BUKHATIR GROUP

Inventory Discrepancy Adjustment Policy

1. Purpose

This policy establishes the procedures for identifying, investigating, documenting, and resolving inventory discrepancies across all Bukhatir Group Business Units (BUs). It ensures that all variances between physical stock counts and system records are addressed promptly, transparently, and in compliance with Group Finance requirements.

2. Scope

This policy applies to all inventory held by Bukhatir Group subsidiaries and BUs, including raw materials, consumables, spare parts, work-in-progress, finished goods, and fixed asset components. It covers discrepancies identified through cycle counts, annual stock-takes, goods receipt inspections, and ad-hoc reconciliations.

3. Definitions

Inventory Discrepancy: Any variance between the physical quantity of an item and the quantity recorded in the ERP/inventory management system.

Adjustment: A formal correction entry made to the inventory ledger after investigation and approval, reconciling the system record with the verified physical count.

Threshold: A monetary or percentage limit set by Group Finance for each BU, beyond which additional approval levels are required before an adjustment can be posted.

Cycle Count: A periodic counting method where a subset of inventory is counted on a rotating schedule.

Write-Off: The removal of an inventory item from the books, treated as a loss, after all recovery options are exhausted.

4. Policy Principles

4.1 Segregation of Duties

The person who identifies a discrepancy must not be the same person who approves the adjustment. The Storekeeper/Warehouse Supervisor initiates; the BU Finance Controller (or delegate) reviews; final approval follows the Delegation of Authority (DOA) thresholds set by Group Finance.

4.2 Company-Set Thresholds

Each BU must follow the inventory adjustment thresholds established by Group Finance. These thresholds determine the approval routing for adjustments:

• Below BU threshold — BU Procurement Manager + BU Finance Controller approve.
• Above BU threshold but below Group threshold — additional approval from BU General Manager required.
• Above Group threshold — escalation to Group Finance / Group CFO per DOA matrix (P-POL-015).

BUs must obtain their specific thresholds from Group Finance. Thresholds are reviewed annually and may be adjusted based on BU size, risk profile, and historical discrepancy patterns.

4.3 Investigation Before Adjustment

No inventory adjustment shall be posted without a documented investigation. The investigation must identify root cause (data entry error, theft, damage, measurement error, system glitch, etc.) and recommend corrective action to prevent recurrence.

4.4 Timeliness

Discrepancies must be reported within 24 hours of detection. Investigation must be completed within 5 working days. Adjustments must be posted within 3 working days of approval.

5. Procedure

5.1 Detection

Discrepancies are detected during cycle counts, annual stock-takes, goods receipt vs. PO matching, or ad-hoc checks. The Storekeeper records the variance on Form F-INV-ADJ-01 (Inventory Discrepancy Report).

5.2 Investigation

The Warehouse Supervisor conducts a root-cause investigation, interviewing relevant staff, reviewing transaction logs, checking CCTV footage if applicable, and verifying measurement instruments. Findings are documented on Section B of F-INV-ADJ-01.

5.3 Valuation

BU Finance Controller calculates the financial impact of the discrepancy using the weighted-average cost method (or as prescribed by the BU's accounting policy). The adjustment value is compared against the BU's threshold to determine the approval route.

5.4 Approval

The completed F-INV-ADJ-01, with investigation findings and financial impact, is routed for approval per the DOA thresholds set by Group Finance. Electronic approval via the ERP workflow is preferred; where manual signatures are used, the original form must be filed.

5.5 Posting

Once approved, the BU Finance team posts the adjustment in the ERP system. The system transaction reference must be recorded on F-INV-ADJ-01. A copy is sent to Group Supply Chain for trend analysis.

5.6 Corrective Action

For discrepancies exceeding the BU threshold or recurring patterns, a Corrective Action Plan (F-INV-ADJ-02) must be prepared. The plan is tracked by Group Procurement on a monthly basis.

6. Reporting

BUs must submit a monthly Inventory Discrepancy Summary to Group Finance, including total discrepancies detected, values adjusted, root causes, and corrective actions taken. Discrepancies exceeding the Group threshold trigger an entry in the Procurement Audit Log (P-POL-027).

7. KPIs

• Inventory Accuracy Rate: target ≥ 98% (by value)
• Discrepancy Resolution Time: ≤ 5 working days from detection to posting
• Write-Off Rate: ≤ 0.5% of total inventory value per annum

8. Related Documents

• P-POL-015 — Delegation of Authority
• P-POL-005 — Purchase Orders (GRN & PO Closure)
• P-POL-027 — Procurement Audit & Compliance
• F-INV-ADJ-01 — Inventory Discrepancy Report
• F-INV-ADJ-02 — Corrective Action Plan

9. Review & Ownership

This policy is owned by Group Supply Chain and reviewed annually or upon material change in Group Finance thresholds. Next review: April 2027.