Codes of Conduct for Supermarkets

Codes of Conduct for Supermarkets

Best Practice Guidelines for the Supermarkets

 Introduction

             Commitment to lawful and ethical practices is the key to good governance in the running of a business. It is advisable for supermarket operators to issue a Code of

             Conduct to staff, stating the company’s commitment to ethical and lawful practices and

            setting out the proper practices and standards required of them. A well established

            Code can help prevent corruption and fraud, build the company’s reputation, as well as

            enhance the trust of customers, suppliers and business associates.

           

            In appointing term suppliers (e.g. vendors running concession counters in supermarkets

            in the chain), supermarket operators could require them to issue a similar Code of

            Conduct to their employees (e.g. the on-site staff manning the counters).

            Regarding fair trade practices, supermarket operators may also wish to make reference

            to the Good Corporate Citizen’s Guidelines provided by the national consumer council.

            Code of Conduct

            The Code (a sample code obtainable from the Advisory Services Group, should include the following key elements:

            • Corporate commitment to ethical practices;

            • Rules governing acceptance of advantages and acceptance of entertainment;

            • Requirements to avoid and declare any conflict of interest when performing official

            duties (e.g. when making procurement) and the procedures for handling such

            declarations;

            • Requirements to protect confidential and commercially sensitive information

            obtained through work;

            • Requirements to maintain proper books and records;

            • Requirements to comply with investment restrictions;

            • Requirements to report breaches of the Code and other matters of concern to the company;

            • Obligations to comply with all relevant laws and regulations; and

            • Rules governing relations with suppliers, customers and business associates.

            Further elaboration of some provisions in the Code is explained below.

           

            CODE OF CONDUCT

            Corporate Commitment

            The Code should include a statement of commitment that the company:

            • Admits that integrity, accountability and fair competition are the company’s business

            conduct;

            • Adopts “zero tolerance” against corruption, fraud and malpractice;

            • Demands the highest standards of business ethics from all staff members and expects

            all suppliers and business associates to conform to these standards;

            • Regards highly its moral and legal responsibilities in ensuring the health and safety of

            customers as a retailer of food products; and

            • Seeks to provide an efficient and courteous customer service.

            Acceptance of Advantages

            Staff, in particular those responsible for procurement of food items and goods for sale

            at the chain stores, may be offered samples of food or goods, some of which may be

            expensive. Some may even be offered commission by suppliers. As

            such offers may be bribes in disguise and acceptance may affect one’s objectivity in

            conducting business, supermarket operators should have a policy prohibiting employees

             from accepting advantages which include any gift, loan, commission, employment,

            contract, services, etc., from persons with whom they have official dealings.

If employees are allowed to accept token gifts, the permissible value should be specified.

            Acceptance of Entertainment

            Entertainment is an acceptable social activity, but extravagant and frequent

            entertainment offered to the staff by suppliers or business associates may be a calculated

            act to “sweeten” them in order to build up a store of goodwill for future demands of

            favouritism (e.g. in the selection of suppliers). Supermarket operators should issue

            guidelines, advising the staff in particular the procurement staff and their supervisors

             to avoid accepting meals or entertainment that are excessively lavish or frequent.

           

            Conflict of Interest

            A conflict of interest situation arises when the private interest of staff competes or

            conflicts with the interest of the company. The staff should be advised to avoid any actual or perceived conflict of interest and to report to their supervisors when such a situation arises.

             Examples of Conflict of Interest

            It would be helpful to staff if examples of conflict of interest could be provided in the

            Code of Conduct. The following are some examples of conflict of interest situations that

            may arise from procurement activities, staff administration and supervision:

            • A staff member involved in the procurement process has financial interest in a

            company which is being considered by the supermarket operator in the selection of a

            supplier.

            • A supplier under consideration in a procurement process is a close friend or relative

            of the staff member responsible for the procurement.

            • A staff member invests in the business of a supplier who supplies goods to the chain

            store under his supervision.

            • A candidate under consideration in a recruitment exercise is a relative of the staff

            member responsible for the recruitment.

            • A staff member responsible for appointing transport service providers engages

            the selected contractor to provide him with free transport services or services at a

            discounted price for personal use (e.g. home moving).

            Handling of Confidential Information

            Staff may have access to confidential information such as commercially sensitive

            information relating to the supermarket’s business.

             Information Systems Security

            To protect the interest of the operator and to prevent abuse, the classification of

            information should be made known to all staff. Restriction on access to confidential

            information should be clearly defined. While individual staff members should be held

            responsible for the protection of the confidential information in their possession, the

            management should ensure that there are adequate safeguards to protect data integrity

            in the computer and sufficient physical security in the office.

             

             Internet and Email Usage Policy

            To ensure the internet and email are used for official purposes and to protect proprietary

            and confidential information privy to the company, there should be a clear policy

            on the usage of office internet and email by staff to restrict usage mainly to company

            business. Examples of authorized usages (e.g. for company-based research and business

            dialogues) and unauthorized usages (e.g. for online personal shopping) should be

            provided to staff. The company should reserve the right to monitor all email messages

            and internet usage.

             Staff should be required to avoid inter-departmental communication of confidential

            information (e.g. bidding prices and schedule of spot checks by the quality assurance

            team). Staff should consult the management if in doubt.

            Investment Restrictions

            There should be clear guidelines governing investments by staff, e.g. staff should be

            prohibited from dealing directly or indirectly in the company’s shares or other shares of

            any listed company at any time when he is in possession of information obtained as a

            result of his employment by or his connection with, the company or its Group, and the

            information is not generally available to the shareholders of the company or the public.

            Effective Enforcement

            To effectively enforce the Code of Conduct, the company should ensure that it is :

            • issued with the full support of the management;

            • incorporated in the company’s staff handbook issued upon appointment and strictly

             enforced;

            • promoted through continuous capacity building workshops to foster good practices;

            • communicated to suppliers, clients and business associates to ensure that they are aware of the company policy and the ethical standards expected of the staff; and

            • updated as necessary.          

           

             PROCUREMENT OF FOOD AND GOODS FOR SALE

 Introduction

            Procurement of food and goods for sale is a core activity of a supermarket. To maximize

            business profit, it is important for supermarket operators to ensure that the food and

            goods purchased are value for money and are of the quality standard required. An

            effective and competitive procurement system helps achieve this purpose and makes

            good business sense.

            Procurement in a Supermarket Operation

            Procurement in a supermarket operation has its unique characteristics:

            • Food and goods purchased are for immediate sale to customers whose preferences

            must be accorded top priority.

            • As food safety is of great importance, the procurement and quality assurance

            personnel involved in the process, in particular those responsible for purchases of

            fresh food, must have the expertise and experience required.

            • Purchases of the majority of food items and goods are frequent and repeated but

            sourcing is on-going as there is a need for the procurement staff to proactively

            enhance the variety of products.

            • Procurement in supermarket operations is of high corruption risk as the chain

            supermarkets could provide guarantee for customers. Suppliers are therefore keen to

            approach the procurement staff and to maintain a long-term relationship with them,

            some may do this through improper means, as the latter could make decisions or

            make recommendations regarding the appointment of suppliers.

            Basic Checks and Balances

            A sound procurement system should have the following basic checks and balances :

            • select suppliers through competitive bidding and continuous review of their performance, inviting fresh bidding where necessary;

            • segregate duties as far as practicable (e.g. the front-line procurement staff should only take up an advisory role in sourcing suppliers for bidding instead of performing an

            executive function in the selection and appointment of suppliers and in approving

             the trading terms);     

            • designate approval authorities at the right level for purchases of specified financial limits and for approving different trading terms;

            • specify procurement methods for different types and values of purchases (e.g. inviting

            quotations or tenders based on the value of purchase);

            • specify the authority for approval of exceptional purchases (e.g. purchases from single source);

            • require the procurement staff to keep proper records for random supervisory checks

            and for audit purpose;

            • issue clear instructions and guidelines for staff’s compliance; and

            • remind the procurement staff to make declaration of conflict of interest to the company regarding their relationship with the suppliers periodically and at the

            beginning of major procurement exercises.

            Proactive Sourcing

            From time to time, the procurement staff may need to proactively source suppliers for:

            • operating concession counters (e.g. counters for flowers, or a bakery) in chain

            supermarkets;

            • Manufacturing and packaging the supermarket’s brand name food items or goods;

            • supplying food or goods in regular demand (e.g. vegetables, fruits and seafood); and

            • supplying food or goods on an ad hoc basis (e.g. organic food).

             Establishing Genuine Need

            To ensure sourcing of suppliers and purchases are primarily based on actual need, the

            following safeguards are recommended :

            • Procurement staff and their supervisors in charge of goods of the same category

            and of different categories should be required to meet periodically to discuss and

             exchange information regarding the market trend, new products and the popularity

            of existing products.

            • Decisions on inclusion of new products and concession counters, as well as deletion

            of old products should be made by a panel of staff at the appropriate level.

             

             Compiling Suppliers’ Lists

            In compiling the suppliers’ list, the following safeguards are recommended:

            • Considerations for inclusion of suppliers should be pre-determined for different categories of food items and goods (e.g. considerations may include availability of third party insurance, delivery trucks with an aeration system, a licensed private fish farm or a wholesale supplier with strong sourcing support, a client list, track record in the field, and years of experience).

            • Particular attention should be paid to the legal requirements.

            • Invitation to suppliers should be open and transparent as appropriate to avoid allegations of favouritism. If invitation is restricted, justifications should be

            documented.

            • Nominations of suppliers by staff or business associates based on personal

            knowledge should not be exempted from assessment against the pre-determined

            criteria.

            • Should there be a pre-qualification exercise (e.g. through the issue of questionnaires to suppliers), guidelines should be provided to the staff concerned, covering the

            criteria for assessment (e.g. track record and job reference) and the shortlisting

            method.

            • The shortlist should be reviewed and approved by a senior staff member.

            • Separate approved lists of suppliers should be kept for different food items or types of

            goods to facilitate selection of suppliers for invitation to bid.

            • The approved suppliers’ list should be properly managed and periodically updated

            with a view to admitting new suppliers and removing inactive or under-performed

            suppliers, taking into account the views of the procurement personnel. An

            independent third party should be assigned to undertake the overall management of

            the approved list.

            Inviting Quotations

            The following arrangements help enhance control and minimize the risk of

            manipulation in inviting bids from suppliers :

            • The listed suppliers should always be invited to bid on a fair share principle, i.e. all

            listed suppliers should be given a fair chance to bid. Any deviation from this practice

            should be justified and approved by a designated authority. 

            • The minimum number of suppliers to be invited for different values of purchases and

            the authority to approve the selection should be specified if not all listed suppliers are

            invited to bid. Responsible managerial staff should conduct random checks to see

            if the same few suppliers are repeatedly selected for bidding which is unfair to other

            listed suppliers.

            • Specifications of the required food items or goods, such as the price and description

            and the evaluation criteria in broad terms etc. should be included in the invitation for

            bids to enhance transparency.

            • All quotations, whether obtained verbally or by fax, should be protected from

             tampering or leakage before the deadline. Verbal quotations should be recorded

            or confirmed in writing as far as practical. A designated fax machine installed in

            a secure area or a computer terminal with password control should be used for

            receiving quotations by fax. All written quotations should be kept securely, preferably

            by a staff member not involved in the procurement process, to enhance checks and

            balances.

            • To prevent false quotations, a supervisor may randomly call the bidders to confirm the genuineness of the quotations received or contact the invited suppliers who have

            failed to return any quotation to see whether they have actually been invited to bid.

            • Records of quotations should be kept for random supervisory checks and audits.

            • Quotations should be opened after the deadline and recorded jointly by two staff members.

             Evaluation of Quotations / Tenders

            To ensure fair and objective evaluation of comparable bids, the following measures are

            recommended:

            • Quotations/tenders should be assessed by a senior staff member or a panel as far as

             practicable, taking into account the value of purchase.

            • Quotations/tenders should be assessed in accordance with pre-determined criteria

            (e.g. price, profit margin, profit sharing percentage in the case of concession contracts,

            suppliers’ track record, goods or food quality, and delivery efficiency) if price is not

            the only consideration. Justifications for departure from the assessment criteria should

            be documented.

            • For high value purchases where price is not the only consideration, a marking scheme

            with weightings for the respective predetermined criteria could be used for evaluation.

            • To facilitate evaluation, suppliers could be required to make a presentation before the

            evaluation panel where appropriate. The requirements for the presentation should

            be pre-determined and made known to the suppliers (e.g. samples of the product

            required, the outer packaging to demonstrate packing configuration, the market

            potential, and promotional activities for new products).

            • Expert advice (e.g. through scientific research conducted by reputable institutions or

            personnel) should be sought where appropriate, particularly in the evaluation of new

            products or food items that may have health and safety implications (e.g. imported

            food carrying a name which is not widely acknowledged in the local

            community or market) or that are not regulated under existing laws and regulations.

             Third Party Assessment

            Supermarket operators usually engage a quality assurance team to conduct quality

            control checks before and after the appointment of suppliers. As this is an important

            part of the appointment exercise, the following measures to enhance control are

            recommended:

            • For food items or goods purchased from local companies, staff should

            be given clear guidance on the scope of checks, particularly in respect of food

             items (e.g. the acceptable pesticide standard adopted by a farm and the requirement

            for proof of the checks conducted) to ensure that checks have been effectively and

            properly conducted.

            • For the sake of checks and balances, the quality assurance staff who conduct the

             pre-appointment checks on the suppliers should not perform the after appointment

             checks as far as practicable.

            • All spot-check schedules should be kept confidential and confined to the “need-to-know” to prevent leakage to suppliers.

            • Staff at outposts conducting checks on suppliers should be issued with specific guidelines on acceptance of offers of advantages and entertainment (e.g. standard of hotel accommodation to be accepted if this is provided free of charge by the supplier, and the entertainment acceptable from the company’s perspective).

           

             Negotiation of Trading Terms

            Negotiations with potential suppliers on the trading terms are common practice,

            covering among others payment terms, credit period, mode of deliveries, arrangements

            for promotional activities, incentive rebate, damaged goods allowance and display

            location, etc. To enhance control, the management may adopt the measures

            recommended below :

            • set the minimum goal to be achieved for each negotiation appointment (e.g. the profit

            margin for each item);

            • lay down the policy and procedures for offering trading terms to suppliers (e.g. the essential terms and approval authority);

            • have the negotiation conducted by a team comprising at least two persons as far as

            practical;

            • closely monitor the staff involved in negotiations with suppliers, in particular the new

            suppliers, e.g. through setting negotiation baselines and designating the authority for

            making decisions; and

            • review the terms periodically to ensure the offer is compliant with the laid down policies.

            Appointment of Suppliers

            The following measures to enhance monitoring are recommended prior to the formal

            appointment of a supplier :

            • Quality control check should be a prerequisite for final contract approval.

            • The accounts or finance department should counter check the approval authority

            and the contract terms, and obtain the required documentary proofs (e.g. copies of

            the supplier’s company registration certificates, company articles of incorporation and

            credit details such as bank account numbers).

            • The contract signed with the appointed supplier should contain clauses on protection

            of confidential information obtained during the course of business with the company

            and on prohibition of offers of advantage to staff of the company. The supplier should

            be required to guarantee that the products supplied are in absolute conformity with all

            local laws and the laws of the exporting country and country of origin as appropriate.

            • Contract terms should be subject to review by an independent third party such as the accounts or finance department prior to contract renewal.

           

             Performance Appraisal

            To ensure the suppliers’ performance is objectively appraised and sub-standard suppliers

            would not be corruptly tolerated, the following preventive measures are recommended :

            • subject the suppliers’ performance to periodic appraisals to ensure under-performed

            suppliers will not have their contracts renewed or will not be invited to bid in the

            future;

            • draw up a set of evaluation criteria (e.g. sales performance, service standard of   concession counters, food safety standard, and delivery performance);

            • adopt multi-tier performance appraisals to be conducted independently by the

            procurement staff, regional and area managers, store supervisory staff and the quality

            assurance team as appropriate;

            • put in place a disciplinary system to sanction suppliers who have been non-compliant

            with the contract conditions (e.g. issue of warnings or suspension from invitation to

            bid for future contracts); and

            • collect consumers’ feedback as an independent third party appraisal as appropriate.

           

             Contract Renewal

            To minimize abuse in contract renewal, the following measures are recommended:

            • lay down the criteria for renewing a contract (e.g. sales performance, market trends

            and issue of a staff code of conduct) and the approval authority; and

            • periodically review the need to conduct a fresh appointment exercise to enhance competition and to minimize the perceived over-reliance on a particular supplier.

            Handling Approaches by Suppliers

            Suppliers usually approach the procurement staff to promote their products for sale

            in the supermarkets. To ensure such approaches are properly handled, the following

            measures are recommended :

            • A procedure should be established for suppliers to introduce their products and the

            procedure, including the information required (e.g. company and product profile) and

            the criteria for evaluation, should be made known to all interested suppliers, via the

            corporate website or information leaflets.

            • The assessment of products by the procurement staff, rejections or recommendations

            for further assessment with justifications, and approval of appointment of the supplier

             should be recorded in the computer to facilitate future review.

            • Unsuccessful suppliers should be notified of the outcome.

            • The management should monitor any outstanding submissions (e.g. pending

            documents required) to detect any unnecessary or deliberate holding up.

            Sourcing Suppliers at Food Fairs

            To keep abreast of consumers’ need and market trends, the procurement staff may

            attend local or overseas food fairs to source potential suppliers of new food products.

            To enhance control, the measures to control handling of approaches by suppliers are

            applicable except that submissions are made by the procurement staff to supervisors.

            Changing Retail Prices

            Due to market re-positioning of individual products, suppliers may initiate retail price

            changes after the price has been agreed in the contract. To minimize abuse, the

            following measures are recommended:

            • All applications for price changes should be made in a standard form for approval at

            the senior level with a prescribed minimum of reasonable days of advance notice.

            • The approving staff should be prohibited from entering into any unethical retail price

             fixing arrangements with the supplier.

            • The management should be constantly wary of the market positioning of individual

             products, taking into account the changing market conditions.

            • A central unit of the supermarket operation should conduct price comparisons

            periodically, say weekly, to ensure the proposed price changes are reasonable.

            Handling of Goods or Food Samples

            Suppliers may offer samples of goods or food items to the procurement staff as a sales

            tactic. The offer of expensive samples like wine which have resale value may

            be a bribe in disguise to the staff in return for business. Supermarket operators should

            establish a system for handling of food or goods samples, incorporating the following

            safeguards :

            • There should be a policy prohibiting acceptance of food or goods samples by

             individual staff, unless otherwise authorized.

            • Receipt and disposal of samples with commercial value should be properly recorded

            in a register and subject to the supervisor’s random checks.

            • Evaluation of the quality of samples should be conducted by a team including managerial staff. To enhance objectivity, tasting of food or drink samples could be

            conducted without revealing the supplier’s identity to the evaluators.

           

             CHAIN STORE OPERATIONS

            Introduction

            This section focuses on the internal operations of supermarkets in the chain and should

            be read jointly with the section on Accounting Control in Chain Stores.

            Inventory Control

            Supermarket operators usually maintain a central warehouse for distribution of goods

            and food items to supermarkets in the chain and a store in each supermarket. While

            most stock items are distributed from the central warehouse to individual supermarkets

            in the chain, for some commodities (in particular those of a perishable nature, e.g. milk),

            individual supermarkets place order direct with the suppliers selected by the operator.

             Acceptance of goods by supermarket stores, in particular those delivered direct from suppliers, is an area prone to abuse. Compromised staff could cover up short delivery

            or accept goods or food items of poor quality. To deter malpractice, the following

            inventory control measures are recommended :

            • To enhance accountability, the staff responsible should be required to inspect and

             count goods/food items upon delivery against the quantity specified in the delivery

            note, cross-referencing the relevant purchase orders if any, and to certify acceptance.

            • There should be a procedure for staff to record defective or short delivered goods

             or food items and to follow up promptly with the supply department or the supplier

            direct.

            • The types and quality of food or goods to be replenished directly by the concession

            counter staff should be subject to checks before sale.

            • Random supervisory checks should be conducted on the quality and quantity of

            accepted food or goods, especially those of high value.

            Supervision of Concession Counters

            Supermarket operators may enter into joint ventures with vendors assigned concession

            counters (e.g. a bakery) in the chain stores. These counters are usually manned by staff

            from the vendors. To ensure they follow the supermarkets’ laid down service standards

            and business conduct, there is a need for supermarket operators to enhance supervision

            over these staff. The following control measures are recommended:

            • apply the Code of Conduct issued to the supermarket staff to these employees, prohibiting them from acceptance or offer of advantages;

            • require the store supervisor and the manager to monitor the concession counter staff

            to ensure they provide satisfactory customer service; and

            • prevent these counter staff from pocketing the sales income by putting up a sign asking customers to pay at the cashier counter only and compare customer patronage and sales income of the same concession counters in different chain stores with a view to detecting irregularities.

            “Planogram” Administration

            “Planogram” is a master plan of the physical display locations of various categories of

            food or goods in a chain store, showing among others the racks and number of shelves

            in a rack. As some positions may be deemed more “advantageous” for display purposes,

            there is room for manipulation by compromised supermarket staff who may allocate

            more “advantageous” display locations to the food or goods of a particular supplier.

            Supermarket operators may adopt the following safeguards to prevent malpractice:

            • have the “planogram” set by a department independent of the store operation

            according to predetermined criteria and prohibit store staff from being involved in the

            process; and

            • require the store supervisor or manager to conduct on-site spot checks to ensure that

            the items are placed correctly in accordance with the “planogram”.

            Racks or Locations for Promotional Items

            Some racks and locations in the supermarket are designated for promotional items.

            As some staff (e.g. the procurement staff) are authorized to supervise the usage of

            these racks or locations, there may be room for manipulation such as allowing non-

            promotional goods to be displayed on these racks. To prevent abuse, the following

            control measures are recommended :

            • require justification and documentation for recommending goods as promotional

            items;

            • seek independent views to enhance checks and balances (e.g. requiring the supply department to check the sales performance of the recommended goods for display in

            the previous promotion exercises);

            • set the promotional period (e.g. seven days) for a promotional item and require the

            store supervisor or manager to ensure the promotion deadline is strictly adhered to;

            and

            • lay down the criteria for extension of the promotion period (e.g. based on sales performance or availability of other promotional items).

            Product Recalls from Sale

            Sometimes, products which are potentially unsafe or not in full conformity with the laws

            and regulations are withdrawn from sale. To ensure the recalls are properly handled,

            the following safeguards are recommended :

            • establish a clear policy and procedures for withdrawing products from sale;

            • set the deadline for withdrawal of products; and

            • announce the recalls as appropriate.

            Site Checks

            Supermarkets in the chain are subject to different levels of site checks (e.g. by the

            regional and area managers, store supervisors and managers, the quality assurance team

            and the internal audit team). One of the purposes of these checks is to ensure the food

            items or goods on sale meet the required quality and safety standards (e.g. to ensure

            correct labeling and withdrawal of expired products). To enhance the effectiveness of

            these checks, the following measures are recommended :

            • keep the schedule of checks confidential and make it known only to the “need-to-

            know”;

            • supervisors should define the scope of checks and set the sample size for the respective persons or teams conducting such checks, and require them to record their     findings for management information; and

            • periodically engage “mysterious customers” , e.g. a professional survey company,

            to conduct checks and require the findings to be reported to the management and

            systematically analyzed and followed up.

           

             ACCOUNTING CONTROL IN CHAIN STORES

 Introduction

            Supermarket operators are not in short of professionals who oversee and handle their

            accounting matters. This section aims to highlight the malpractice and the preventive

            measures in the handling of sales transactions in supermarkets store, which are usually

            settled in cash, or by EPS (an electronic payment system) or credit card.

            Common malpractice in handling sales transactions includes non-recording or

            cancellation of bill items to pocket the sales income, credit card fraud, and pilfering of

            cash collection, etc. In supermarket operations, such risks may be mitigated by the use

            of advance billing systems and customers’ personal monitoring over the cashier counter.

            However, administration of refund to customers, shopping vouchers, gift redeem

            coupons and cancelled bills are areas vulnerable to abuse and malpractice.

            Operational Guidelines

            To ensure consistency in practice, staff should be issued procedural guidelines covering

            receipt of payments, recording of transactions, handling of cash registers, refund,

            shopping vouchers, gift coupons and receipt vouchers, and conduct of supervisory

            checks, etc. The level of staff and their responsibilities should be set out in the

            guidelines and the authority for approving certain sales transactions (e.g. refund to

            customers) should also be specified.

            Apart from the guidelines, it is advisable to generate daily and periodical sales and

             receipt reports to be prepared and signed by the staff responsible as this could provide

            an audit trail and enhance staff accountability.

           

            Recording of Sales Transactions

            While all sales transactions are recorded electronically using an automated bar-coding

            system, staff should be required to report any reversion to manual recording in case of

            system breakdown. Such records should be subject to supervisory checks.

           

            Cash Handling

            To prevent manipulation, the following control measures are recommended:

            • The guidelines on handling of cash should set the maximum amount of cash flow per

            day for each store, the banking frequency, and the requirement for daily cash position

            reports.

            • Notes handling procedures should specify, among others, the bank notes, e.g.

            UGX 20,000 notes and UGX 50,000 notes, to be tested using a money tester by

            a sales assistant and US $100 notes by a store supervisor; and the designated staff

            authorized to handle currency exchange and conversion in respect of UGX  

            shillings.

            • CCTV with tape recording facilities could be installed to monitor cash handling at the

            cashier counters if necessary.

            • A responsible staff member at the appropriate level should be designated to conduct

             day-end reconciliation of electronic sales records against the cash in hand and to make spot checks on other operational activities daily at random.

            • Compliance with cash collection security requirements by the staff responsible (e.g.

            keeping and handover of cash) should be subject to supervisory and audit checks.

            Refund to Customers

            Supermarket operators should lay down guidelines for making refunds to customers.

            Refunds made should be justified (e.g. damaged goods), authorized by designated

            staff, recorded for audit review, and the returned goods properly disposed of under

            supervision.

            Shopping Vouchers and Gift Coupons

            As vouchers and coupons have cash value, they should be subject to normal accounting

            control. The receipt, custody and disposal of these vouchers/coupons should be

            properly recorded electronically and be subject to random supervisory checks.

           

            Management Monitoring

            An effective management monitoring system could help deter and detect malpractice.

            Supermarket operators may require the stores to generate periodic computer reports for

             management information, such as reports showing the sales income, cash balance, sale

            of shopping vouchers and issue of the gift coupons, and refunds to customers.

            Handling of Credit Card Information

            Handling of customers’ credit cards is an area where malpractice is known to exist.

            Unscrupulous staff may accept bribes from criminal syndicates in return for capturing

            customers’ credit card information for the production of counterfeit cards. They may

            also corruptly condone the use of counterfeit cards. Such illicit activities are not easy to

            detect but if there is any suspicion of malpractice, supermarket operators should report

            the case to the relevant authority or Police as appropriate.

            The following preventive measures could help mitigate the risk of such malpractice:

            • Briefing sessions may be arranged for staff to raise their awareness of the criminality of such activities and the company’s disciplinary action if such activities are discovered.

            • Clear instructions should be given to staff on the handling of credit card transactions, e.g. requiring the handling staff to sign on the credit card payment slips to hold them

            accountable for the transactions.

            • Effective security measures should be adopted to minimize the risk of information leakage, e.g. to keep the credit card payment slips in a secure place with restricted access.

            • The staff should be informed of the channels for reporting approaches by criminal syndicates and incidents of suspected corrupt practices.

            Internal Audit

            Sales and accounting operations should be subject to internal audit.

           

             ORDERING, WAREHOUSING AND DISTRIBUTION

 Introduction

            In supermarket operations, stock control is important because the aggregate value

            of food items (e.g. wine and abalone) and goods in store is significant and, more

            importantly, they have a re-sale value. Moreover, control of fresh food items could be

            difficult because of their perishable nature.

            Malpractice, such as favouritism to suppliers by placing excessive orders for certain food

            items/goods, pilfering, and improper disposal of expired but usable items, will result in

            financial loss to the supermarket. Corruption arises if such malpractice is covered up by

            compromised or colluding supervisors. This section aims to help supermarket operators

            in setting up an effective store control system from making purchase requisitions and

            warehousing to distribution of food/goods to stores in the chain.

            Company Policy and Guidelines

            Supermarket operators should make known to all staff the company policy that any misuse or misappropriation of company assets and resources will not be tolerated.

            The staff and suppliers should be issued with clear guidelines on the handling of stocks,

            covering the procedures for ordering stock, acceptance of food/goods, distribution to

            chain stores, and disposal of surplus or expired stock. The levels of authority for various

            store control functions should be specified.

            Segregation of Duties

            To enhance checks and balances, the duties for making purchases, ordering stocks, receiving and issuing food items/goods, and stocktaking should be segregated as far as

            practicable.

           

            Ordering and Delivering Stock

            There should be established procedures with adequate safeguards for purchase

            requisitions and delivery of items, covering the following areas :

            • A standard requisition form, preferably in an electronic format to facilitate electronic

            data interchange between the operator and the supplier or sending of electronic fax,

            should be used to provide an audit trail. The form should show details such as the

            description, quantity and place of origin of the goods/food items required, the agreed

            price, the delivery address, the expected date of delivery, the name of the requesting

            person, and the approval authority as appropriate. Phone orders should be confirmed

            in writing afterwards. Any deviations should be approved by the appropriate

            authorities.

            • Supermarket operators usually set the target lead time for delivery by suppliers (e.g.

            local orders must be confirmed not later than 24 hours prior to the expected delivery

            date and overseas orders confirmed within seven days upon receipt of requisition).

            Any request from suppliers for extension of the lead time should be justified and

             approved by senior staff.

            • There should be clear instruction to the staff that over-deliveries or short-deliveries

            should normally not be accepted unless justified and authorized.

            • Suppliers’ performance in stock delivery should be appraised (e.g. whether there are

            incidents of short deliveries or delay in delivery, and the quality of delivered stock,

            in particular fresh food). The appraisal should be recorded as this provides useful

            reference in future selection of suppliers.

            Receipt of Food or Goods Items

            The following safeguards are recommended to ensure that only food items or goods of

            the quantity and quality specified in the purchase orders are accepted. For the receipt of

            general merchandise items, the following measures are recommended:

             General Merchandise Items

            • Before authorization of payment, random counter-checks on the stocks received

            against the purchase orders should be conducted by a supervisor or a staff member

            not involved in the placing of orders.

            • Procedures should be clearly laid down for reporting and handling of food items of

             poor quality and damaged goods, as well as any short-delivery and over-delivery.

            • Serially numbered receipts recording the receipt of goods (e.g. description of the food

            items/goods, quantity or weight) should be issued to the supplier and copied to the

            accounts or finance department.

           

            Fresh Food Items

            Receipt of fresh food items (e.g. meat, seafood, vegetable and fruit) is a vulnerable area

            because there are frequent deliveries (some on a daily basis), weight measurement could

            be disputed and easy to manipulate, and they are perishable in nature. Some fresh food

            items are processed before distribution to supermarkets in the chain for sale (e.g. cutting

            and packing).

            Apart from the safeguards for the receipt of general merchandise items, the following

            measures are recommended:

            • Supervisors of the food receiving and processing teams should have the relevant

            expertise and experience. They should be required to closely monitor the receipt,

             processing and issue of food items to ensure that the process is proper and complies

            with the laid down instructions (e.g. the industry approved frozen or chiller

            requirements such as temperature requirement) as this is important to assure the

            quality and hygiene of food.

            • The transaction records should be properly kept, preferably in a computer and

            updated daily. A designated staff member should reconcile daily the quantity

             received and delivered to the supermarkets in the chain, taking into account the percentage of wastage due to food processing.

            • Quality assurance staff not involved in the process should be assigned to conduct spot

             checks on the acceptance and processing of food items, recording any poor quality or

            short-delivered items or improper processing for follow up action.

            Issue of Food Items or Goods to Supermarkets in the Chain

             Issue of stores with the aid of computer systems could help record and monitor

            individual supermarkets’ consumption rate. The issue of food items on a “first-in-first-out”  basis, in particular those items with a specified consumption date or shelf life, should also

            be electronically monitored.

            The number or weight of the food items should be confirmed in writing by the receiving

            stores.

           

            Physical Security

            To prevent theft or pilfering, stock items are usually kept in a secure warehouse with restricted access to authorized staff only. Items of high value should be kept under lock

            to enhance security and the key holders be held accountable for the stock. CCTVs may

            be installed to monitor access to the stores for keeping expensive items.

            Independent Stock Checks

            Stock checks could help detect and deter malpractice in stores management. An

             independent checker or team could be assigned to conduct periodic stocktaking

            exercises whilst the warehouse supervisor should make regular surprise stock checks.

            An effective stocktaking mechanism should include the following safeguards:

            • The frequency, scope and sample size of the checks should be predetermined.

            • A master inventory record of all stock items should be compiled to facilitate stock checks.

            • Procedures should be established to handle discrepancies identified in stock checks, including investigation and reporting to the appropriate authority.

            • Staff at the appropriate level should be designated to approve any amendment of

             stores records as a result of the stock checks.

            Disposal of Stocks

            Senior staff of supermarkets should tightly control the disposal of stock items to ensure

            that substandard food items or goods and those that have reached the expiry date will

            not be sold to members of the public.

            The following safeguards are recommended to minimize malpractice:

            • Supermarkets should have a clear policy prohibiting staff from putting up such stocks

             for sale.

            • The disposal of stock items should follow established policies and procedures,

            including inspection, approval and supervision of disposal.

            • If a “total dumping policy” is adopted, a designated staff member at the appropriate

            level acting as a witness should be assigned to make sure that all written-off items

             are destroyed and disposed of as waste.

            • Disposal records should be kept and certified by the staff responsible.

           

             GOOD GOVERNANCE AND INTERNAL CONTROLS

 Introduction

            In the foregoing sections, measures to prevent malpractice and abuse in specific

            operations of a supermarket are recommended for adoption. To ensure that the

            measures adopted are understood and accepted by staff for implementation, an effective

            internal control system is important. Of equal importance is good governance and

            ethical practices to help sustain the effectiveness of internal control.

            This section provides a checklist of measures which could help supermarket operators

            enhance internal control and effectiveness in management.

            Good Governance and Ethical Practices

            Supermarket operators should publicly commit to good governance and ethical

            practices. Good governance requires commitment from the management to put ethics

            into practice in the company. The values and attitudes held by the management exert

            great influence on staff. Senior managers and managers of supermarket operations

            should lead by example and commit themselves to ethical practices and personal

            integrity. If an ethical culture forms the basis upon which every staff member makes

            business dealings, the supermarket operator’s image can be enhanced, overall efficiency

            improved and customers’ trust fostered. This in turn will enhance the operator’s

            competitive edge and profitability.

            Internal Control Systems

            The following are key considerations in the setting up of internal control systems:

             Setting Sales and Staff Performance Benchmarks

            • Avoid setting unrealistic sales quotas for staff so that they have to look for shortcuts or

            resort to unethical or illegal practices to meet quotas.

            • Monitor and assess the performance of individual staff, e.g. by comparing food items

            or goods for sale in supermarkets in the chain and the overall sales performance of

            individual chain stores.

            • Make performance benchmarks known to all staff and use a standard performance

            appraisal form.

             Laying Down Clear Policy and Procedures

            • Lay down guidelines and instructions the policies and procedures for dealing with

            suppliers, customers and business associates, etc., highlighting the ethical and legal aspects.

            • Organize capacity building workshops for staf as frequent as necessary.

            • Ensure suppliers, customers and business associates are well aware of the company policies and business culture.

             Defining Staff Responsibilities

            • Define clearly the roles and responsibilities of each level of staff to enhance

            accountability.

            • Lay down clearly the approval authorities for business or operational decisions.

            • Allow discretion to be exercised only by staff at the appropriate level and with the

            required experience or expertise.

             Segregating Duties and Functions

            • Segregate the key duties and functions to enhance checks and balances.

             Safeguarding Sensitive Information

            • Properly classify and physically secure sensitive or confidential information.

            • Adopt measures to prevent unauthorized access to sensitive or confidential

            information stored in computer systems.

             Initiating Effective Supervision

            • Require supervisors at different levels to conduct supervisory checks.

            • Require supervisors to report observations and actions taken if any.

             Producing Management Information Reports

            • Require staff to keep accurate and proper records of major activities (e.g.

            documentation of tender exercises).

            • Establish an effective information management system to ensure that useful data are

            produced regularly for management information.

             Enhancing Checks and Balances

            • Initiate independent internal or external audit on the activities of supermarkets in the

            chain, apart from revenue audits.

            • Engage independent third parties (i.e. “mysterious customers”) to patronize the chain

            stores as customers and obtain feedback from them.

             Establishing Channels for Complaints and Feedback

            • Establish and publicize the channels for complaints or feedback from staff, customers

            and suppliers.

            • Handle complaints promptly to show the management’s determination to address the

            problems identified.

           

            ADVISORY SERVICES

            Apart from this Best Practice Manual, a series of Best Practice Modules on systems

            such as procurement, staff administration, administration of maintenance and repair

            works, etc. are also available for your reference. They can be obtained from the advisory

             services groups of the Corruption Prevention departments which provides free,

            confidential, and tailor-made corruption prevention advice to private organizations on

            request.