Chapter 3
26 Retail Risks: Problems and Solutions
duplicate freight invoice numbers. Ensure that the receiver checks for ship- ping terms that have been altered, merchandise that has been shipped by a more expensive route or mode, requests for payment of back orders when merchandise should have been shipped in one delivery, and merchandise that has been shipped by the wrong carrier. When merchandise returns to the vendor are due to vendor error, be aware that all incoming and outgoing freight charges should be paid by the vendor.
After all paperwork has been delivered to the Accounts Payable Depart- ment, there are certain actions that Accounts Payable personnel can take to detect vendor error or fraud. Check all invoices and compare them to the ap- propriate purchase orders. The invoice could contain unauthorized charges, such as insurance or packing costs, that should not be paid. Check for in- voices with prices that exceed the purchase order amount. Also, be aware that vendor-issued credit memos can exceed charge-backs. Therefore, ad- justments need to be made to open credit memos on vendor statements.
When charge-backs and returns-to-vendor are required, proper credit is given. The credited charge-back cost (or percentage of cost) must be the same as the original invoice cost; the vendor should pay the outgoing freight. Also, ensure that a vendor is not accidentally paid, instead of deducted, for returns and charge-backs.
Another risk in dealing with vendors involves delivery personnel.
Delivery persons, whether employed in-house or by the vendor, are in a posi- tion to commit various types of fraud and theft.
These route drivers may either commit outright theft by shoplifting, eating (grazing), wearing store merchandise, or making "honest" mistakes.
These mistakes are, in reality, fraud schemes that may, if discovered, appear to be an unintentional error made by the delivery man or may be blamed on the manufacturer. Examples of the more than 50 ways route drivers steal include
• walking the same cases of merchandise by the store receiver more than once for delivery credit
• invoice math errors that charge billed customers more than cash customers and keeping the cash receipts
• delivering damaged items mixed in with first-quality goods
• substituting less expensive, lesser quality, or counterfeit merchandise for ordered items
• delivering partially filled or empty sealed cartons along with full cases
• giving less credit for returned merchandise than should be given
• multiplication errors when charging the retailer for items delivered For example, the driver may charge a six-pack price for beer or soft drinks and multiply this price by 24, for the 24 individual cans in the case, rather than the four six-packs in the case.
In many cases, buyers negotiate cash discounts, volume rebates, or an advertising allowance when placing a purchase order. They may also be
Vendor Theft and Error 27 eligible for new store discounts or early-buy discounts. All deliveries must be verified by the designated merchandise receiver to ensure all agreed dis- counts have been taken and credited. Communication between the buying staff, accounts payable, and receiving and marking personnel is critical.
Buyers must ensure the purchase order is written correctly and that dis- counts, delivery and cancellation dates, and shipping requirements are clearly indicated.
Another prevention technique for vendor fraud and error includes appointing a designated receiver. Periodically "test" this person to detect evi- dence of collusion. Schedule all deliveries so that the receiver is not over- whelmed by simultaneous shipments. Computerized receiving systems are helpful in eliminating some of the risks previously mentioned (such as detect- ing invoice discrepancies) but should not be considered the ultimate preven- tion technique. Receivers should not allow friendships or embarrassment to interfere with their thorough scrutiny of incoming merchandise. All mer- chandise should be received through the receiver.
Other delivery control procedures include
scheduling receiving. By limiting direct store deliveries to certain days and/or hours, confusion is minimized and retailers can ensure that expe- rienced receiving personnel are scheduled during this time.
training receivers. While merchandise receiving is not considered the most desirable job in the company, it is imperative that competent employees be identified and trained to properly count and secure deliveries.
avoiding front door deliveries. If possible, deny delivery personnel access to other store merchandise. This practice also eliminates the possibility of injury to customers entering by the same entrance.
receiving merchandise away from trash-disposal areas and customer or employee parking areas. This practice discourages easy pilferage and concealment of store goods.
comparing piece counts with the invoice, not with the packing slip. It is common for receivers to refer to a vendor-generated packing slip, instead of the company's invoice, for an accurate piece count.
separating buying functions from receiving functions. Merchandise buy- ers should not be responsible for verifying shipments or handling the receiving copy of the purchase order. This practice helps to avoid fraudu- lent collusion between vendor and buyers.
auditing purchase orders. Periodically audit purchase orders to verify delivery addresses. This practice detects whether or not employees are having merchandise delivered to their residence or another warehouse.
As with all good prevention programs, vendor fraud and error control should include tests of controls. Store management should pick vendors, on
28 Retail Bisks: Problems and Solutions
a rotating basis, and check on their delivery and billing procedures. A count of on-hand merchandise in the vendor's display area should be done and the purchase order pulled for the upcoming delivery. Allow the delivery person and receiver to go through their regular routine. However, as the driver is leaving, ask her to accompany the manager to ensure that returns are prop- erly credited and delivered items are the quality and quantity ordered. These types of checks indicate to employees and vendors that the store is serious about shortage control.