Professional Documents
Culture Documents
inventory audit.
Purchasing
Do you practice vendor managed inventory – where the vendor is responsible for monitoring the inventory levels? How
is the demand for inventory communicated to vendors?
How are inventory needs communicated to the procurement department?
Which department is responsible for monitoring material lead times, machine capacity, etc.?
What is the process followed to place orders with vendors?
What documentation and approvals are required?
Are there system or process controls in place that would prevent the placement of an unauthorized purchase order?
Has an authorization matrix been established to determine the level of management authorization that is required to
place the order? Please provide a copy.
How is the procurement department notified when inventory levels sink below threshold levels?
Have threshold levels been established?
How are inventory needs communicated to suppliers? (E-procurement, fax, phone, EDI, mail, system-automated)
How is the purchasing process expedited (e.g. use of long term contracts, blanket purchase orders, etc.)?
Who monitors open POs?
Does anyone monitor purchasing activities?
Indicate the number of suppliers that contribute 80% of total purchases.
Office supplies & MRO (maintenance, repair, and operations) supplies
Does anyone have procurement cards? Who?
What are the authorized spending limits?
Who orders office supplies and MRO supplies?
Who approves the requisitions?
Centralized purchasing?
Receiving
What controls are in place to limit access to the warehouse and inventory supplies (e.g., cameras, guards, restricted
access areas, etc.)?
How often are access levels reviewed (e.g., to eliminate access to terminated employees, etc.)?
Have safety procedures for the warehouse been documented and communicated to employees?
How is the warehouse organized (e.g., more expensive products locked in cages, items separated and clearly labeled)?
Is damaged, obsolete, scrap and consigned inventory segregated to prevent confusion during the cycle counts?
How are movements of inventory monitored to ensure that it is properly safeguarded? What documentation is required?
Are there instances when inventory would be transferred among inventory locations? How is the inventory accounted
for?
Approximately how many days/months worth of inventory is stored within current warehouses? Any changes in the
aging over the last few months?
Do you store consigned inventory for customers or consign inventory to others? If so, how is it controlled and
recorded?
How do you determine which inventory is obsolete? What is the process for determining excess and obsolete
inventory? Have policies been established?
What procedures are performed for the scraping of obsolete inventory? Is this done in a timely manner? Does the
scrapping of materials require authorization?
Do you receive any payment for scrapped goods? How is this recorded within the financials?
What is the process for stocking overages when orders are closed? How is this communicated to accounting to ensure
that the inventory aging is accurate?
What type of management reporting is performed?
Are inventory performance metrics monitored on a regular basis, e.g., inventory turns?
Production Management
Pre-Production
Production
How are the actual materials, labor hours, and set up and run times monitored and recorded?
Are the actual labor hours reviewed and approved by responsible management?
What is the process followed if a customer calls to cancel an order?
How is the product/inventory associated with that order handled?
Sold off to other customers?
How are these items recorded in the system?
Are customers required to pay despite the order cancellation?
How are work-in-progress (WIP) products evaluated for quality?
What happens to a WIP item if it does not meet quality standards?
Post-Production
What is the process to close work orders?
Are completed products reconciled to the originated work orders?
If only part of the product is utilized, how is the partial usage recorded?
How are scrap materials handled?
What type of management reporting is performed?
Are inventory performance metrics monitored on a regular basis?
Inventory Accounting
How is inventory recorded on the general ledger? Is a reconciliation performed which ensure that all inventory held is
recorded?
In cases where materials were returned due to unsatisfactory quality, how is this communicated to accounting? How is
this recorded?
What is the process followed to track inventory items that are on consignment?
How often are the inventory count results reconciled to the general ledger?
If discrepancies are noted during the cycle count, how is this communicated to accounting? Who is responsible for
making adjustments to the system for discrepancies noted during the cycle count process? What accounts are used in
the journal entry transaction?
Who is authorized to create and post any adjusting journal entries? What level of management review is required prior
to posting the journal entries? What system controls are in place to prevent unauthorized access to the G/L?
How are cycle counts validated by accounting?
Is the period end cut off date communicated to shipping, receiving, customer returns and accounts payable to ensure
accurate inventory records?
Are unrealized losses accounted for on work in process products by periodically comparing total costs-to-date and
estimated costs-to-complete to net realizable value (estimated selling price less reasonably predictable costs of
completion & disposal)?
What is the process followed to estimate and account for inventory reserves (e.g., aged inventory, obsolete inventory,
etc.)? Are there any policies written for this procedure? Who is responsible for preparing and posting the journal entry?
How is the disposal of obsolete or excess inventory communicated to accounting? How is the disposal recorded?
How ensure that the inventory aging is correct when items (e.g., from cancelled orders) are restocked? How is the
restocking of such items communicated to accounting?