Dilemma - Inventory

[2rocky]

So one of the hats I wear is that of managing a Retail store that is an outlet for related supplies for what we produce. It is a small percentage of the overall revenue but still low 7 figures...

I'm responsible for the inventory and margins in this division and I have 3 employees that staff it.

My issue is one of the owners likes to get inventory off the shelf and give it to customers. Now if I donate inventory to a charitable organization I have a bookkeeping procedure where the office issues a credit and it is then credited to the donation account for taxes.

I have a couple of issues about this boss/owner "poaching " my inventory.

1) Principle. I have markups calculated and overall gross margins that account for those. Him giving away my inventory, while not a huge effect, still decreases my sales/COGS.
2) Sales tax. We didn't pay sales tax on that inventory he gave away for $0. In principle we still owe sales tax on our purchase price
3) It is disrespectful to me and my staff. His statement is "I already bought it , why should I pay for it twice?" When it really is the Corporation that bought it (of which he is 1/3). Especially when he tells the staff to "Call it a donation" when he is trying to impress a customer.
4) It sets a dangerous precedent where other customers will expect freebies out of the store. We do have giveaway logo items we buy (and pay sales tax on) for that purpose, and we give them to customers and prospects.

The Way I'm approaching it now is I'm putting it on his charge account at $0 just to keep my inventory correct, but it still sticks in my craw...

Am I being too uptight?

 

[Deleted member 18333]

This hasn't been caught during an audit?

 

[Ben Lamb]

Write down specifically what the issue is, and think through a solution that would get through to his head then request a meeting with him to have the discussion from your point of view in a calm, respectful and thoughtful manner even if he can't do that, then flag that meeting with other partners if it doesn't go well and be sure to CYA.

If your company has a handbook for things like this, then follow that obviously, but in my experience, a conversation with concerns brought forward goes a lot better if there are some solutions that come with it.

 

[SAJ-99]

First, you call it "my" inventory. Are you an owner or are you paid based on sales volume? Just want to clarify so I don't misread.
Second, you said he is 1 of 3 owners. The other two should know about this. If they do know and do nothing, that is on them. Just go about your day letting the person give away stuff.

 

[geewhiz]

request a meeting with him to have the discussion from your point of view in a calm, respectful and thoughtful manner

I'm a simple minded man, and I've never even seen 7 figures wirth of money, let alone owned it. But I am learning that communication is key. And I don't mean communicating with other people (us) about an issue you have with someone else. Approach the offender in a professional and honerable way and discuss the issue.

 

[TN2shot07]

We do something similar with sales “promotional items”. We run it through as a regular sale on one account and then I do an entry at the end of the month to transfer it as marketing/advertising expense. It keeps inventory correct and the sale is recorded

 

[reallyoldman]

debits....&......crebits......accounting 101. My advice do the job you are paid to do....it is not your inventory or company. I worked with a manager that developed your attitude and he just would not realize who owned and ran the company. ...after a while it cost him his career

 

[ignorethefringes]

So one of the hats I wear is that of managing a Retail store that is an outlet for related supplies for what we produce. It is a small percentage of the overall revenue but still low 7 figures...

I'm responsible for the inventory and margins in this division and I have 3 employees that staff it.

My issue is one of the owners likes to get inventory off the shelf and give it to customers. Now if I donate inventory to a charitable organization I have a bookkeeping procedure where the office issues a credit and it is then credited to the donation account for taxes.

I have a couple of issues about this boss/owner "poaching " my inventory.

1) Principle. I have markups calculated and overall gross margins that account for those. Him giving away my inventory, while not a huge effect, still decreases my sales/COGS.
2) Sales tax. We didn't pay sales tax on that inventory he gave away for $0. In principle we still owe sales tax on our purchase price
3) It is disrespectful to me and my staff. His statement is "I already bought it , why should I pay for it twice?" When it really is the Corporation that bought it (of which he is 1/3). Especially when he tells the staff to "Call it a donation" when he is trying to impress a customer.
4) It sets a dangerous precedent where other customers will expect freebies out of the store. We do have giveaway logo items we buy (and pay sales tax on) for that purpose, and we give them to customers and prospects.

The Way I'm approaching it now is I'm putting it on his charge account at $0 just to keep my inventory correct, but it still sticks in my craw...

Am I being too uptight?

If you haven't at least sent him an email explaining what you just told us, yes. If you have and he doesn't care, yes. Unless you are also an owner. Just run the books and let the deficits fall where the may. Maybe the other owners will get tired of paying sales tax on items he gave away.

 

[westbranch]

1) Is it being counted against you in some way? There should be a way to charge the cost back to his profit center or have some sort of other tracking as promotional items so it doesn't count against you. This would depend on the performance measures that are being used.

2) Sales (use) tax on those items is likely immaterial, but it isn't just owed in principle it is owed based on (most) state law. Sales and use tax audits are not fun.

3-4) Sounds like there needs to be some sort of sit down to improve communication and set expectations between yourself and all owners.

 

[Deleted member 28227]

Am I being too uptight?

Nope, that would drive me nuts. Do you have some amount of inventory for samples/promotions that kind of thing and can you allocate 1/3 of that to him?

 

[longbow51]

Interoffice politics are tricky, and, at the end of the day (only using that cliche because my CFO loved it), the owners set company policy.

It is basically, for you, an accounting issue. Just record it, as recommended above, so it doesn't look like the inventory just vanished. Your job ends at that point.

The accountants and CFO will deal with any tax issues.

If they are on the ball, and the dollar amount is significant, it will be noticed.

 

[2rocky]

Thanks everyone for the input. I'll wait until after my golf tournament and industry convention where the company paid my hotel, golf and travel for 2, before I get in my company vehicle, and send him an email on my company Iphone.

The material amount of the inventory involved is insignificant. It is not going to trigger a ST&U audit. It is not going to affect my margins. I just find the act to be disrespectful and inconsiderate. I give Thousands of dollars of inventory to organizations as goodwill marketing and account for it. Truth be told, he's clueless about the accounting other than the bottomline at the end of the month,and it is just easier for everyone involved not to rock the boat...

 

[longbow51]

Clearly you've got a great job. Don't shoot yourself in the foot.

 

[Cheesehead]

As a controller for a manufacturing company, I would find this pretty frustrating.
If I were in your shoes, I would make friends with folks in accounting, and ask them how they want this Sales & Marketing (overhead) expense to get coded. It shouldn’t impact your or your staff’s performance, which I presume is based on Variable Margin or something similar.
As long as it is pretty immaterial, it falls into ‘pick your battles’ territory. If you like the job overall and this doesn’t materially impact you or your team, maybe try very gentle deescalation techniques by talking to the guy (and grit your teeth in the background)

 

[LuketheDog]

Thanks everyone for the input. I'll wait until after my golf tournament and industry convention where the company paid my hotel, golf and travel for 2, before I get in my company vehicle, and send him an email on my company Iphone.

The material amount of the inventory involved is insignificant. It is not going to trigger a ST&U audit. It is not going to affect my margins. I just find the act to be disrespectful and inconsiderate. I give Thousands of dollars of inventory to organizations as goodwill marketing and account for it. Truth be told, he's clueless about the accounting other than the bottomline at the end of the month,and it is just easier for everyone involved not to rock the boat...

I'd just recommend that you have your butt covered in the event that he does get dinged by an audit or the other owners, so that he can't blame you for the shortfall. Maybe even have a discussion with him about how he'd like to see that accounting squared away for his giveaways, feed him ideas and let him think he came up with the solution so he feels good about himself.

 

[thebestusernamesaretaken]

Your taking ownership of the stuff which is good. Your agitated by the 1/3 owners attitude which is understandable when you feel like your in control - but your not really. You don't have to agree with the owners actions but you have to do what's in the best interest of the company, owners and employees as long as you agree to take a paycheck. I would recommend that you find a way to make what they (owners), do work, unless illegal which this isn't. If you can't stomach the owners actions then maybe you should think about moving on. You'll be better for it.

You could just post issue the items under either a owners compensation account or uniform account (for clothing) for the stuff that s/he takes personally. You could also set up a retail customer account and discount the item to $0 retail (that will take care of the resale tax), and just post issue the stuff he gives away to an charitable donation account if applicable or to an advertising account if not (also takes care of the resale tax issue).

Establish the reasonable process guidelines that s/he inform someone of the items used, as you need to relieve the inventory.

 

[NEWHunter]

Thanks everyone for the input. I'll wait until after my golf tournament and industry convention where the company paid my hotel, golf and travel for 2, before I get in my company vehicle, and send him an email on my company Iphone.

The material amount of the inventory involved is insignificant. It is not going to trigger a ST&U audit. It is not going to affect my margins. I just find the act to be disrespectful and inconsiderate. I give Thousands of dollars of inventory to organizations as goodwill marketing and account for it. Truth be told, he's clueless about the accounting other than the bottomline at the end of the month,and it is just easier for everyone involved not to rock the boat...

If there is any obligation to pay taxes on the freebies, make sure they get paid. Other than that, based on what you’ve said so far, leaving it alone is the right way to go - especially if you like your job. Things could potentially go sideways with something like this and I’d personally pick a different hill to die on (potentially). Good luck.