Controls for Inventory (#8)
/In this episode, we discuss the controls associated with inventory. This is a massive area that encompasses many controls, so we split them up in the episode into controls for inventory storage, inventory costing, and inventory handling. The point is made that inventory is really a liability, since it puts the company at risk of inventory obsolescence, requires significant resources to track, and involves a large working capital investment.
Inventory Storage Controls
Fence in the warehouse and lock the gate in order to minimize pilferage
Restrict warehouse access to authorized personnel
Tie the pay of the warehouse staff to inventory record accuracy
Be orderly in regard to how inventory is bagged, boxed, and stored
Implement cycle counting, including investigations of any errors found
Conduct a weekly audit of inventory record accuracy, post the results in the warehouse, and pay bonuses based on it
Inventory Costing Controls
Schedule a periodic obsolete inventory review
Run the “where used” report to see if any on-hand inventory is not being used on products
Conduct a quarterly lower of cost or market review, to spot valuation problems early
Lock down access to the bill of materials and labor routing records, to keep them accurate
Track the identifications of anyone who alters inventory records
Monitor the period-end cutoff of inventory counts, using an on-site person
Compare monthly overhead charges on a trend line to spot anomalies
Conduct a periodic detailed analysis of the cost of goods sold to search for unusual entries
Run a report that shows any inventory items with negative unit balances
Run an extended inventory valuation report and look for unusually high or low values
Compare per-unit costs on a trend line to spot anomalies
Inventory Handling Controls
Enforce rapid data entry for inventory moves
Update the bill of material records as soon as changes are made to product designs
Always pick from inventory using a copy of the original customer order, to ensure that picks match what was actually ordered