The primary purpose of stock verification is to check that the physical stock agrees with the book balance.
If these fail to match, as often is the case the following could be the possible reasons:
Labeling of the item is not correct
Location of the material is wrong
Arrangement of the warehouse is improper
Gangways filled with boxes and other materials
Mislaid or lodged between shelves and dislocated later
Theft
Faulty documentation
Illegible handwriting
Figures copied incorrectly
Loss of documentation
Elimination of number of copies
Deteriorating accuracy of records
Transferring the paper work from one shift to another and not completing properly
Receiving by weight and issuing by numbers or vise versa
Inaccuracy of weighing scales at receiving or issuing or both places
Issuing without authorization, indents, or issue vouchers
Urgent issues made when store closed, without posting the entries.
Delay in inspection, posting the goods receipt note and other receipt documents later than the issue documentation posting.
Using rejected material in emergency and not accounting properly
Improper communication with the user, inspection, external vendors
Each bin containing more than one item leading to mix up and confusion in issue
Issuing wrong material, wrong indenting
Issuing with out a document, as user is busy
Direct delivered items, bulk items are received and removed without adequate documentation
Understaffed stores and presence of unskilled stores personnel
Improper records on the transfer from one store to another, lead to discrepancies
Material receipt when the store closed resulting in delay in postings.
In spite of all the above warehouse in charge has to receive, store in proper locations, issue, and account properly to minimize the discrepancies.
Verification agency should be impartial. Success of the verification process depends on the skill of the personnel involved.
Entire operation is on two primary documents namely receipt and issue. Hence the warehouse in charge has to keep these two records update and accurate to minimize the year-end imbalances.
Physical verification is useful only when a follow-up action is planned for future like writing off, imposing penalties, tightening security etc.