Key Areas Of Control
Managing a retail operation entails many processes with inventory and cash that occur frequently, meaning there are many areas where one can experience a financial loss if inadequate controls are in place. We’ve summarized key areas of control for retailers to consider in designing their processes.
If you’d like further information, we’d be happy to help. Simply complete the Contact Us form within this website. You can select “Other” and indicate your question in the comment box. A member of our team will contact you.
- Specific personnel should be assigned to receive merchandise in the receiving area and trained in proper procedures. This will prevent vendors from being left unattended in the back room and keep them from the sales floor without being checked.
- A written policy on receiving should be established and communicated to vendors. This will minimize questions from vendors when they are asked to follow tighter control procedures when delivering product at the store. Handling of damage returns, outdated product, and incorrect product should be included in this policy.
- All receiving doors should be kept locked except when receiving product.
- Each department manager should be checking their wholesaler invoices with the actual product received. In addition, these invoices should be verified with what is actually billed on the weekly wholesaler retailer statement.
- Invoices should be extended by department managers to insure proper billing of product.
- Product that will be credited or returned to the vendor should be processed and shipped out before the new product comes into the store.
Other Product Procedures
- Product taken off the shelf for store use should be tracked for use tax purposes. The total can be communicated to Retail Accounting each quarter to file with the sales tax return.
- All product transfers from one department to another should be recorded on a Merchandise Transfer form to insure accurate gross profits. Forms should be sent to Retail Accounting so proper adjustments can be made on the financial statement.
Other Non-Product Issues
- The employee policy manual should be reviewed to make sure it is current. All employees should be required to read the manual and sign a statement saying that they have read the manual and understand the consequences if any rules are violated. This should include cashier shortages.
- Department Managers should be held accountable for their gross profits by reviewing the weekly purchase journal provided by Retail Accounting. Any errors, transfers, or changes should be communicated to the Accounting Clerk in Retail Accounting.
- Cash drawers should be separated for each cashier. Each cashier should have a new cash drawer for the start of his or her shift change. At each shift change, the cash drawer should be counted down to a constant change fund to help differentiate between cashier shortages.
- Have cashiers save all store coupons (including non-redeemable coupons) for the purpose of comparing to shift readings. A separate box should be established for each type of coupon and balanced/emptied at the conclusion of each shift. This will provide an important control against ringing erroneous coupons.
- Prepare the Weekly Cashier Summary to summarize and balance all activity for each cashier. Transfer these amounts to the Weekly Cash Register Recap.
- Establish a policy of using a customer-completed form for all refunds. Again, this will provide a valuable control to monitor refunds for questionable activity. Identify staff that has authority to handle refunds and a manager approval limit.
- Set a maximum coupon value in the register that can be entered by cashiers. A recommendation would be to have this set to $1.99. Anything over this amount should then require manager approval.
- Set a maximum void amount in the register that can be entered by cashiers. A recommendation would be to have this set below $10. Any over rings above this amount should require manager approval.
- Print out a daily/weekly cashier activity report. Review the totals and averages for unusual variances (i.e. higher than average transactions may indicate a coupon/void issue and lower than average may indicate “sweethearting” or not scanning all products).
Employee, Customer, and Vendor Theft
- All employees should be trained on how to handle customer and vendor theft. This will allow a situation to be handled more effectively if/when an employee is exposed to it. Specific employees should be trained to monitor staff in their area for any questionable behavior or practices by vendors, customers, and fellow employees.
- A policy should be established for employees checking out relatives and other store employees. This may result in key employees being in charge of checking out others in these situations. These procedures should be included in the employee policy manual.
Inventory Cut-off Procedures
- Insure an accurate physical count of the sales floor and overstock product in the back room. The count should be taken by a qualified crew and supervised by the management team.
- Prior to the physical inventory, identify who is going to be responsible for counting each area and determine if it will be counted at cost or at retail. Typically, the sales floor is counted at retail and the overstock in the back room is counted at cost.
- Provide sales during the inventory to insure the most accurate gross profits. This can be done by providing register readings of sales before and after the inventory. Readings should be turned in to your accountant along with other inventory cut-off information.