| Many retailers do not have good internal controls in | | | | by mail to the other store. The another copy is sent |
| place and place little importance on them. They are | | | | with the merchandise to the receiving store. The |
| concerned with the buying and selling of merchandise | | | | receiving store uses the transfer document to ensure |
| and do not place enough emphasis on making certain | | | | they received all the merchandise. Once they have |
| that the sales get recorded, the money gets in the | | | | signed off, one copy of the receiving document is |
| bank, the invoices are paid only once and the | | | | sent to the office where it is matched with the first |
| inventory reports are correct.Why should you be | | | | copy. This ensures that all transfers are accounted |
| interested in establishing and maintaining sound internal | | | | for and recorded properly.Cash refunds should always |
| controls? Good internal controls help ensure the | | | | be a two-person transaction, with the store manager |
| accuracy, completeness and validity of information. | | | | being the second person. Require the customer's |
| They help to prevent anyone from deliberately | | | | signature, address and phone number on the cash |
| tampering with information and also help prevent | | | | refund slip to verify that they received the cash. |
| employee dishonesty. Internal controls do this by | | | | Someone in the office should follow up on customer |
| building checks and balances into your procedures and | | | | returns with a phonecall to the customer to make |
| record keeping system.What happens when internal | | | | sure the customer was well treated in the store |
| controls are lacking? Following are several examples | | | | when they made their return. This also serves to |
| of actual incidents where we were called upon by | | | | validate the fact that the return was in fact made. |
| retailers after they discovered occurrences of internal | | | | Require that the customer's copy of the original sales |
| theft.The store manager who was "transferring" | | | | slip be attached to the cash refund slip. Enterprising |
| merchandise from one store to another. In fact, he | | | | shoplifters have been known to try to obtain a cash |
| was diverting the merchandise for his own use.The | | | | refund by returning stolen merchandise. Also, if a |
| bookkeeper who "adjusted" her own charge account | | | | customer wants a refund for merchandise paid for |
| so she was getting her merchandise free.The | | | | by check, a refund check should be mailed after |
| salesperson who processed cash refunds using | | | | sufficient time has elapsed to ensure that the |
| fictitious names and pocketed the money.The cashier | | | | customer's check will not be returned to you by the |
| who destroyed cash sales tickets and pocketed the | | | | bank.Checks should never be signed unless all the |
| cash.The bookkeeper who used company checks to | | | | supporting documentation is there; then this |
| pay her personal bills.The receiving clerk who helped | | | | documentation should be "canceled" in some manner |
| himself to new merchandise that had been | | | | so it cannot be used for another check. This is also a |
| received.The above examples resulted in losses to | | | | good time to check for discounts that were not |
| these retailers ranging from several thousand dollars | | | | taken or for credit memos that were not |
| to fifty thousand dollars. In all these instances, good, | | | | deducted.One are in which employees can accomplish |
| sound internal controls were either lacking or not | | | | theft in wholesale quantities is in the receiving area. |
| being enforced.The above examples emphasized | | | | To prevent employees from putting boxes of |
| internal theft; however, lack of sound, well-enforced | | | | merchandise in with the empty boxes from receiving |
| internal controls can also result in other problems for | | | | so they can take it out for an accomplice to pick up |
| the retailer. For example, without them the following | | | | later, keep the trash area separate from other areas |
| can occur:Vendor invoices paid twice. This not only | | | | in receiving so the store manager can easily check |
| reduces cash but overstates book inventory and | | | | the trash at any time. You could also require that the |
| results in shrinkage.Inaccurate management | | | | empty boxes be broken down so no merchandise |
| information resulting in wrong decisions being made.If | | | | can be hidden in them. Clear plastic bags should be |
| charge sales or payments are posted to customers | | | | used to collect trash.If you are using a computerized |
| accounts incorrectly you run the risk of losing | | | | record keeping system, ensure that passwords are |
| valuable customers.How difficult is it to institute a | | | | used wherever appropriate to prevent unauthorized |
| system of good internal controls in your store? It | | | | persons from knowingly or inadvertently changing |
| does not require excessive amounts of extra work | | | | data. A disgruntled employee could deliberately |
| and time to put good them in place. Many controls | | | | sabotage the company's records or change their |
| are very easily established with only minor changes | | | | balance in accounts receivable.As a retailer, you |
| to the existing procedures. The hardest part is | | | | should be very concerned with having good internal |
| actually identifying all the areas where | | | | controls in place to safeguard your assets (cash and |
| internal controls are lacking. While the store owner is | | | | merchandise) and to ensure that the company's |
| the person | | | | records are correct. Once internal controls are in |
| most familiar with the store's operations, many | | | | place steps must be taken to ensure that all |
| times it takes the review of a retail specialist to | | | | procedures are followed at all times.The National |
| identify the areas where internal controls are | | | | Retail Federation publishes a handbook titled "Internal |
| needed.If you are wondering if your internal controls | | | | Audit Manual" that can be helpful in determining your |
| are adequate, following is a sampling of several | | | | company's weak areas. If you do not have the time |
| common control procedures and why they are | | | | or inclination to do this yourself, seek outside |
| important.If handwritten sales slips are being used, | | | | assistance. It will be well worth the money spent.If |
| they should be numbered and all numbers should be | | | | you do not invest the time and money to set up |
| accounted for in the office. This helps prevent | | | | good internal controls now, you will be paying for it |
| employees from destroying cash sales slips and | | | | later in the form of theft, by employees or others, |
| pocketing the money. It also helps to prevent the | | | | and inaccurate, misleading management |
| inaccuracy of sales, inventory and accounts | | | | information.This article was written by Linda Carter, |
| receivable records due to misplaced or lost sales | | | | President of The Retail Management Advisors, a retail |
| slips.All transfers of merchandise from one store to | | | | consulting firm whose mission is to help independent |
| another should be documented using numbered, 4-ply | | | | retailers survive and thrive. Linda can be reached at |
| transfer documents. One copy of the transfer | | | | 1-877-206-1299 or Our web site is can reprint this |
| document is sent immediately to the office. One | | | | article as long as the above information is included. |
| copy is kept in the sending store, one copy is sent | | | | |