When you hear the word “audit,” you might automatically associate it with financial reporting or the IRS. But auditing warehouse operations might also be beneficial for some businesses, such as manufacturers, distributors, and retailers. Awkward or repetitive movements by employees, oversized packages, and disorganized layouts can slow down productivity and even lead to medical and disability claims. Small adjustments can make a big difference in your bottom line. Here are some steps toward more efficient warehouse management.

Compute average cycle time 

Looking around the warehouse, you probably see a lot of people and products in motion. But don’t equate constant motion with efficiency. A closer inspection may reveal people and products waiting in queues due to blocked aisles, unavailable forklifts, or computer glitches. You may even find some workers wandering aimlessly for misplaced or hard-to-find items.

Improving efficiency starts by reviewing the order fulfillment process. How long does it take to process an order from start to finish? Your average cycle time is a critical benchmark. The goal is to find ways to reduce it by minimizing errors, wasted movements, congestion, and inefficient picking paths. Bottlenecks, idle workers, unused space, and piles of unattended inventory represent opportunities for improvement.

Make tangible enhancements

Once you’ve identified potential inefficiencies, you can put formal policies and procedures in place to reduce or eliminate them. Efficient warehouses have specific protocols for putting away shipments of new items, restocking returns, cleaning up messes, responding to accidents, and storing warehouse supplies and equipment.

Once those types of standard operating procedures are communicated to employees, focus on streamlining fulfillment. Examples of workflow improvements include:

• Rethinking floor, aisle, and rack layout to improve space utilization,
• Rearranging product locations so the most popular items are located in ground-level bins that are nearest to the packing stations and
• Redesigning signage to make it easier for pickers to identify aisles, racks, products, and workflow.

Consider asking your workers for suggestions. They may have some ideas that you haven’t thought of yet — plus, it helps with buy-in on any changes to your existing operating procedures.

After you’ve implemented improvements, measure your new and improved cycle time. Knowing how much you’ve shaved off the baseline metric can be a powerful motivational tool. Use it to drive continuous improvement.

Consider investing in more technology

Manual processes and outdated systems can cause errors and delays in fulfillment. So why not automate certain functions using technology? Bring your existing inventory management systems into the 21st century with upgrades, such as wireless mobile devices, radio frequency identification (RFID) technology, automated material handling equipment and voice-picking applications. Doing so can potentially speed up fulfillment, reduce errors and enhance customer satisfaction levels.

Before investing in a technology upgrade, it’s important to carefully weigh the costs vs. benefits. You’ll also need to evaluate compatibility issues with your existing accounting and resource planning systems. And don’t forget to train employees on how to use the technology; otherwise, you won’t reap all its potential benefits.

We can help

Sometimes objective outsiders can spot warehouse inefficiencies that company insiders overlook on a daily basis. Or they may be aware of improvements that other companies have successfully implemented. Contact us for guidance on best practices before auditing your warehouse.

When it comes to expense reporting, having rigorous financial controls is critical to operating a profitable business. You should monitor expenditures incurred by employees on behalf of the company. This enables your organization to track spending, control costs and maintain accurate financial records.

Establishing and adhering to strong policies, using technology correctly and complying with tax regulations are important ways to ensure accurate expense reports. Here are six tips to help your organization get a better handle on the expense management process.

1. Establish formal expense reporting policies.

It’s important to define allowable expenses and set spending limits for every employee. You should also stipulate the required documentation to accompany each expense reimbursement request. Communicate the policy to employees and have them acknowledge their compliance with every expense request they submit.

2. Set deadlines for submission.

Employees need to submit expense reimbursement requests in a timely manner. Regular submissions make it easier for employees to track and remember expenses. It also provides them with quicker reimbursements for out-of-pocket expenses.

3. Encourage or require the use of credit or debit cards.

Card transactions offer many benefits over cash payments. For instance, they create electronic transaction records and detailed statements for substantiation. Card usage also makes it easier for employees to separate their business and personal expenses, ensuring a more accurate and efficient expense reporting process. Many credit card companies offer potential rewards or cash back that the cardholder (either the employee or the business owner) can later redeem.

4. Require documentation and substantiation.

Employees should keep itemized receipts, including paper and digital receipts, and record the business purpose for each expense. For business meetings, this should include the purpose and the people who attended. Mileage logs must include similar details, such as the purpose of each trip and who traveled in the vehicle.

5. Leverage technology.

Expense reporting software can automate the receipt capture and expense categorization process and integrate with accounting reporting solutions. This streamlines the reporting process by reducing the paperwork an employee must manage and minimizing the need for manual data entry. It also improves accuracy in expense reporting and enhances compliance.

6. Audit your reporting processes.

Careful review of expense reimbursement requests can help identify compliance violations and detect potential fraud. Auditing transactions can also ensure sufficient documentation exists to comply with state and federal tax regulations.

An effective expense reimbursement process depends on policies, technology, and oversight. By adopting best practices, organizations can create a robust and efficient reporting process that promotes financial transparency and compliance. Contact us for help reviewing your existing expense reporting process and suggesting ways to improve it.

Reliable financial reporting is key to any company’s success. Here’s why your business should at least consider investing in audited financial statements.

Weighing the differences

Most businesses maintain an in-house accounting system to manage their financials. The documents your staff prepares through your in-house accounting system are called “internally prepared financial statements.”

In many cases, internal financials are perfectly functional for the day-to-day operational needs of a small business. But they usually don’t follow every reporting standard prescribed under U.S. Generally Accepted Accounting Principles (GAAP).

When an external CPA audits your financial statements, he or she will examine various accounting documents to check whether you’re following GAAP and, afterward, offer an opinion on your statements. If the auditor issues an “unqualified” opinion, he or she agrees with the methods your in-house team used to prepare your financial statements.

If a “qualified” opinion is issued, it usually means the auditor has identified one or more GAAP reporting methods that your company hasn’t followed. This doesn’t mean your financial statements are inaccurate; it just signifies that you didn’t prepare them according to GAAP. (There may be other reasons for a qualified opinion as well.)

Looking at both sides

Who cares whether you’re in compliance with GAAP? Lenders, investors, and other external stakeholders do. For example, banks may require you provide audited financial statements before they’ll approve loans, and sureties usually require them for bonding purposes. Some governmental agencies also require companies to provide audited statements to bid on contracts.

You may even save money. Small businesses with audited statements typically receive lower interest rates on loans than companies without audited statements. In addition, because of the extra steps an external auditor takes, audited financial statements are more likely than internally prepared statements to be free of reporting mistakes, such as data entry errors. For example, if your balance sheet shows that you bought a piece of equipment for $100,000, your auditor will double-check that figure by looking at original receipts.

Although audited financial statements can provide the benefits mentioned, they’re not something your business should leap into without foresight. In addition to requiring a financial investment, an outside audit will ask you and your employees to invest a substantial amount of time and energy toward its completion. You’ll need to gather and provide extensive documentation and even submit to interviews.

What’s right for your business?

If external stakeholders don’t require your company to provide audited financial statements, your CPA offers other lower-cost options, such as compiled or reviewed statements, which can help you gain insight into your company’s financial health. Contact us to determine what’s appropriate for your situation. If you decide you want an external audit of your financial statements, we’ll discuss timelines and responsibilities before fieldwork begins.

 

Four antifraud controls are associated with at least a 50% reduction in both fraud loss and duration, according to “Occupational Fraud 2024: A Report to the Nations,” published by the Association of Certified Fraud Examiners (ACFE). They are financial statement audits, reporting hotlines, surprise audits, and proactive data analysis. However, the ACFE study also found that two of these — surprise audits and proactive data analysis — are among the least commonly implemented controls. Here’s how your organization might benefit from conducting periodic surprise audits.

Financial statement audits vs. surprise audits

Business owners and managers often dismiss the need for surprise audits, mistakenly assuming their annual financial statement audits provide sufficient coverage to detect and deter fraud among their employees. However, financial statement audits shouldn’t be relied upon as an organization’s primary antifraud mechanism.

By comparison, a surprise audit more closely examines the company’s internal controls that are intended to prevent and detect fraud. Such audits aim to identify any weaknesses that could make assets vulnerable and determine whether anyone has already exploited those weaknesses to misappropriate assets.

Auditors usually focus on particularly high-risk areas, such as cash, inventory, receivables, and sales. They show up unexpectedly, usually when the owners suspect foul play, or randomly as part of the company’s antifraud policies. In addition, an auditor might follow a different process or schedule than during an annual financial statement audit. For example, instead of beginning audit procedures with cash, the auditor might first scrutinize receivables or vendor invoices during a surprise audit.

The element of surprise is critical because most fraud perpetrators are constantly on guard. Announcing an upcoming audit or performing procedures in a predictable order gives wrongdoers time to cover their tracks by shredding (or creating false) documents, altering records or financial statements, or hiding evidence.

Big benefits

The 2024 ACFE study demonstrates the primary advantages of surprise audits: lower financial losses and reduced duration of schemes. The median loss for organizations that conduct surprise audits is $75,000, compared with a median loss of $200,000 for those organizations that don’t conduct them — a 63% difference. This discrepancy is no surprise in light of how much longer fraud schemes go undetected in organizations that fail to conduct surprise audits. The median duration in those organizations is 18 months, compared with only nine months for organizations that perform surprise audits.

Surprise audits can have a strong deterrent effect, too. Companies should state in their fraud policies that random tests will be conducted to ensure internal controls aren’t being circumvented. If this isn’t enough to deter would-be thieves or convince current perpetrators to abandon their schemes, simply seeing guilty co-workers get swept up in a surprise audit should help.

Despite these benefits, the 2024 ACFE study found that less than half (42%) of the victim organizations reported performing surprise audits. Moreover, only 17% of companies with fewer than 100 employees have implemented this antifraud control (compared to 49% of those with 100 or more employees).

We can help

Your organization can’t afford to be lax in its antifraud controls. The ACFE estimates that occupational fraud costs the typical organization 5% of its revenue annually, and the median loss caused by fraud is a whopping $145,000. If your organization hasn’t already conducted surprise audits, contact us to discuss how they can be used to fortify its defenses against occupational theft and financial misstatement.

 

 

Accurate bookkeeping is essential to operating a successful small business. The problems created by inadequate bookkeeping practices can have significant, long-lasting consequences. Here are four common pitfalls — and how to avoid them with the right knowledge and tools.

1. Commingled bank accounts

It’s important to maintain a separate dedicated bank account for business transactions. Using the owner’s personal accounts for business purposes can have legal and tax implications. Separate accounts also make it easier to track business expenses and prepare tax returns.

With a separate bank account, you can set up payments for recurring business expenses. It’s also important to review and reconcile your business records to bank statements on a regular basis.

2. Overreliance on spreadsheets

Excel is a user-friendly, versatile tool for many business purposes. But without extensive programming, it lacks automation and the ability to provide real-time updates. And using spreadsheets for bookkeeping purposes can lead to inconsistent treatment of similar transactions and data entry errors.

Excel should never be a substitute for dedicated accounting software, such as QuickBooks®, NetSuite® or Xero™. These cost-effective solutions streamline a small business’s financial reporting processes. Most programs integrate with bank and credit card accounts — and cloud-based platforms provide access from anywhere with the owner’s (or manager’s) laptop, tablet and smartphone.

3. The use of personal credit for business expenses

Drawing from personal credit sources provides quick access to funds when you’re launching a new venture. However, they often come with high interest rates and fees. Using personal credit for business expenses also makes it harder to separate personal and business expenses for accounting and tax purposes.

To get a business credit line, you’ll need to contact your bank and complete an application. While the application process may take some time, it’s worth the effort. Credit lines help establish a credit history in the company’s name, which is essential as the business grows and needs additional capital to purchase major assets and pursue investment opportunities.

4. Lax recordkeeping practices

Accountants dread when a small business owner shows up to tax preparation meetings with a shoebox of receipts — or no documentation at all. Well-prepared owners have organized records, including paper filing systems, digital storage, and backup solutions, to substantiate expenses for tax and accounting purposes.

By retaining original source documents — such as receipts, invoices, bank statements and contracts — you can track the business’s financial performance and file state and federal tax forms with ease. And you’re prepared if the IRS challenges any deductions or credits you claim for business-related items. Without source documents, the IRS is more likely to disallow business tax breaks and assess penalties and fines.

In general, business records must be retained for a period ranging from three to seven years, depending on the nature of the record. Contact us for specific record retention guidelines.

We can help

Implementing sound bookkeeping practices can empower you to improve your business’s financial management and increase confidence in your financial reporting. It reduces the stress of running a business and provides essential information for your business to thrive in today’s competitive markets. Contact us for help building a solid bookkeeping foundation.