Strengths

• The instructions are written.
• The instructions are expressed in simple and unambiguous terms.
• Inventory sheets are to be sequentially numbered.
• Materials expected to be required for production are to be separately identified/set aside.
• Goods to be despatched on the last day of the year are to be separately identified/set aside.
• Damaged inventories are to be separately identified on the inventory sheets.
• The person responsible is identified.

Significance

• Written instructions are more likely to be followed as they can be referred to during the count.
• This will make it more likely that the instructions are followed, particularly as some counters may not be familiar with the inventory (accounts staff?).
• Pre-numbering helps to ensure the completeness of the count by providing the means to identify whether any sheets have gone astray.
• There should be no movements of raw materials, thereby keeping disruption to a minimum and ensuring a clean cut-off between raw materials and work-in-progress (WIP).
• As a result, there should be no movements out of finished goods inventory. This should ensure a clean cut-off between inventory and revenue.
• As a result, allowances can be made to write down damaged inventories to their net realisable value.
• Someone must be designated to be responsible for ensuring that everything has been counted in an orderly fashion and for clearing queries.

Weaknesses

• The warehouse manager is not independent of inventory functions and should not therefore have overall responsibility for the count.
• The pre-printed descriptions include the quantities supplied by the inventory controller.
• The responsibilities of warehouse staff do not appear to be restricted/subject to supervision.
• Procedures for WIP in the production department are not included.
• There are no instructions to deal with raw materials received from suppliers.
• Instructions do not specify how discrepancies are to be identified.
• Counters involved are not specifically identified.
• How items are to be marked (and where) is not specified.
• There is to be no check on the counts.

Significance

• There is a lack of segregation of duties if the person responsible for the custody of assets is also responsible for their recording.
• The expected counts should not be included as this can be used later to provide a check on the accuracy (or otherwise) of the counts and identify discrepancies requiring a recount. The inclusion of ‘expected’ quantities might also encourage staff to just record the expected quantity.
• Warehouse staff have access to physical inventory and should not therefore be determining the physical counts. They should only participate in the count subject to appropriate safeguards (e.g. checkers – see below).
• Additional considerations must be applied to WIP (e.g. stage of completion and establishing cut-off).
• Additional inventory movements which could occur (e.g. raw material supplies from suppliers).
• Lack of clarity on how discrepancies are to be identified could lead to errors or omissions in resolving differences.
• Not identifying specific counters could lead to confusion or lack of accountability.
• Lack of specificity on marking could result in double-counting or missed items.
• Without a secondary check, errors in the count may go undetected.

Overall evaluation
The instructions are currently inadequate. A new set of instructions should be drafted to deal, in particular, with:

• the roles of warehouse personnel
• how inventory is to be identified, quantities recorded and counts checked
• the additional inventory movements which could occur (e.g. raw material supplies from suppliers).