SEP OUTSOURCE ISSUE

Overview of Financial Review Process

  • Team discussion regarding the careful review of accounting processes and financial entries.

Objectives of the Meeting

  • Identify and validate entries from past personnel:

    • Review processes and entries learned from Josh.

    • Ensure no monthly entries are missing that could affect financial figures.

  • Understand impact on Cost of Goods Sold (COGS):

    • Investigate whether there are any factors artificially increasing COGS leading to decreased margins.

    • There is an assumption that broader economic factors might be responsible for margin decline, though confirmation of internal processes is crucial.

  • Collaboration with Liz Morales:

    • Analyze customer profitability to uncover root causes for low margins.

Review of Accounting Processes

  • Game of Telephone Analogy:

    • Emphasizes the importance of following the exact procedures as previously established by Josh to avoid misinformation and errors in accounting.

  • Balancing Sheet & Monthly Entries:

    • Importance of maintaining confidence in the balance sheet and processes before making further bookings.

Specific Areas of Concern

  • Outsource Accrual Questions:

    • Uncertainty regarding how certain entries auto-match and move through accounting systems.

    • Comparison between items that should clear automatically versus those that require manual intervention identified.

  • Josh's Previous Actions:

    • Need to verify how Josh wrote off entries to COGS, especially concerning Purchase Orders (POs) with sales orders.

  • Monthly Journal Entries:

    • Examination of journal entries associated with COGS, especially those previously managed by Josh.

    • A specific entry number (3067) identified as the contra entry.

  • Accrual Assessment:

    • Continuous project of evaluating and confirming the integrity of month-end accrual processes.

Key Remarks by Team Members

  • General Entry Number 3057:

    • Refers to prior documented accrual entry, but the team is actively tracking discrepancies; specifically which entries impact COGS.

  • Toya's Contribution:

    • Toya's methodology was critiqued concerning how reports were documented and whether important entries were saved and tracked adequately.

  • Current Concerns with Financial Entries:

    • Observations that entries related to shop labor, especially labor accruals, appear to be continuously increasing over time without reduction:

    • Starting from $1.72 in July to $2.66, indicating a possible failure in billing or recording.

Future Steps and Considerations

  • Process Ownership:

    • Team members should ensure thorough understanding of accounting procedures to confidently manage the transition from Josh's processes.

  • Exploration of Entries:

    • Emphasis on reviewing and understanding entries like shop labor accrual and contra entries in detail to ensure consistent management moving forward.

  • Potential Issues in Financial Reporting:

    • Watch for potential discrepancies causing fluctuations in expected margins (3-4% variance) and underlying causes not previously accounted for, including possible tariffs and improperly classified entries.

  • Engagement with Liz Morales:

    • Willingness to collaboratively prepare for upcoming discussions about process and entries.

Conclusion and Next Actions

  • Team members are to take individual assignments to review specific entries and report back:

    • Karen to focus on the shop labor accrual and proper documentation.

    • Chris to perform an overview of the last income statements for unusual discrepancies.

    • Agreement to avoid further bookings until there is comprehensive understanding.

  • End of Meeting Notes:

    • Collective consensus on need for clarity before proceeding with any major entries in the accounting system for December.

    • Team members will reconvene to assess findings and progress after initial investigations.