Apparel Industry Internal Audit: Technical Guide by VGNC

Internal Audit and Enterprise Risk Services, Delhi NCR

An internal audit of apparel industry needs assessment of quality, procedures, and systems with a clear view of performance and improvement. Apparel industry is one of the complex industries of India, internal audit needs precision. VGNC has extensive experience in offering Internal Audit and Enterprise Risk Services to clients active in the apparel industry. Today we will discuss technical aspects of internal audit of the apparel industry.
Example of Checklist of Apparel Industry
1. New workers personal file.
2. Salary Sheet.
3. Pay Slip.
4. Resign File.
5. Maternity File.
6. Earn Leave Register.
7. Leave Entry & Register.
8. ID Card Return Issue Register
9. ID card Return Register
10. Proximity card, Software, Grade, Deduction, OT Rate, Calculation of wages (basic rent, Medical Allowance), in time, short leave, attendance Bonus.
11. Workers List for Group Insurance.
12. Trade License.
13. Fire License.
14. VAT Clearance Certificate
15. Income Tax Clearance Certificate.
Although some of the checklist particulars are mentioned, you must remember that this checklist can be broad and detailed. Sometimes, auditors must use their acumen to create a suitable checklist that matches the needs of the clients business.

Internal Audit & Retail Supply Chain Audit Services | VGNC, Delhi NCR
Types of Audit
There are two types of audit in the garment industry
1. Product audit
2. Process audit
Auditing Process
You need to have well-designed process to deliver the standard set by you. With a right process, you can achieve desired quality and insights. Here is the process followed by quality department:
1. Management meeting
2. Factory meeting
3. Inspection of garment or apparel (like fabric)
4. Accessories inspection
5. Production and process inspection
6. In-line inspection
7. Pre-final inspection
8. Final inspection

Inventory & Supply Chain Consultancy Services - VGNC, Delhi
If you are operating in the apparel industry, you need to follow certain standards at all stages. Customer’s preference acts as a driving force in the apparel industry. Buyer patterns are marked to guide the production cycle.
A process audit is important to assess the set procedures. This audit allows you to know whether right processes are being followed throughout your business or not. If an error or mistake is detected, it must be highlighted in the report. Internal audit consultants then suggest some corrective actions that are necessary for improvement.
The quality audit needs to be conducted to provide a stable growth to your business and identify the scope of improvements. Batch audits, inline inspection, pre-final inspection and final inspection are some steps that ensure clear, effective and quality audit.
Do leave in a comment box whether you would like us to publish a full technical guide or a broader checklist.


Improving Your Internal Audit Reports: Expert Tips By VGNC


A good audit report should lead to essential information and separate the identified risks into those affecting the single business unit and enterprise as a whole. It should also embed links to assist the reader in finding what they need.

All auditors produce reports after completing the auditing process. It is a standard activity expected by management and other stakeholders of the company. The audit report records the result of the audit procedure which becomes the foundation of sustainable growth and improvement in the organization.

If you want to achieve stable growth, you need to focus on making your internal audit reports clear and effective. A high-quality audit report helps the management to make informed and timely decisions.

Why You Need to Improve Your Audit Report

To Increase Visibility

As the audit reports are distributed to the internal stakeholders and external auditor, the reports must provide clear information that is neither overstating nor understating the facts. The accurate picture of risk and control environment is useful for management.

For Credibility

Internal audit reports review complex and strategic risks faced by your organization. Auditor builds an understanding of business and other associated risks to demonstrate them clearly in the report. If credibility is not demonstrated, internal audit report might not have the same impact.

Communicating Business Value

Audit reports showcase the business priorities, risks and improvements failing to link it with your priorities.

Avoid Clustered Decision

The tendency to cluster results which might lead to inadequate knowledge of actual risk exposure.

Internal Audit & Retail Supply Chain Audit Services | VGNC, Delhi NCR

Tips to Improve Audit Reports

These are some of the most common mistakes which call for improvement in the audit report. Most of the mistakes are easy to avoid through use of the better template, good writing, and streamlined audit process.

With the growth of technology, most of the departments count on electronic distribution of audit reports. Periodic summaries of the audit are digitally provided to the audit committee. Your management uses the mobile electronic device to review reports.

The audit report improvement that you need to make to be in tune with current trends are:

  • You must lead your audit report with important information. The audit report must embed links in the text allow easy navigation to detailed information as needed.
  • You must divide your audit reports into parts that effectively demonstrates the result of the audit engagement including isolating risk impacts on your company.

In the end, we can conclude that clarity of internal audit report is necessary for its effectiveness and to make improvements in the procedures of your company.

Inventory & Supply Chain Consultancy Services - VGNC, Delhi

Ways to Incorporate Strategic Objectives into Internal Audit Plan

Internal auditingteams must check whether or not your company is incorporating its strategic objectivesin audit plans and other operational concerns.


Your company will face existential risk due to strategic risks. Strategic risks may cause 80% damage to your company’s market share. Often, internal audit teams spend the majority of their time on operational and financial audits ignoring the strategic risks.

Although all these areas are crucial, audit teams need to incorporate your company’s strategic objectives into their audit plan. This will help you to gain an insight of whether or not your company is on the right track or not.

At VGNC, we believe that internal audit is incomplete without incorporation of strategic objectives. Today, we will discuss a few methods using which you can incorporate your company’s strategic objective in your audit plan.



One of the popular approaches used in investing, this method can help you to ensure that your audit plan gives a satisfactory record of your company’s strategic priorities. It is one of the best ways to gather information and insight about whether your company and its employees are true to the strategic objectives.

Information is collected from unit-level processes that have a strong impact on corporate objectives of your company. We encourage our clients to make enterprise level goals the core of their annual audit. Our clients were able to identify strategic procedures that need careful scrutiny.



Basically, it is the starting point of all the corporate strategic objectives. In this method, you can make organization-wide drivers that have strategic value an essential input while creating a new audit or risk assessment plan.

In this type of audit, the analysis begins with the identification of strategies that is of highest value to stakeholders. The functions and processes are evaluated while keeping their specific contribution to these strategic objectives in mind.

The audit projects are first grouped into the themes of strategy and then aligned with the enterprise risk. Value driver analysis is used to filter all the potential engagement for final selection. The focus is laid on the process that is creating the most value for your company.

The Hybrid

This method is a perfect blend of both top-down and bottom-up method. This blended approach ensures the strategic plan and objectives of your company are accounted for. The information is diligently collected through management interviews to avoid any kind of wrong information or missing information.

Whether the corporate objectives are to be met or not based on strategic planning is verified at a high level. Further drilling is done by asking detailed questionnaires during management interviews. This helps the audit team to understand unit strategies for your business. The result of risk assessment and audit is in tune with business and enterprise- level strategies.

These are some methods that help you to incorporate strategic objectives of your business into your audit plan. A right internal audit consulting partner can help you to achieve long-term goals by ensuring that your corporate goals are prioritized right from the unit level.





Carve Out Efficient Growth Path for Your Business with Internal Audit


In the dynamic Indian market situations, where there is a lot of risk antipathy among the managers and stakeholders but they must take bigger and bolder risks; internal audit can play a vital role.

Over the past decade, bigger companies have struggled to maintain consistent in growth. Similarly, small and medium companies have suffered instability in their earnings and revenue along with a constant threat on their survival in the market.

Understanding the Struggles of Business Organisations

While the market is throwing curved balls at the businesses, top management is growing hostile towards the risk. Managers retreating to short term solutions to problems and increase in bureaucracy have contributed to slow down the performance of organisations.

Another factor that exacerbates the struggle of organisations are growing number of assurance functions. In the past decade, assurance functions including compliance, risk management, legal and audit have doubled up. Government has not only introduced new ones but also accelerated the rate at which the existing ones are amended.

Although these are some factors that can add to the struggles of your business organisation, factors like lack of coordination, slow decision making and focusing on downsides of acting in a risky situation can deepen the problems.

All the audit departments should be aware of the growth hindering problems. Being aware of the issues, helps managers to understand components that are causing them. For consistent growth is ever-changing market, you need to take bigger yet risky growth decisions.


How can internal audit carve a growth path for struggling organisations

An internal auditor can help a business to sustain growth even at the times of market turmoil by identifying the common growth anchors that prevent your organisation from taking right decisions.

Some common growth preventing anchors:


Finance teams and other managers rely on complex finance models to make decisions. But the problem with this approach is that too emphasis on business cases and hurdles lead to debates. Issues are often categorised according to different criteria.

While a comprehensive analysis important, over calculation or reliance on finance models slows down the decision making process. Rather than using acumen, experience and knowledge, managers try to find answers through the cases and models. This limits the possibility of transformational growth of your organisation.


Short term solution approach

If you are a business operating in a complex market, you might be tempted to use short term solutions to the problems that arise in the course of operation to maintain the flow. While constant fluidity might motivate your managers and employees, variance-focused approach hinder growth consistency. This slows down their performance in the long run.

The trick is to use both internal and external targets to make decisions regarding strategic and competitive interests of your business organisation.

Fear of failure

In a stressful business environment, it is tough to take up risky growth projects. Managers are often afraid of failing and thus, abandon the projects when it starts showing signs of failure. These practice may suck out the creative thinking of managers and employees. They might keep shutting growth techniques. Internal audit helps you to set exit signals. So that you get the trigger when it is time to abandon the project.



Small margins are harmful for your business if you are making efforts to grow. Instead of going lean with cost controlling, you need to allocate your resources to the business based on target and strategic importance.

Internal audit helps in simplifying the situation

  • Internal audit tackles all the struggles of your business; ceasing all the harm and guiding into the direction of growth.
  • Audit on internal level helps in establishing coordination within organisation simplifying assurance reports and streamlining insights.
  • Your business can get an assurance over risky projects due to internal audit.

VGNC helps you go one step further by auditing strategic assumptions that can lay the solid foundation of any long term growth plans or process. Our team of experts ensure that your get all the benefits of internal audit without having to slow down your operations. We have extensive experience and deep knowledge which not only allows us to evaluate the key risk factors but also isolate growth contributing objectives and procedures to prevent disruption within your organisation.


An Expert Guide to Stocktaking and Inventory Accuracy



Having problems with inventory accuracy is one of the most common problems faced by retailers. If you this issue can be solved by implementing additional technologies or systems, you are wrong. Although retailers implement various tips and tricks, they cannot eradicate the accuracy issues in stocktaking and inventory. This is primarily because of implementation issues.

Poor implementation system might worsen the inventory accuracy situations. If you are planning to implement additional systems to achieve accuracy, we want you to think again. VGNC has extensive experience in the retail industry which allows us to isolate best practices. As trusted experts, we suggest that you need to get your basics right before adding anything new.

In this article, we will give you a guide to streamlining your basics to achieve inventory accuracy. Let’s get back to basics.

A BriefUnderstanding of Basics

If you are trying to list down the basic aspects to maintain higher levels of accuracy, you will see that it might not include any revolutionary verticle rather all the essentials. These essentials of precision in inventory include – process definition, procedure documenting, building right approach and attitude, training, testing, monitoring, standard setting, tracking, physical verification and counting, accountability and rechecking.

Ways toEnhance the Reliability of Your Inventory

Today, we will discuss some essential steps that can either make or break your implementation process. Before we go ahead and discuss where you can make changes, you need to analyze your inventory and its procedures to identify risks and flaw points. Take your time to analyze your inventory function without rushing to make changes. Immediate or quick fix approach will prove to be damaging to your business.


After you have identified areas for improvement, you can easily implement the following tips:

 Attitude &Approach

Your attitude towards accuracy influences the perception of your employees towards it. Your effort can make accuracy an integral and crucial part of your business. Your approach can guide your employees to focus on quality and accuracy at all levels performance and decision making. 

Defining Process

If you do not define processes clearly, you will struggle to improve your inventory procedure and cycle as a whole. When you define your inventory processes, you will be able to identify areas of possible error. Process definition also helps in implementing changes to eliminate or reduce the errors.

Documenting Procedures

The documentation of procedures will help you to maintain inventory integrity. Retailers limit their documentation to inventory issues which is a wrong method. To maintain inventory accuracy, you must document complete procedures which includes quality control, physical verification, and safety. When you comprehensively document the complete procedure, you get the clear view of inventory. You also need to write down the specific responsibility of employees doing a specific task at any point in the process.

Training Staff

Right staffing can optimize your inventory procedures and help you to achieve better accuracy. Apart from selecting right employees to carry out specific jobs, you need to provide them training to help them understand the inventory procedures. 

Monitoring forCompliance

Even though you have defined your procedures and trained your employees to perform specific jobs, you must monitor the process for compliance. Monitoring will not only help you to identify the activities which do not comply with the defined procedures but also pick out steps that are hindering the accuracy.


Set Standards

Without a proper set of standards, it might be difficult for everyone involved in the inventory procedure to follow a path of minimum accuracy. If you have standards wherever feasible, you can ensure inventory accuracy. This is because standards help you to compare the job performed and be critical so that errors are corrected.

 Keep a Track of Accuracy

If you want to achieve high levels of inventory accuracy, you need to track the accuracy. Tracking is a tool that facilitates the improvement of both people and procedures. By tracking accuracy and communicating your tracking results to your employees, you can build an effective system within your organization.


Physical Countingand Verification

If you implemented all the basic tips and you think you have achieved accuracy, think again. All the above tips do not make your inventory accurate. Not necessarily. Why? It is simple. There will be people and points where the errors or glitches can occur and ruin the accuracy level of your inventory. Physical counting and verification are important tools that are helpful in boosting inventory accuracy especially, cycle counting.



The tips we discussed will ensure that your processes are working in the right direction but without disciplinary action, it will not be effective. By defining responsibility and accountability, you can help your employees to make conscious decisions.

These are some basic implements that will ensure the integrity and accuracy of your inventory. To maintain the value of your inventory, audit and rechecking is important. Regular revaluating of your inventory processes and procedures help in providing a clear direction of your inventory and also identify the areas of enhancements.

5 Inventory Metrics that Every Retailer Should Track

If you are running a retail business, exercising inventory control and efficientlymanaging inventory is of utmost importance to maintain the stability of your business. By knowing and looking after right inventory metrics, you can avoid both surplus and deficit in your warehouse which is cost effective.

Springboard Retail Blog _ inventory KPI

In this post, we are going to discuss top inventory metrics that you need to track as a retailer. Let’s get started:

  1. Margin Return on Investment

Gross margin return on investment or GMROI helps retailers to know what they are getting back in return in return for what they have spent. You measure the profit return you are getting the funds that you have put in your inventory. The formula of GMROI: gross returns/average cost of inventory. While there are many other inventory ratios and functions, GMROI is one of the most crucial metric that retail owners track to optimize their inventory process.

By calculating GMROI, retailers can find the proportion of profit made against the scarce resources that take up your warehouse or storage space.

If you have limited space, you can calculate profit generated per square foot of your storage space that the inventory occupies. In case you have limited monetary resources, you can streamline your inventory by focusing on profit generated per average stock held. Thus, you can make better decisions under various circumstances.

  1. Inventory Turnover

Inventory turnover or stock turn is a metric that calculates sell through against the stock held. This metric gives a clear picture of sales versus items stocked. As a retailer, high inventory turnover ratio is favorable for your business because it is an indicator that you are selling more than you are stocking.

The stock turn is calculated using a formula: the cost of goods sold/ average inventory

You can track your efficiency by using this formula. Higher inventory turnover ratio means that you are investing less in inventory for generating the profitable level of sale. This ratio can be calculated for both shorter and longer time periods (if the periods are consistent).

If your business is a highly seasonal one, you can look into shorter time periods to track inventory in high vs. low seasons.

  1. Performing Product

For a retail owner, knowing top performing products and least performing products is crucial. Using product performance metric, you will be able to make informed decisions on many issues, including:

  • What product should be stocked up?
  • What items need a promotional push to perform better?

Many crucial actions such as stock orders,merchandising, advertising and promoting, etc. depend on product performancemetric.


If you apply the 80/20 rule to maintain your inventory stock, product performance is the first metric and at times the only metric you must look at. By comparing stock orders and sale reports, you can find top performing and slow performing products.

  1. Shrinkage

Shrinkage refers to the difference between the amount of stock appearing of the paper or records and the actual stock available physically. This reduction in sales is not caused by sales rather it is caused by reasons including, shoplifting, supplier fraud, administrative errors and employee theft.

Shrinkage is the value of physically verified inventory deducted from closing inventory valuein the books. The shrinkage in value is divided by sales and then multiplied by100 to get a percentage.

According to many national and international standards, favorable shrinkage is 1.38%. Measuring shrinkage not only allows you to find out all the risk factors but also helps you in finding solutions that promote inventory accuracy.

Tips to reduce shrinkage:

  • You must regularly count your inventory to spot, prevent and address shrinkage
  • Physical verification of stock helps in reducing shrinkage to a great extent
  • Use technology or hire special staff to physically count your inventory
  1. Sell-Through Rate

When you put the percentage of units sold against the stock available to be sold is known as sell-through rate. It is calculated by dividing the number of units sold by opening stock multiplied by 100. This metric allows retailers to make informed decisions about slow performing products such as announcing discount. You need to focus on improving your sell-through rate.

The mentioned 5 inventory metrics allow retailers to enhance the accuracy of their inventory and magnify the profits. Retailers can improve inventory management and inventory control by calculating these five inventory metrics.


10 practical tips to optimize physical verification

Physical verification of inventory is an uphill task for retailers. Being a tedious task, it not only takes hours but is also a function with higher possibilities of making errors. Although physical verification is a difficult task, taking a physical count of inventory is a must. As a business operating in the retail sector, you might already be aware that there are various challenges in the process of physical verification.

To make the physical verification task easier for you, we have noted down few practical tips that you can establish in your inventory verification and counting process. Let’s check them out:

Cycle counting helps in streamliningphysical counting of inventory

Partial stock taking or cycle counting is a process of counting inventory continuously to monitor the stock levels without causing an interruption in the flow of your business operation. Cycle counting is one of the most efficient stocks taking methods for retailers. It allows a better inventory control.

In case cycle counting is not practical for you, you can use the other tips mentioned below to optimize your physical verification process.

2.  Incorporate stock taking technologiesand systems

Traditionally, retailers used pen and paper for physical counting of inventory. This method of staff tallying the inventory sheets to reconcile the data in their system with the actual physical inventory is tedious.

Making double entry was one of the major causes of inefficiency in the traditional method.  And not to mention, the scope of human error. With the advancement of technology, retailers can use inventory scanners or other stock counting technology to make physical verification of inventory easy and effective.

If you invest in stock taking technologies, you can optimize the whole chain which turns out to be cost-effective in the longer run. You can also incorporate these tools into an integrated business solution. This will allow you to handle your inventory’s physical counting and accounting aspects simultaneously.


  1. Hiring the right people for the right task

When you are choosing staff for physical counting, you need to choose right people for such a crucial task. Many small and medium retail businesses have a habit of assign the inventory counting task to their regular employees which proves to be a huge mistake. You need to hire seasoned employees for this task who are familiar with such detailed task.

4. Well-scheduled physical inventory atregular intervals

If you are conducting a full physical verification of inventory, you must schedule it an effective manner. Often, SMEs fail to properly plan their physical verification causing them problems which affect the whole business operation cycle. They can regularise their physical verification with some assistance from physical verification or inventory consultants.

You need to schedule your full physical counting efficiently to reap all the benefits from it. Apart from scheduling it strategically, you need to conduct it at regular intervals to keep up with your stock levels.

5. List down the inventory goods intransit or damaged goods

When you are physically counting your inventory, one of the most common mistake you can make is skipping some categories of inventory from the count.  Items that are in transit, returning or are damaged get skipped during the count which is not the right method. You need to count these good to avoid confusion later.

Rechecking after count

Double checking and auditing your inventory counts as soon as possible is important to ensure the accuracy of your inventory. Not only auditing your inventory improves the efficiency of your inventory counting but also allows better control over it.


7   Analysing inventory reports

Inventory reporting is an essential in the retail industry as it enhances inventory control. Pulling up inventory data and analyzing it helps in obtaining actionable insights. This also helps you to pinpoint the high-risk zones allowing to minimize your losses.

By comparing multiple inventory count reports, you can identify patterns that are causing losses. You can use the physical verification data and report insights to take preventive actions.

8    Map your inventory store

Before you start physical verification of inventory, you need to map or sketch out your warehouse or store. Mapping will provide you a handy checklist of which places you have to cover and products you have to count. It will also make delegation of work easier. You can assign different sections to different people.

9   Focus on labeling and shelving

Now, you must understand that you cannot complete the physical verification task efficiently if you are blind. Well, if your warehouse or store is not organized it is making you blind towards many items that are physically present but not counted. To solve such situation, you need to organize your warehouse or store by adding shelves and boxes to store the items. You must also label or mark these boxes and shelves for easy identification.

10   80/20 principle

Depending on your industry, you can apply 80/20 principle. 80% sales come from 20% stock in various industries. Thus, purchase of inventory can be decided by analyzing sales pattern. If you apply this principle, you must purchase a greater percentage of the items which are popular among your customers or have higher sales. Ordering higher percentage of those items will save cost due to a single order.

A smooth and effective physical verification process does not happen by chance. You will have to invest your time to plan it and upgrade it from time to time. A robust physical inventory process can add value to your retail business.


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