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Controls over Inventory

Control of inventory typically represents 90 percent of all expenses incurred by a company (Bragg, 2005). Therefore, companies should ensure that they put in place the correct controls regarding inventory management. Proper controls are needed so as to ensure that the company prevents pilferage of goods and avoid stock-outs. It is also important for companies to ensure they have quality goods that meet the company’s standards as well as proper accounting practices to ensure proper to record the inventory. A company that does not have proper controls over inventory end up incurring many costs such as holding costs, carrying costs and excessive material purchases cost (Bragg, 2005). Hence, it is fundamental for a company to ensure it has the right controls in place over inventory.

The following procedures should be conducted every time the company receives stock from their suppliers. There should be an appropriate inventory system already put in place. The system ensures that all the stock purchases are recorded. It also updates the stock balances automatically in the ledgers. All stock purchases should be serially numbered and recorded so as to distinguish between the current stock and the new stock (Bragg, 2005). All stock purchases should be accompanied by a goods received note (GRN) that is used by an independent person to update the stock records with the receipts. In addition, all issues of stock from the supplier to the warehouse should be authorized by a senior person and the stock movement up dated in the inventory system.

 

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The company should have adequate documentation of all stocks returned back to the store or warehouse. The stock records should be updated with such returns. A stock count is supposed to be conducted on a monthly basis. The physical stock counted should be reconciled to the expected stock as per the inventory system (Bragg, 2005). Also, installation of closed circuit TV cameras helps to deter and detect shop lifting. Other security measures include restriction to entry of unauthorized persons into the warehouse where inventory is usually kept.

Putting security measures in place such as such inspection locks among others helps to ensure that employees do not carry stolen items when leaving the premises. Stocks write offs should be authorized by a senior responsible official. Therefore, when the controls are in place, a company will enjoy low operational and holding costs. Furthermore, a company that has good controls is less likely to be affected by stock-outs. This is because the company is able to monitor its re-order level.

 

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