Notes from the casebook of Detective Ivan Toonow…
The scene: the desk of ace salesperson Myrtle Beech
The suspects: Myrtle, her sales manager Pierre Groop, and the CFO, C. Ash Mann.
The crime: Myrtle closed the biggest sale of the year last month, an order of 10,000 macro-widgets at a selling price of $100 each (yes folks, that’s a million dollar order right there). She wrote this up as having a gross margin of $250,000. Pierre approved the sale. Now, however, on reviewing sales reports, it turns out that the unit landed cost was $99.55, yielding a gross margin ($4,500) less than the included freight cost.
The cause: well, that depends on whose story you believe.
Myrtle: “I looked up the cost in our system when I entered the order, and it said $75.”
Pierre: “I too looked up the cost before approving this order, and it was $75.”
C. Ash: “Look right here, on-screen, it shows a cost of $99.55.”
Myrtle: “The software must be defective, I know for sure I saw $75.”
Detective’s conclusion: Myrtle’s right, folks – the guilty party here is your software. That’s because you have system that allows you to alter transactions after the fact. Someone originally received these items at $75. Later on, they realized that they’d made an entry error and fixed it, and then finally after month end another person realized they’d not factored in duty and brokerage, so they just altered the purchase transaction retroactively yet again.
To avoid, this, implement a proper distribution inventory software system, and implement it properly. The reason for this post is to emphasize that, as a business grows, the need for controls becomes more apparent, as does the value of setting up clear, coherent and appropriate procedures and training staff properly – preferably before you start losing money!