| Preventing Inventory Shrinkage from Illegal Activity
It's not pleasant to think about but theft does happen. Managers and business owners must invest time and money setting up internal control systems to prevent inventory shrinkage and embezzlement. Some of the most important measures must be taken in addition to physical barriers like locks, security cameras, and swipe cards.
According to Dr. Donald Cressey, a criminologist, "pressure," ""rationalization," and "opportunity" must all be present to cause a normally trustworthy employee to steal. He describes these elements in a model he calls the "Fraud Triangle." The pressure of excessive debts or pressing financial needs influence an employee in ways an employer cannot control. Employees are less likely to rationalize (and justify) illegal activities if they feel they are a valued member of a team.
A company has the best chance of protecting its assets is by controlling an employee's opportunity. In addition to physical deterrents, ERP software can reinforce your internal control system through password control for sensitive areas like inventory, purchase orders, accounts receivable and payables. Just as security cameras track physical access to certain areas, ERP software should retain information on which employees adjusted inventory, removed order line items, and changed prices.
Activities like processing incoming shipments should be divided among a team so one individual cannot divert the goods and manipulate data to eliminate evidence. The person receiving shipments should not be the person who pays a vendor's invoices. A good ERP distribution software system organizes these functions according to job type so secure practices are built into the structure of the software.
No matter the pressure an employee may feel or the rationalizations they can make, taking measures that limit the opportunity to steal and get away with it is the most powerful deterrent.
"Onboarding" isn't Just for Fishing Trips and Ferry Boats
After you've made the decision to bring in another team member or two, how can you ensure they hit the ground running? Onboarding, which is a relatively new management term, is the process of bringing the new hires "on board" through a conscious effort to include and welcome them. The process is more than just filling out the required HR forms.
The onboarding process covers the informal procedures that are critical to the efficient operation of the business in terms of making a cohesive team. In addition to introducing new employees, take pictures and put them next to a welcome sign so others will learn their names quickly. These images can be added to a wall of employee pictures so the new hires can see others' names and literally see themselves as part of the team. Include logon initials, company email addresses, and phone extensions so these will become familiar.
Although it may seem insignificant, according to Dick Grote, author of "Making Onboarding Work," "welcomed" hires have a lower learning curve and become fully productive team members faster.
In addition to the formal procedures that are typically outlined in an employee handbook, things like weekly team meetings, informal Friday pizza orders, storing items in the fridge, or selecting a locker should be included as of the new employee's education rather than left to chance.
Happily integrated employees are fundamental to a company's success (as is eliminating the time and expense of rehiring). Creating cohesive teams that work well together can dramatically improve productivity and onboarding is one method employers are using as they begin to rebuild their workforce.
Which accounting costing method is right for your company?
For tax purposes, average cost, FIFO (First In, First Out), and LIFO (Last In, First Out) are approved accounting cost methods. If President Obama's proposal to prohibit LIFO passes, this common accounting practice may be a thing of the past. Small businesses owners, wholesalers, and others will need to use an alternative method to value inventory.
- Benefits of average cost: Simple to use, takes average cost over a specified time and is not significantly affected by price variances.
- Benefits of FIFO: Inventory purchased earlier, at lower cost, is sold first which can result in higher net income but can also result in higher taxes.
- Benefits of LIFO: COGS reflects most recent cost, which is usually higher, resulting in lower net profits which ultimately lowers tax rates.
A full-featured ERP software package for distribution should accommodate all the accepted accounting cost methods and should allow customization to suit the particular needs of your organization.