Stocktaking: resolving discrepancies

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The stocktaking exercise is meant to verify the correctness of the inventory records held by the organisation.

If the physical count and inventory record vary, it is a discrepancy in inventory management language. In every enterprise, even the ones with best systems, discrepancies between physical count and the stock records are common.

Discrepancies in stock arise from various reasons that can be classified as errors in location and, or in recording, and, or total loss product.

Discrepancies from errors in location include:

Incoming goods placed on the wrong bins but the Good Received Notes (GRN) is posted on the right stock card.

Stocks held in multi locations and some locations missed during the physical count.
Recording related discrepancies includes:

Failure to update stock records when appropriate documentation has been raised and materials collected.

Incorrect quantities issued – more or less quantity as per stores issue voucher (SIV) maybe physically issued.

Use of wrong unit of measure, e.g. recording 5 bags of sugar instead of ten kilograms.

Error of transposition, posting the wrong quantity, eg 109 recorded as 901.

Recording a receipt as an issue or vice versa.

Mathematical errors in addition and subtraction.

Total loss includes:

Stock shortage caused by receipt of less quantity of stock than what is stated on a delivery note, or receipt of air-supply, or issuing more stock by error or intention.

Loss from natural phenomenon such as evaporation of fuel.

Pilferage that is mostly common to attractive and costly commodities.

The stocktaking process is only complete if the discrepancies have been investigated and explanations provided. Checking of inventories is vital from an accountability point of view since stock represents cash and as such, cash needs to be constantly checked and accounted for properly.

In order for the process to be credible, proper planning is critical. More effort must be placed in stocktaking preparation to ensure that human errors discussed earlier are eliminated through administrative checks. Administrative checks ensure all stock transactions are captured accurately.

To ensure stocktaking process covers all inventories, it is important that stock sheets cover all inventories held in the sequence of physical location. Many stock sheets follow the stock-coding order and that promotes omissions during count since very few physical arrangements follow that order.

Emphasis has to be put on the arrangement of physical inventories to ensure that like items are kept in the same location, and in the event of multi locations, such information is properly recorded.

The stores personnel must spring clean the stores, dusting and cleaning up all stock bins, rewriting bin numbers where they are no longer legible and that stocks are conveniently packaged for easy counting.

Stock discrepancies, whether negative or positive need to be investigated. Where the discrepancy is minor and the stocks involved are voluminous, it is advisable not to alter the stock ledger figure if a recount is deemed uneconomical.

For major discrepancies, records need to be scrutinised to reveal mistakes such as the used of unit of count, receipt and issue; examination of bins that are neighbouring; material of similar nature needs to be conducted; etc.

In serious cases where fraud is suspected, the police have to be involved. The process is complete when all stocks are reconciled and adjusted accordingly.

The last thing is to net-off discrepancies. Positive discrepancies are equally as bad as the negative one since they all reflect inefficiencies in stock management systems in place for the organisation.

Nyasha Chizu is a Fellow of CIPS and the chairman of CIPS Zimbabwe branch and writes in his personal capacity. For feedback, contact chizunyasha@yahoo.com