Shortages to write off? Assemble this evidence first

A count finds 500 pieces of an item in the books and 380 on the shelf. The first thing finance asks is usually: on what grounds do we write off these 120? A write-off is a decision for your finance team and management, and how it is booked and treated for tax should be confirmed with your accountant or lawyer. One point is safe, though: whatever is decided, an approval without evidence is hard to obtain. This article covers what evidence to collect and how to present it.

Who decides, and who supplies the facts

• Decision makers: the finance lead and management, approving step by step within the company's authority limits. Large amounts may also go to head office.
• Fact providers: the warehouse, the count team and the data owner, who explain how much is missing, where, and why.

The warehouse's job is not to defend a shortage, nor to decide for management. It is to state the facts: the quantity, which places were checked, what clues exist, which causes have been ruled out and which remain unexplained.

What the evidence pack should contain

1. Count records: location, quantity, counter, checker, date and time.
2. Recount results: whether locations with large differences were recounted, and whether the two counts agree.
3. Difference detail: item code, name, book quantity, counted quantity, difference in quantity and in value.
4. Movement history of the item: recent receipts, issues, transfers and returns, used to rule out recording errors.
5. Cause analysis: what has been checked, for example issued-but-not-posted, mix-ups, goods in transit and unit errors, and the result of each.
6. Site photos: the location, damaged or spoiled goods, labels.
7. Statements: written, signed and dated explanations from the storekeeper and others involved.
8. Other documents: incident reports, insurance or claim correspondence and camera footage, if any. If theft is suspected, ask a legal adviser first whether and how to report it.

Evidence is strongest when collected early. Take photos and statements on count day or the day after, before memories fade and the site changes.

Before writing off, remove the false shortages

Many shortages turn out not to be lost goods at all. Suppose a count produces 25 shortage lines and you trace each one:

• 9 are missing or wrong documents, and the difference disappears once they are corrected;
• 6 are mix-ups: one item is short while an item with a similar code shows a surplus;
• 4 were issued but not yet posted, and the difference goes when the document is raised;
• 6 remain unexplained. Only these are genuine shortages for the approval process.

(The figures are illustrative.) Only the last group goes into the write-off procedure. The others call for corrected records, not a write-off. That shrinks the amount needing approval and makes approval easier.

Turning evidence into an approval pack

Approvers have no time to read dozens of pages of raw records, so build the pack in layers:

• Page one is a summary: scope and cut-off, total difference value, a summary by cause, and the proposed treatment (correct the records, claim from a supplier, write off, investigate further).
• One detail page per difference: quantity, value, cause and an index of evidence.
• Numbered attachments: count records, photos and statements, each with a number that the detail page refers to.
• Signature block: preparer, checker, date and a space for the approver.

For natural losses such as evaporation, cutting offcuts or small handling losses, whether your company has an accepted loss rate, and what it is, should be confirmed with finance rather than assumed from experience. How long to keep the papers should follow your accountant's requirements.

After the write-off, follow up

A write-off only clears the books. If the practice that caused the loss does not change, the next count will meet the same problem. Give each cause group a corrective action, an owner and a deadline, and check at the next count that it was done.

In short

The write-off decision belongs to finance and management; the evidence is prepared by the warehouse and the count team. UzWarehouse's counts and difference tracing establish quantities, supply evidence and group the causes, and provide count records and site photos that can be attached to your approval documents.