How Stocktake Helps Prevent and Detect Theft

High-quality stocktake (inventory checking) provides assurance to managers of all units of the company that the financial statements and software system information on inventory is accurate and fair. At the same time, occasional stocktake works quite well to prevent theft.

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Therefore, stocktake is one of the most effective control procedures in a company’s internal control and should be treated with care.

Stocktake can reduce the risk of theft

What is stocktake?
Stock-taking also known as inventory checking or wall-to-wall is the verification of the quantities and condition of items held in a warehouse or inventory. This may be done to provide an audit of existing stock. It is also the source of stock discrepancy information.

Stocktake can be successfully used as part of internal control on a rolling basis, not just once a year. Unexpected stocktakings are disciplining, and such stocktake records are likely to be of higher quality. It is also sometimes useful to use external partners to make stocktake to avoid conflicts of interest or to address inadequate resources.

An automated process could minimize reading errors. Financial incentives may also be considered to ensure that stocktake results and quality are not only a concern for accountants and management. Material liability for deficiencies, or vice versa, can sometimes be very effective in rewarding minimal differences in emergency stocktaking. Continuous analysis of post-stocktake results and ongoing accounting also help detect fraud.

Theft usually comes out with stocktake

Differences are likely to be due to fraud in cases of professional stock management and high-quality stocktake. Differences can occur, for example, by the theft of goods (even in small quantities) and the display of deficiencies during the receipt of goods. Apparently, minimal differences can hide fraud if stocktake results are manipulated or counterfeited. For example, boxes may be empty or liquids may turn out to be ordinary tap water.

Fraud may or may not occur during a stocktake. Therefore, it is not enough to rely solely on stocktake, and other internal control systems are needed to detect fraud.

The condition of the assets/inventory must also be evaluated

The stocktake should also include an assessment of the condition of the stored inventory. If this is an overdue commodity that is not noticed at the time of the stocktake, and about which, for some reason, the company’s logistics unit does not have information, it is likely that these goods have been reported at an incorrect cost on the balance sheet.

Another major risk in production is the lack of quality raw materials, although the balance indicates stocks. This situation may lead to production stoppages. Also keep in mind that rodents, water, etc., may have contributed to the depreciation or even destruction of goods in stock. If the condition of the goods is not carefully assessed during the stocktake, such cases may go unnoticed. There is also a useful practice – unused assets must be written down and/or written off.

Proper software can help to improve results

A stocktake can be performed with any Stock Management System, E-commerce Platform, ERP/MRP solution or Accounting Package.

Modern systems are easy to use, provide powerful data analysis and reporting capabilities and can be accessed on-line from any location. Barcode scanning functionality provides fast, accurate and reliable inventory counts in a shorter time.

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