Carve Out Efficient Growth Path for Your Business with Internal Audit

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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.

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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:

Bureaucracy

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.

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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.

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Capacity

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.

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An Expert Guide to Stocktaking and Inventory Accuracy

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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.

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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.

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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.

 

Accountability

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.

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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.

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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.

 

INVENTORY AUDIT- IMPORTANCE AND PROCEDURES

What is an Inventory Audit?

Stock review additionally alluded to as stock review, alludes to a bookkeeping procedure which considers an organization’s aggregate supply of physical merchandise. This is particularly required in assembling organizations where crude materials should be changed over to completed merchandise and is a quintessential procedure of keeping up a sound business and for it to succeed. Stock review is viewed as compulsory for keeping record of the amount and nature of crude materials staying in stock. This is on the grounds that much else besides 70% of item cost includes material cost. Moreover, stock review is totally fundamental for associations with various branches as they have a tendency to have an enormous load of physical products. Review of fundamental physical inventories is for the most part directed at or close to the finish of the year.

 

Significance of Inventory Audit

Stock has a tendency to be the most effortless advantages for control and thus it’s fundamental to keep a steady vigil over it. Here are a few reasons why stock review is viewed as central:

 

  • Inventory review is additionally required to coordinate the real amount of things in stock against the bookkeeping records while likewise modifying for contrasts and taking into consideration shrinkage with the goal that the record reflects exact esteems.

 

  • Inventory review will have the capacity to uncover which physical merchandise or items are finished or under-supplied. This will enable you to legitimately and viably stock your business therefore amplifying benefit.

 

  • Inventory review is important to decrease superfluous speculation on stocks and to guarantee that you have an appropriate line adjusting simultaneously.

 

  • Inventory review is expected to analyze real physical tallies and match it to business records: When this number is directed precisely, a stock review will have the capacity to unveil the genuine picture of what you really hold when contrasted with the recorded stocks which, thusly, will give you a comprehension of the monetary wellbeing of the organization. Error of stock adjusts regularly has a tendency to directly affect announced benefit.

 

  • Inventory review is basic to represent any kind of stock misfortunes coming about because of, wastage, pilferage, harm, oldness, and torpid stock.

 

  • A stock review will likewise help decide the viability of your distribution center systems and help uncover any issues inside your association’s stockroom methodology, regardless of whether it is at the getting dock or amid the genuine bundling. This could help in featuring any potential wasteful aspects in the process, for example, confusion of the stockroom and moderate recovering techniques.

 

  • Inventory review will assist uncover any disappointment attributable to absence of security which brings about misfortune, burglary or misappropriation.

 

  • High levels of stock by and large outcome in pointless overloading consequently bringing about poor money streams and monetary misfortune. A stock review at auspicious interims will help cure that issue. Correspondingly, it helps in deciding any outdated stock in stock or requests mistakenly provided to clients which couldn’t just prompt budgetary misfortune yet in addition result in a hopeless harm to the association’s notoriety.

 

Techniques of Inventory Audit

Grasping the significance of stock review is a large portion of the fight won; to genuinely understand your stock review objectives, you have to enroll the administrations of an expert to really comprehend what’s working and what’s not working and guarantee your in-store operations are proficient. Considering how tremendous inventories have a tendency to be, evaluators may direct a few stock review strategies before they close down that the valuation you have expressed for the stock resource is sensible.

Basically, there are two techniques for completing stock tallies:

 

  1. Periodical Analysis which is typically led at or near the year end.
  2. Ceaseless Analysis which includes depending on a nonstop premise over the entire year.

 

  • In this methodology, each and every thing is physically examined at any rate once per year, and all the more much of the time on account of things obligated to misfortune.

 

  • Accurate up and coming records are kept up.

 

  • Thereafter, the records are corrected and marked because of the physical review. This is done to find out that there are suitable reports and examination systems set up to represent any disparities.

Here are a portion of the stock review methods that the inspector may take after:

 

  • Cut-off examination.
  • Observing the physical stock number.
  • Reconciling the stock tally to the general record.
  • Testing high-esteem things.
  • Testing mistake inclined things.
  • Testing stock in travel.
  • Testing and coordinating thing costs for exact stock valuation.
  • Reviewing cargo costs.
  • Testing for lower of cost or market.
  • Accurate investigation of completed products costs.
  • Direct work cost investigation and coordinating with finance records.
  • Overhead investigation.
  • Work-in-process testing.
  • Inventory stipends for out of date stock or scrap.
  • Inventory responsibility for really possessed by the organization.
  • Testing the Inventory layers to decide whether you are utilizing a FIFO or LIFO stock valuation