by Mike Keenan,
Managing Director – Retail Loss Prevention
Audits can serve as an important vehicle for ensuring operational compliance, enhancing awareness and accountability, measuring key performance functions, and providing valuable teaching and training opportunities in a retail environment. Still, the impact of an audit on the business depends on the methods we employ, our approach, our attitude and the attitudes the audit fosters, during the audit, as we share the results with stakeholders, and in the post-audit support that we offer store teams.
Throughout the process, we must keep in mind that information must be used in a positive and constructive way. Our objective should be to improve the performance and productivity of our stores, and to add value to the organization as a whole. For more advice on completing an audit, see what this Dallas based CPA firm recommends.
Following are some of the primary steps necessary to implement a new in-store audit:
Name It. The first task in implementing an in-store audit is to name the audit. This may sound trivial, but what you call the audit can actually make a difference in how it is received by the employees. Some companies do not like to use the word audit because it is perceived as a negative. Call it a “process review” or a “visit guide.” Use whatever terminology fits the culture of your company. As long as the inventory shrink audit has the correct components, it doesn’t matter what you call it.
Field Test. To ensure that the new in-store audit works effectively, it should be field tested. This enables you to identify problem questions and correct them before you roll out the entire program. Select a small group of auditors and have them conduct the audit in several stores. The auditors should report back the findings to the task force for further refinement. Internal auditors from your task force are excellent resources for this field testing.
Distribute It. Once finalized, the revised procedures and new audits should be provided to all stores. Stores should be given time to “ramp up” before the new audits are scheduled to begin. Allow the stores to take the steps necessary to prepare themselves for the audits. This enables you to address any challenges in advance of rolling out the final version.
Train Auditors. Another important component necessary for the success of the program is the training of LP personnel in how to audit consistently. All audits must be conducted in the same way and produce the same assessment in all stores.
One way to ensure auditing consistency is to create a loss prevention auditor’s manual that contains detailed explanations of what the auditor should be reviewing for every question on the audit. This will ensure that all auditors assess the same questions in exactly the same way. The manual should be provided to every store so that they also know every question and the audit instructions. Make sure there are no surprises. Communicating this information to the stores will eliminate many of the challenges when a question is missed.
Create Checklists. To help stores pass their inventory shrink audits, which is obviously the goal of the program, stores should be required to complete daily or weekly checklists. These checklists are a tool to ensure daily attention to the policies and procedures that are reviewed on the audit. Checklists can be created directly from the audit. Many times stores will break the audit into sections and use them as the actual checklists.
Audit Schedule. To get full value from your in-store audit program, you must have a random and unannounced audit schedule. The only way to get a true picture of what is really happening in a store is to show up when the store doesn’t expect you. All store operations people will prepare their store for any type of visit if they know it is coming. It is the same with an audit. By keeping them random and unannounced, all stores will operate more consistently on a daily basis in anticipation of receiving an audit. The key here is to have stores that are “audit ready” every day, not just when they expect an auditor to be in their store.
Store Response. Once in place, a sign that your audit program is taken seriously is the “shoot the messenger” response. If a store manager receives a failing audit, they will claim that the auditor conducted an unfair audit. They will claim that the auditor “doesn’t like” the store manager or the district manager and are getting back at them. This approach is an effort to take away their responsibility for failing the audit. If you have created a fair and objective in-store audit, the best way for the store to pass is simply to adhere to the required policies and procedures, but be prepared for this challenge. If not handled properly, the “shoot the messenger” response can negatively impact the credibility of your audit program.
Store Management Training. Another benefit of an effective audit is training. When a new store management person is first assigned to their store, have them conduct an audit along with the LP auditor. Going through the inventory shrink audit will train them on operational procedures. It will also give them an understanding of the current condition of their store and what opportunities they have to focus their efforts on.
Course Corrections. Audits must be conducted often enough to allow course correction during the year. Many companies take once-a-year inventories. It is the consistent execution of shortage control policies and procedures that provide the positive end-of-year results.
One formula that works well is a quarterly audit in all stores and a monthly audit in high-shortage stores. To maintain consistency with a quarterly disciplinary action matrix in the high-shortage stores, take the three monthly audits and average them into one inventory shrink score for the quarter. The averaged score can then be tracked in the quarterly reporting. Of course, your program must fit your company’s structure and budget.
Tracking Results. There are many ways to input and track audits results. Some companies use paper audits and manually track the results. Some companies use software programs and handheld devices that enable them to instantly view, sort, and track results.
Some companies use paper audits and then enter them into an audit software program. This can be done using in-house systems, or you can use specifically designed auditing software from outside vendors. However you do it, make sure that the results you track include not only the total audit scores, but the responses to each individual question as well. First determine your program and then identify the system that works best for your company.
The ability to quickly view the results of the inventory shrink audits should be a major consideration. Audit scores are important, but so are the common findings. For example, knowing that 95 percent of your stores failed questions 25 and 26 on the audit will enable you to determine why they are failing those questions and identify what needs to be done to get them back into compliance. Common findings should be reported on a regular basis so you can course correct throughout the time period leading up to your inventory analysis.
Communicating Results. Timely reporting of audits is important. As soon as an audit is completed, the results should be communicated to the store and the district manager. This enables them to take immediate action to correct identified issues. The sooner they can be addressed, the sooner they can be corrected.
The results of your audits should be communicated throughout the organization. The best way to do this is to have them reported along with all other company performance metrics. They should also be included in annual performance evaluations.
You must have a credible audit that is tied directly to required daily operating disciplines, the audits must be conducted objectively, there must be accountability for failing scores, and the program needs senior management support. It sounds simple, but it takes a daily effort to ensure that you are effectively managing the inventory shrink process. It is all in the execution.
How do you measure success? By monitoring store compliance and correcting identified deficiencies quickly, you can ensure a good shortage result at the end of each inventory period.
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