Revising goods in transit and held by third parties

The books of a distributor of agricultural fertiliser and seed show 1,200 bags of fertiliser. The revision at the main warehouse in Tashkent counted 780 bags. A shortage of 420? In fact most of the goods are not in that warehouse: two lorries are on the road, 150 bags are kept in a partner's warehouse in Kashkadarya, and two dealers hold goods on commission. These goods are yours too and are on your books, which is exactly why they must be checked. Otherwise the revision produces either a false shortage or a hidden loss.

Kinds of goods outside your warehouse

• goods in transit: sent by lorry or courier, not yet accepted by the customer or branch;
• goods in third-party storage: your property, but held in someone else's warehouse;
• commission or consignment: left with a dealer or a point of sale to be sold, including goods held in a marketplace warehouse;
• goods temporarily taken out: removed for repair, processing or an exhibition.

One rule for all: if goods cannot be counted, you verify them by documents and the outside party's written confirmation.

Goods in transit

Draw up a list of "open shipments" for the cut-off date: waybill number, date, recipient, quantity and driver. Then check the documents for each shipment. Has the copy signed by the customer come back? When were the goods received? Highlight shipments that have been "on the road" for more than five to seven days: usually they were either accepted but the document never came back, or lost. Goods in transit should carry a separate "in transit" status in the books and must not be added to the warehouse's shortage. On the cut-off day, call the drivers to find out where the lorry is and whether the load is intact, and have the actual date written on the document for any load accepted that day.

Goods held by a third party, and dealers

Obtain a written confirmation of the balance at the cut-off date from the custodian and compare it with your records. Check the contract beforehand for your right of inspection: if you have it, a committee member can go to the site and count the goods in person. For expensive or large lots such a visit is worthwhile; for the rest a written confirmation is enough. Look at storage conditions too: damp, roof, enclosed space. For fertiliser and seed this means direct loss.

Ask the dealer for a report at the cut-off date: what was sold, what is left. Draw up a reconciliation statement and compare it with the money received from sales. Goods recorded as "sold" but not paid for should go on a separate line as a risk.

An example: from 1,200 bags to 20

At the main warehouse the books held 790 bags and the count found 780. The rest was outside:

• two lorries on the road: 90 and 110 bags, confirmed by documents, 200 bags in all;
• the Kashkadarya warehouse: 150 bags in the books, 140 on the custodian's confirmation;
• two dealers: 60 bags, matching their reports.

Confirmed in all: 780 + 200 + 140 + 60 = 1,180 bags. The real difference from the 1,200 booked is 20 bags, or 3,600,000 so'm at 180,000 so'm a bag. Had the outside goods not been verified, the "shortage" would have been 420 bags, or 75,600,000 so'm. Of the remaining 20 bags, half belonged to the main warehouse and half to the Kashkadarya one, and separate explanations were requested. The report showed the outside goods on a line of their own: the manager saw both the real shortage and the value of goods in other hands, the scale of the exposure.

Common mistakes

• adding goods in transit to the warehouse's shortage;
• trusting a custodian's spoken "everything is fine": only written confirmation counts;
• obtaining the confirmation for "today" rather than the cut-off date: movement in between creates a gap;
• ignoring shipments whose waybill never came back;
• not checking a dealer's "sold" report against the money.

Conclusion

Goods outside your warehouse belong in the revision too: a cut-off date, a list of open shipments and written confirmations from outside parties give the full picture. The Reviziya team can help you set up a routine for verifying external goods.