Retail Focused Audits
Many aspects of retail-based businesses readily lend themselves to specialized audit procedures. The complex process of making sure shelves are fully stocked each day is unlikely to be error-free despite monitoring and close controls. Engage ARI to verify that correct pricing, allowances, discounts, accruals, and rebates are present in every transaction, whether delivered to your doorstep or directly to the store.
Direct Store Delivery (“DSD”) Audit
Grocery, convenience, distribution, and other mass merchandising operations face an especially high risk of overpaying vendors. The large volume of DSD transaction data combined with constantly changing promotional activity makes employing sufficient DSD controls challenging. Thus, incorporating a DSD focused audit as a standalone review or as part of a comprehensive audit can substantially increase the amount recovered.
A DSD audit facilitates greater focus on characteristics unique to these retail systems – e.g. shorter deal periods, varying promotional offerings, and the disconnect between warehouse data and deal data. To verify that the prices of DSD items are in sync with current promotional activity, this audit requires a highly structured, disciplined approach when confirming payment accuracy. Our extensive experience auditing retailers with varying DSD systems allows us to precisely identify your areas of exposure that may remain hidden to other audit firms.
Our multipart DSD audit begins with verifying the accuracy and completeness of the deal data. We then match pertinent payment information to each transaction, allowing ARI to quickly validate the item pricing accuracy at the time of the transaction and confirm whether any billbacks or other deductions may have been missed. After identifying potential claims, we repeat the process on a warehouse-by-warehouse basis to reveal trends in each warehouse’s backdoor receiving data. Although labor intensive, the ARI approach to DSD auditing delivers a more thorough review of your company’s retail activity.
Pricing Audit
Another area frequently overlooked by internal audit practices is pricing. Suppliers frequently change their prices, based on contractual agreements, incentives, market conditions, or the seasonality of specific items. For operations with multiple suppliers, the number of conditions affecting current pricing increases with each additional supplier. To reduce the risk of your business overpaying vendors, we recommend including ARI’s item-by-item pricing review to protect your profits.
ARI’s pricing review identifies vendor-specific conditions and a variety of other scenarios that commonly result in pricing discrepancies. While the list of reasons for price changes is near limitless, ARI’s pricing audit includes, at minimum, a review of the following problem areas:
- Product order quantity shorted shortly before a price increase
- Volume or purchase frequency based price changes
- Incorrectly priced product returns to vendor
- Pricing protection
- Price changes during order transit
- Price changes without supplier notification
Allowances Audit
Suppliers frequently offer allowances to promote the specific product purchases by reducing gross price. These programs are common in most industries but can be complex and difficult to apply. Complex allowance programs usually lead to complex accounting errors that can span multiple transactions.
There are many ways that supplier allowance programs may be incorrectly applied and cause inadvertent overspending. Contact ARI to audit your purchases and verify you are receiving the allowances due to you. A few of the ways ARI helps clients realize and recapture the full amount of allowances due are:
- Ensuring off-invoice allowances are reflected on the invoice
- Ensuring volume-based allowances are applied
- Ensuring allowances for pre-sale/early buys of product are applied
- Verifying allowances given for defective product are accurate
- Verifying any billbacks given are correctly calculated and applied
- Researching whether other allowances are due – based on product, store, promotion, etc.
Discounts Audit
Similar to allowances, discounts are another incentive suppliers provide to encourage purchases. However, unlike allowances, cash discounts may not always be readily apparent in a client’s order/payment data. Whether given for early payment or another reason, confirm your company leaves no money on the table by hiring ARI to review your transactions for missed discounts.
Through years spent working with retailers of all sizes, we have found uncaptured discounts to be a major source of client overspending. The source of some clients’ exposure is usually traceable back to the manner in which the client tracks discounts (e.g. separate recording system, outdated terms) while another major cause stems from the client’s accounting approach (e.g. netting out discounts, periodic reconciliation.) ARI will review your supplier contracts and analyze your deal data to determine if additional discount dollars are still due to you.
As part of our complete retail review, ARI’s will look at your discount tracking and accounting methods to ensure that each cash discount earned:
- Appears on the invoice and/or on the relevant credit memos when appropriate
- Is calculated on the correct rate
- Is calculated on correct (gross) amount of product
- Is not erroneously deducted
- Is not added back on returned product
Accruals & Rebates Audit
Another incentive frequently used by suppliers to achieve desired sales levels is accruals and rebates. How these funds are calculated range from simple to complex, making a review of these deal aspects detail centric. ARI’s team of experts has the tools to carefully analyze accrual/rebate calculations to verify that every incentive dollar earned is fully utilized.
Similar to pricing, discounts, or other allowance programs, accruals and rebates should also be reviewed for accuracy. Depending on the newness of items, PO/receipt/invoice dates, returns, or other discounts, the final price of an item may vary significantly from its initial cost. It is for this reason that ARI recommends including a review of your business’ accruals and rebates to guarantee every dollar of “free money” is used.