Reporting On Stocktaking

Management shall advise the Executive Team of the results of all supervised stock takings (including details of accounting action taken to record discrepancies) as quickly as is practicable. In most organizations the report includes the following:

• The warehouse details.
• The value of inventory per the stocktaking.
• The value of inventory per the appropriate inventory form.
• The shortage/overage.
• The total stock movement/sales since the last stocktaking.
• Any shrinkage recorded since the last stocktaking.
• The results of the last two stock-takings.

A statement from the management that:

• They are satisfied with the stocktaking results and recommendations are accepted,
• They are not satisfied with certain components and recommended portions be recounted.
• They have no confidence in the stocktaking and require another stocktaking before they can endorse the financial statements as to the fairness and accuracy of stated values.

When satisfied that appropriate corrective action has been affected, the manager submits the report to the management board for approval, and, upon approval, informs the board of the loss, the probable causes and the corrective/preventive actions taken to prevent a recurrence. In instances where the shortage exceeds the management’s powers of a write-off, the board shall submit the report to shareholders for review. All the procedures are dependent upon organizational policies.

Note that management must be very cautious in accepting stocktaking results indicating overages. Overages are as serious as shortages if not more so. Overages at retail in excess of 0.5% of sales are considered abnormal.

The report to be submitted so far must state the shortage and the following information:

• The amount by which the shortage (at cost) exceeds the write-off authority of the management.
• The details of any investigation and corrective action are taken.

Preventing Losses In The Warehouse

Shrinkage is an UNKNOWN LOSS of money or stock incurred by a warehouse which is not measured until stock is counted or during the stock-taking day. By the time, in most cases, it is too late and the loss has already occurred. The most important thing to realize about shrinkage is that because of the fact that it is not measured and unknown, the loss has to be taken off the profit. In some cases, the loss is too much that the organization does not make a profit at all.

Main Causes of Shrinkage

Shrinkage is caused by human action:

• Staff theft.
• Inefficient handling of documents and paperwork such as sending them late.
• Negligent actions such as under ringing – goods are wrongly processed, mainly less than their actual prices.
• Not changing prices on time or counting stock but not changing the prices.
• Marking the items at the wrong price.
• Administrative errors which are caused by incorrect price labelling or late introduction of the price increase can cause severe shrinkage.
• Failure to conduct regular stock rotation may result in wastage or stock counts may be incorrect.

Avoiding Shrinkage

Shrinkage can be avoided by being aware of its causes and by following a systematic approach to correcting it. All employees of an organization must ensure that shrinkage and causes of shrinkage are avoided. An organization must instil a feeling of belonging amongst its employees so that they see a loss to the organization as their own loss. Good personnel management skills and good conditions of service instil a sense of belonging amongst the employees.

The Effects of Shrinkage

Shrinkage directly affects profit, and this has a direct impact on the remunerations of the employees. A loss-making organization will be forced to close/scale down and leading to staff retrenchment. Low profit will make it difficult for organizations to provide employees with incentives such as bonuses and salary increases.

It is important to note that shrinkage occurs at every stage of the movement of the goods from the time they are loaded onto the delivery truck to the offloading, storage, dispatch to the departments or stores. It is incumbent upon the management and all the workers to protect the goods from shrinkage through this journey.

Preventing Internal Theft

Employees have a responsibility to prevent, detect and control losses. If you are aware of a co-worker or other employee who is stealing, report your suspicions to a manager or supervisor. Most organisations will protect the identity of employees who turn in their co-workers.

Be alert for these clues:

• Employees who have financial problems.
• Employees who live beyond their means (they wear fancy clothes, have an expensive hobby, gamble, etc.).
• Employees who arrive early or stay late at work when there is no need to do so.
• Employees who are unhappy, dislike the boss or the company and complain about being underpaid or overworked.
• Employees who place merchandise or materials in unusual places such as near exits, close to restrooms or in concealed corners.
• Employees, who make many alterations in inventory records, void slips, refund receipts and other documents.
• Do not cover up for co-workers, even if they are your friends. If they get caught, you could be implicated as a conspirator in the crime. At the very least, you could lose your job. However, you should not take direct action yourself if you can avoid it. You should alert the warehouse manager or supervisor. Explain what you saw and let the manager handle the situation. You will probably have to explain what you saw to the manager and the employee. For this reason, you should be absolutely sure of the facts.

Preventing Other Losses

Stealing is not the only cause of store losses. Employee carelessness in conducting money transactions and in handling merchandise cuts into store profits as well. Prevent store losses by following these guidelines:

Get Authorization on Every Credit Card Transaction

Never accept a charge without checking to see if the customer/retail outlet has an established account/allocation number. Never complete the sale until you receive this authorization.

Follow Procedures for Receiving and Stocking Incoming Merchandise

Do not sign for unauthorized merchandise. Count the number of items received. Check the condition of the contents of any damaged boxes before signing for them. Do not take items out of the stockroom before they have been checked in and priced.

Code/Price Items Accurately

Make certain that all merchandise is marked with the correct retail price/code. When merchandise is received, check the delivery note and invoice against the purchase order. Then mark the item. Make certain all the necessary coding information appears on the ticket and that the ticket is attached to the correct item. If you are not sure, ask – never guess!

Always Double-check Delivery Information

Store losses result from delivering merchandise to the wrong address, delivering when no one is home, or delivering an item more than once to the same address because the original delivery was not verified. So, get the customer’s/outlets exact delivery address and copy it down accurately. Always call before attempting to deliver an item to check /make sure that delivery is accepted.

Handle Merchandise Carefully

Improper care and handling of items for sale in the store can result in damage that devalues merchandise. It may have to be sold at a reduced price or even thrown away. Be careful putting merchandise away, or when moving it in and out of stock. Put merchandise away in its proper place. Do not handle merchandise with dirty hands.