SOP Library
SOP NO:
FS-FA01.B
(List of Exhibits/Attachments)
Missi
on
:
Finance and Administration
Area:
Financial Services (FS)
Activity:
Financial Accounting (FS-FA)
Title:
Revised SOP on Accounting System for Milling Activities
Date Approved/Issued:
06/21/1995
Date Effective:
07/16/1995
Digest:
I. TERMS OF REFERENCE
A. Rationale
B. Objective
C. Scope
D. Basis
II. IMPLEMENTING GUIDELINES
III. RESPONSIBILITIES
1. The Accounting Section shall maintain subsidiary ledgers on milling activities independent from the records maintained by the operation section.
2. The Sr. Accounting Specialist shall recommend to the Provincial Manager the institution of appropriation action to encourage timely submission of reports, particularly stock reports by the Sr. Grains Operations Officer (WS II). Failure on their part to submit the weekly Stock Reports shall be considered a violation of this SOP and shall in accordance with P.D. 807 and RA 6713, subject them to the administrative offense of violation of Reasonable Office Rules and Regulations and shall, upon conviction, suffer the penalty of Reprimand, Suspension or Dismissal, as the case may be
3. Milling reports submitted by Milling Supervisors and Miller Contractors shall be authenticated and its mathematical accuracy properly checked, and shall be reconciled with accounting records. Concerned employees/officers and Miller Contractors shall be informed of corrections made, if any.
4. It shall be the responsibility of the Field Office Accounting Section to closely monitor the accounts receivable from defaulting miller contractors. Aggressive collection shall be done to prevent the accumulation of uncollected receivables.
The Sr. Accounting Specialist shall prepare demand letters to defaulting miller contractor on the 12th day from the date of the last issuance of WSI for undelivered milled stocks/MTS, charging them at existing book value plus interest of 18% which is the prevailing bank rate on medium and long term loans with Chattel Mortgage. The demand letter shall be duly signed by the Provincial Manager and shall be sent to defaulting miller contractors within three (3) working days from the date of preparation. The computation of 18% interest shall commence from the date of the last issuance of WSI and shall be based on the remaining balance of the undelivered stocks.
If the defaulting miller contractor fails to settle his account within fifteen (15) days from the receipt of the demand letter, the provincial management shall automatically effect deduction of the shortages from the cash bond or undertake proceedings to collect shortages if other forms of bond were posted.
The Provincial Manager and the Sr. Accounting Specialist shall be held accountable for the accumulation of uncollected receivables from defaulting miller contractors. Failure on their part to send demand letters and collect shortages and/or penalties from defaulting miller contractors shall be a violation of this SOP, and shall in accordance with P.D. 807 and RA 6713, subject them to the administrative offense of violation of Reasonable Office Rules and Regulations and shall, upon conviction, suffer the penalty of Reprimand, Suspension or Dismissal, as the case may be.
C
.
Physical Inventory Taking of Stocks and Empty Sacks with Miller-Contractor
1. In order to verify the physical existence and determine the conditions of the stocks and empty sacks with the Miller-Contractor as reflected in the books of accounts and to check compliance to the provisions of the Milling Contract, a physical inventory of the stocks and empty sacks with the Miller-Contractor shall be conducted semi-annually (period ending February 28 and August 31 of each year) and whenever necessary as determined by the Provincial Management.
2. The inventory taking procedures shall be conducted by an inventory team composed of the Sr. Grains Operations Officer (POO) as Team Leader, Sr. Accounting Specialist and Sr. Grains Operations Officer (SQAO) as Members, authorized by the Provincial Manager. A sample
authorization form
is illustrated in Exhibit 1.
3.
Demand
(Exhibit 2) shall be made by the inventory team to cause the production by the Miller Contractor or his authorized representative of the stocks and empty sacks in his custody as of the date of examination. This
demand letter
shall be signed by the Team Leader with the notation and compliance portion to be signed by the Miller Contractor/Authorized Representative.
4. A bag-to-bag count shall be used to establish the total inventories on hand. An
Inventory with Miller Contractor Count Sheet
(Exhibit 3) shall be attested by the Sr. Grains Operations Officer (POO), Sr. Accounting Specialist, Sr. Grains Operations Officer (SQAO) and certified by the Miller Contractor or his authorized representative. Two witnesses (if possible, one shall be a COA representative) shall affix their signatures on the count sheet.
5. Findings, i.e. shortages and other violations of the provisions of the Milling Contract, shall be immediately reported to the Provincial Manager, cc: the Resident Auditor for appropriate actions.
6. In case of shortages and other material findings (i.e. non-prioritization in milling NFA stocks), an immediate liquidation of the accountabilities of the Miller Contractor shall be effected. The miller contractor shall be considered in default and appropriate actions shall be instituted against him.
7. Claims shall be established against the Miller Contractor and demand for payment shall be made within three (3) working days from the date when the shortage was determined. In case the Miller Contractor fails to pay the claim made by the NFA within 15 days from the receipt of the
demand letter
, claim against the miller's bond shall be resorted to without prejudice to any other legal action that may be taken by the NFA or bonding agency against the Miller Contractor.
D.
Accounting Procedures for Contracted Milling
1. Basis for Book Entries
Recording of stock and empty sack issuances to and receipts from milling shall be based on accounting copy of documents: WSI, WSR, ESI, ESR, attached to the Weekly Stock and Empty Sack Reports submitted by Warehouse Supervisors which shall be properly authenticated, acknowledged by concerned warehouse supervisors and reflected in the stock and empty sack reports. The documents shall be reconciled with the milling liquidation reports/batch as basis for entry.
2. Costing of Grains Deliveries
The grains received from miller contractors shall be accurately identified as to the stock issued following the batched system for proper costing of stocks received from milling on a first-in-first-out (FIFO) basis. The corresponding batch number shall be indicated in the remarks portion of the documents - WSIs, WSRs.
2.1 For the batch on which there is only a partial delivery of grains recovered, the cost of delivered stocks shall be computed as follows:
Expected = Net kilos of
Recovery batch issued x GMR %
Net kilos of
Cost of Stocks Delivered Total Cost
partial = --------------------------- x of Batch
delivery Expected Recovery Issued
2.2 Ending balance of the cost of stocks of a particular batch shall be fully charged to inventory of local rice or appropriate account when the equivalent milling recovery has been delivered.
2.3 The cost of stock of a particular batch issued during the month shall be equal to the cost of recoveries when fully delivered during the month.
Unit Cost of
Grains Issued = Unit Cost of
------------------ Grains Delivered
GMR%
Total Cost Total Cost of
of Grains = Grains Delivered
Issued
3. Costing of Empty Sacks Inventory with Miller Contractors
Costing of empty sacks inventory with miller contractors shall follow First-in, First-out (FIFO) method based on specific type and capacity of empty sack. The type and capacity of empty sacks used as containers shall be indicated in the remarks portion of the documents - WSRs, WSIs.
4. Pro-Forma Journal Entries
The following pro-forma entries shall be applicable for palay milling, corn milling and remilling of rice and corngrits.
4.1 To record issuance of stocks:
DR: Inventory with Miller Contractor xxx
DR: Empty Sacks Inventory with
Miller Contractor xxx
CR: Palay or Appropriate Inventory
Account xxx
The capitalized cost of stock containers (MTS) shall be debited to Empty Sack Inventory with Miller Contractors which shall be subsequently returned by the millers.
4.2 To record issuance of empty sacks for container of grains recoveries:
DR: Empty Sacks Inventory with Miller
Contractors xxx
CR: Empty Sacks Inventory xxx
4.3 To record receipt of recoveries from milling:
DR: Inventory Local Rice or Appropriate
Inventory Account xxx
CR: Inventory with Miller Contractor xxx
The cost of stock containers (MTS) for recoveries shall be capitalized to inventory cost of stocks recovered:
DR: Empty Sacks Expenses (Inv. Cost) xxx
CR: Empty Sacks Inventory with Miller
Contractor xxx
DR: Inventory Local Rice or Appropriate
Account xxx
DR: Empty Sacks Expense (Inventory Cost) xxx
4.4 The NFA Provincial Office shall charge penalties to concerned Miller Contractor for sub-standard and/or late deliveries.
4.4.a Sub-standard Deliveries - If the milled stocks delivered were sub-standard and did not conform with the quality specifications of the contract, a penalty of P0.90/kg shall be charged to concerned Miller Contractor.
4.4.b Late Deliveries - The Miller Contractor shall also be penalized if he fails to deliver the rice recoveries on the 9th day from the date of the last issuance of grains per WSI/AI without an approved written justification stating the reasons for the delay. The amount of penalty shall be equivalent to one tenth (1/10th) of one percent (1%) for everyday of delay. The period of computation shall commence on the date of the last issuance of grains per WSI/AI up to the date of the WSR when the subject milled rice were delivered to NFA. The delivery however, shall not be beyond the 11th day.
4.5 To record receipt of by-products:
DR: Empty Sacks Expense xxx
CR: Empty Sack Inventory with Miller Contractor xxx
The cost of empty sacks used as containers of by-products shall be charged to empty sack expense. The content shall be taken up as memorandum entry.
4.6 To record receipt of empty sacks used as palay containers:
DR: Empty Sack Inventory xxx
CR: Empty Sack Inventory with Miller Contractor xxx
4.7 To record receipt of unused empty sacks (for grains recoveries) returned by millers:
DR: Empty Sack Inventory xxx
CR: Empty Sack Inventory with Miller Contractor xxx
4.8 To set-up accountabilities of defaulting miller contractors.
Miller contractors shall be required to deliver all milled recoveries and by-products within five (5) working days from the date of the last WSI of a particular AI/batch. He shall be given an additional three (3) days grace period to deliver without penalty from NFA.
The Miller Contractors shall be deemed automatically in default on the 12th day from the date of the last issuance of grains per WSI/AI should they still fail to deliver the rice recoveries.
Millers shall be liable for payment of the existing book value of milled stocks/MTS on the date of the last issuance of grains per WSI. It is a must that accrued expenses specially handling and milling expenses and other incidental expenses although unpaid other incidental expenses although unpaid shall be taken up in the books and capitalized to the cost of milled stocks and be part of its book value for proper matching of cost and revenue.
DR: Claims receivable-Defaulting Miller-
Contractor (stocks + MTS) xxx
CR: Inventory with Miller Contractors xxx
CR: Empty Sacks Inventory with Miller Contractor xxx
4.9 Interest on the book value of the undelivered stock shall be collected with an interest rate of 18% per annum. The computation shall commence from the date of the last issuance of grains per WSI up to the day when payment was made. Penalties/interests shall be recognized and recorded at the time of payment only.
DR: Cash with Collecting Officer xxx
CR: Misc. Income/Interest Income xxx
4.10 To record payment by Miller Contractor.
4.10.1
Cash Payment
Journal of Collections and Deposits (JDC)
DR: Cash with Collecting Officer xxx
CR: Claims Receivable - Defaulting Miller Contractor xxx
4.10.2
Payment in Kind.
The miller contractor may opt to pay in kind, in the form of palay or rice. If the restitution shall be made in the form of palay and/or rice the stocks to be delivered shall be in accordance with the specifications of the stocks issued him or its equivalent milled recoveries.
DR: Palay Inventory (ENW x Prevailing
Procurement Unit Price) xxx
CR: Claims Receivable-Defaulting Miller Contractor xxx
The equivalent net weight (ENW) of palay to be delivered by the miller contractor shall be computed as follows:
Total Claims Receivable
(Book value plus interest)
ENW = ----------------------------------
Prevailing Procurement
Unit Price
Example:
The book value of total undelivered balance amounts to P100,000.00 and corresponding interest amounts to P12,000.00. Our prevailing support price for palay is P2.00.
P100,000.00 + P12,000.00
ENW = --------------------------------------
P2.00
= 56,000 kilos
4.10.2
Cost of Recovery under SMF as against PIK
The cost of recovery under the straight milling fee (SMF) scheme is different from that of the payment-in-kind (PIK) scheme due to the capitalized milling expense under the SMF. Whereas under the PIK, no equivalent expense is recorded for the by-products accruing to the Miller Contractor as payment for the milling contract.
5. Books of Accounts
5.1 Journal entries pertaining to the transactions shall be reflected in the General Journal with the corresponding duly processed and approved journal vouchers.
5.2 A subsidiary ledger for each miller contractor shall be maintained by the Accounting Unit. Subsidiary ledgers shall be maintained separately for palay milling, corn milling and remilling for each miller contractor.
5.3 The Accounting Section shall also maintain a subsidiary ledger for empty sacks inventory for each miller contractor.
6. Trial Balance Schedules
The Monthly Trial Balance shall include the following schedules:
6.1 Inventory with Miller Contractor - shall enumerate name of miller contractors with their respective balances stated in quantity and amount.
6.2 Empty Sacks Inventory with Miller Contractors - list of miller contractors with their balances indicating number of pieces and amount.
These supporting schedules shall show beginning balances, transactions during the month and the ending balances.
E. Accounting Treatment for Rebates on Milling
As
provided in the contract for Corn Milling the Miller-Contractor shall pay the NFA the difference of the selling price of the by-products as against the straight milling fee.
Rebate shall refer to the difference between the revenue derived by the miller from the sale of the main product (in excess of the GMR) and by-products and the cost incurred from milling the input. Determination of the rebates shall be subject to standard methodology prescribed by DMO-Central Office.
Receipt of the rebates shall be credited to Miscellaneous Income account - Rebates.
DR: Cash with Collecting Officer xxx
CR: Miscellaneous Income - Rebate xxx
F.
Accounting Treatment for Milling at NFA Owned Rice Mi
l
l
1. Accountability
The Sr.Grains Operations Officer (WS II) where the NFA owned rice mill is located shall be held accountable for stocks in process. However, if the ricemill has partition wherein the stocks of the SGOO could be physically segregated from the stocks issued to the MPO, the accountabilities shall be transferred to the latter.
2. Trial Balance Account, Books and Entries
2.1 Inventory with NFA owned Rice Mill - this account shall be debited for the cost of stock issued to rice mill net of the cost of container and shall be credited for the cost of grains recovered.
2.2 A subsidiary ledger for each NFA rice mill shal be maintained for easy monitoring of grains milling recovery rate of each rice mill.
2.3 A subsidiary ledger for empty sack receivable for each warehouse supervisor/MPO shall also be maintained.
2.4 Journal entries presented in Item II.D Number 4.4.1 to 4.4.6 shall also apply except for proper use of account title and identification of accountable officer (use of accounts Inventory with NFA Owned Rice Mill and Empty Sack Receivable - Warehouse Supervisor instead of Accounts Inventory with Miller Contractors and Empty Sacks Inventory with Miller Contractor).
2.4.a Issuances of Palay/stocks
DR: Inventory with NFA-Owned Rice Mill xxx
DR: MTS Inventory with MPO/SGOO xxx
CR: Palay/or stocks Inventory Accounts xxx
2.4.b Receipts of MTS
DR: MTS Inventory xxx
CR: MTS Inventory with MPO/SGOO xxx
2.4.c Issuances of MTS for recoveries
DR: MTS Expenses (Inventory Cost) xxx
CR: MTS Inventory xxx
DR: MTS Expenses (Inventory Cost) (xxx)
DR: Local Rice/Corngrits Inventory xxx
2.4.d Receipts Rice/Corngrits
DR: Local Rice/Corngrits Inventory xxx
CR: Inventory with NFA Owned Ricemill xxx
3. Costing of Grains Recoveries
Costing of stocks recovered from milling at NFA rice mill is simple if all stocks issued during the month will be recovered on the same month as total cost of stocks issued is equal to the cost of stocks recovered. This can be achieved by following batching schedule of stock issuances to milling wherein the last batch issued during the month shall be fully recovered up to end of month trial balance cut-off date. The Sr. Grains Operations Officer (POO) shall coordinate this matter with the Sr. Accounting Specialist so as to proper schedule milling issuances on a per batch system based on the capacity of the mill.
G. Reconciliation of Book Records with Liquidation Reports
a. Interim Liquidation - Monthly Milling Reports shall be submitted by Milling Supervisors and Miller Contractors in case of contracted milling and by SGOO mechanical Plant Operator (MPO) in case of NFA owned rice mill to the Operations Section, copy furnished the Accounting Section not later than the 7th day of the following month. The Sr. Accounting Specialist shall check the authenticity and mathematical accuracy of the report and shall reconcile same with accounting records. Concerned milling supervisor/MPO/SGOO and Miller Contractors shall be informed of corrections made, if any.
The Sr. Accounting Specialist shall adjust accounting records for corrections, if any.
b. Final Liquidation - The Statement of Milling Liquidation shall be prepared by the Milling Supervisor/MPO/SGOO at the end of the milling season or upon the expiration of the milling contract as provided by the existing SOP on Contracted Milling and NFA owned rice mill. The Sr. Accounting Specialist shall verify the authenticity and mathematical accuracy of the report and reconcile same with accounting records. He shall attach a Reconciliation Statement to the report which accounts for the variance if there is any between the balance per liquidation report vs balances per books. The Statement of Milling Liquidation shall serve as basis for the COA's final liquidation of the miller's accountability.
Upon post audit by COA, the Sr. Accounting Specialist shall note corrections and disallowances if there is any, notify Operations Sections and concerned miller contractor/MPO/SGOO for appropriate action and adjust accounting records accordingly.
IV.
DATA FLOW DIAGRAM
IV. FLOW CHART
Top Page
EXHIBITS
Authorization
Demand
Inventory with Miller-Contractor Count Sheet
DFD-Milling Activities