payment date of the invoice. b) Verify that the invoice was scheduled to be paid in accordance with the terms stated on the purchase order. c) Determine whether the invoices payment schedules are prepared and reviewed. 7 Engineering change notices (ECN's) are valid. 7.1 Management has mechanism in place for tracking ECN's. a) Determine how management track and monitor ECN's. 7.2 ECN's are approved by management depending upon the feasibility review performed by the engineering department or the program manager.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

a) Select a representative sample of ECN's. b) Verify whether the ECN is approved by management and determine if a feasibility review is performed by the Engineering department or the program manager. c) Determine whether the date of the management approval is after the feasibility review date. 7.3 Additional costs resulting from ECN's are accurately recorded and reviewed by appropriate personnel on a periodic basis. a) Interview management about the procedures in place to ensure proper tracking of additional ECN costs. b) Select cases where ECN's resulted in additional costs, determine if cost changes are recorded accurately and timely and reviewed by appropriate personnel. 8 Customer billings are generated in accordance with valid purchase orders and payment is received in a timely manner. 8.1 Appropriate personnel review that customer purchase orders are input accurately. a) Interview management as to the procedures used to ensure that customer purchase orders are input accurately into the designated database. 8.2 Invoices are reviewed and approved to ensure that customer billing is in accordance with the customer purchase order.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

a) Select a representative sample of billed invoices. b) Verify whether management reviews and checks that appropriate billing practices are followed. Determine if customer billings are in accordance with the customer purchase order. 8.3 Procedures are in place to ensure that payment is received timely for billings in accordance with the customer agreement. a) Interview management as to the measures in place to ensure payments and open accounts are adequately accounted for. b) Determine what controls are in place to ensure timely collection of customer billings. c) Determine what actions management takes when the customers do not pay timely or are delinquent in paying for their billings. 9 Revenue is recognized in accordance with the policy in place and rules set by FASB. 9.1 Revenue is recognized in accordance with EITF 99-5. a) For a selected sample determine whether revenue recognition is in compliance with EITF 995, Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements. b) Obtain evidence and verify whether management reviews the application of revenue recognition for compliance with EITF 99-5.

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

9.2 Capitalized tooling gains or losses are recognized in accordance with FAS 121 a) For a selected sample determine whether the capitalized tooling gains or losses are recognized in accordance with FAS 121 - "Accounting for the Impairment of Long-Lived Assets". b) Verify the process used by management to review the tooling gains/losses to ensure that they are recognized properly. 9.3 Management review and approval are required for the close-out of projects. a) Select a representative sample of closed project during the year under examination. b) Verify that the close-out of the project is appropriately reviewed and approved by management. 10 Physical location of tools are identified and properly accounted for. 10.1 Management has established measures to adequately track the physical location of the tools. a) Interview management about the measures implemented to track the physical location of tools. b) Obtain evidence and verify whether the tracking system in place is able to respond to customer requests. c) Verify whether management reviews the

Annual Internal Audit Plan Internal Audit Program/Checklist Stores, Spares & Loose Tools S. Ref Procedure No. .

Work Ref

Initial & Date

tracking mechanism on a periodic basis. 10.2 Tools on consignment are identified, tracked, periodically confirmed, and properly accounted for. a) Obtain a list of all tools on consignment (i.e. in third party's custody) and determine if measures are in place to ensure that tools on consignment are identified, tracked, periodically confirmed, and properly accounted for.