Tips to Track Deliveries

Your client owns a restaurant and watches her budget carefully. She hasn’t worried too much about a nearby competitor because her location is better, her food tastier and her place always full. However, lately her costs have risen and she finds herself struggling to make ends meet. After several months of losses, your client’s entrepreneurial dream is about to collapse and she turns to you, her CPA. With your help, she goes through her records and soon discovers an employee occasionally has recorded goods that were paid for as delivered to her when, in fact, they were sent to her competitor.
The above scenario could apply to just about any business that maintains few or poor internal controls over its deliveries. Of course, other problems could have caused such budget woes: The supplier simply may not have cared about making accurate deliveries, or your client could have fallen victim to a common fraud scheme in which a vendor ships products that weren’t ordered but will be paid for at inflated prices. After getting away with it once, crooked vendors know your client has poor internal controls and that she just assumes she ordered the items, they were delivered and she should pay the bill. A third possibility: Her employees could have been checking in orders but stealing the inventory. If your client can’t afford an expensive internal control system, here are some defensive measures she can choose from to ensure proper handling of deliveries. She can

Use numbered purchase orders when buying goods, and issue to employees who receive items (a kitchen manager or prep cook, for example) a list of these numbers to verify an order was actually placed. Ask the supplier to include purchase order numbers on the packing slip. Receiving workers then accept only goods they can verify against the purchase order list. However, this doesn’t involve counting the goods received. Caution: If purchases under a certain dollar amount do not require any verification, crooks can take advantage of this. For example, if your client’s approval level is $500, a dishonest supplier might ship orders around $450 on a regular basis. Even worse, the crook could just send her a bill for an amount below the threshold and never send any products at all.

Give receiving workers copies of original purchase orders to compare with the packing slips. While the first tip helps your client verify she ordered the goods, it does not provide assurance regarding the quantities involved. Using this measure, the receiving employees can compare the quantity on the purchase order with that on the packing slip. Caution: Your client still won’t know whether the supplier delivered everything it was supposed to unless employees actually count the goods delivered.

Assign an employee who does the accounting the task of comparing the purchase orders with the packing slips. Your client can use this low-cost procedure for some minimal protection against theft. Segregating duties by having someone in accounting, instead of a receiving worker, compare purchase orders with packing slips adds a level of assurance. Caution: Remind your client the supplier can manipulate the data on a packing slip to suit its needs.

Provide receiving workers copies of the original purchase orders but with the quantities ordered blanked out. Your client could require employees not only to compare the purchase order with the packing slip, but also to fill in the quantities of goods received. She also can request the vendor not include a packing slip with the items. In this way, the receiving employees won’t have any idea how many items your client expects. Caution: These tasks take a long time and, therefore, are costly.

Give the receiving employees copies of the purchase invoices—and on a random basis, erase the quantities. This approach has the advantage of minimizing the time and cost of checking in all deliveries yet provides a higher level of control. If the workers regularly perform this random counting, the process should provide feedback on whether the supplier properly delivers goods on a regular basis. Your client could reduce her exposure to large losses by blanking out the quantities for more expensive products, thus requiring receiving employees to verify these items.

Have someone in accounting match the packing slips to the original purchase orders and verified receiving reports. This helps to ensure your client pays agreed-upon prices only for goods ordered and received. The procedure also keeps tabs on whether receiving employees are checking in deliveries with care.

While none of the above measures can guarantee the complete elimination of losses, they can help to limit them.

Source: Jacquelyn S. Moffitt ( ) and David C. Hayes ( ) are assistant professors at Louisiana State University at Baton Rouge.


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