50 thousand dollars!!!

[jhatten]

I need some serious help here people.. 2012 parts inventory was 47K SHORT from theft. 2013,2014,2015 inventories have all been 47-57k over books?
I spoke to the office manager and was told when the insurance company cut a check for the shortage the money was posted to other income....
should it have been put back on the books as so, or back to the parts account

[PartsPlant81]

First of all how in the hell did somebody steal $47K worth of parts?
Second of all you have major internal problems.
What is the total value of your inventory?
I am usually 5-7% over for my inventory every year but the majority of that is because of appreciation.
I was $15K over for my last inventory on a $220K inventory.
It sounds like parts purchases are not being debited to the correct account and not being relieved from the correct account when they are being sold.
You need to get a value for your entire inventory and make sure the sales are being posted in accounting properly ASAP...

[jhatten]

Inventory amount is 250 k

[Mike Nicholes]

It's annual inventory season and hundreds, if not thousands of dealerships are going through the ritual of an "annual physical inventory". Why? Because some CPA and a lot of tradition and habit say we ought to. This is partially correct, but the main problem with an annual physical inventory is just that... it's 'annual'. so for one brief moment in time we know what we have, at least what we are supposed to have in the parts department, based on what the accounting department "says" we paid for what we ought to have... and on it goes.

It has been interesting to me that the office manager balances a petty cash box ($250-500) every day to the penny, but we only balance the parts inventory once a year; defies all logic, but who is to say that logic is at work in this aspect of dealership management.

In the 45 years I have been at this, the bulk of the business comes in between Oct and March (Inventory season) because someone is short (it is usually that parts is short compared to the G/L) never the other way around; which is just as bad. And, as every parts manager knows, they can never win an argument with a bookkeeper because bookkeepers never make mistrakes (emphasis on spelling).

The real fault, if there is one, lies in timing and proper reconciliation. Two simple procedures will keep this deadly occurance at a minimum, and if there IS a problem will put one closer to really solving it.

1. A monthly reconciliation; a simple task that takes about two hours each month, done by the parts manager AND the bookkeeper to spot errors WHEN they occur and not a year later when discover is about as good as winning the lottery.
2. A monthly perpetual inventory: in this process one isolates, using your DMS, all parts with all piece sales over 20 per year, and sorts that list by bin location. You count these parts every month. If the count in the bin matches the count in the computer, you have no real shortage despite what anyone says. the problem, if there is one is in accounting, which data may actually source in the parts department or, sorry bookkeepers, in accounting.

The first rule in accounting is that debits (price paid) and credits (price posted at sale) MUST match; if they don't, you have an error in the numbers but not a theft of parts. Only 3% of all the security audits I, and my company, have held over the past four decades have been theft. all the others have been paper flow between price paid by parts and price declared on a point of sale (to anyone or department) and the sale of the part.

So my friends; don't be discouraged. Despite the 4000 year old commandement and law that parts will never will an arguement with accounting... you keep your on-hand accurate and you have a better chance of not being 'blooded' by a discrepancy between parts and accounting.

There are several forms of monthly parts reconciliations out there. The very best was one designed by Sandi Jerome, years ago which is available as a free download (your inquiry will not be tracked and used as a marketing tool) at www.partsconsulting.com. Go to the download section and download the reconciliation and key to the reconciliation; do it monthly along with the perpetual inventory count on the fastest 1-2% of the physical parts and watch control come back in your hands.

Good hunting my friends. Mike Nicholes

[lochstein]

good info here... can anyone share what they do with ADP/CDK and neg OH when reconciling?

My knowledge is that the -OH on open invoices needs to be added back to the GL as the pad value is not changed; and the -OH on closed invoices needs to be removed from the WIP because they are included in the WIP.

[jhatten]

Parts were being delivered without an invoice and parts were being sold over the internet (ebay) from personal account and shipped out

[PartsPlant81]

Where were the parts being procured from and why was their no invoice for them?

[jhatten]

invoices from outside vendors were marked as stock/242
and invoices from the manufacturer were handled in the same manner

[PartsPlant81]

That makes sense but the accounting office still had to get invoices from the vendors / factory to reconcile with their sales posting and receipted inventory.
Doesn't make sense that it went on that long and for that much unless someone in accounting knew what was going on and didn't want to do anything about it as well...

[jhatten]

Too much trust and no one asking questions. Some of the parts were receipted in but most of the vendor invoices were not