Improve Financial Audit Readiness with the

Close Scrutiny of Inventory Reporting

Keegan L. Patterson

OriGen Biomedical, Inc.

Agenda

Introduction

Assess Your Situation

Take Control!

Tips & Tricks

Questions

About OriGen Biomedical

OriGen was founded in 1996

Currently 55 employees

Based in Austin, Texas

$1.9MM in Inventory

$7.8MM in Sales

How We Leverage Epicor 9

Went live with 9.05 in 2010

Chose Epicor for scalability and

robust inventory and production

features

Product traceability is critical

Inventory Variances Over Time

0

10

20

30

40

50

60

70

80

Jul. 2012 Dec. 2012 Mar. 2013

Th

ou

san

ds (

Ab

so

lute

)

Raw Material WIP Finished Goods Net Variance

Question:

How often do you reconcile inventory

reports to the GL?

A. Once per day

B. Once per week

C. Once per month

D. Never/Reports don’t balance

E. Have not deployed Epicor

Assess Your Situation

Potential Causes for Variances

General Ledger

• Control Codes

• Journal Entries

Reports

• “As Of” Dates

• Backdated Entries

• Report Settings

Human Error

• Training

• Clerical Errors

• Not Following Procedure

How Does Inventory Flow through the GL?

Action Tran Type Dr. Cr.

Receipt (no Insp.) PUR-STK Raw Materials AP Clearing

Receipt to Inspection PUR-INS Inspection Pending AP Clearing

Receipt w/o Part Class PUR-UNK Unclassified Exp. AP Clearing

Pass Inspection INS-STK Raw Materials Inspection Pending

Fail Inspection INS-DMR DMR Hold Inspection Pending

Reject DMR Material DMR-REJ Scrap COGS DMR Hold

Issue Raw Material to Job STK-MTL WIP Raw Materials

Issue Sub-assembly to Job STK-MTL WIP Sub-Assembly

Which Inventory Reports Are Affected?

Action Tran Type Part Moves to: Part Leaves:

Receipt (no Insp.) PUR-STK Stock Status Rpt. n/a – new part

Receipt to Inspection PUR-INS Inspection Pending n/a – new part

Receipt w/o Part Class PUR-UNK Stock Status n/a – new part

Pass Inspection INS-STK Stock Status Rpt. Inspection Pending

Fail Inspection INS-DMR Open DMR Rpt. Inspection Pending

Reject DMR Material DMR-REJ None Open DMR Rpt.

Issue Raw Material to Job STK-MTL WIP Report Stock Status Rpt.

Issue Sub-assembly to Job STK-MTL WIP Report Stock Status Rpt.

Take Control!

Set a Starting Point

Post outdated transactions

Review “Inventory/WIP Reconciliation” report

• Set Start Date way back and only look at unposted items

Run “Capture COS/WIP”

Run These Reports:

Inventory WIP Reconciliation (again)

Stock Status

Open DMR

Inspection Pending

WIP

General Ledger

Trial Balance

Fix GL Control Codes – Part Class

Fix GL Control Codes – Product Group

“Reset” the Inventory GL Accounts

Review trial balance

Journal entry to zero out inventory accounts

• Post against inventory reserve (contra asset)

Review inventory reports

Journal entry to make GL match reports

• Pull from inventory reserve

• Charge changes to reserve and deplete

Balance daily until the dust settles

Tools to Track Down Variances

Balance Inventory Reports to GL Daily

• Variances are much easier to find with less data

Inventory/WIP Reconciliation Report for GL movement

• Refine to a specific GL or TranType

Keep track of parts with altered class or product group

• Changing PG or PC moves inventory reports but not GL

Identify internal processes that need to change

Use Epicor consultants to review control code setup

Get creative!

Tips & Tricks

Address Training Needs & “Buy-in”

Well-trained employees

“Buy In” – E9 is easy to use

Clean data in and out

Lack of training

Employees not on board

Poor data quality

When training is not a priority:

However, when training is a priority:

Other Issues to Investigate

“As of” dated reports don’t give historical totals

Prevent transaction activity while running inventory

reports – run reports after-hours

Dates/date ranges don’t match

Stock Status Report excludes non-nettable bins

Rounding variances

“As Of” Report Dates Omit Data

Historical dates

don’t necessarily

give historical

totals

“Cutoff” or “As Of”

dates show data in

unexpected ways

WIP Report shows

current jobs with

$0 in cost; Closed

jobs not listed.

WIP Report Cutoff set to “Today”

WIP Report Cutoff set to January 11

Increase Confidence Not Inventory Cost

0

2

4

6

8

10

12

x $100,000

RM Inventory

FG Inventory

Inv. - WIP

Sub-assemblies

DMR Hold

Incoming Insp.

Q&A