The default approach to handling goods in transit is that they are not the company’s property prior to arriving at the receiving dock or after leaving via the shipping dock. However, this is not always correct, since shipping terms can specify that the company is responsible for the goods for all or some portion of their in-transit interval. If so, there is a risk of damage to inventory owned by the company for which many companies provide no controls at all. The next primary controls will assist in mitigating risk in this area.

• Specify standard shipment terms on purchase orders. It is in the inter­ests of the company to include standard shipment terms on its purchase orders that shift the responsibility for in-transit inventory to the sup­plier or third-party delivery service. Any variation from the standard terms should require special approval by the purchasing manager as well as notification of the corporate insurance staff, who may need to arrange special insurance coverage for the delivery.
• Mandate a review of shipment terms required by customers. It is en­tirely possible that customer purchasing departments will attempt to shift shipment responsibility to the company, so the order entry staff should be required to review the shipment terms listed on incoming customer orders and to notify the corporate insurance staff of any spe­cial terms.

The next ancillary controls will help management gain assurance that the primary controls are installed and being used properly.

• Audit shipment terms. The internal audit team should schedule a peri­odic review of shipment terms mandated by customers, to see if the order entry staff detected these terms and warned the corporate insur­ance staff in a timely manner of in-transit inventory ownership issues requiring insurance coverage.
• Audit the receiving dock. A significant problem from a record-keeping perspective is that the receiving staff may not have time to enter a newly received delivery into the corporate computer system, so the ac­counting and purchasing staffs have no idea that the items have been received. Accordingly, a periodic audit should compare items sitting in the receiving area to the inventory database to see if they have been recorded and to match the purchase order numbers listed on received items to the database of outstanding purchase orders.

[tags]Goods transit, handling goods[/tags]

Tags: Goods transit, handling goods