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Non-Profit Making Organisations

Calculating Losses of Stock and Cash

In the busy and often tempting environment of small organisations, mistakes can happen and so can theft. A barman in a busy bar or lounge can be forgiven from time to time if a few bottles of beer go missing or the till is short of a few pounds. However, what we are concerned with here is working out whether beer or cash have gone missing.

In some cases we might assume that accountants, auditors and the police find that a barman had 'lost' some beer and some cash from their bar. To carry out our own investigation, here is what we need:

Stock

• A true record of the opening stock, taken from the annual, monthly or weekly physical stock take or stock check
• Accurate delivery records from the brewery, wholesaler or supplier
• Accurate sales records
• A true record of the closing stock, taken from the annual, monthly or weekly physical stock take or stock check

That's it! When we have all of that, there's nothing we don't know or can't prove!

Cash

We really need the same information as for stocks of goods for sale, since cash is really only a stock of notes and coins. This is what we need then:

• Bank statements and statements of cash in hand for the start of the period - cash balance b/d
• Accurate records of all cash received
• Accurate records of all cash paid
• Bank statements and statements of cash in hand for the end of the period - cash balance c/d

Of course, with a large club that might have several bars, a café, restaurant and a sports hall and a gym, reality can be more complicated than a simple list suggests but the principles are the same whatever the size of club or organisation.

Worked Example: Stock

What do you make of the following information?

Working directly and only from the basic data we can estimate the cost of sales and sales using the formula:

Opening stock
+ Purchases
- Closing stock
= Cost of sales
+ Estimated mark up
= Estimated Sales

See the problem? We have been told that the actual sales were £15,000 but using the formula we find that sales seem to be £13,780. Here's what we do to resolve this issue:

Assuming that the figure for sales of £15,000 is correct then working backwards from actual sales we can find what closing stocks should have been. You might find the right hand column in the table that follows useful as it confirms the percentages to work with when working backwards from the actual sales.

So actual sales are £15,000, 130% of the estimated cost of sales. Therefore, the estimated cost of sales is equal to:

Then we find the estimated value of closing stock by subtracting the estimated cost of sales from the value of goods available for sale:

= £11,000 - 11,538.46 = £538.46

Conclusion: We have found a problem. The closing stock check revealed that there is £400 worth of goods in stock yet our calculations show that there should be £538.46 worth of stock. The committee of the organisation would now investigate what had gone wrong and take the appropriate action.

Worked Example: Cash

Remember we said that holding cash really means having a stock of cash? So it should come as no surprise that finding out whether cash is missing is remarkably like finding out if stocks are missing.

What do you make of the following information?

In a sense, the workings are easier than with stock, as the following solution shows.

Worked Example Solution: Cash

The logic of the solution to this problem is:

Cash and bank at start
+ Receipts
= Available cash
- Payments
= Estimated cash and bank at end
- Actual cash and bank at end
= Cash discrepancy, if any

Applying that template to the data in the question gives:

So £1,329.76 of the cash is missing, or unaccounted for. What should we do now? We are dealing with a year's accounts so need to see the problem in that context. A total of £1,329.76 for a year is just over £25 a week and that's probably a serious enough problem to take action. Management by exception tells us how serious a problem it is and it gives us clues as to what to do with it!

Management by exception (MBE) means that we leave things alone unless they are a problem - unless they are exceptional, that is. Here's a really good example of MBE - would you ever change the tyres on your bicycle if they weren't causing you a problem and they weren't breaking the law? No, you wouldn't unless you wanted a new colour or style. In the same way, if a business has plenty of cash in the bank, why worry about it? In this case, though, more than £1,300 is missing and that is exceptional. £1.30 over a year wouldn't be exceptional and neither would £13. £130 could begin to be a problem. Can you see how we look at things in an exceptional way now?

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