BerryDunn’s Commercial Practice Group partners with clients to provide insights that inform effective growth strategies, help them assess and manage risk, and optimize return strategies for better profitability.
Our team of experts helped a distributor gain control of its inventory processes and procedures to make informative purchasing decisions and to remedy certain financial and operational concerns raised by its senior lender.
The challenge
A commercial distributor was experiencing significant variances when reconciling perpetual inventory records in its enterprise resource planning (ERP) system to observed cycle count quantities, which resulted in untimely inventory purchases.
The company’s ERP system valued inventories under the Last In, First Out (LIFO) accounting method for tax purposes. However, it did not readily provide valuation information under the First In, First Out (FIFO) method, which many, including the company’s lender, felt was a more appropriate method for evaluating operating performance and determining asset-based borrowing capacity levels.
To attempt to present materially accurate financial information, management was overriding automated controls within the company’s ERP system, which resulted in significant discrepancies between the general ledger and the sub-ledger (i.e., detail). These discrepancies raised concerns from the company’s senior lender.
The solution
BerryDunn worked with the company to gain a detailed understanding of the inventory process and procedures though on-site interviews with company personnel, observation of the company’s cycle count processes, and partnering with the company’s controller to understand the flow of information through the ERP system.
Once this process was complete, our experts discussed their observations, recommendations, and strategies for implementation with management. They provided insight and advice on how the company could modify their cycle count process and valuation methodology within the company’s ERP system.
Outcome
With continued support from the BerryDunn team, the company successfully implemented the recommendations, resulting in:
- Accurate inventory records to make more informative purchasing decisions.
- Accurate valuation of inventories under both LIFO and FIFO methods to support accurate tax and financial reporting.
- Improved confidence from the company’s lender in making capital decisions.
Learn more about how BerryDunn helps clients build actionable strategies for short- and long-term success, or contact a member of our team.
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