This is scary. How can we release ฿1.3m in electronics provision in the first week of October when preparing the September accounts and then turn around a week later and say we are ฿8.3m under provisioned?
If the details below are correct, we appear to have a number of operational and governance issues that need to be unpicked and addressed. We need to be assured that we have the appropriate controls in place, and are executing them effectively, to ensure we can validate and support the inventory value in our balance sheet.
Garry, from an operational perspective:
- How we can be sending electronics stock to JABIL or disposing of it but not transacting it out of our inventory system?
- Our key control on inventory balances is cycle counts. How can we have done three cycle counts confirming that the inventory is not there and still not have updated stock on hand in the system (which would have generated an unfavourable PI)?
- How can the stores leadership team be OK with writing back favourable PI adjustments and WIP stock take balances but not dealing with known imbalances (from three cycle counts!) that are going to have a negative impact?
Pornthep, from a finance perspective:
- How are we validating our inventory balances and obsolescence liabilities?
- There was a review done in August in Thailand of Electronics inventory that validated we were adequately provisioned. What was the finance teams engagement in this review and in signing off the adequacy of the provision? (it now appears that this review was done outside of JDE and never validated against our balance sheet!).
- How are we offsetting the payments we are getting from JABIL or other agents against our inventory balance and obsolescence provision?
- How are we handling our BOI and customs obligations if we are physically moving inventory off the site but not transacting inventory movements? How are we generating required customs documentation?
Inventory is our biggest asset and we need the leadership team in Thailand to ensure that we have the appropriate, cross functional governance structures in place to support the balance sheet valuation. We have a hard close coming up at the end of October to support the year end accounts and we will need to be able to validate and substantiate our inventory balances and provisions, along with any other balance sheet provisions.
We can’t sustain surprises and shocks like this through the financial result.
Thanks,