Inventory Adjustment Authorisation

This record authorises a change to a figure. It does not establish what happened, and using it as though it does is what turns an inventory control into an inventory laundry. Everything upstream of the authority belongs to a neighbouring record.

Stock adjustment sits across two regulatory families that rarely appear on the same form. The quality standards treat it as control of an output and of the documented information about that output; the financial and customs regimes treat it as a key control over a reported balance. A record that satisfies one and not the other fails an audit somewhere.

Stock is a physical fact and a reported balance at the same time, so adjustment authority is regulated twice: once as an internal control over financial reporting, and again, in bonded, pharmaceutical and food supply chains, as a traceability and accountability duty.

Filling this in takes two minutes and the figures come from the system. Whether the record is defensible is decided by four judgements made before anybody opens it.

Adjustment findings divide cleanly. Half concern who approved it, and are found by sampling. Half concern what the reason actually was, and are found only by sorting the whole population by material and location.

A contract packing site ran weekly cycle counts on packaging materials. The approval matrix allowed a shift supervisor to authorise adjustments up to five hundred pounds in value, with anything above that going to the inventory controller and anything above five thousand going to finance. The matrix had been signed off by internal audit two years earlier and was, on its own terms, a reasonable control.

Over fourteen months, adjustments to reel film at three pick faces averaged four hundred and twenty pounds and appeared almost every week, always coded as counting error, always approved by the supervisor whose team had performed the count. Every single one was within authority, correctly signed, correctly dated and supported by a recount. The cumulative write-off was a little over seventy thousand pounds. Nobody ever saw the total, because the adjustment report was sorted by value and every line was small.

It surfaced when a new inventory controller sorted the same twelve months by material and location instead. The cause turned out to be mundane rather than criminal: film was being drawn for machine set-up and waste without any issue transaction, so real consumption left the system through the adjustment route every week. The control that failed was not the threshold. It was that the threshold was the only control, and a threshold applied per posting cannot see a pattern.

The form is trivial. What fails is everything around it: the investigation that was never linked, the approver who should not have been in the chain, and the pattern that nobody could see because the report was sorted by value.

KnowLogistics

Holds the adjustment population against the location and material registers, enforces the approval matrix in the routing, and reports adjustments by material and location rather than by size.

Ella

Watches for the patterns a single record cannot show: repeat adjustments at one location, one reason code carrying most of the value, and one approver carrying most of the postings.

KnowComply

Keeps the delegated authority schedule and the segregation-of-duties rules as controlled documents, and evidences to auditors that the limits applied were the limits in force.

KnowQuality

Takes the recurring adjustment into a nonconformity and corrective action, so an unrecorded consumption route is fixed rather than corrected weekly.

Stock adjustment

A deliberate change to a system quantity to bring it into line with a physical fact, distinct from a transaction that records stock actually moving.

Write-on and write-off

An adjustment increasing or decreasing the recorded quantity. Write-ons are treated as benign and rarely investigated, which is why they are the more useful of the two to trend.

Reason code

The classification attached to an adjustment. Its accuracy determines whether the underlying cause can ever be trended, and it is the field most often chosen for convenience.

Segregation of duties

The separation of counting, requesting and approving so that no one person can both create and conceal a discrepancy.

Book-to-physical variance

The difference between the system quantity and the counted quantity before any adjustment, which is the figure an investigation works from.

Shrinkage

Net unexplained inventory loss over a period, of which authorised adjustments coded as error are the most common hiding place.

Delegated authority limit

The value up to which a named role may approve an adjustment, set out in a schedule and tested by auditors against actual postings.

Net realisable value

Estimated selling price less costs to complete and sell, the ceiling at which inventory may be carried and the basis on which a write-down is measured.