is one of the biggest assets a manufacturing company owns. After all, it's this inventory that you use to turn raw materials into finished goods you can sell. But that's where the trouble comes in…
If you don't have the right production controls
in place, your business could suffer a financial loss because:
You've purchased excessive raw materials that you can't use
It's victim of inventory theft
Raw materials are damaged from incorrect storage
This is known in the industry as 'production fraud
To avoid production fraud in the workplace
, 'companies need to control their production process and manage the inventory
in order to safeguard it,' explains Kathy Adams Macintosh in an eHow article
. This starts when you implement a good production management system
that includes the following two production controls
Add these two internal controls to your production management process today to avoid fraud in the workplace
Internal control #1: Production forecasts
'Use a production forecast
to plan the activities of the production process', suggests the Practical Accountancy Loose Leaf Service
. These should include your expectation and estimates of the items needed for the next year and should be based on the expected demand for the product on the market.
Once you know how much you expect to manufacture, you'll know how much raw material
you'll need to order to complete these orders. This will safeguard your company from ordering too much inventory
Internal control #2: Supervision
The next way to prevent production fraud
is to appoint a responsible production manager to oversee the activities of the daily running of your facility. Your production supervisor will be in charge of ensuring:
Machinery isn't misused or left lying around. Failure to do this could result in company losses and additional money needing to be spent on buying new equipment.
There isn't an excess of raw material waste as a result of negligent employees.
All new raw material and equipment complies with expected standards. Maintaining proper standards will ensure your products are of good quality as well as ensure that the right amount of raw material (as highlighted in your production forecasts) are used to produce your product.
Daily production goals are met. This is a vital part of ensuring your company meets its production forecasts and is buying enough raw material.
Inventory counts are consistent with what's been used in the company to produce your goods. Your supervisor will need to watch for attempts to create phantom inventory – such as falsified purchase orders, bogus shipping and even stacking empty packing boxes to create the appearance of a warehouse filled with inventory, warns Joseph T. Wells – founder and chairman of the Association of Certified Fraud Examiners. By keeping accurate inventory figures, you'll quickly notice if items are going missing.
So there you have it – two simple, yet highly effective internal controls
you can use to safeguard your company from production fraud
If you more questions on internal controls to prevent fraud in your company simply check out this great question and answer service