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ISO 9001 QMS Policies, Procedures, and Forms Bizmanualz.com

Document # Title: Print Date:
QP1020 INTERNAL AUDITS Date Prepared:
Prepared By: Date Reviewed:
Revision #
0.0 Reviewed By:
Effective Date:

Standard: Approved By: Date Approved:
ISO 9001:2008,
clause 8.2.2

 

Policy: The Company shall periodically conduct an Internal Audit of its Quality
Management System (QMS) to determine if the QMS conforms to planned
arrangements and applicable requirements and to determine if it is being
effectively implemented, maintained, and improved where possible.

Purpose: This procedure describes the Company's Internal Audit process.

Scope: All operations affecting, or affected by, the Company QMS.

Responsibilities:

The Lead Auditor (or Audit Team leader) is responsible for managing the
Internal Audit process, developing and managing the Company's Internal
Audit program, and supervising Audit Team members. The Lead Auditor
is also responsible for reporting the Audit Team's findings to top
management.

Internal Auditors are responsible for conducting complete, detailed, and
objective Internal Audits and reporting their findings in an objective
manner.

All personnel are responsible for cooperating with Internal Auditors in the
course of the audit process and for taking appropriate actions, where
required, to correct nonconformities found during the audit.

Definitions: Audit checklist – A list of questions designed to provide guidance and
ensure consistency of audits.

Audit plan – Description or outline of the purpose, scope, objectives and
activities of an audit.

Audit program – Annual schedule of audits to be accomplished,
summarizing areas to be audited and listing auditors (also known as an
"audit schedule").

Auditee – Organization, area, function, or department being audited.

Auditor – Individual who carries out an audit; specifically, one who is
qualified and authorized to perform all or part of an audit by way of
training and experience.

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Finding – Audit conclusion, supported by objective evidence, identifying a
condition having a significant adverse impact on the Company's QMS, a
system breakdown, or a nonconformity.

Lead Auditor – One who supervises an Audit Team (consisting of the
Lead and at least one other Auditor) before and during an audit and for
reporting and corrective actions after the audit; also, an individual
qualified and authorized to manage and direct an audit by way of
advanced training and/or significant experience.

A Lead Auditor should have a thorough understanding of audit principles
and application of auditing techniques. He/she must be capable of
organizing and directing audits, reporting audit findings, and evaluating
planned and implemented corrective actions. The Lead Auditor should
have also taken part in at least two audits as a qualified auditor (not
provisional) before assuming the Lead Auditor position.

Objective evidence – Qualitative or quantitative information, records, or
statements of fact supporting Internal Audit findings.

Observation – Audit conclusion, not supported by evidence, identifying a
potential weakness in the QMS; may also be a positive note concerning
the QMS.

Provisional auditor – One who may have received auditor training but has
little to no auditing experience; cannot conduct a quality audit without
Lead Auditor supervision.

Quality Management System (QMS) – Ordered, well-documented system,
the primary goal of which is a quality product.

Sampling – Selecting a number of items from within a population, for
making inferences about the population.

Procedure:

1.0 INTERNAL AUDIT PROGRAM

1.1 The Lead Auditor shall prepare an annual Internal Audit program before the start
of the calendar year (see QP1020-1 – AUDIT PROGRAM for guidance) and
submit it to Top Management for approval.

 The Lead Auditor shall review the findings of the current year’s Audits
(internal and external).

 The Lead Auditor shall draw up the Audit Program based on such factors as:

a. Audit findings;

b. Status and importance of the processes and areas to be audited; and
c. Frequency of audits.1

1 Audit programs may consist of 4-8 audits/year, depending on size, complexity of processes.

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Not every part of the Company's QMS requires an annual Internal Audit,
according to ISO 9001. However, best practices dictate that every part of the
Company’s QMS should be audited at least once a year. In other words, a full
System Audit should be performed annually, either through a series of Internal
Audits or a single Full System Audit.

 The Audit Program shall specify the areas to be audited and the time frame for
each audit.

a. Certain areas (processes) may be audited more frequently, based on such
factors as past nonconformities, risks of poor quality and their
consequences, and customer feedback.

b. Special (unscheduled) audits may be initiated by the Lead Auditor, with
the approval of Top Management.

1.2 The Lead Auditor shall select an Audit Team for each audit. The size of the
Audit Team will vary according to the scope of the audit.

Audit Team members may audit any area except those included in their defined
responsibilities2, to ensure auditor impartiality.

1.3 To be considered competent, Internal Auditors must be trained in auditing
practices and the requirements of the ISO 9001 standard, in accordance with
procedure QP1070 - COMPETENCE, TRAINING, AND AWARENESS. Before
conducting audits on their own, new auditors should perform two audits with an
experienced auditor (see “References”).

2.0 INTERNAL AUDIT PLANNING

2.1 The Lead Auditor should prepare an audit plan at least two (2) weeks in advance
of the scheduled audit (see QP1020-2 – AUDIT PLAN for guidance). The actual
lead time will vary according to the area being audited, the scope of the audit, and
other factors.

 The Audit Plan should include the purpose, scope, criteria, and objectives for
the audit, as well as identify audit date(s) and Audit Team members.

 A schedule (agenda) for the opening and closing meetings – and, if possible,
interviewing department personnel – should be provided.

 When developing the Audit Plan, the Lead Auditor should be sure to allow
time for auditors to review and clarify notes and meet with other team
members for discussion during the audit.

 Areas to be visited / observed shall be identified.

 In preparing the plan, the Lead Auditor should review previous audit reports,
Corrective Action Requests (CAR), production histories, complaint files,
satisfaction surveys, and any other documents deemed relevant to the audit.

2.2 The Lead Auditor should work with the Audit Team to prepare checklists for use
in interviewing and observing (see QP1020-3 – QUALITY AUDIT CHECKLIST

2 For example, a stamping machine operator cannot participate in an audit of the Stamping process.

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for guidance); checklists ensure a degree of uniformity. Audit checklists should
be designed to reflect the activities and unique quality points in the area being
audited.

The Lead Auditor should review Audit Checklists and add questions he/she
believes are necessary to adequately evaluate the implementation of the QMS in
the area being audited.

NOTE: Audit questions should not be limited to those on the Audit Checklist.
The Checklist should serve as a guide and checkpoint.

2.3 The Lead Auditor shall provide sufficient advance notice of the audit to the
manager of the area being audited, to ensure availability of interviewees.

 "Sufficient notice" varies according to the scope of the audit and the area
being audited but as a rule, a manager should be given at least two (2) weeks
to prepare for the audit.

 The manager of the area to be audited must be notified in writing (by
interoffice mail, e-mail, or both). He or she may also be notified by phone or
in person, as a courtesy.

 If there are conflicts with the audit program and interviewees’ schedules, the
area manager and Lead Auditor shall resolve those conflicts appropriately.

3.0 CONDUCTING THE INTERNAL AUDIT

3.1 The Lead Auditor should begin the audit with an opening meeting (see QP1020-2
– AUDIT PLAN), to be attended by all personnel identified in the plan. Other
department personnel may attend the Meeting, at the direction of Department
Management.

 During the opening meeting, the Lead Auditor introduces the Audit Team and
explains the Audit Plan. The purpose, scope, objectives, and criteria of the
audit are confirmed.

 Copies of the Audit Plan are distributed (if they have not been previously) and
the Audit Program is confirmed.

 Questions from department personnel will be answered to the degree the
Audit Team is able to do so.

 If there are any special concerns with the area to be audited (e.g., safety
issues), it is the responsibility of the area manager to review special
requirements with the Audit Team.

3.2 The Audit Team shall conduct the audit according to the planned schedule to the
extent practicable, ensuring a thorough audit. The audit will consist of interviews,
document reviews, and observations of area activities. (NOTE: It is important to
remain within the scope of the audit.)

Internal Auditors must keep in mind that the purpose of the audit is to obtain and
evaluate objective evidence that the QMS is implemented and complies with ISO
9001 requirements.

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3.3 When conducting interviews, Audit Team members should use the Audit
Checklist (see QP1020-3 – QUALITY AUDIT CHECKLIST for guidance) to
maintain focus and ensure completeness. There should be enough questions on
the Checklist to enable a thorough evaluation of activities in the audited area;
however, the Lead Auditor must recognize that Auditors may not have time to ask
all questions. Auditors should:

 Be flexible – when they find discrepancies, they should ask follow-up
questions to clarify their understanding of the situation.

 Probe for answers to open-ended questions.

 Use appropriate sampling techniques when gathering and working with data.

3.4 Each member of the Audit Team should keep detailed notes of all interviews,
observations, and document reviews. Issues beyond the scope of the audit should
be noted, for appropriate and timely follow-up.

When information presented is inadequate to demonstrate compliance with a
requirement or suggests a possible noncompliance, Auditors shall note any
objective evidence that supports or refutes the issue.

4.0 INTERNAL AUDIT REPORTING

4.1 At the conclusion of auditing activity and prior to any closing meeting, the Audit
Team must meet to integrate the findings, observations, general trends, and
specific follow-up issues. During this meeting, the team comes to a conclusion on
the degree to which the system audited meets the criteria for the audit.

 Strengths, weaknesses, and observations of the entire Audit Team are
collected and collated.

 Common threads, groupings, and trends should be identified so that similar
findings may be given as a single finding, which may provide justification for
classifying a finding as “major”.

 Possible areas for disagreement are discussed and potential resolutions
developed.

 Findings may be categorized as major or minor; objective evidence of all
findings is identified.

 Observations are identified.

 The Audit Report – at least, a summary of findings, observations, strengths,
and weaknesses – is drafted and reviewed for presentation at the closing
meeting.

4.2 Each audit should be concluded with a closing meeting, attended by essentially
the same personnel attending the opening meeting. During the closing meeting,
the Lead Auditor presents an oral audit report, summarizing:

 The overall audit conclusion;

 Strengths and weaknesses; and

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 The review of findings and observations.

The Audit Team and auditees present at the closing meeting shall develop
tentative targets for corrections in response to findings. In addition, corrections
shall be analyzed and discussed to determine if they should be elevated to
corrective action status (i.e., formal Corrective Action Requests should be
submitted), in accordance with procedure QP1250 – CORRECTIVE ACTION.
Corrective Action Requests related to Internal Audits shall be cross-referenced to
the Internal Audit file.

Management responsible for the audited area(s) shall ensure that necessary
corrections and corrective actions are taken without undue delay (see section 5.0,
“Internal Audit Follow-Up”).

The closing meeting should provide ample time for questions.

4.3 A final Audit Report shall be prepared (see QP1020-4 – FINAL AUDIT REPORT
for guidance), documenting in detail the conclusion, findings, and observations
presented during the closing meeting.

NOTE: Findings not presented in the closing meeting may not be included in the
final Audit Report.

4.4 When the final Audit Report is complete, it shall be distributed as directed by Top
Management.

5.0 INTERNAL AUDIT FOLLOW-UP
5.1 At a time agreed to by the Lead Auditor and the manager of the audited

department/area/process, an Auditor shall be assigned to conduct a follow-up visit,
to verify corrective actions taken as a result of the audit.

5.2 At the time of the follow-up, the manager of the audited area shall demonstrate
that corrective actions required by the audit have been implemented and are
having the desired effect.

5.3 A summary of Internal Audit activity, including audit results, shall be reported at
the next Management Review Meeting, in accordance with QP1060 –
MANAGEMENT REVIEWS.

Effectiveness Criteria:

 Conformance to customer requirements

 Degree of conformance to ISO 9001 requirements

 Conformance to statutory/regulatory requirements

 Closure of audit findings (e.g., completed corrections, corrective actions) in an
effective and timely manner

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References:

A. ISO 9001:2008, Quality Management Systems - Requirements, International
Organization for Standardization (ISO).

B. ISO/EN 19011:2002, Guidelines for Quality and/or Environmental Management
Systems Auditing.

C. ISO/IEC 17021:2006, Conformity Assessment-Requirements for Bodies
Providing Audit and Certification of Management Systems.

NOTE: Copies of these and other ISO standards may be obtained at the ISO web
site, http://www.iso.org.

ALSO NOTE: Standards are generally available from ISO in English and French
only; see http://www.iso.org/iso/about/iso_members.htm to find your member
body and contact them to see if they have the standard you need in your language.

D. Quality Procedures

 QP1040 – CORRECTIVE ACTION

 QP1060 – MANAGEMENT REVIEWS

 QP1070 – COMPETENCE, TRAINING, & AWARENESS

Forms/Records:

Form # Record/Form/Activity Name Satisfies ISO
9001 Clause
Required by ISO 9001:2008
QP1020-4 Final Audit Report 8.2.2

Other Forms/Records
QP1020-1 Audit program

QP1020-2 Audit plan

QP1020-3 Quality audit checklist

Internal Audit file, including Audit Reports,
objective evidence that could not be included in
the Audit Report, and Audit Programs

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Revision History: Requested
By
Revision Date Description of changes

0.0 12 Aug 2011 Initial Release

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ISO 9001 QMS Policies, Procedures, and Forms Bizmanualz.com

QP1020-1 – AUDIT PROGRAM

2009-103

Type4 Audit Scope Jan-Feb Mar-Apr May-Jun Jul-Aug Sep-Oct Nov-Dec
C
B Audit Audit6
C Plan5
 Document Control (4.2.3)
 Quality Records (4.2.4) Assemble
Audit
Team

Audit Audit
Plan
 Management Responsibility
(5.0) Audit
Team

 Control of Nonconforming Audit Audit
Product (8.3) Plan

 Corrective Action (8.5.2) Audit
 Preventive Action (8.5.3) Team

 Competence, Training, and Audit Audit
Plan
A Awareness (6.2.2) Audit
 Job Descriptions Audit Plan
Team Audit
Team
 Procurement (7.4.1) Audit
A  Supplier Evaluation (7.4.2)
Audit
 Receiving and Inspection Audit Plan
A (7.4.3) ('10) ('09)
Audit
Team

APPROVAL Date:
Lead Auditor: Date:
Top Management:

3 Every area/process must be audited once every three years, at a minimum, to conform to the Standard.
4 A=Due for audit; B=Critical process; and C=Follow-up to previous audit.
5 "Audit Plan" and "Assemble Audit Team" are placed in the two-month period preceding the Audit for
illustrative purposes only (to show that the Plan and Team must come before the Audit itself).
6 Specific dates will be developed and mutually agreed upon by the Lead Auditor and the Auditee.

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QP1020-2 – AUDIT PLAN

Purpose:

Audit Scope: (i.e., areas, processes being audited)

Audit Team:

 (name) Lead auditor
 (name) Auditor
 (name) Auditor

Audit Criteria:

 Customer requirements
 ISO 9001:2008
 The Company's own Quality Management System (QMS)

Objective(s):

Audit Date(s): Wednesday, 7/5/2009

Key Area Personnel:

 (name) (title (e.g., " Manufacturing Mgr."))
 (name) (title)
 (name) (title)

AGENDA

Time Activity Auditor Area
Personnel
8:00-8:30 Opening meeting Audit Team all
8:45-9:30 Audit area A (name) (names, titles)
9:30-9:45 Break (names, titles)
9:45-10:30 Audit area B (name)
10:30-10:45 Break all
10:45-11:30 Audit Team review Audit Team
11:30-12:15 Lunch
12:15-13:00 Audit draft report preparation Audit Team
13:00-13:30 Closing meeting Audit Team

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QP1020-3 – QUALITY AUDIT CHECKLIST (SAMPLE)

Date

Quality Audit #

Area Audited Audit Type

Lead Auditor Dept. Mgr.

Master Production Records Y N
Y N
1) Is there a Master Control File for each product? Y N
2) Are Master Records signed and dated? Y N
3) Are revisions updated and filed?
4) Are assembly and manufacturing steps fully described in master and Y N

working files? Y N
5) Is there current documentation designating QC points for in-process Y N
Y N
manufacturing?
6) Are there instructions for in-process training? Y N
7) Are there acceptable measurement standards?
8) Are acceptance and rejection limits observed?

a) Sample part tested:
9) Are safe techniques used in assembly?

Production Area Y N
Y N
1) Are workers organized and scheduled? Y N
2) Are sufficient working areas provided for the task? Y N
3) Access available to drawings and schematics? Y N
4) Are instructions sufficient / adequate? Y N
5) Are components and parts in accordance with master file? Y N
6) Any disorganization visually present? Y N
Y N
a) Tools randomly scattered about? Y N
b) Parts on benches disorganized? Y N
c) Components / parts for other assemblies present? Y N
7) Working areas clean? Y N
8) Staging areas organized?
9) Parts areas organized?
10)Labels, other manufacturing aids organized?

Form QP1020-3, rev 0.0 Page 1 of 2

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Production Equipment Y N
Y N
1) Properly stored when not in use? Y N
2) Calibration current?
3) Calibration records maintained? Y N
Y N
Production Records
Y N
1) Collected and filed? Y N
2) Orders pending and in-process posted? Y N
Y N
Packing Y N

1) Finished products segregated? Y N
2) Packing, shipping instructions clear and organized? Y N
3) Shipping material area supervised? Y N
4) Are shipping materials adequate? Y N
5) Are shipping containers and materials stored neatly?
Y N
Material & Components Control Y N

1) Are purchasing qualifications based on written specifications and
approval of vendor sources?

2) Are receiving/inspection areas neat and orderly?
3) Are inspection/testing procedures adequate and utilized?
4) Are rejected products clearly identified, segregated and held in

quarantine pending final disposal?

Customer Complaints

1) Are complaint files completed adequately and organized?
2) Are complaint files periodically reviewed (for trends, etc.)?

Comments:

Authorization Date:
Date:
Auditor:
Area Manager: Page 2 of 2
Names of other auditors:
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Form QP1020-3, rev 0.0

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QP1020-4 – AUDIT REPORT

Report Date:
Audit Date(s):
Audit Scope: (identify areas/processes that were audited)

Audit Team: Lead Auditor
 name auditor
 name auditor
 name

Criteria:

Objective:

Audit Date(s):

Key Area Personnel:

 name area/title

 name area/title

 name area/title

Management Summary:

1) Overall Finding

We have conducted an audit of (name areas, processes) and conclude that they are generally (not) in
compliance with ISO 9001, the Company's Quality Management System, customer requirements, etc.

2) Strengths

The (area, process) and its supporting systems are (well documented, thorough, well communicated,
generally followed, etc.). Evidence shows that...

3) Weaknesses

The practice of (process) should be corrected/could be improved by...

Some records regarding (area) were found lacking in some critical details...

4) Obstacles Encountered

(e.g., "Key personnel were unavailable for scheduled interviews.")

Findings:

(e.g., "Two minor findings – reference CAR #06-03001 and 06-03002.")

Observations (Opportunities for Improvement):

(Areas/processes in conformance at the time of the audit but that could result in findings in a later audit if
not addressed by the Company.)

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Tentative Schedule for Correction(s) and Follow-Up:
FOLLOW-UP
CORRECTION DATE

Other Comments:

Lead Auditor Date:
Department Mgmt. Date:
Quality Mgr. Date:

NOTE: This Audit Report is based on random samples; therefore, not every aspect of the Company’s
activities has necessarily been assessed. Hence, where no nonconformities are reported, it does not follow
that none exist.

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Document # Title: Print Date:
QP1080 SALES ORDERS Date Prepared:
Prepared By: Date Reviewed:
Revision # Date Approved:
0.0 Reviewed By:
Effective Date:

Standard: Approved By:
ISO 9001:2008,
clause 7.2.1-7.2.3

Policy: The Company will review all commitments to accept customer orders
(sales orders) to ensure that customer expectations are met or
exceeded.

Purpose: This procedure summarizes the preparation of documents, paperwork
flow, and responsibilities by individuals and departments for
processing sales orders. This procedure is not intended to be all
inclusive; therefore, each individual involved in the sales order process
will be responsible for determining that all required and necessary
activities and documents are properly completed.

Scope: This procedure applies to all individuals/departments involved in the
sales process, especially Sales, Customer Service, and Accounting.

Responsibilities: Sales is responsible for initiating the sales process and for obtaining,
providing, and reviewing all documents and information from a
customer in order to complete the sales order.

Customer Service is responsible for reviewing sales orders to ensure
requirements are adequately defined, that the order is consistent with
the quotation if one was provided, and that the Company has the
capability of meeting the defined requirements.

Accounting (Accounts Receivable) is responsible for facilitating
customer financing and approving sales terms in accordance with
Company policies.

Definitions: Sales Representative – Person (irrespective of title) who communicates
with the customer regarding the sale/lease of the Company’s products
or services.

Procedure:

1.0 STARTING THE SALES PROCESS

1.1 The Company's Sales Representative (or “Sales”) shall present information
regarding the Company’s products or services, answer questions, solicit orders,
and enter sales information on the appropriate order document(s); form QP1080-1
– CUSTOMER ORDER is one example.

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1.2 Sales shall enter accurate and complete information on the customer order form,
including terms, conditions, requirements, customer information, and order
configuration.

1.3 Sales shall identify the customer’s specified requirements (including those for
delivery and post-delivery activity), requirements not stated by the customer but
necessary for the product’s specified or intended use, applicable regulatory
(statutory) product requirements, and requirements the Company from its unique
vantage point considers necessary, in accordance with ISO 9001:2008, clause
7.2.1.

Sales and Engineering shall review the customer’s requirements prior to
committing the Company and its resources to supplying products, ensuring that
(a) requirements are clearly defined, (b) contract or order requirements that differ
from those expressed earlier are resolved, and (c) the Company can meet the
stated requirements. In accordance with ISO 9001:2008, clause 7.2.2, they shall
record:

 The results of the requirements review; and

 Any actions arising from that review.

Such records should be kept in the project file.

1.4 Sales shall submit a copy of the customer order to Accounting (to Accounts
Receivable, if the Accounting department is divided into sections) to obtain credit
pre-approval, if needed, and facilitate processing of applicable paperwork.
Payment terms for the customer shall be in accordance with the Company's credit
policies.

If applicable, Customer Service shall forward lease-financing documentation
directly to Accounting, where it will be held for processing upon receipt of the
Accounting copy of the completed sales order (i.e., after shipment).

1.5 Upon approving customer credit and terms, Accounting shall distribute copies of
the customer order to the appropriate parties (which should be shown on the
bottom of the form).

2.0 CUSTOMER SERVICE

2.1 Customer Service shall review all orders against their corresponding proposals,
statements of work, etc. (see QP1090 – PROJECT DEFINITION), to ensure that
the information is correct and no changes have been made. If there are
differences between proposals and orders, Customer Service shall contact the
customer and keep a record of any such contact. Customer Service shall also
notify Sales of such discrepancies.

Part number and revision, quantity, price, and delivery dates shall be verified
prior to accepting the customer's order.

2.2 Customer Service shall enter the information provided on the customer order form
in the order management system. For standard products where a quotation was

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not given, Customer Service shall review the order for correct part number and
revision, quantity, price, due date, etc.

Customer Service shall ensure that all customer information is in the order
management system and shall update customer information, as needed.

2.3 Customer Service shall verify part inventories on the order management system to
ensure adequate inventory is available.

 If there is not adequate inventory on hand, the system will estimate an
availability date based on work in process (WIP).

 If there is any discrepancy or if the product is to be back-ordered, Customer
Service should notify the customer immediately (by phone, IM, or other
means) and follow that with a written confirmation (e.g., postal service, e-
mail).

2.4 Customer Service should not issue an order acknowledgement until:

 Sales and Engineering have reviewed and approved the order with respect to
product requirements; and

 Accounting (A/R) has given notice that the customer has been approved (see
Section 1.3).

When the order is accepted, Customer Service shall complete an order
acknowledgement, sign it, and E-mail or fax it to the customer. A copy of the
acknowledgement should be forwarded to Sales and one filed in the Customer
file.

2.5 For custom products:

 Customer Service must notify Engineering to start the design process (see
QP1100 – DESIGN AND DEVELOPMENT) where the customer has not
supplied design specifications and supporting documentation (e.g., technical
drawings).

 Customer Service shall also forward a copy of the sales order and any
additional information received after the quotation process to Engineering.

2.6 Customer Service shall maintain a customer file, which should contain copies of
all communications between the company and the customer, as well as
information relative to sales orders.

2.7 Customer Service shall address customer complaints and feedback in accordance
with QP1190 – CUSTOMER SATISFACTION.

3.0 CREDIT

3.1 If the customer is financing the order, Accounting shall process and forward all
applicable documentation to the financing source.

3.2 If Accounting rejects the terms of the customer order, it shall notify Sales and the
customer, as appropriate.

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3.3 Accounting shall review the customer order and, if terms are approved, update the
customer’s credit status on the order management system, releasing the Sales
Order for processing.

4.0 INTERNET (ELECTRONIC) ORDERS

4.1 The Company’s product page must be reviewed by Sales, Marketing,
Engineering, and Accounting and approved prior to its going live. Sales shall
ensure that a record of the results of the product page review – as well as actions
arising from such a review – is kept with the project file, in accordance with ISO
9001:2008, clause 7.2.2.

4.2 Orders placed through the Company web site (portal) or via e-mail require either
a credit card or an account with the Company, established in advance.

4.3 The web site should interact directly with the order management system to verify
customer orders, generate sales orders with ship-to information, and acknowledge
shipment to the customer.

4.4 If customers run into problems with the Company web site or have technical
questions regarding products, they should be provided with Customer Service
contact information (phone number(s), e-mail addresses, web links, etc.).
Customer Service should either assist the customer with the Internet order or
handle the order as indicated elsewhere in this procedure.

5.0 CHANGES TO ORDERS

5.1 Customer Service shall process all requested changes to customer orders.

5.2 For changes in quantity or delays in delivery date, Customer Service shall review
the status of the order on the order management system and if the order has not
shipped, makes the appropriate changes as a revision to the sales order.

Customer Service contacts shall contact Manufacturing, Shipping, and other
interested parties to advise them of and to verify the revision.

5.3 For expediting the delivery date, Customer Service shall contact Manufacturing,
Shipping, and other interested parties to verify that the new date is acceptable or
to determine what the earliest delivery date may be.

 If the expedited date is acceptable, Customer Service shall send the customer
an acknowledgement.

 If the customer's requested date is not acceptable (e.g., cannot be met because
the customer did not provide enough lead time), Customer Service shall
contact the customer to confirm a "best possible" date.

5.4 If the changes are technical changes to the product, the order is put on hold while
the original proposal is reviewed in accordance with Section 1.3 of this document.

5.5 Records of changes to orders, as well as records of change reviews, shall be
maintained in the customer's file.

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Effectiveness Criteria:

 Sales orders for standard products – completed and shipped within time frame
stated by Company (in marketing materials, etc.).

 Sales orders for custom products – filled and shipped within time frame quoted to,
and agreed to by, the customer.

 Number of customer complaints due to order inaccuracies, order processing.

References:

ISO 9001:2008, “Quality Management System - Requirements”, International
Organization for Standardization (ISO), Nov., 2008.

Quality Procedures:
 QP1090 – PROJECT DEFINITION
 QP1100 – DESIGN AND DEVELOPMENT
 QP1190 – CUSTOMER SATISFACTION

Records/Forms:

Form # Record/Form/Activity Name Satisfies ISO
9001 Clause
Required by ISO 9001:2008
Customer requirements record 7.2.1
Requirements review record(s) 7.2.2
Product page review record(s) 7.2.2

Other Documents/Records
QP1080-1 Customer Order form

Customer requirements
Customer file
Order acknowledgement
Order changes

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Revision History:

Revision Date Description of changes Requested
By

0.0 6/15/2010 Initial Release

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BILL TO: QP1080-1 – CUSTOMER ORDER

SHIP TO:

Phone: () Phone: ( )
Contact:
Contact:

Sales Purchase Date of Date Required Payment Terms Shipped Via Shipping Date
Contact Order # Order

Model # Description Qty. Qty. Qty. Serial # Unit Price Amount
Ord. Ship B/O

No. Sub-Total
Cartons: Sales Tax
Total Weight: Shipping
Total Due
Credit/Authorization
INSTRUCTIONS/COMMENTS: Date

Distribution: White-Customer Service, Yellow-Accounting, Pink-Customer, Green-Sales

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Accounting Policies, Procedures and Forms Bizmanualz.com

<Company Logo>

<Company Name>

ACCOUNTING
MANUAL

Approved by:______________________________________ Date:____________
President/CEO

This manual is intended for the sole use of our company and is
provided to customers for informational purposes only.

© 2009 <company name>

The contents of this manual may not be reproduced or reprinted in
whole or in part without the express written permission of our company, Inc.

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The following document contains a sample Accounting manual covering the
common accounting requirements and practices.

This sample is intended only to provide an example of wording that might be used
in an Accounting manual.

This sample wording can be helpful in generating ideas for developing a manual
for your own company. However, accounting policies should be drafted as
appropriate and as necessary to accurately reflect your company’s accounting
standards.

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Accounting Manual

Table of Contents

1.0 Purpose.................................................................................................................5

2.0 Scope....................................................................................................................7
2.1 Responsibility ......................................................................................................7
2.2 Exclusions ............................................................................................................7

2.2.1 Internal Auditing..................................................................................... 7
2.2.2 Payroll ..................................................................................................... 7
2.2.3 Finance And Treasury............................................................................. 7
2.2.4 Information Systems ............................................................................... 7
2.2.5 Security Planning .................................................................................... 7
2.2.6 Disaster Recovery ................................................................................... 7

3.0 Management Responsibility.................................................................................9
3.1 Accounting Organization .....................................................................................9

3.1.1 Accounting Department Organization Chart .......................................... 9
3.1.2 Finance & Treasury Responsibilities .................................................... 10
3.1.3 Controller Responsibilities.................................................................... 10
3.1.4 Accounting Staff Responsibilities......................................................... 11
3.1.5 Operations Staff Responsibilities.......................................................... 12
3.2 Management Commitment.................................................................................12
3.3 Management Accounting Policy........................................................................12
3.4 Planning .............................................................................................................13
3.4.1 Accounting Objectives.......................................................................... 13
3.4.2 Accounting System Planning................................................................ 13
3.5 Responsibility, Authority, And Communication ...............................................13
3.5.1 Responsibility And Authority ............................................................... 13
3.5.2 Management Representative................................................................. 14
3.5.3 Internal Communication ....................................................................... 14
3.5.4 Referenced Procedures: ........................................................................ 14
3.6 Management Reporting......................................................................................14
3.6.1 General.................................................................................................. 14
3.6.2 Review Input......................................................................................... 14
3.6.3 Review Output ...................................................................................... 15
3.6.4 Referenced Procedures: ........................................................................ 15
3.7 Business Conduct...............................................................................................15

4.0 Accounting Management System ......................................................................17
4.1 Objectives ..........................................................................................................17
4.2 Requirements .....................................................................................................17

4.2.1 Overview............................................................................................... 17
4.2.2 Internal Controls ................................................................................... 17

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4.2.3 Audit Findings ...................................................................................... 18
4.3 Transactions .......................................................................................................18

4.3.1 Authorization ........................................................................................ 18
4.3.2 Timing................................................................................................... 18
4.3.3 Amounts................................................................................................ 18
4.3.4 Accuracy ............................................................................................... 18
4.3.5 Referenced Procedures: ........................................................................ 19
4.4 Documentation...................................................................................................19
4.4.1 Accounting Manual............................................................................... 19
4.4.2 Control Of Documents.......................................................................... 19
4.4.3 Control Of Records ............................................................................... 20
4.4.4 Accounting Transactions ...................................................................... 20
4.4.5 Referenced Procedures: ........................................................................ 20
4.5 Security ..............................................................................................................20
4.5.1 Physical Security................................................................................... 20
4.5.2 Disaster Security ................................................................................... 21
4.5.3 Information Security ............................................................................. 21
4.6 Cost Accounting.................................................................................................21
4.6.1 Costing Purposes................................................................................... 21
4.6.2 Cost - Time Incurred............................................................................. 22
4.6.3 Cost - Reaction To Changes In Activity Levels ................................... 22
4.6.4 Cost - Influence On Decision Making .................................................. 23
4.7 Basis Of Accounting ..........................................................................................25

5.0 Processes And Controls .....................................................................................27
5.1 General & Administrative..................................................................................29

5.1.1 Chart Of Accounts ................................................................................ 30
5.1.2 Files And Records Management........................................................... 30
5.1.3 Travel And Entertainment..................................................................... 30
5.1.4 Management Reports ............................................................................ 30
5.1.5 Period-End Review & Closing.............................................................. 30
5.1.6 Controlling Legal Costs ........................................................................ 31
5.1.7 Taxes And Insurance............................................................................. 31
5.1.8 Property Tax Assessments .................................................................... 31
5.1.9 Confidential Information Release ......................................................... 31
5.1.10 Document Control................................................................................. 31
5.1.11 Referenced Procedures: ........................................................................ 32
5.2 Cash....................................................................................................................33
5.2.1 Cash Drawers And Credit Cards........................................................... 34
5.2.2 Cash Receipts And Deposits................................................................. 34
5.2.3 Problem Checks .................................................................................... 34
5.2.4 Wire Transfers ...................................................................................... 34
5.2.5 Check Signing Authority ...................................................................... 34
5.2.6 Check Requests..................................................................................... 34
5.2.7 Bank Account Reconciliations.............................................................. 35
5.2.8 Referenced Procedures: ........................................................................ 35

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5.3 Inventory & Assets ............................................................................................37
5.3.1 Inventory Control.................................................................................. 37
5.3.2 Inventory Counts................................................................................... 37
5.3.3 Fixed Asset Control .............................................................................. 38
5.3.4 Customer Property ................................................................................ 38
5.3.5 Fixed Asset Capitalization & Depreciation .......................................... 38
5.3.6 Referenced Procedures: ........................................................................ 38

5.4 Revenue..............................................................................................................39
5.4.1 Sales Order Entry.................................................................................. 40
5.4.2 Point-Of-Sale Orders ............................................................................ 40
5.4.3 Customer Credit Approval And Terms................................................. 40
5.4.4 Sales Order Acceptance ........................................................................ 40
5.4.5 Shipment Of Goods............................................................................... 40
5.4.6 Invoicing And Accounts Receivable .................................................... 41
5.4.7 Sales Tax Collection ............................................................................. 41
5.4.8 Progress Billing..................................................................................... 41
5.4.9 Account Collections.............................................................................. 41
5.4.10 Customer Returns.................................................................................. 41
5.4.11 Referenced Procedures: ........................................................................ 42

5.5 Purchasing..........................................................................................................43
5.5.1 Vendor Selection................................................................................... 44
5.5.2 General Purchasing ............................................................................... 44
5.5.3 Project Purchasing ................................................................................ 44
5.5.4 Receiving And Inspection..................................................................... 44
5.5.5 Shipping And Freight Claims ............................................................... 45
5.5.6 Accounts Payable And Cash Disbursements ........................................ 45
5.5.7 Referenced Procedures: ........................................................................ 45

6.0 Resource Management.......................................................................................47
6.1 Provision Of Resources......................................................................................47
6.2 Human Resources ..............................................................................................47

6.2.1 Accounting Staff ................................................................................... 47
6.2.2 Competence, Awareness, And Training ............................................... 47
6.2.3 Separation And Supervision Of Duties................................................. 47
6.2.4 Referenced Procedures: ........................................................................ 48
6.3 Infrastructure......................................................................................................48
6.4 Work Environment.............................................................................................48

Table of Figures

Fig 1. Sample Medium Accounting Department Organization

Fig 2. Accounting Management System Processes and Controls

Fig 3. General & Administrative Procedures

Fig 4. Cash Procedures

Fig 5. Inventory & Asset Procedures

Fig 6. Revenue Procedures

Fig 7. Purchasing Procedures

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page 4 of 50
List of Referenced Procedures

Cash

1. CSH101 Cash Drawers And Credit Cards
2. CSH102 Cash Receipts And Deposits
3. CSH103 Problem Checks
4. CSH104 Wire Transfers
5. CSH105 Check Signing Authority
6. CSH106 Check Requests
7. CSH107 Bank Account Reconciliations

General & Administrative

8. G&A101 Chart Of Accounts
9. G&A102 Files And Records Management
10. G&A103 Travel And Entertainment
11. G&A104 Management Reports
12. G&A105 Period-End Review & Closing
13. G&A106 Controlling Legal Costs
14. G&A107 Taxes And Insurance
15. G&A108 Property Tax Assessments
16. G&A109 Confidential Information Release
17. G&A110 Document Control

Inventory & Assets

18. INV101 Inventory Control
19. INV102 Inventory Counts
20. INV103 Fixed Asset Control
21. INV104 Customer Property
22. INV105 Fixed Asset Capitalization & Depreciation

Purchasing

23. PUR101 Vendor Selection
24. PUR102 General Purchasing
25. PUR103 Project Purchasing
26. PUR104 Receiving And Inspection
27. PUR105 Shipping And Freight Claims
28. PUR106 Accounts Payable And Cash Disbursements

Revenue

29. REV101 Sales Order Entry
30. REV102 Point-Of-Sale Orders
31. REV103 Customer Credit Approval And Terms
32. REV104 Sales Order Acceptance
33. REV105 Shipment Of Goods
34. REV106 Invoicing And Accounts Receivable
35. REV107 Sales Tax Collection
36. REV108 Progress Billing
37. REV109 Account Collections
38. REV110 Customer Returns

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1.0 PURPOSE

The purpose of this Accounting manual is to document the principles and policies
governing our company’s accounting practices.

The principles and policies provide:

o A foundation for a system of internal controls

o Guidance in current financial activities

o Criteria for decisions on appropriate accounting treatment.

o Accounting officers with direction and guidance in connection with those
accounting transactions, procedures, and reports that should be uniform
throughout the Company.

When consistently applied throughout the company, these principles and policies
assure that the various financial statements issued by the company accurately
reflect the results of the company’s operations.

Internal controls provide a system of checks and balances intended to identify
irregularities, prevent waste, fraud and abuse from occurring, and assist in
resolving discrepancies that are accidentally introduced in the operations of the
business.

All additional departmental or functional policies and procedures written should
conform to and parallel the policies in this manual. All changes to policies and
procedures are required to be reviewed to ensure that there are no conflicts with
the policies stated in this Accounting Manual.

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2.0 SCOPE

The Accounting Manual is an official directive of the President. It is published
and maintained by the Controller as part of the general responsibility for company
accounting policy assigned to the office of the Controller.

2.1 RESPONSIBILITY

The policies stated in this manual apply to all operations and activities at our
company. It is the responsibility of all department managers to help implement
and maintain the procedures required by this manual and to ensure all processes
conform to these requirements.

It is the responsibility of all employees to follow procedures that implement these
policies and to help strive for continuous improvement in all activities and
processes of our company.

The goal is to make the Manual as clear and useful as possible. All users are
encouraged to contact the company Controller with any suggestions for revising
or improving the Manual.

2.2 EXCLUSIONS

2.2.1 Internal Auditing

Internal Auditing is not covered in this accounting manual but it is an important
function required in larger companies.

2.2.2 Payroll

Payroll functions are included as part of ABR41 Bizmanualz™ Human
Resources Policies, Procedures and Forms.

2.2.3 Finance and Treasury

Finance and Treasury functions are included as part of ABR42 Bizmanualz™
Finance Policies, Procedures and Forms.

2.2.4 Information Systems

Information Systems functions are included as part of ABR34 Bizmanualz™
Computer & Network Policies, Procedures and Forms.

2.2.5 Security Planning

Security Planning functions are included as part of ABR32 Bizmanualz™
Security Planning Policies, Procedures and Forms.

2.2.6 Disaster Recovery

Disaster Recovery functions are included as part of ABR33 Bizmanualz™
Disaster Recovery Policies, Procedures and Forms.

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3.0 MANAGEMENT RESPONSIBILITY

The accounting department is headed by the controller or Chief Financial Officer
(CFO). In a smaller company this may be the same person.

3.1 ACCOUNTING ORGANIZATION

The accounting department is organized into three main responsibilities: Finance
and Treasury, Accounting, and Operations staffs.

3.1.1 Accounting Department Organization Chart

The company’s organizational framework provides the foundation for
coordinating and administrating the accounting management system. A
description of the roles and responsibilities applicable to the accounting and
operations staff are provided. Responsibilities specific to certain procedures or
tasks are presented in the related procedures.

Stockholders

Fig 1. Sample Medium Board of
Accounting Department Directors

Organization President
(CEO)
Outside
Auditor

Legal Vice-President Vice-President
Counsel Finance/ Controller
Treasurer

Outside Accounting Internal Audit
Accountant or Manager Manager
Tax Advisor
Credit & Purchasing
Accounting Staff Collections Manager
Manager
Operations Staff Human
Office Resources
Manager Manager

Warehouse Information
Manager Systems
Manager

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Figure 2 Sample Medium Accounting Department Organization shows the
general organization of the company’s accounting department. The actual
Organization Chart may vary in detail based on the size of the department or
organization involved and the type of activity performed.

[Note: in a larger company the administrative or operations staff may report to the
Vice-President of Finance and Administration in order to allow the Controller to
focus on the accounting operations.]

3.1.2 Finance & Treasury Responsibilities

Finance & Treasury responsibilities are focused on raising capital, debt and or
equity appropriations, cash management, Treasury investments, fund balances,
and management activities.

The Finance/Treasurer is responsible to the President for all long-range financial
matters and to establish company-wide financial and administrative objectives,
policies, programs, and practices, which insure the company of a continuously
sound financial structure.

The Chief Financial Officer controls the flow of cash through the organization
and maintains the integrity of funds, securities and other valuable documents. See
ABR42 Bizmanualz™ Finance Policies, Procedures and Forms for a complete
discussion of finance and treasury activities.

3.1.3 Controller Responsibilities

The Controller directs the accounting and control functions, reporting the results
of operations and provides chronological systems. The Controller is accountable
to the President and supervises the accounting and operations staff.

Major Duties and Responsibilities:

o Develops and implements accounting policies, coordinates systems and
procedures, and prepares operating data and special reports as required,
including interim and year-end financial statements. Maintains the company’s
system of accounts and keeps books and records on all company transactions
and assets.

o Establishes, coordinates and administers, as an integral part of management,
an adequate plan for the control of operations including, profit planning,
programs for capital investing and financing, sales forecasts, expense budgets
and cost standards, together with necessary controls and procedures to
effectuate the plan.

o In conjunction with the President and Vice President of Finance, coordinates,
reviews, and endorses budget proposals, discusses proposed changes and
significant changes.

o Compares performance with operating plans and standards, and reports and
interprets the results of operations to all levels of management.

o Provides for the control and editing of all company orders, to insure
conformity to established policies and procedures, and to facilitate data
control and retrieval of records generated by these orders.

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3.1.4 o Establishes and administers tax policies and procedures.

o Supervises or coordinates the preparation of reports to government agencies.

o Coordinates all matters of business between the company and its stock
transfer agents and registrars.

o Provides other managers and departments with information required by them
to carry out their assigned responsibilities.

o Assures protection for the assets of the business through internal control,
internal auditing and assuring proper insurance coverage.

o Assists Marketing in establishing and maintaining product pricing policies.

o Serves as a liaison between the company and legal counsel or outside
accountant support. Recommends the appointment of independent public
accountants overseeing their audit work.

o Provides advice on all matters to the Vice President of Finance and the
President.

Accounting Staff Responsibilities

Accounting staff responsibilities are focused on accurately documenting the
Company’s operations, collecting all money owed to the company, and
responsibly disbursing money owed to vendors.

The accounting staff consists of the following positions:

o Accounting Manager. Directs and organizes all general accounting activities
and accounting staff. Prepares accounting and financial reports and ensures
accurate accounting systems and record keeping. Reports directly to the
Controller. Assists in supervision of Accounts Payable and Accounts
Receivable Clerks.

o Credit & Collections Manager. Responsible for processing customer credit
inquiries, approving credit/financing terms and collection of delinquent
accounts. Reports directly to the Controller. Coordinates activities with
Accounting and Sales.

o Purchasing Manager. Responsible for purchasing of all inventory, supplies
and capital goods for the company including negotiating price, delivery and
credit terms. Evaluates vendors and determines most cost-effective inventory
and reorder levels. Reports to the Controller. Coordinates activities with all
departments; works closely with Manufacturing, Accounts Payable, and
Receiving.

o Internal Audit Manager. Responsible for establishing and implementing
internal control mechanisms; performing audit functions on payroll, and
billing; assist in developing new or refining existing accounting policies and
procedures; assist in streamlining current business processes to improve the
overall efficiency and effectiveness of the company.

Note: Internal Auditing is not covered in this accounting manual but it is an
important function required in larger companies.

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3.1.5 Operations Staff Responsibilities

Operations staff responsibilities are focused on diligently supporting the operating
transactions of the company with assistance, training, and other services, as
needed.

[Note: in a larger company the administrative or operations staff may report to the
Vice-President of Finance and Administration in order to allow the Controller to
focus on the accounting operations.]

The operations staff consists of the following positions:

o Office Manager. Responsible for performing a variety of administrative,
office and clerical functions. Reports directly to Controller. Assists and
coordinates activities with the President and other managers in the company.
Supervises Receptionist.

o Human Resources Manager. Develops and updates personnel policies,
procedures and forms. Assists and supports department managers and
employees regarding personnel issues. Maintains personnel records. Reports
directly to the Controller. Coordinates activities and assists all department
managers and employees.

o Information Systems Manager. Responsible for overseeing network and
Internet operations; determines technical goals in consultation with top
management, produces detailed plans for the accomplishment of these goals;
plans and coordinates the installation and upgrading of hardware and
software; analyzes the computer and information needs of the organization
and determines personnel and equipment requirements.

o Warehouse Manager. Pulls orders and packs and prepares them for shipment.
Supervises all shipping and receiving clerks and functions. Contracts with
freight carriers for the most beneficial service of the company. Reports to
Controller. Coordinates with Sales and Customer Service.

3.2 MANAGEMENT COMMITMENT

Top Management at our company shows its commitment to the accounting
management system through the development and implementation of this
accounting manual. Additionally, management commitment is demonstrated
through the Company Accounting Policy, the specific objectives that are set and
reviewed during Management Review Meetings and by providing the resources
required to meet our objectives for continually improving the effectiveness of our
operations and accounting system.

The management team consisting of the President and all department managers is
chartered with ensuring our accounting management system meets customer as
well as statutory and regulatory requirements

3.3 MANAGEMENT ACCOUNTING POLICY

Our company has established an Accounting Manual that we feel is appropriate to
our organization and meets the practices set forth in GAAP. This policy is

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communicated throughout the company. Department managers and supervisors
are responsible for ensuring all employees understand the policy. To ensure our
policy remains appropriate, it is reviewed at least annually at one of our
Management Review meetings.

The Company Accounting Policy:

 It is the policy of our company to design and produce financial statements in
keeping with Generally Accepted Accounting Principles (GAAP), Financial
Accounting Standards Board (FASB) Statements of Financial Accounting
Concepts and comply with all statutory and regulatory requirements. We
accomplish this by adhering to our Accounting Management System and use
operational methods as documented in our Accounting Manual.

 We strive to continually improve the effectiveness of our Accounting
Management System by monitoring our performance against our established
objectives and through leadership that promotes employee involvement. This
concept represents our company’s commitment to quality accounting and the
increasing need to better serve our customers, shareholders, and employees.

3.4 PLANNING

3.4.1 Accounting Objectives

Our company shall establish objectives on an annual basis. These objectives shall
be measurable and consistent with the Accounting Policy, and reviewed at least
annually at Management Review meetings.

3.4.2 Accounting System Planning

As part of annual strategic planning meetings, our company establishes strategic
objectives and goals for revenue, profit, and expenses. These objectives are
supported by specific measures that track performance against those objectives
using the budgeting process. Department managers in turn set departmental
objectives with specific performance measures and targets that support the
company objectives.

As situations arise that demand changes to the accounting management system,
either to meet objectives or because of changing business conditions, all changes
will be reviewed by the management team to ensure the integrity of the
accounting system is maintained.

3.5 RESPONSIBILITY, AUTHORITY, AND COMMUNICATION

3.5.1 Responsibility and Authority

Responsibilities and authorities at our company are defined in each Job
Description. Job Descriptions are posted on the company intranet and are also
used during annual performance reviews.

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3.5.2 Management Representative

The President has appointed the Controller as the Management Representative
with the responsibility and authority to:

a) Ensure that processes needed for the Accounting Management System are
established, implemented and maintained.

b) Report to top management on the performance of the Accounting
Management System and any need for improvement.

c) Ensure the promotion of awareness of accounting requirements throughout the
organization.

d) Serve as the liaison with external parties on matters relating to the Accounting
Management System.

3.5.3 Internal communication

In line with our company’s policy of leadership through employee involvement,
our company’s personnel policies have established open communication
throughout the organization.

The effectiveness of our Accounting Management System is evident through
Internal Audit results, Management Reports, and the departmental performance
measures. Other than confidential information, company and departmental
performance measures are posted on bulletin boards throughout our company.
Internal Audit results are shared at departmental meetings as appropriate.

Referenced Procedures:

G&A104 Management Reports

3.6 MANAGEMENT REPORTING

3.6.1 General

The President and management team shall review the company’s Accounting
Management System, on a semi-annual basis and more frequently if needed, to
ensure its continuing suitability, adequacy and effectiveness. This review shall
include assessing opportunities for improvement and the need for changes to the
Accounting Management System, including the accounting policy and objectives.

The Controller is responsible for maintaining records from management reviews.

3.6.2 Review Input

The Controller and department managers provide the following information for
Management Review meetings:

a) Results of audits

b) Employee feedback

c) Process performance

d) Follow-up actions from previous management reviews

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e) Changes that could affect the Accounting Management System

f) Recommendations for improvement

3.6.3 Review Output

Records shall include the output from the management review and shall include
any decisions and actions related to:

a) Improvement of the effectiveness of the Accounting Management System and
its processes

b) Improvement of processes related to accounting requirements

c) Resource needs

3.6.4 Referenced Procedures:

G&A104 Management Reports

3.7 BUSINESS CONDUCT

Unethical business conduct, actions or even the appearance of unethical behavior
is unacceptable under any conditions. The reputation of the company depends on
each employee applying common sense in situations where specific rules of
conduct are insufficient to provide clear direction. A strong sense of personal
ethics, which should extend beyond compliance with applicable laws, is necessary
to guide the behavior of all employees.

All employees should comply with the ethical standards of the company as set
forth in this manual. If a situation feels awkward, then the employees should ask
themselves:

o Is my action legal and ethical?

o Does my action comply with corporate policy?

o Is my action appropriate in the situation?

o Would my action be an embarrassment to the company, if known?

o Does my action agree with my personal ethics or behavior?

An employee should be able to answer “yes” to all of these questions before
taking action or compromising themselves in the situation.

All Managers are responsible for the ethical business conduct and behavior of
their employees. Managers should consider the appropriate courses of action in
terms of both ethical and economic factors. Each decision should be based on the
guidelines provided in this Accounting Manual as well as their own personal
beliefs of what’s right and wrong.

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4.0 ACCOUNTING MANAGEMENT SYSTEM

4.1 OBJECTIVES

Through this manual and associated procedures and documents, our company has
established, documented, and implemented an Accounting Management System.
The system is designed to result in improving the effectiveness of our accounting
operations and in our ability to satisfy auditor requirements.

4.2 REQUIREMENTS

Maintenance of the Accounting Management System is the responsibility of the
Controller/CFO in conjunction with the Accounting Department.

4.2.1 Overview

The Controller maintains all documents that identify the sequence of accounting
processes and, in conjunction with the appropriate department managers, defines
the interactions of the processes within the procedures defining these processes.

Processes for management activities, provision of resources, and measurement
reporting are included. Procedures shall include the methods needed to ensure
that the accountability and control of processes are effective.

Top Management will ensure the availability of resources to support the operation
and monitoring of processes through regular interaction with department
managers and through review activities at Management Review meetings.

Department Managers and the Controller will monitor, measure, and analyze
processes and implement any actions necessary to achieve intended results and
continual improvement of the processes. These results will also be monitored at
Management Review meetings.

Any processes that are outsourced that may affect our company’s conformity to
requirements shall be controlled. The Controller and appropriate department
manager(s) are responsible for defining the methods to control outsourced
processes and procedures.

4.2.2 Internal Controls

Internal controls, procedures, and practices will be utilized to ensure that:

o Obligations and costs comply with applicable laws.

o All assets are safeguarded against waste, fraud, loss, unauthorized use, and
misappropriation.

o Revenues and expenditures applicable to company operations are recorded
and accounted for properly so that accounts and reliable financial and
statistical reports may be prepared and accountability of the assets may be
maintained.

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o Programs are efficiently and effectively carried out in accordance with
applicable laws and management policy.

4.2.3 Audit Findings

Managers are to promptly evaluate findings and recommendations reported by
auditors and then determine proper actions in response to audit findings and
recommendations (e.g., develop corrective actions). Managers should complete,
within established time frames, all actions that correct or otherwise resolve the
matters brought to management's attention.

The audit resolution process begins when the results of an audit are reported to
management, and is completed only after actions have been taken that correct
identified deficiencies, produce improvements, or demonstrate the audit findings
and recommendations are either invalid or do not warrant management actions.

4.3 TRANSACTIONS

All transactions recorded or posted into the Accounting Management System
should be properly authorized and accurately represent the activity being
documented. Both the timing and amount of the transaction should be in
accordance with company accounting policies defined in this manual.

4.3.1 Authorization

Transactions and other significant events are to be authorized and executed only
by persons acting within the scope of their authority. It is the principal means of
assuring that only valid transactions and other events are entered into.
Modification or adjustment to previously recorded transactions requires
authorization.

4.3.2 Timing

All transaction dates recorded in the company accounting system should
accurately reflect the date the transaction occurred. Revenues should be
recognized when earned and expenses when incurred. Processing, cutoff and
period-end closing schedules and procedures should be documented. Cash sales
should be recorded at the time of sale and deposited.

4.3.3 Amounts

Prior or related transactions should be checked for conformity with the transaction
being recorded (e.g., match invoice to purchase order). Amount of posted
transactions should be checked against source documents. Balances with third
parties should be verified as appropriate (i.e. debtors, creditors, or custodians of
investments). Transactions should be recorded in conformity with documented
policies in this manual.

4.3.4 Accuracy

Transactions should be recorded in the accounting system accurately. An
approved set of general ledger and subsidiary accounts are maintained for assets,
liabilities, revenues, expenses, budgetary accounts, and other accounts.

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All transactions should be supported by documentary evidence, which becomes
part of the accounting records. Error transactions should be reviewed, resolved,
and cleared in a timely fashion. Manually determined control totals should be
reconciled with recorded results.

The Accounting Management System utilizes standard forms and provides control
and accountability over these forms. Supervisors should review posted
accounting transactions with source documents and processing documents.

4.3.5 Referenced Procedures:

G&A101 Chart of Accounts
G&A104 Management Reports
G&A105 Period-End Review & Closing
CSH101 Cash Drawers and Credit Cards
CSH102 Cash Receipts And Deposits
REV106 Invoicing and Accounts Receivable
REV108 Progress Billing
CSH107 Bank Account Reconciliations
PUR106 Accounts Payable And Cash Disbursements

4.4 DOCUMENTATION

This Accounting Manual and the associated procedures are intended to satisfy the
documentation requirements for an Accounting Management System.
Department managers and supervisors are responsible for identifying any
additional documents needed to ensure the effective planning, operation and
control of processes.

Procedures may vary in detail based on the size of the department or organization
involved and the type of activity performed. Procedure developers shall consider
this as well as the complexity of the processes and interactions, and the
competence of the personnel involved.

Documents may be any medium including: software programs, electronic text
files, or hardcopy documents for example.

4.4.1 Accounting Manual

This Accounting Manual provides the top-level organizational document for the
Accounting Management System. The Accounting Manual defines the scope,
policies and processes of our company’s Accounting Management system as well
as Management’s responsibility for the system.

4.4.2 Control of Documents

All Documents required by the Accounting Management System shall be
controlled. The Document Control Procedure defines the controls needed to:

a) Approve documents for adequacy prior to issue.

b) Review and update as necessary and re-approve documents.

c) Ensure that changes and the current revision status of documents are
identified.

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d) Ensure that relevant versions of applicable documents are available at points
of use.

e) Ensure that documents remain legible and readily identifiable.

f) Ensure that documents of external origin are identified and their distribution
controlled.

g) Prevent the unintended use of obsolete documents, and apply suitable
identification to them if they are retained for any purpose.

4.4.3 Control of Records

Procedures define appropriate records to be maintained for the effective operation
of the Accounting Management System, including evidence of conformity to
requirements. Records shall remain legible, readily identifiable and retrievable.
The Files and Records Management Procedure defines the controls needed for the
identification, storage, protection, retrieval, retention time and disposition of
records.

4.4.4 Accounting Transactions

All transactions and other significant events should be clearly documented,
properly classified and readily available for examination.

This standard applies to:

o The entire process or life cycle of a transaction or event and includes the
initiation and authorization

o All aspects of the transaction while in process

o Its final classification in summary records.

4.4.5 Referenced Procedures:

G&A102 Files and Records Management
G&A110 Document Control

4.5 SECURITY

Access to resources and records should be limited to authorized personnel only.
Accountability for the custody and use of resources should be assigned and
maintained as well. Periodic comparisons should be made of the resources with
the recorded accountability to determine whether the two agree. The frequency of
the comparison shall be a function of the vulnerability of the asset. Restrictions of
access to resources shall also depend upon the vulnerability of the resource as
well as the perceived risk of loss, both of which shall be periodically assessed.

4.5.1 Physical Security

Physical security measures should be adopted to protect the assets and employees
of the Company from abuse, fraud, theft, or damage. Security procedures for the
protection of assets and employees are addressed within the company’s Security
Manual. See ABR32 Bizmanualz™ Security Planning Policies, Procedures and
Forms.

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4.5.2 Disaster Security

Disaster security measures should be adopted to enable the company to continue
the operations of the Accounting Management System with limited interruption.
Disaster procedures for operations recovery are addressed within the company’s
Disaster Manual. See ABR33 Bizmanualz™ Disaster Recovery Policies,
Procedures and Forms.

4.5.3 Information Security

Information security measures should be adopted to protect the company’s
information assets from unauthorized access, abuse, tampering, theft, or use.
Information security procedures for the protection and authorized use of computer
and network assets are addressed within the Company’s Information Systems
Manual. See ABR34 Bizmanualz™ Computer & Network Policies, Procedures
and Forms.

4.6 COST ACCOUNTING

Cost is the financial measure of resources consumed or acquired in accomplishing
a specified purpose, such as performing a service, providing a product, or carrying
out a project or program regardless of when the resources were ordered, received,
or paid for. Cost can be defined in a variety of ways depending on the objectives
or information desired.

Cost accounting is defined as a technique or method for determining the cost of a
project, process, or thing. This cost is determined by direct measurement, specific
assignment, or systematic and rational allocation. Central to cost accounting is the
process for tracing various input costs to the product or services of the company.

This section presents cost classifications based on such characteristics as time
incurred, reaction to changes in activity levels, and influence on decision making.

4.6.1 Costing Purposes

The Controller should accumulate, distribute, monitor, and evaluate cost
information during each accounting period, when appropriate. Management will
use cost information for purposes such as:

o Making decisions and planning future operations with the knowledge of
the costs of projects, programs, and other activities

o Assisting in establishing standards of performance based at least partially
on past cost history

o Determining the efficient and effective distribution and use of resources

o Supporting performance evaluation based on actual costs versus budgeted
costs

o Recovering costs for products and services provided to entities

o Preparing reimbursable work and cooperative agreements

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o Supporting budget formulation through responses to requests for
information

Cost accounting is not applicable to all activities; however, for those activities
that do use cost accounting, the principles in this section are designed to assure
that:

o Cost accounting information is communicated consistently throughout the
company

o Reviews to evaluate the cost/benefit of cost information for specific
programs are based on consistent criteria

o Only the highest level of aggregated information required for management
decisions

The Controller is responsible for ensuring that any cost information maintained to
meet customer service requirements is minimized and that recovery of the cost to
provide information to customers is maximized.

4.6.2 Cost - Time Incurred

Costs may be measured in relationship to the time the cost is incurred. In many
cases, the measurement time for cost is specified in authorizing documents or
contracts for a program. In other cases, the Controller is responsible for
determining which cost will be used for specific purposes, and for assuring that
similar activities are treated consistently within the company.

The three most common measurements are historical costs, current market costs,
and budgeted costs.

o Historical Cost is the cash equivalent price of goods and services at the
date of acquisition. This cost does not change over time.

o Current Market Cost (also referred to as replacement cost) is the current
value of an asset. Depending on whether the asset is tangible or intangible
and the availability of similar assets on the open market, current market
cost may be measured by replacement cost, reproduction cost, sales value,
net realizable value, or net present value of future cash flows.

o Budgeted Cost (also referred to as standard cost) is the cost that should be
incurred to produce a product or provide a service based on past
experience producing or providing like-items. Thus, comparison of actual
costs with the predetermined benchmark alerts program managers to those
areas in which the actual costs appear excessive.

4.6.3 Cost - Reaction to Changes in Activity Levels

In any period, cost may or may not change in relationship to changes in levels of
activity. Based on the relationship to changes in levels of activity, costs are
classified as variable, fixed, or mixed costs. Activity measures can include
production or service levels, machine hours, or sales in units or dollars. The way a
cost reacts to changes in activity is determined by how the total cost for the

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period, rather than the cost of a single unit of activity, changes when activity
levels change.

The Controller is responsible for developing cost projections and budgets that
identify costs by variable, fixed, or mixed categories. All managers are
responsible for minimizing variable and mixed costs and ensuring that fixed costs
are minimized, and are fairly spread over all projects, whether or not those
projects incorporate cost accounting.

o Variable Costs are costs that vary in total in direct proportion to changes
in levels of activity. If total cost varies in direct proportion to activity
changes, the cost per unit is constant.

o Fixed Costs represent all costs that remain constant within the Company’s
relevant range of activity. A relevant range is a range of activity in which
costs behave in accordance with the way they have been defined, generally
the normal operating range.

o Mixed Costs has both a variable and fixed component; it does not fluctuate
in direct proportion with activity, nor does it remain constant with changes
in levels of activity.

4.6.4 Cost - Influence on Decision Making

The Controller is responsible for classifying costs as either direct or indirect and
ensuring that costs are consistently classified as either direct or indirect in similar
situations.

Direct costs are all costs that can be specifically or readily identified with
producing a specific product or providing a specific service. Direct costs include
direct labor, equipment purchased for use on a program, and other direct costs.
Direct labor is the portion of base wages and salaries, which can be identified
with and charged to a particular activity. This includes:

o Fringe Benefits are those allowances and services provided to employees
as compensation in addition to wages and salaries, including retirement,
health insurance, and life insurance. Fringe benefits are allocated as a rate
applied to direct labor costs. The Controller is responsible for determining
the fringe rate based on all labor and fringe costs, regardless of where an
employee works. A single fringe rate must be applied to all employees in
all projects, unless the Controller has developed separate cost pools that
reflect a significantly different fringe cost among groups of employees.

o Overtime and Premium Pay are charged in the same manner as the regular
wage portion of an employee's earnings for hours identified with a specific
activity.

o Other Personnel Costs are charged in the same manner as the related base
labor charge, e.g., allowances for offsite pay, location allowances,
hardship pay, hazardous duty pay, and uniform allowances.

Equipment used in an activity for which costs are accumulated can be charged in
either of two manners: a) charging for the full acquisition cost, or b) recovery of a

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portion of depreciation. The Controller is responsible for determining whether
equipment can be charged in full to a project, and if not, for determining the rate
and basis for charging equipment usage to projects.

Other direct cost items that are incurred or consumed exclusively for the
completion of a specific activity include the following examples:

o Miscellaneous supplies and materials

o Equipment rentals

o Travel

o Purchased services (i.e., printing, ADP services, and photographic
reproduction)

o Contractual services

Indirect costs are those costs, which cannot be specifically identified with
producing a specific product, or providing a specific service but which can be
shown to bear some relationship to, result from, or be in support of, the product or
service.

Indirect costs must be accumulated in indirect cost pools. The Controller is
responsible for clearly defining identifiable cost pools. Indirect costs may include
the following examples, if the item is not directly attributable to a specific
activity:

o Space rental
o Utilities, including telephone expenses
o Postage
o Unemployment compensation benefit costs
o Data processing, management, and control
o Equipment rentals
o Miscellaneous supplies and materials
o Equipment costs (excluding those recovered as a direct costs)
o Training, employee development, and personnel transfers, including costs

of travel and time in-transit
o Budget development and program planning
o Research and development activities
o Administrative support such as procurement, contracting, office services,

property management, payroll, voucher processing, personnel services,
records management, and document control
o Reports, including report preparation and distribution
o Safety management, including inspection and training
o EEO and other affirmative action programs

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