2. 2
Month-End Close
Backstops
- Unit of Production Table Validation
- Point of Sale
- Ore Reserves
- Capitalized Interest
Consolidation and Analysis
3. UOP Table Validation
Covers Mine Production
Depletion = Reserves
Depreciation = Production
Common Variances:
- Old forecast
- Using wrong depreciation
key
- Input error
Point of Sale
Covers Accounting
Adjustment
Ensures POP to POS
transition is financially
correct
Common Variances:
- Using previous figures
- Input error
3
Consolidation and Analysis
4. Ore Reserves
Covers Depletion
Calculation
Ensures that we have a
financially correct reserve
balance
Common Variances:
- Input Error
- Unplanned depreciation
Capitalized Interest
Covers Interest
Capitalized on Site
Projects
Ensures the capitalization
process is done correctly
Common Variances:
- Input Error
4
Consolidation and Analysis
7. 7
Tenke Fungurume Acid Plant 2
Completion: 2016
2x Daily Acid Production
Increase Rate of Mineral Production
Decrease Cost of Mineral Production
Project Oversight
9. 9
Used AR01 report from SAP as a master list of assets
to find
Built spreadsheet that pulled information from the
AR01 when asset was scanned
Scanned on off days
Received lists from storage units to verify assets
Requested email verification for Tenke assets
Physical Inventory Project
10. 10
Problems:
- Assets (like chairs) can move frequently
- Tags rip or fall off
- Some assets showed differing descriptions in AR01
- Assets are disposed of in between inventories
Physical Inventory Project
AS02 upload in SAP allowed us to make corrections
and updates
Create backup binder with updated list of assets
Hello, my name is Dustin Ferguson and I was a corporate accounting intern this summer within the Consolidation and Analysis department. I am from Jackson, MS and a recent graduate of Mississippi State University.
I worked primarily in the Consolidation and Analysis department this summer on the Fixed Assets team. One of my duties this summer was to aid in the month end close. Month end is the series of accounting procedures that are performed in order to close out the month of accounting. The procedures that were assigned to me are known as “backstops”. Backstops is a term for the last check that we do on information that we receive from sites. The monthly information that mine sites send to us have been calculated and completed by accountants at those sites. Certain information is also calculated by our system, SAP. What I did was make sure that the information that I received from sites, matched up to the information that was calculated by SAP. If there are variances, or differences, between the two then I would research it to find out what happened and disclose it in notes before I handed it in. These variances were most commonly input error, which is why backstops are performed. In the next two slides I will detail the four backstops that I performed during month end.
Unit of Production Table Validation is a backstop that covers the mines’ production. We look at two things primarily in this backstop, and that is depletion and depreciation. Depletion is how we keep record of the cost to extract ore from the mine, and depreciation is how we keep record of the value of the ore that is produced from the mine. The financial information that is used to check that everything is correct is organized into keys that let us know whether it is depletion or depreciation. Common issues that arise from this backstop, are old forecasts, instead of updated forecasts being used in calculations, keys being used wrong, or simply that the input into the system was incorrect.
The Point of Sale Analysis backstop involves checking that an accounting adjustment was calculated and performed correctly. Freeport does a Depreciation, Depletion, and Amortization (DD&A) adjustment that essentially ensures that the correct depreciation is used. POP stands for the Point of Production of the ore, and POS stands for the Point of Sale of what is produced. This adjustment that is performed makes sure that the transition from production to sale is financially correct. Just like in the other backstops variance can arise between what the system has and what has been calculated, and this is usually because of use of wrong figures or inputting incorrect information.
For the Ore Reserves Backstop, a.k.a. Depletion Backstop the calculation used to determine the depletion expense is looked at specifically. As stated in the UOP Table Validation depletion refers to the cost of extracting the ore from the mine. This helps us know how much value is left on the ore reserves, and also helps in knowing how much reserve is still fiscally responsible to mine. Common variances for this backstop could include inputting the wrong reserve balance or possibly having unplanned depreciation. This backstop does not usually have a difference so it can vary.
Capitalized interest is a very expansive backstop that can be very complicated. When working on Capitalized Interest I was assigned the less complicated sites. Essentially since we acquire debt on large projects the company decides to capitalize the interest instead of expensing it. There is a long process of allocating the interest according to how much projects are and deciding which rate to use as calculated by New Orleans. Essentially this backstop compares what capitalized interest is in SAP to what we have calculated that it should be. Common variances that I noticed were again small input errors.
I worked mainly in Project Oversight for the Cera Verde and Tenke Fungurume sites. Project oversight is closely related to the engineering projects of the creation or expansion of the production of copper at individual mine sites. In order for the projects of the engineering groups to be executed in a timely and efficient manner, ordered materials must be closely monitored and documented for the use of the projects team themselves as well as auditors.
One of the main tools we use in project oversight is a Work Breakdown Structure. A work breakdown structure is a complex system of breaking down components of projects into smaller components. WBS structures are very extensive in their use, but for the sake of the accounting department in Project Oversight, we use the WBS system to allocate and detail project costs. After financial information pertaining to a projects is classified by Work Breakdown Structure it is uploaded to SAP for the reference of internal parties as well as external auditors.
The Copper/Moly mine Cerro Verde in Peru is currently undergoing an expansion which commenced in 2013 which will triple concentrator output by late 2015. Given the large capital costs associated with the expansion, there is plenty of documentation that must be gathered for auditing purposes.
The invoices that make up the majority of cost of the expansion are great in value (some exceeding a million dollars), but many of the invoices that have been compiled are relatively insignificant in value. For this reason the Cerro Verde team has decided to collect the invoices that make up at least 90% of the total cost of the expansion. These invoices have a value greater than $75000.
The Tenke Fungurume mine produces mainly copper and cobalt ore. A key component to the processing of these minerals is sulphuric acid. In order to increase production, Freeport decided to construct a second acid plant (Acid Plant 2). As a result of the expansion of on-site acid production, Freeport plans to reduce their dependence on third parties to supply sulphuric acid, and increase the rate at which they produce ore.
Similar to Cerro Verde, documentation must be gathered to tie the expenditures of the company to the final product. Auditors may ask for documentation to verify the accuracy of the company’s financial statements; by maintaining an organized method of documentation, we can quickly provide the necessary records.
Every two years an physical inventory verification is scheduled to occur. During this process the properties of the company must be searched and relevant assets are documented as located or missing. After searching company properties, the results are compared back to the inventory master list, discrepancies are identified, and an updated master list is created.
The results of the physical inventory check are used by the fixed assets teams to verify that the Plant, Property, and Equipment account of the balance sheet is up-to-date and accurate, and so that these assets can be depreciated if needed.
In order to begin the process of physical inventory we started by running an AR01 report from SAP. This gave us a master list of all the assets that we needed to find. It gave us information on those assets such as when they were last inventoried, what the book value was, and much more. We have a spreadsheet that was built from last year’s physical inventory that made it possible to instantly see what the asset you just scanned was pulling up as in SAP. We would input the information on the left and the vlookup formulas would pull the information needed from the AR01 report.
We found it easiest to quickly scan the assets in the office when there were not as many people in the office. So we took advantage of the office half day Fridays and scanned in the afternoon when the majority of employees had left. We also used one Saturday to scan and were able to complete three floors of scanning on that day. For the assets that would be more difficult to access we had different ways of verifying them. We received lists from storage units to verify our assets that were currently being stored there. In Africa, at Tenke, we have a couple of assets that we needed to verify such as airplanes, a fuel tank, and the hangar. Site took pictures of these assets that they sent to us to confirm that they were there and in good condition.
In the past the largest issue with this project was correcting all of the asset information from the ONC to current N Central location, but because this leg work was performed by others in the past couple of years we ran into very few issues. The problems we ran into included the movement of chairs, missing tags, assets showing differing descriptions from what was in the AR01, and assets that were disposed. Chairs move very easily, and the only problem this proved was that sometimes the chairs we needed to find could be in closets or storage rooms. As stated earlier chairs consisted of about half of the assets that we needed to locate. We kept track of the assets that did not have tags in order to notify Facilities so that we could get those assets new tags. We stay in contact with facilities as well in order to stay updated on which assets have been recently disposed of so that we can remove them from our asset list.
The AS02 upload is how we updated the AR01 and resolved issues that we ran into. As you see on the screenshot of the AS02 spreadsheet below we were able to enter any changes that we found in order to update the asset. The backslash tells the system that that field remains the same while the typed in cells update the field in SAP. This brings all of the asset information up to date, so that we know where and when assets were found. In order to finish the project we create a binder that contains any pertinent information from the inventory, including documentation on assets that were disposed of. The very last step of the binder is to write a memo detailing our inventory and the results that it provided.
