Stock Audit & Working Capital Management – A Real-Life Case Study from the Garment Industry

Recently, our firm was appointed as the Stock Auditor for a well-known multinational company in the garment industry. Our assignment involved conducting a comprehensive physical stock audit and stock reconciliation across its warehouse operations.

From the very beginning, our objective was clear—to ensure complete control over inventory movement and generate reliable audit findings.

Control Measures Implemented During the Audit

1. Complete Freeze on Inventory Movement

The first and most important control was to stop all inward and outward movement of inventory during the physical verification process. This ensured that the stock being counted matched the actual inventory available at that point in time.

2. Strict Warehouse Access Control

We maintained a detailed register of every person entering and exiting the warehouse during the audit. During non-audit hours, the warehouse was sealed to prevent any unauthorized inventory movement.

3. Team Alignment and Coordination

Our audit team worked closely with the warehouse management team. Clear responsibilities were assigned, and the entire stock counting process was monitored jointly to avoid operational disruptions and ensure transparency.

4. Extended Audit Hours

To complete the assignment within the shortest possible time and avoid business interruptions, our team worked 14–16 hours per day until the stock verification and reconciliation process was completed.

Key Findings

The stock audit revealed several significant issues that directly impacted the company's profitability and working capital:

• Midnight inventory transactions were identified in the accounting software, with several entries posted around 3:00 AM, requiring detailed investigation.
• Significant discrepancies were found between physical inventory and book inventory.
• Packed boxes were discovered with missing inventory, indicating weaknesses in inventory control.
• Inventory belonging to competing brands was found stored within the company's warehouse.
• A substantial gap was identified between recorded sales and actual sales realization.
• High-value sales returns were recorded for goods that, upon verification, appeared never to have been dispatched.

Business Impact

These findings helped the management:

• Strengthen warehouse controls and internal processes.
• Improve inventory accuracy and accountability.
• Reduce inventory losses and leakages.
• Identify operational and system weaknesses.
• Enhance working capital management by eliminating unnecessary inventory losses.
• Improve the reliability of financial reporting and inventory valuation.

Key Takeaway

A Stock Audit is not merely a physical verification exercise. It is a powerful business tool that uncovers operational inefficiencies, safeguards inventory, strengthens internal controls, and protects working capital.

Many businesses focus only on increasing sales, while ignoring inventory leakages that silently erode profits. A professionally conducted stock audit can uncover these hidden risks and significantly improve overall business performance.

Inventory is one of the largest assets of any trading or manufacturing business. Protecting it means protecting profitability and ensuring sustainable growth.

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