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Logistics represent the activities a company goes through to move goods through different distribution points. A freight audit allows a company to examine, adjust, and verify freight bills for accuracy. This process begins by collecting freight bills from vendors; the company’s employees then enter the bills into a computerized accounting system. Accountants review each bill for items like mileage rate, accessorial charges, and tariffs. The purpose of a freight audit is to ensure the validity and accuracy of each bill.
Shipping and freight can be large expenses for certain companies. Those in the retail industry or food service industry are those most affected by freight. Increasing oil and gas prices can also make a freight audit more important. Companies often pass shipping and freight charges on to customers. Failing to maintain accurate records for these charges can result in higher costs with no offsetting price increases to ensure level profits.
The freight audit may be a periodic review process. Accountants can spot-check a few invoices each month to ensure that no excess charges exist. Large companies often employ a freight or logistics analyst. This employee is the intermediary between freight companies and the company. His or her job is to enter all the management-approved invoices into the system upon receipt; questionable invoices require correction prior to entering them into the system.
Three different methods are available for going through freight audit procedures. Manual matching requires accountants to review each invoice by hand for identified items. Software may be programmable to report exceptions when freight costs are above a certain level. Outsourcing is the third option. Companies can hire an outside company to work through freight and shipping invoices to look for discrepancies.
Another purpose of the freight audit is to ensure a company receives all discounts given by vendors. Most freight vendors offer percentage discounts for certain shipping volumes. The freight audit ensures no bills go without receiving the proper discount. Special charges applied to freight bills are also subject for review. Accountants must discern why these are on the freight bill and how to code them into the general ledger.
Computerized accounting or management systems are typically a must for the freight audit process. This allows for the near-instant receipt of bills and invoices for review. Accountants can receive the bills in a timely manner to ensure the company does not pay too much money prior to reviewing the freight bills.