Audit Package Preparation

1. Audit Package Preparation January 2013

2. Timelines • Jan 23-24- Workbooks ready on T drive, email from District Controller • Jan 25-27– Physical Inventory Weekend. • Jan 31- J-1’s complete and all IA’s (using PC as reason code) done before ARME • Jan 31 – AR Month End. (PI Databases generated) • Feb 1-2- Debits checked out but not entered into AP reports sent to branch for review • Feb 1- (FIRST THING) – PIPO reviews to begin. • Feb 3 – (11:00pm local time) Branch Audit Workbooks complete, email sent to District Controller (BRANCH) • Feb 5 – 5:00pm local time Manager Rep letter & DDA forms scanned/emailed to District Controller • Feb 5 – 12:00pm local time DM’s checked out not entered returned to your Branch Accounting contact. • Feb 1 - 22– Audits on-going (Regional)

3. PI Weekend • WMS Exempt Locations from PI do not count PI Weekend, but are part of the PI Database. • They should still be included in the Audit Package / Schedules. • If open for business, you can process cash sales without restriction. • Locations that completely finish PI Friday night including rolling of on hands may also be open and process cash sales without restriction on Saturday, Jan 26th. • If a location has closed since last PIthey will still go through the “motions” of taking a PI. • Clears on hands / button pushing exercise only. • Your ROM, DOM, Jay or Nick can answer any questions.

4. The Audit Process The Workbook Management Rep Letter Delayed Delivery Acknowledgement Form(s) The Rep Letter & D.D.A. Forms should be scanned & emailed to your District Controller. NEW

5. The Audit WorkbookCitrix is now 2007 available • Branches will receive an Email from their District Controller once audit package is posted and ready for branch completion. • File name will be ex: BU0003_BIRMINGHAM_01_13_AUDIT • Audit workbook will be posted on the “T” drive, T\Regional Admin Services\Branch Accounting\Audit\Branch Audits Working • 2007 is now available in Citrix so moving to C drive to work should be doable. • Completion Date, Sunday Feb 3rd 5:00pm local time. Earlier is better • Email District Controller once complete. • Workbook has 8 tabs requiring branch input. • Please do not override/change formulas. • Rep letter & D.D.A. forms scanned & emailed to District Controller by 5pm local time on Tuesday Feb 5, 2012.

6. ***MUST GO THROUGH WEB INTERFACE***MUST HAVE THE EXCEL 2007 ICON***DO NOT USE SHORTCUT OFF DESKTOP

7. WHERE DO I FIND MY AUDIT FILE?

8. The Audit Workbook (by tab) Branch Summary: Just Contact info. Everything else will be auto populated prior to saving to T drive. Managers’ Checklist:As in prior years; modified to reflect areas of responsibility. Your District Controller will fill in their info and sign off on. PI Survey:List exact dates Yard Counts and PI were conducted for each warehouse and Customer Crib D-4a & D-4b: Pre-bills…directs and tag & holds: NEED SIGNED ACKNOWLEDGEMENTS! F:Unbilled STOCK Orders: Review of all open orders entered prior to Feb 1st, 2012 J-1, 2 & 3:Inventory Adjs & NQ add backs. J-1 IS BASED OFF PI WEEKEND FINAL COUNT DIFF REPORT J-2 & 3 IS BASED ON MONTH END PI DATABASE!!

9. Branch Summary Tab

10. Managers Checklist Tab – No need to print and sign. Complete within audit package only

11. PI SURVEY SCHEDULE • List exact dates PI was conducted for each location for the following: • Warehouse • Yard • Staging Locations • Customer Cribs - Please list all customer cribs. • If you are PI Exempt use “N/A” for the Date and “PI EXEMPT” in Branch Comments.

12. Prebilled Customer Stock Order Review or D4-b

13. D-4a & D-4b: Pre-billed orders Directs (D-4a): Have you invoiced the customer? If so, the vendor invoice MUST be entered into Accounts Payable unless the customer has filled out the “Delayed Delivery Acknowledgement” form. Bill & Hold Orders (stock): product is in our possession / owned by us (D-4b) The customer must fill out the “Delayed Delivery Acknowledgement” form. If pre-bill was listed in prior audit period no need to have customer sign a new DDA form, send in the original form. Under both scenarios: Complete the appropriate schedule (D-4a or D-4b). Includes sections for Original Sales Invoice and Shipping Only Ticket Sales amount is subtotal with no tax. Cost of Good Sold should reflect Average Cost. “1” in column “J” (D-4a) or “O”(D-4b) to indicate you have the signed form. Attach these in an email to your District Controller. Include even if from prior audit if status is unchanged. Include even if customer has paid if we are still holding the product. All columns must be filled out properly. No signed form = no sales and gross profit.

14. Schedule “F” Unbilled Stock Orders

15. Schedule F: Unbilled Stock Orders • Unbilled Stock Order Report (1-3-3-8) • Requires a review of all Unbilled Stock Orders entered prior to Feb 1, 2012. • Showroom Display Orders are acceptable, however should be minimal on the new process. • All others (both external and internal customers) require follow up and brief explanation: • “Job on hold due to financing and no specific information available but specialty product has been ordered (or has arrived) and we will keep order open” • “Job on hold due to financing, latest info is fall start” • “Job has been cancelled, waiting on RGA to return product. Order has been deleted.” • If an order needs to be deleted, do so prior to ARME. • Do not delete the old order and create a new one.

16. Summary J Schedule – Branch Accounting Team to complete • WILL BE HIDDEN • IF YOU HAPPEN TO UNHIDE DO NOT FILL OUT THIS REPORT AT THE BRANCH LEVEL AS THE 1500 NUMBERS WILL NOT BE UPDATED UNTIL AFTER YOUR AUDIT PACKAGE IS DUE.

17. Final Count Difference-Schedule J-1Branch to complete by Jan 31st, all IA’s entered for any PI corrections (using reason code PC) before starting ARME • Used to explain differences between the frozen counts at PI and the actual counts. • Should explain down to 1% of total inventory dollars by location. • Mark items with an “*” in which the on hands have been corrected by month end (Jan 31, 2013) with IA’s using PC reason code. • Provide good explanations. • Include everything in here. Do not exclude items that caused variance. • Branch Accounting will use this as part of the Inventory Variance analysis. • Reconcile Final Count Differences during PI Weekend, prior to updating on hand balances. IA’s (using PC reason code) may be done for corrections prior to ARME. • “Don’t forget” insert Total Inventory $’s per Final Count Difference report

18. Final Count Differences-Examples (J-1) J-1 RELATES BACK TO THE COUNT: you didn’t catch these before you rolled your on hands at the conclusion of your count. • Theft? • Counted 40 gallon heaters as 50 gallon. • Found 2 faucets, a lav seat and a hot dog heater in the GMs car. • Didn’t adjust out damaged goods beforehand & didn’t count them. • You retuned good stuff via debit memo but had affect inventory “N” • You had a receiving error not corrected prior to freezing the on hands. • You made an adjustment before the count you shouldn’t have. • You billed a customer but didn’t ship the product. • You shipped some product didn’t bill the customer. • A customer returned good material, you counted it but didn’t credit them. • A customer returned good material, you credited them but didn’t count. • There were cut off problems with transfers or cross stocks. • You realized someone can’t count. Put these on J-1 prior to submitting your Audit Workbook. **If you elect to make changes to Final Counts in PIM simultaneously with your IA’s = PC and rerun your FCD report then use this new FCDR total for J-1; please let us know so we can adjust the dollar value for PI/PC reason code on your variance tab.

19. Pricing & Quantity Adjustments–Schedule J-2 – Branch to complete J-2 is for corrections to the PI Database which should be run after the close of business on Thursday night, Jan 31st (After ARME). Nothing goes on J-2 prior to that time. • J-2 errors might be pricing, product or quantity. IMPORTANT TO REVIEW PIDB!!! • Correct product or quantity errors via IA & reason code PC. • Product or quantity corrections that explain the count should also be included on J-1 • There is no dollar limit for changes to impact like there is for the J-3. • DO NOT CHANGE/OVERRIDE FORMULAS IF IT DOESN’T WORK! CALL JAY KEEGAN OR MIKE SANDLER

20. Pricing & Quantity Adjustments–Schedule J-2 – Branch to complete Bottom line, J-1 vs J-2: After PI count but prior to month end (Jan 28-31): J-1 only explaining count variance & IA “ * “ Feb 1 (Friday) to 11:00pm Feb 3rd(Sunday): J-2 if an inventory adjustment is required and J-1 if it also explains a count variance.

21. NQ Add backs-Schedule J-3We need to talk about the NQ change. • A download of the PI Database must be attached to provide evidence products added back were in fact NQ and the add back was only up to the NQ quantity. • This is done by executing a macro already built in; follow the instructions on the J-3 tab before doing any other work on this schedule. • REMEMBER IF YOU DO NOT HAVE ANY J-3 ADD BACKS THERE IS NO REASON TO RUN THE MACRO. • New buttons added to run macro depending on whether you download audit workbook to your “C” drive or work in Citrix on the “T” drive. • For questions or problems on this schedule, contact Jay Keegan or Mike Sandler

22. NQ Add backs-Schedule J-3 • After the macro executes on the PIDB tab: • Use Column “AW” for quantities to add back. • Use Column “AZ” for reason and order number if applicable. • Use Column “BA” for the percentage of add back. • Subtotals will carry over to the J-3 Schedule, so no need to list again!

23. NQ Add backs-Schedule J-3 – Branch to complete • Valid reasons for products added back: • Job delayed due to a catastrophic event (hurricane, fire, etc.) This does NOT include a downturn in the economy or delayed financing. • Specials brought into one location & transferred to another. Older than 60 days should be on order (Keegan judgment call). • Vendor or customer minimum required inventory levels. Both must be supported with a written agreement or contract. • Specials on showroom display tickets should go away based on new process. • Any other reason: email to ROM / Keegan. • Total add backs per location must exceed $5,000 to be considered (formula driven).

24. PIPO and AP Schedules – Branch Accounting Team to complete • Branch Accounting Team will handle these schedules for the branches but branch assistance may be required • Make sure AP alias’s are available for immediate assistance starting Friday Feb 1st through Friday Feb 15th. • Debits checked out but not entered into AP reports are sent to the branch monthly to review. Branch Accounting Team will be have them ready for review (email will be sent) starting Feb 1st and they will all need to be reviewed, comments made and returned no later than Tuesday Feb 5th for audits. Please do not wait until Tuesday, the sooner you get it to us the sooner we can complete audits.

25. Changes in Inventory Variance • The Inventory Variance calculation will be broken down into two calculations • GL 4601- Inventory Variance • This will now exclude the change in NQ as that is being posted monthly. • GL 4608 – Inventory Variance-Change in NQ • As amounts are being posted monthly, this will be zero for most BU’s. • Variance will occur based on reconciling the Prior Audit’s J-3, Current Audit’s J-3, and estimated monthly J-3 adjustments. • Contact Jay Keegan if you have questions.

26. Final Thoughts • Again, your audit workbook to be complete on the T drive Branch Audits Working (email DC) Folder 11:00pm Feb 3rd. The signed Management Rep Letter and any Delayed Delivery Acknowledgement forms scanned/emailed to your District Controller by 5pm Feb 5th. • Please assist and support your Branch Accounting associates & District Controllers through the audit process if you are contacted. THANKS! • I will send an abbreviated version of this presentation for you to print and use as you are preparing your schedules.

27. Audit Package Preparation Questions??