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34.4 Inventory Controls

Overview​

Inventory controls protect inventory from theft, loss, and errors. Effective inventory controls ensure accurate inventory records, prevent shrinkage, and support accurate financial reporting. Understanding inventory control procedures is essential for businesses with inventory.

Physical Inventory Controls​

Access Controls​

Access Controls:

  • Limit access to inventory areas
  • Secure storage areas
  • Locked storage when not in use
  • Authorized personnel only
  • Monitor access

Physical Security​

Physical Security:

  • Secure storage facilities
  • Locked doors and cabinets
  • Security systems (if needed)
  • Adequate lighting
  • Surveillance (if appropriate)

Inventory Recording Controls​

Receiving Controls​

Receiving Procedures:

  • Count and verify received goods
  • Compare to purchase orders
  • Inspect for damage
  • Record receipt immediately
  • Document discrepancies

Issuing Controls​

Issuing Procedures:

  • Require authorization for issues
  • Record issues immediately
  • Use issue forms
  • Track usage
  • Reconcile issues

Inventory Counts​

Periodic Counts​

Inventory Count Procedures:

  • Regular physical counts (monthly, quarterly, annually)
  • Count all inventory items
  • Compare to records
  • Investigate discrepancies
  • Adjust records

Cycle Counting​

Cycle Counting:

  • Count portion of inventory regularly
  • Rotate through all items
  • More frequent counts of high-value items
  • Continuous verification
  • Identify problems early

Perishable Inventory​

Special Considerations​

Perishable Inventory:

  • First-in-first-out (FIFO) critical
  • Monitor expiration dates
  • Regular rotation
  • Waste tracking
  • Spoilage accounting

Controls​

Perishable Controls:

  • Date labeling
  • Rotation procedures
  • Waste recording
  • Regular inspection
  • Quick disposal of expired items

Luxembourg Compliance Note​

Important Requirements:

  • Inventory records: Must maintain accurate inventory records
  • Physical counts: Must perform regular counts
  • Valuation: Must value inventory correctly (PCN)
  • Documentation: Must document inventory procedures
  • Reconciliation: Must reconcile physical to records

Common Issues:

  • Shrinkage: Inventory loss not detected
  • Recording errors: Errors in inventory records
  • No counts: Not performing regular counts
  • Valuation errors: Incorrect inventory valuation
  • Waste not tracked: Perishable waste not properly tracked

Think It Through​

Artisan Boulangerie has perishable inventory (flour, sugar, butter, etc.). What inventory controls are most important? How should they handle waste and spoilage?

Concepts in Practice​

Inventory Controls Example

Artisan Boulangerie inventory controls:

Physical Controls:

  • Storage areas locked
  • Limited access (authorized personnel only)
  • Secure storage for high-value items
  • Adequate lighting

Recording Controls:

  • All purchases recorded immediately
  • Receiving verified against purchase orders
  • Issues recorded when used
  • Waste recorded separately

Inventory Counts:

  • Weekly counts of high-value items
  • Monthly full inventory count
  • Discrepancies investigated
  • Records adjusted

Perishable Controls:

  • FIFO method used
  • Date labeling on items
  • Regular rotation
  • Waste tracked and recorded
  • Expired items disposed quickly

Result: Effective inventory controls, accurate records, waste minimized, shrinkage controlled.