What You Should Be Auditing

When you work for yourself, you often spend a lot of time inventing the wheel. There is no corporate policy already in place for your stores to adapt. No one is there looking over your shoulder and telling you what records to keep and for how long. Sure, you probably have an accountant somewhere helping you with some record retention requirements. There are other IRS and tax records that you keep for a certain period of time. Overall, it is up to you to make these decisions and have a standard in place.

One area that can be difficult to make your own standard is having an internal audit. While it is a chore to come up with the questions and audit points, the payoff of having a better standardization and in store accountability will far exceed the trouble you put into to establish an audit.

One of the best places to start is by researching Sarbanes- Oxley. The Sarbanes- Oxley act of 2002 is a set of legal requirements that all organizations, regardless of size, must comply with. It basically regulates financial practices, after several companies were found guilty of falsifying their own financial records. The company’s biggest fallout was that they ended up devastating thousands of their own employees financially.

The ultimate point of the act is that companies are required to provide accurate and truthful information as to the company’s financial status. Over inflating sales, inventory, amongst other practices, to give a deceitful impression of a company’s success is now illegal. Companies must retain records of their financial status to ensure accuracy at all levels.

The easiest way to do this is to perform self-audits in key areas. These audits should be done daily, weekly, monthly and yearly, depending upon the task. Hiring a consultant can provide you with the legal specifics to keep your company on the up and up. Understanding the basics ahead of time can help you decrease those consultation costs, as you will already have some practices in place.

The first place to start is with your inventory. Understanding a cradle to grave approach to your product will not only help you with accuracy in your auditing, but keeping a closer eye on your product will help you decrease your shrink over the long term. Your starting point is with your receipt of goods.

Each shipment of inventory you receive should be documented and a bill of lading retained and filed by month. On each BOL should be the signature of who received the items, the date and time received, and a check mark or tally of what was received- either by piece, box or pallet.

Next, you should maintain listings and reports of items that are taken out of your inventory for a specific reason. If they are damaged and thrown out, sent back to a vendor for credit, used in the store, stolen, etc. There needs to be a paper trail attached to where these items have gone and why. A signature, or employee ID or who reallocated the products disposition should be included with these document (also retained and filed by month).

If you are still using paper sales receipts, including paper journal tapes, those records need to be filed by date, and then month. This is your listing of what merchandise has left your stores and is your proof that these sales actually happened and were not fraudulently contrived. If you have an electronic sales tracking system, you still need to have paper documentation of these sales retained somewhere in case of a computer glitch, etc.

Finally, all returns must be retained and spot-checked for accuracy. Since returns are another way for inventory to come back into the store, it is an important process to verify that these returns are accurate. Look for multiple transactions of the same item, or significantly larger dollar transactions. These are the returns that are most likely to have been done in error (over inflating your actual inventory) or can point to an employee’s dishonest activities.