Ready to go into audit?

Alex McGill of stocktaker and inventory specialist Venners shows how an audit works and how it differs from a stocktake

People often confuse stocktaking and auditing, referring to one to mean the other. The fact that modern stocktakers call themselves "stock auditors" only blurs the definitions. So what are the real differences between stocktaking and auditing?

Stocktaking tends to be conducted to a fixed pattern and on a more routine basis - usually monthly, six-weekly or bi-monthly. It concentrates on addressing stock-related issues.

Auditing is usually conducted only once or twice a year and concentrates on compliance aspects of the business, not just its stock issues. Auditing is the more specialist area.

A stocktaker will usually produce a financial trading report covering a stock period, identifying the gross profit achieved and whether there is a shortfall or surplus in the cash or stock. This type of information is intended to act as a monitor to enable problems to be identified and dealt with as they arise. The stocktaker works with their client to improve the profitability of the business.

As I've covered a stocktaker's role on-site in previous issues, I will focus on the duties of an auditor carrying out a compliance audit on-site.

Scrutinising operational activity

Auditing in the licensed trade is often referred to as a "control audit" or "compliance audit" and is completely unrelated to stocktaking.

Many larger pubcos, plus hotel and restaurant companies, use internal auditors. Because the cost can be prohibitive, companies such as Venners offer a service equivalent to that of auditors. As we have independent status, our audits offer reassurance to executives that their audit process is not being influenced by the operational management.

Most companies, whatever their size, use an operating manual detailing their procedures and activities. To check that staff and management are complying with official policy, each trading unit will be audited and an audit report generated. Most modern audits also contain an element of scoring, the results of which are easier for company officers to interpret than a totally textual audit report.

An audit report is normally divided into individually scored modules. The scoring process is discussed and agreed with the client in advance and has to be carefully considered and weighted to ensure it is fair to the staff and management under scrutiny.

The appliance of compliance

Regular stocktaking helps companies improve profits and keep tight control of their business. But even if a business is profitable, operators must ensure that operating procedures and policies are followed, especially in a managed estate. To achieve this, a business needs some form of compliance audit.

As a compliance audit delves deeply into operational activity, it takes longer than a standard stocktake. However, with a properly structured process, the time available can be used effectively. One way of achieving this is to create mini-audits concentrating on the most exposed part of the business.

So how do you arrive at the specification?

Unlike stocktaking, compliance auditing can't be rigidly structured: it has to reflect the trading style of the business. There is little point in checking that cost prices are correct during stocktaking if an external company is completing the stocks; any errors won't be the pub operator's fault. Each compliance audit template we use is tailored to suit the client.

At Venners we build the compliance audit specification by referencing each customer's operating procedures manual. We then discuss our thoughts with the customer, prioritise what is most important to them and build relevant modules.

Typical modules relate to cash handling - including reconciliation and banking; till or EPoS control; payroll and labour; deposits/sales ledger; stock control; site security; document retention; ordering and receipt of goods; purchase ledger, and management control.

Once the specification is written and agreed with the client, a fair weighting system is established to enable meaningful scoring of the audits. The scoring system can be customised to a client's wishes and changed if found to be penal or overly generous in practice.

The compliance audit report automatically highlights problem areas, avoiding the need to plough through reams of paper. If an outlet fails on certain modules, they can be re-tested in future using the mini-audit process.

Focusing on profit alone can obscure other priorities. It is also vital to operate a well-run, professional business, and essential to ensure that your business operating manual is being translated into action.

One of the many benefits of a compliance audit is its capacity to help you carry this out. Never underestimate the importance of conducting your own due diligence.

I am happy to answer queries via email on: alex.mcgill@venners.co.uk.

ways to keep track of stock and on top of costs

Q I run a small pubco consisting of three pubs, all doing wet and dry sales. I wanted to install an EPoS system, but I've been deterred by prices quoted by various EPoS providers. Can you recommend a good compromise or even an alternative?

A The cost of installing an EPoS system can be prohibitive in a small business; the more trading units you have, the better value for money and support you'll get. Sales people rarely draw your attention to the fact that many EPoS providers are reluctant to provide the necessary support if you are a small outfit. Fantastic as EPoS can be if you are prepared to fork out a small fortune, it's not the be-all and end-all of control systems. If you just want something to record the cash takings, you don't need EPoS. List what you want from a system and make sure the provider can meet your needs. Don't be swayed by jargon about features you will never use.

If you are considering an alternative to EPoS, Venners may have a solution. Its

VenPowa programme lets you carry out

internal stocktaking with full cellar control and reconciliation, but won't show minute-by-minute, hour-by-hour sales information. Venners is currently upgrading this system so you can control things like banking and petty cash as well. Ask yourself what you want from a system and, perhaps more importantly, how much you want to pay for one.

Q I have just started serving food in my pub. When we remove packaging on fresh produce like meat and put it in the fridge, it's difficult after a day or so to remember how long it's been there. Any suggestions? Also, I'd appreciate tips on ensuring the best rotation for liquor stock.

A The hotel industry uses the system "day dotting", which means different-coloured dots representing each day of the week. You decide which colour represents which day. When you remove packaging (which normally displays the use-by date) and put the excess food in the fridge, put a dot on the container to remind you which day you need to use that stock by. It's a good idea to put the dots alongside which days they represent on your kitchen noticeboard. Also, regularly go through your freezers and bring short-dated stock to the top or better still, into a freezer containing stock you'll be using next.

With liquor, when stock is being delivered into your cellar, check that fresh stock doesn't get placed on top of existing stock. Always keep different products separate in stacks.

For instance, if you have several varieties of fruit juice, don't pile them all together in one stack, because some will sell better than others.

When you stock bar shelves, don't fill empty space with fresh stock, but pull older stock forward to fill gaps, placing fresh stock behind.

Get the staff to do this and do checks when you yourself are behind the bar. Vigilance will ensure that you sell older stock first.