Question

Internal Controls - Inventory Short anwser Question

The City of Milford Parks and Recreation department operates three community swimming pools. Each pool has a concession stand that sells candy. Each concession stand is staffed with two workers. To be eligible for volume discounts, the Parks and Recreation department orders the candy for all three pools. Sandy Wells is responsible for ordering the concession stand goodies. Sandy uses a locked closet down the hall from her office at the Parks and Recreation headquarters to store the candy. She checks the closet periodically, and, when supplies seem low, she orders more. Whenever a concession stand needs to restock inventory, a worker goes to the Parks and Recreation headquarters to get the needed candy. Because Sandy knows all of the concession workers, she usually just hands the worker the key to the candy closet so the worker can get whatever is needed. Sandy has attached a chart to the closet door to keep track of candy withdrawals. On that chart, each worker records the number of boxes of candy that he or she is taking and the pool to which it is going. By the end of the summer, Sandy becomes worried that someone else has a key to the candy closet. The candy seems to be disappearing more quickly than it did at the beginning of the summer. For the last month or so, she hasn't found time to compare the withdrawals on her chart with candy purchases, but something just doesn't seem right.

Required: Prepare your answer in the form of a memo to Sandy providing her with a summary of the current inventory procedures along with your suggestions for improving the process and assuring inventory control.

Answer 1

Current Inventory Procedure:

1. Store is maintained by Sandy who is also responsible for ordering candies.
2. Concession stand worker goes to headquarters to order\inform required candies (there is no prementioned quantity\Lot system)
3. After reordering any worker can go to Sandy to take key and can get candies form inventory store
4. Person who came to withdraw can update chart (to maintain inventory detail) whether Sandy or worker
5. Inventory is checked periodically by Sandy to check whether restocking needed or not
6. Sandy orders based on the requirement and update everything in chart

Suggestions To improve procedure:

1. Most important things which should be stopped first is to give store keys to workers. Because that might be a case that few candies are stolen without mentioning in chart affixed to maintain inventory
2. Another point to mentioned that there is no periodic physical inventory verification system which should be implemented
3. Rather than maintaining a chart, proper inward and outward stock register should be maintained. Whoever is taking delivery should sign that register with no. of candies withdrawn
4. Lot size should be specified (like 500 or 1000 candies) which con be withdrawn once. Lot should be maintained based in historical data of sale.