Inventory Internal Controls
A company's investment in inventory is usually a large one, and it may be comprised of a large number of merchandise items that can be readily stolen and resold. If the inventory contains mostly raw materials, then keeping track of it is essential for ensuring that the production processes using it will not run short of materials. This means that you need to implement an array of controls, either to prevent theft or to ensure that the manufacturing operation does not run short of inputs. We will describe below a number of the key controls you should consider for your inventory investment. Key internal controls for your inventory are:
Fence and lock the warehouse. The single most important inventory control is simply locking down the warehouse. This means that you construct a fence around the inventory, lock the gate, and only allow authorized personnel into the warehouse.
Organize the inventory. It may not seem like a control to simply organize the inventory in the warehouse, but if you cannot find it, you cannot control it. Thus, a fundamental basis for inventory internal control is to number all locations, identify each inventory item, and track these items by location.
Count all incoming inventory. Do not just take the word of the supplier that the quantity stated on the delivery is the correct one. Count the inventory before recording it as received. This keeps errors from being introduced into the inventory records.
Inspect incoming inventory. Verify that all incoming inventory is of the correct type and is not damaged. All items that fail inspection should be returned at once, and the accounts payable staff notified that the returned items should not be paid for.
Tag all inventory. Every scrap of inventory in the warehouse should be identified with a tag, which states the part number, description, unit of measure, and quantity. Otherwise, inventory items are bound to be...
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