NNPCL Finance and Accounts_Inventory.pdf

NNPC Limited Finance and Accounts Process and Procedures 7.0 Inventory Management 7.1 Objective This section documents guidelines in requisitioning, receiving, inspecting, storing, and tracking inventory items within NNPC Limited and its subsidiaries. The processes under inventory management are d...

NNPC Limited Finance and Accounts Process and Procedures 7.0 Inventory Management 7.1 Objective This section documents guidelines in requisitioning, receiving, inspecting, storing, and tracking inventory items within NNPC Limited and its subsidiaries. The processes under inventory management are designed to achieve the following objectives:  Ensure proper handling of all materials received to eliminate wastages and ensure safety.  Maintain storage, preservation, and systematic distribution of inventory items to various users.  Ensure up to date documentation to enhance accountability in the Company's inventory holding. 7.2 Scope/Applicability The policy covers the following sub-sessions and is applicable to NNPC Limited and its subsidiaries: 7.3  Inventory requisition  Inventory receipt  Inventory issuance  Inventory monitoring and replenishment  Inventory measurement and reconciliation  Inventory disposal Policy Statements  Inventory requisition for NNPC Limited and its subsidiaries shall be initiated in line with the supply chain management process. 63 NNPC Limited Finance and Accounts Process and Procedures  All inventory items received into the store shall be checked for correctness and completeness. Inventory items delivered that do not meet specification as contained in the contract, shall be returned to the vendor within 72 hours of inspection, unless it is impracticable to do so.  Inventory items issued from the stores shall be on a First-In-FirstOut/ First-Expiry-First-Out basis. Where an inventory item is received later with a close expiry date, such inventory item shall be issued First.  NNPC Limited and its subsidiaries shall conduct inventory count and reconciliation on a quarterly basis.  The CFO of NNPC Limited or the MD of respective subsidiaries shall approve all request to transfer and/or dispose inventory items. 7.4 Procedural Guidelines 7.4.1 Inventory Requisition  Request for inventory shall be initiated by respective need departments/business units and approved by the Head of the requesting department/business unit.  Processing of inventory requisition shall be in line with the Supply Chain Management (SCM) policy and procedural guide. 7.4.2 Inventory Receipt  All incoming inventory items shall be received with appropriate documentation including:  Packing list `  Delivery note  Invoice where applicable. 64 NNPC Limited Finance and Accounts Process and Procedures  Other relevant documents  The User department along with the Supply Chain Management Officer and the GRC representative shall validate orders received into the store and confirming that materials supplied meet specific technical requirements (this applies predominantly to oil and gas consumables, specialised spares, and production materials). Inspection of supplies shall be conducted within two (2) working days of delivery.  Materials/goods received from suppliers that do not meet product specifications shall be considered as non-conforming items and any such items shall not be received into the warehouse.  Inventory (except for petroleum products) shall be transferred into the store from the receiving area only after they have been captured on the inventory register and secured against tampering.  The stores and user departments shall be involved in identifying, inspecting, and coding new inventory items for stacking.  Identification details shall be recorded financial system and made traceable to their physical location on the shelf/cabinets.  Inventory received into the store shall be identified with inventory identification tags and kept at designated locations for easy traceability.  Every receipt of material shall be reflected in the Inventory Register. The store personnel shall be responsible for proper update of the Inventory Register.  Inventory including petroleum products shall be properly preserved against conditions that cause deterioration in quality such as the intrusion of dust and moisture and evaporation.  For materials having relatively short life, the Store Officer shall perform routine checks frequently for expiration. 65 NNPC Limited Finance and Accounts Process and Procedures  Where inventory items require special preservation, the user department shall inspect such inventory item items for deterioration in quality and repackaging where necessary to prevent damage.  Organisation and storage of inventory items shall comply with warehouse rules.  Inventory shall be stored in standard stock keeping units; storage areas shall be clearly marked and shall not obstruct aisles and exits. 7.4.3 Inventory Issuance Inventory Request by User Department  All inventory request from user departments such as Engineers, Plant Managers and user department officers shall be done through a Material Issuance Request (MIR) form or its equivalent.  All MIR shall be approved by the relevant HOD or Project Manager in line with the authority matrix.  Only inventory request with duly approved MIR shall be processed by the Store Officer. Basis for Inventory Issuance  Inventory items issued from the stores shall be on a First-In-FirstOut/ First-Expiry-First-Out basis. An inventory item maybe brought later with a close expiry date and should therefore be issued First.  Issuing of materials for project job/maintenance job to contractors are to be based on material request, approved by site’s approving authority.  Materials with expiry dates shall be closely monitored to avoid losses.  The store record shall be updated immediately the requesting department has been issued the Inventory items.  Spares issued from the store could either be categorized as Inventory or Property, Plant and Equipment (PP&E). 66 NNPC Limited Finance and Accounts Process and Procedures  Inventory items could be classified as Inventory if they meet up with the defining criteria as stated in IAS 2 (Refer to the NNPC Limited’s accounting policies for details)  Inventory Items could be classified as PP&E only if they meet up with the defining criteria as stated in IAS 16 or meet the capitalization threshold (Refer to the NNPC Limited’s accounting policy for details). Inventory Transfer  Inventory transfers between plants/ sites or main warehouse and other plants/ sites shall be initiated using a Material Transfer Request (MTR).  All MTRs shall be duly approved by both HODs/Project Managers and the Head of Finance.  The Store Officers at both locations shall capture inventory movement in the inventory register.  The receiving location shall post the inventory at the unit cost specified on the material transfer note upon receipt of the inventory items. Sending location shall also send the unit cost of asset transferred via the company’s email to the receiving location.  All transfer transactions shall have zero effect on the NNPC Limited’s financial records as all inventory items transferred are to be received and recorded by the receiving department/location at the same unit price used by the transferring department/ location as indicated on the material transfer note. 7.4.4 Inventory Replenishment and Monitoring  The Stores Officer shall be responsible for managing inventory in the storage areas, maintaining accurate records, and always ensuring availability of such inventory to meet operational requests. 67 NNPC Limited Finance and Accounts Process and Procedures  Where applicable, re-order limits shall be defined for material item/category based on parameters such as frequency of orders, volume of orders/ requests, utilisation run timeline etc. to enable prompt replenishment. The user department shall be notified immediately inventory items are approaching re-order/ replenishment levels. 7.4.5 Inventory Verification and Reconciliation  The Stores Officer shall be responsible for the reconciliation of open items and the resolution of associated variances.  Quarterly inventory counts shall commence from the first week of every new quarter.  Inventory verification exercises shall be conducted in accordance with approved instructions/ procedures and shall cover all inventory types.  Inventory verification shall be conducted using the “blind count” method and all inventory measurement sheets shall be blank. To preserve the integrity of the process, inventory measurement sheets shall not reflect expected ledger balances.  Inventory received and issued during the inventory verification process shall be clearly identified and excluded from the inventory being verified.  Inventory verification activities shall be jointly conducted by Stores Officer, User Department Representative, Finance Department representative and GRC representative on a quarterly basis.  The Stores Officer shall be responsible for investigating and resolving discrepancies noted during inventory verifications.  Physical inventory balances shall override system balances after inventory verification. All variances noted during inventory 68 NNPC Limited Finance and Accounts Process and Procedures verification shall be investigated within ten (10) working days of the count.  Write-offs on inventory variances shall be approved by the CFO for NNPC Limited and the Head of Finance for respective subsidiaries.  Damaged, redundant, expired and obsolete inventory items shall be identified and listed on a quarterly basis during the inventory verification exercise.  The relevant HODs shall circulate list of redundant or obsolete stock to all other business heads to determine if items could be put to alternative use. The User Department shall review list of damaged stock for possible repairs and re-use.  All expired inventory items shall be separated and stored in a separate location for disposal or destruction. 7.4.6 Inventory Disposal  The Supply Chain Management Department shall oversee the disposal of approved inventory items.  The methods of disposal shall consider the following analysis:  Potential market or intrinsic values;  Location and volume of inventory to be disposed;  The ability of stock item to support other programmes within the NNPC Limited and its subsidiaries;  The cost of disposal.  All disposals must be updated in the inventory records/register/database for the purposes of proper management and control.  The disposal of inventory shall be approved by the with approved financial authority limits. 69 NNPC Limited Finance and Accounts Process and Procedures  Disposed inventory item(s) shall be removed from the Statement of Financial Position (SFP).  This also applies where the inventory item(s) has no future economic value. Any gain or loss (difference between disposal proceeds and the carrying amount) arising from the disposal of the inventory shall be recognized in the Statement of Comprehensive Income.  The inventory schedule of all disposed inventory shall be maintained and presented to the external auditor each year to enable them to reflect the disposed portion of inventory on the year-end Financial Statement. (Refer to the Group Accounting Policy for details on derecognition of disposed inventory). 7.5 Compliance Governance, Risk and Compliance (GRC) shall perform a biennial review of the execution of this Policy for compliance and report any infringement to the Board. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 7.6 References This policy is an integral part of the NNPC Limited Finance and Accounts Policy Manual. Other references include:  NNPC Limited Accounting Policy  SCM management policy and procedural guide 70