ECS Eclipse News

ECS Eclipse News Archives February 2010

A Tutorial On Petroleum Inventory Reconciliation

February 16, 2010 (comments: 0)

If you work at or for a gas station you may know and most likely dread inventory reconciliation. This tutorial is designed to help guide you, refresh your memory, or remind you of the important factors of this significant inventory, after all, this is the main product you are selling therefore you want to keep a close eye.

Just as other retail stores inventory their items, gas stations must inventory their stock, which happens to be thousands of gallons of petroleum that are stored below your feet. Since our product is underground, we can’t simply walk down the aisles and count all the cereal boxes as someone accounting for items in a grocery store might do. Nope, our inventory takes a little more imagination and maybe a little more math as well, so grab yourself a calculator!

Below is a typical data collection table for someone needing to inventory their petroleum. Let’s assume it’s the beginning of the first shift of the day, let’s fill out the data together.

Day/Date Open Phys(Gallons) Delivery(Gallons) Close Phys(Gallons) Phys Sales(Gallons) Meter Sales(Gallons) Daily Change
             

It starts off easy, Day/Date: simple enough, figure out what day it is and write it in the box. Column one is done! On to column two, Open physical (gallons): This is when we walk over to the Automatic Tank Gauge (from here on called an ATG) and ask it to tell us how many gallons of product are currently in the tank, write this in column two. OK good! Now you can carry on with your day and we’ll meet back just before you leave.

* * *

Well hello, it must almost be time for you to leave- but not yet, we have important data to collect! As you can see, column three is Delivery: Did you receive a delivery today? If not, cross out this box, if so, write in the number of gallons that were supposedly added to the tank. It must be noted that this is one point of potential error. Since we can’t see the tank we can only assume that the delivery person delivered the amount he claimed he did. If he delivered less, our calculation will be off, if he delivered more, guess what- our calculation will still be off (More on this later).

Time for column number four- get ready to run, Close physical (gallons), this is again going to the ATG and recording the amount of gallons that are now in the tank, but before you do this, get ready to read the point of sale for today. Why did I tell you to run? Well, because in order to get an accurate representation of the inventory, you need to record the amount of gallons in the tank at the same time you record the amount of gallons you sold taken from the point of sale. This will be written in column six Meter Sales (gallons). If time passes in between the two readings then it’s likely that your calculations will be off- (potential point of error #2). If customers are pumping gas in the time it takes you to walk from the ATG to getting around to checking the point of sale, then the gallons those customers removed from the tank will only be recorded in your notes as the point of sale, and not accounted for in the ATG volume data you recorded before they started pumping. It will seem like you sold more gallons than the number of gallons you recorded as missing from the tank, therefore… run! And on your way back, grab a calculator.

Now its time to do some math (potential point of error #3); column five, Physical sales (gallons) means you are going to calculate how many gallons you sold instead of reading what the point of sales said you sold. To do this, take column one, the amount of gallons you started with, and subtract column three, the amount of gallons you ended with. This will give you the amount of gallons that are missing. If you took a delivery this day, add that amount, column two, to this number. Once you are done carefully crunching numbers on your calculator, write the answer in column five.

Now let’s step back and look at the table, in a perfect world, column six (Meter Sales) and column five (Physical Sales) would be the same number because you should have sold the same number of gallons that are now missing from the tank. Not the case? Don’t worry-That’s why we have column seven! Because of all the potential errors embedded into our tricky inventory and because gasoline is temperature sensitive, it is assumed that the calculation will be a little off.

Column seven is Daily Change. For this we need to do more math (sorry). Subtract column five from column six and write the difference whether it’s positive or negative, in column seven. This last column shows us the difference between the amount of gallons sold, and the amount of gallons that are actually missing from the tank. A positive number means you technically sold more gallons than the amount that is missing, a negative number means you didn’t get paid for every gallon of gas that is missing from the tank. Hmm, not good.

Though both a negative and a positive number is not a good sign of accurate inventory, having a negative number (not accounting for missing gallons) may mean you have bigger problems, such as a leaking tank, a dishonest delivery, un-calibrated dispensers, or petroleum theft. These problems can’t be determined through one day’s reading, which is why you must do this fun calculation everyday!

Potential Sources of Reconciliation Variance:

Inaccurate Delivery

Not Recording Close physical and Meter sales at the same time

Inaccurate Math calculations

Theft

Leak

Dispenser drift

UST test taking that day

Depending on what state you live in, after 7, 10, or 30 days you need to add up (reconcile) your column sevens and determine the percent variance from either the tank’s gallon capacity, or the total amount of gallons the point of sale recorded (adding all column sixes : Meter sales). No matter what state you are in, there is not much room for error.

To help you avoid this confusion and to give you a clearer view of how many gallons are really in your tank and how many gallons are sold or truly lost, you can pass this analysis on to a device that was designed specifically to do this. What is it you ask? It’s called AIR, Automated inventory reconciliation. The “Automated” part, soon to be your favorite, takes the human element out of equation, and analyses and automatically collects the data for you. Where can you find such a beautiful thing? Right here: AIR.

Let us save you from your headache!

Class dismissed.

Gasoline theft. A true story.

February 12, 2010 (comments: 0)

Tagged under: inventory reconciliation

Retail petroleum operators often ask, “Why should I bother to reconcile my gasoline inventory? It’s all there, right?” We would all hope that the most valuable product sold at the convenience store/gas station is all accounted for and appropriately sold, but this is not always the case. The story below is a true summary of a recent theft event that cost a petroleum marketer a loss in excess of $80,000 dollars.

The setting of this tragic story is a retail gas station and convenience store nestled in a mid-sized New England city. The operator of the facility was a commissioned agent working for a petroleum marketer who owns in excess of 200 stores. The theft events took place over a period of several months in 2008. The discrepancy in gasoline was first recognized at the corporate accounting level. The first response was to emphasize to the commissioned agent the need to do his paperwork correctly. The issue, in fact, had little to do with paperwork accuracy and a lot more to do with a dishonest operator who would place a gasoline dispenser in “stand alone” mode.

When this particular operator was working alone at this site, he would place one of the six dispensers in stand alone mode and tape a sign on the dispenser that read “Cash Only.” As patrons pulled up to the dispenser, they would either move on to the next dispenser to use their credit card or step into the store and give the attendant a ten or a twenty to make their gasoline purchase. With the dispenser in stand alone mode, the volume of gasoline dispensed would not be captured by the point of sale system and the attendant would pocket the cash paid by the patron. At the end of his shift, the cash register would not be short and his larceny would go unnoticed.

Unnoticed, until the gasoline inventory is reconciled, that is.

Historically, the accuracy of the inventory reconciliation from this particular site was mediocre at best. Typical composite sheets had very large swings from day to day. Sometimes sales closings were not always coordinated with daily inventory readings. Manual entries were not always legible and math errors were frequent. Corporate accounting initially thought the issue was one of sloppy paperwork. They invested time to correct the supposed issues and waited for the monthly composite sheets to come in. The shortage issue remained.

With the losses still appearing on the monthly composite sheets, the petroleum marketer suspected the hauler of not delivering the entire product promised on the bills of laden. The hauler was subsequently changed, but over time, the issue persisted. A leak in the Underground Storage Tank (UST) system was suspected and testing was contracted. All the testing passed.

Time (and money) was passing this petroleum marketer by while they attempted to find the source of their loss. An historic tolerance within the company for inaccurate reconciliation masked the true source of the gasoline shortages, employee theft. More accurate inventory reconciliation and prompt analysis would have identified the product theft immediately.

Eventually suspicion was placed on the site operator as the culprit for the loss of inventory. An unannounced visit by the Area Sales Manager (ASM) unveiled the “cash only” sign and the operator’s scheme. The ASM contacted the police and the operator was arrested on the spot.

Unfortunately, several months had passed and $80,000 worth of product was stolen before the culprit was caught. Regrettably, this story has an even sadder ending. After his arrest, the operator posted $1,500 bond and was released while he awaited trial. The operator fled the jurisdiction and returned to the “old country” before any restitution could be imposed.

Proper inventory reconciliation cannot directly stop theft, but it is a formidable deterrent. If an operator realizes he will be discovered immediately, he is considerably less likely to attempt the theft. This is the reason clerks do not simply help themselves to a stack of twenties from the register drawer. At a minimum, proper reconciliation practices will identify a problem early, before it grows to the magnitude of this true story.

Retainers, What Are They And Why Are They So Important Today?

February 2, 2010 (comments: 0)

Retainers are intended to secure payment for work being performed. In today's economy, it's crucial to collect payment, and to make sure payment is being collected. Companies more often than not, fall into becoming a bank loaning money out to their clients. While the economy is tough, clients aren't paying their vendors on time, and taking months to pay back their creditors. Thus, leaving that creditor to carry their debt, essentially paying interest on their client's debt. Retainers and prepayments will help solve the problem of "loaning" out your money to clients. If you get full or at least half of the contract amount up front, you start off with a better relationship with your client and vice versa. You don't have to worry about your client not paying, or not having the funds after the project is complete, because you would have been paid up front. Or if it's an on going project, monthly payments will ensure that you're getting some money up front so in the long run, you don't have to worry about trying to collect the money as the economy takes more turns.

Retainers are always a good idea to collect on any project you are working on. Retainers benefit the client and the vendor: the client knows the actual cost of the project, and they know it can't go over that amount; the vendor gets the money up front so they don't have to worry about tracking down payment when the project is complete. Since the economy isn't doing well, this is the time where the collection of retainers should be a priority. You never know if a company is going to diminish these days. If this happens, you most likely will not get paid for the services you performed. With the collection of retainers your company secures the payment, and can work on completing the job within the scope of the retainer.