Stock adjustments: the most sensitive spot

The spring season is over and a wholesale depot for fertiliser and seeds has held a count. Differences were found, and the accountant entered goods-in and write-off documents in the system and aligned the balance with reality. The records now match the count and everyone relaxes. But one thing has not changed: the cause of the shortage is unknown, because the adjustment removed the difference, not the cause. A stock adjustment puts the books right, but misused, like an eraser, it makes the problem invisible.

When an adjustment is appropriate

An adjustment is right in three cases: when the count result differs from the records, when an error in a document is found (a mixed-up article number), or when damage to the goods is proved. Each time there is evidence behind it: a count certificate, a copy of the faulty document or a damage report. An adjustment without evidence is simply a number changed by hand. With seasonal goods evidence matters most: after the season a low balance looks natural and nobody asks questions.

Five questions the auditor puts to the log

1. Who entered it and who approved it? They should not be one person.
2. When? After a count, built up at month or year end, on a day off, at night.
3. How much? The share of turnover, and amounts just below the approval limit.
4. Why? Whether the comment field is filled in or says only "corrected".
5. Pairing. A minus on one article and a plus on another: such pairs point to a coding error, not a real shortage.

An example: a fertiliser and seed depot

In one month 48 stock adjustment documents were entered, reducing stock by 61 million so'm in total. Opening the log showed this: one user entered 41 of them; in 19 the comment is just "corrected"; 12 fell on the last day of the month; 7 were for amounts from 4.8 to 4.99 million so'm against an approval limit of 5 million so'm, meaning amounts split just below the limit.

The auditor looked for pairs and found offsetting entries worth 14 million so'm between the 25 kg and 50 kg sack articles. That is not a shortage but a coding error, so part of the difference did not exist even before the "adjustment". For the remainder the cause had to be found: one of them was that returned sacks had never been booked back in.

Adjusting as a way to conceal

The subtlest scheme has two stages: first goods are taken out without documents, then the balance is reduced under the name of a "count difference". There is a document and a comment, and the shortage looks like an ordinary adjustment. So after each large adjustment the auditor asks about the goods' real fate: where they went, who knows, and which customer or supplier they relate to.

Control rules

• An adjustment is entered only on the basis of a count certificate or a written request.
• A reason code is mandatory: count difference, faulty document, damage, other.
• Approval levels: a small sum goes to the head of the department, a large one to the director. Splitting is forbidden: the limit is tested per item, per day and in total.
• The person who enters and the person who approves are also separated by access rights in 1C.
• A monthly report on adjustments goes to management.

The right sequence after a count

Do not rush to adjust after a count. The usual sequence: a list of differences is drawn up, large ones are recounted, the cause is sought (a document, a return, a transfer), and only then is the adjustment entered, with the cause found written beside it. For goods with a shelf life, such as seeds, record the expiry date during the recount too: an expired batch is written off separately and not folded into the general adjustment.

Common mistakes

• An adjustment with no comment: "corrected", "put right".
• Adjustments piled up until year end: nobody checks during the months, then everything is entered at once.
• Controlling only decreases. Surpluses, meaning plus adjustments, can also cover a hidden shortage through goods-in.
• Not looking for the cause after adjusting: the same difference reappears the next day.
• Entering an adjustment with a backdated document: the report for a closed period quietly changes.

Conclusion

An adjustment aligns the books with the count but does not find the cause of a shortage. OmborAudit analyses the adjustment log by who, when, how much and for what reason, and shows the process weaknesses hidden behind the adjustment.