Inventory Auditing

Inventory Auditing: Systems & Processes

This article outlines the information you need as an Operations Manager to set up your Inventory Management systems and processes. Want to streamline your processes? See the templates we’ve created to make your job easier.

Inventory Auditing Process

In this article, we’ll look at the practical steps you can take as an Operations Manager to implement systems and processes around Inventory Auditing.

Ready to get started? Follow these steps:

  1. Establish Objectives: Begin by defining the primary objectives of the inventory audit. This could be to verify the accuracy of recorded inventory, identify discrepancies, reduce shrinkage, or ensure compliance with financial reporting standards. Having clear objectives will guide the entire auditing process.
  2. Select Audit Method: Decide on the type of inventory audit method you want to employ. Common methods include periodic physical counts, cycle counts, or utilizing technology like RFID systems. The chosen method should align with the size of the inventory and the frequency of audits.
  3. Schedule the Audit: Determine the frequency and timing of the audits. While some businesses may opt for annual comprehensive audits, others might prefer quarterly or monthly checks. The schedule should consider peak business times, end-of-month or end-of-year financial reporting, and staff availability.
  4. Assemble an Audit Team: Identify and train a team responsible for conducting the audit. This team should be familiar with the products, understand the importance of accuracy, and be trained on any tools or software being used.
  5. Prepare Inventory Records: Before the audit, ensure that all inventory records are up-to-date. This includes purchase records, sales records, and any inventory adjustments made due to returns, damages, or theft.
  6. Organize the Inventory: Physically arrange inventory items in a manner that facilitates easy counting. This might involve grouping similar items together, labeling shelves, or clearing out old stock.
  7. Provide Necessary Tools: Equip the audit team with necessary tools such as counting machines, barcode scanners, tally sheets, or inventory management software to aid in the counting process.
  8. Conduct the Physical Count: The audit team should physically count each item in the inventory. It’s essential to ensure minimal business disruption during this time, which might mean conducting the audit during off-peak hours or even after business hours.
  9. Reconcile Physical Count with Records: Once the physical count is complete, compare the numbers with the inventory records. Identify any discrepancies between the physical count and the documented numbers.
  10. Investigate Discrepancies: For any differences found between the physical count and the records, investigate the root causes. This could involve checking purchase and sales records, talking to staff, or reviewing security footage.
  11. Adjust Inventory Records: Based on the findings of the audit, adjust the inventory records to reflect the accurate count. Ensure that any adjustments are well-documented, explaining the reason for the change.
  12. Report Findings: Prepare a comprehensive audit report detailing the findings, discrepancies, reasons for discrepancies, and any adjustments made. This report should be shared with relevant stakeholders, such as the finance department or senior management.
  13. Implement Preventative Measures: Based on the audit’s findings, identify and implement measures to prevent future discrepancies. This could involve improving security measures, refining inventory management processes, or providing additional training to staff.
  14. Review and Refine the Audit Process: After each audit, gather feedback from the audit team and other stakeholders. Use this feedback to refine and improve the inventory auditing process for future audits.
  15. Maintain Regular Communication: Foster regular communication between the operations, sales, and purchasing teams. This ensures that everyone is aligned and aware of inventory levels, sales, and any potential issues that might arise.

By meticulously following these steps, an Operations Manager can ensure that the inventory auditing process is thorough, accurate, and beneficial for the organization’s operational efficiency and financial accuracy.