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