What Are Inventory Internal Controls?

Inventory internal controls are the processes of protecting inventory and ensuring that it is maintained at sufficient levels for normal business operations. This typically includes having a system for physically securing, organizing, and tracking inventory. Strong inventory internal controls also include regular, precise, and consistent management of stock.

One of the most important elements of inventory internal controls is the physical protection of inventory. This includes securing both the building and property where items are stored. It is also important that only authorized personnel have access to inventory. Having a system in place for removal of inventory, including verification of credentials, record keeping, and check-out protocol can help to improve security.

Another important aspect of inventory internal controls is to carefully track incoming and outgoing stock. One of the best ways to accomplish this is to have a strong system in place which all relevant employees are trained to use. It is advisable to also periodically review this system for maximum efficiency in order to accommodate changes in the company, including growth and variances in stock.

Good inventory internal controls also include keeping track of current inventory. One effective way to do this is to organize all stock so that it is easy to quickly assess inventory levels. It can also be useful to tag each item with basic information such as a description or part number so that pieces can be quickly identified.

Inventory may also need to be regularly cycled. If there is perishable stock, it can be helpful to have a system of assessing when to dispose of items that are no longer of use. It is also wise to track how much inventory is not used in order to determine the ideal level to maintain. The frequency with which to perform this kind of evaluation depends upon the type of stock.

Another part of inventory internal controls is managing the level of inventory. In addition to properly storing and organizing items, it can be helpful to periodically review inventory for surplus items. The overall process of inventory controls can be made easier when unnecessary stock does not need to be protected, organized, or otherwise managed.

Inventory internal controls may also include periodic audit of holdings. This process can reveal how much inventory is being lost and potentially how it is happening. The results will often help an organization to find ways to improve the internal control process.