Taking Inventory to Control Losses
7/26/2018 12:02:20 PM

By Chris Mazzola

 

Recently, I was assisting an organization that was conducting a comprehensive review of one of their properties, looking for areas that needed improvement.  As I was reviewing the property’s financial reports and inventory controls, I came across something that looked suspicious.  The amount of money the property was spending on maintenance supplies looked very high given the inventory I saw on hand.  When I asked the lead maintenance person where the rest of the inventory was, he gave me a funny look as if he did not know what I was talking about.  I explained to him that according to the financials there should be a lot more in stock than what I was seeing and consequently there needed to be a reconciliation between what was spent and what was in the building.  I had hoped the answer was simple and straightforward. As I suspected, it was not. “Well, we keep the inventory spread around the building, so it is easier to get to,” he said. “Hmmm,” I responded, “I would love to see all those places.” He suddenly remembered an appointment he had and excused himself.  A few days later he told the manager of the property how upset he was that I had asked so many questions and pressed him so hard for answers. He walked off the job a few days later, never to return.  And with him went the problem, but not the opportunity for it to reoccur.

 

The lack of basic inventory control is a common problem in the housing industry.  It is a task that is easily overlooked or deferred to a later date, particularly among properties that could benefit the most: those operating on a thin margin. Often the managers of these properties do not realize the hundreds or even thousands of dollars being lost each year due to loss, damage, pilferage, and theft.

 

The question that should be asked in cases such as these is, “Where did all the supplies go?”  This should have been asked in the first place.

 

Shrinkage is defined as the difference between what is recorded on the inventory log or the “books” and the actual items on the shelves.  Unfortunately, many properties do not even bother to take inventory. Typically, the reasons given include: “I trust everyone that is on the staff”, “No one would ever steal from this place”, “I don’t want people to think I don’t trust them”, or “It’s not worth the effort since we don’t have that big of an inventory”. All of these are reasons. None of them are good.

 

For the most part, employees are not scheming ways to steal from a company or planning the heist of the century. Sometimes, however, an attitude develops that lends itself to pilferage. Pilferage, by definition, involves stealing in small quantity, and usually it is accompanied by a healthy dose of self-justification: “I don’t get paid enough!”, “They owe me for all the hard work I do!”, “I just don’t have time to stop at the store for what I need at home or at my side job. I’ll replace it later.” Inevitably, the pilfering increases both in frequency and in the cost of the items stolen while the self-justifications become even more ingrained.

 

Here are a few tips to help to protect a property from pilferage and reduce the temptation for those who may be so inclined:

 

Start by asking if your property has a satisfactory inventory system and if there are policies in place to prevent theft. An inventory system has three basic components: ordering, receiving and logging.  To be most effective, the property should have written, easily understood polices that govern how each component operates.  Central to these policies is the concept of “checks and balances” as well as “an arm’s length” approach.  In other words, the staff member ordering supplies needs to have an approval for the items ordered from someone else.  This prevents someone from ordering items that are not needed or that are for personal use but hidden in an order with other items. For example, the lead maintenance person prepares an order for five doorknob locksets and the manager looks at the order and approves it. The staff member receiving the locksets should not be the same person who ordered them.

 

Finally, during receiving there should be another person who signs off on the items received.  This is the ideal process, but it involves three people.  Many times, however, such an ideal is not possible, particularly in smaller properties with only a few people on staff.  Even in these cases though, some controls can be put in place.

 

Here are some simple steps that can be taken.

 

·        The manager needs to understand what he or she is being asked to approve.  Simply put, take note of the supplies being ordered and ask the question, “Does this make sense?” In the example of the doorknob locksets, the manager should confirm that the product is the type that is normally used on the property.  Attention should be paid to any purchases that are unusual or don’t seem to fit what is used on the property.

 

·        The manager needs to have a good handle on the type and volume of work orders completed. The work order system in place will determine the efficiency of this step.  Some work order systems capture a lot of detail including the supplies and materials used on the job. If this is the case, a simple report should be able to match the inventory with supplied consumed. Not all systems have this level of detail, but virtually all have enough basic information to give an indication of typically used materials and the frequency of use. Again, back to our example, if the manager routinely scans the work orders and can recall very few involving replacing doorknob locksets, it would be reason for further investigation.

 

·        Inventory should be kept in a central location with adequate security.  Inventory should be in a secure place that is not easily accessible by unauthorized people yet is available as needed by the maintenance staff. If possible, it should be in a location where the manager has the ability to monitor it. If not, the manager should make a habit of visually inspecting the inventory on a regular basis.

 

·        The lead maintenance person should feel as responsible for inventory as the manager and should be the manager’s partner in exercising good control. Inventory control is not all on the manager. In fact, usually the lead maintenance person has as much, if not more, ability to impact inventory. The manager should consider the lead maintenance person an ally in helping to practice sound inventory management procedures.

 

·        Focus on good hiring practices.  The best way to ensure good inventory control is to hire staff with integrity. This is easier said than done and sometimes even the best employment practices fail to work. That is why having good inventory control in place is so important. It’s not there to catch the honest person. It’s there to dissuade and identify the few unscrupulous, very costly ones. 

 

These steps can help a property avoid asking the question “Where did all the supplies go?” after they are already gone. Take inventory to control your costs. If you need help, contact us:

 

Email: service@nchm.org
Phone: (800) 368-5625
Fax: (904) 372-2324

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