What is an Accountant’s Role in Product Recall Management?
In our 12-step series, Roles That Are Typically Involved in Product Recall Plans, we are diving into each department’s role in product recall management. This is Part 1- Accounting’s Role During a Product Recall.
When navigating the murky waters of product recall management, the product manager might be the captain of the ship, but she doesn’t sail alone. There are all kinds of departments involved in product recalls, from quality assurance to records management. The accounting department is, arguably, one of the most important. Responsible for handling all the financials associated with product recalls, accountants play a significant role and can speed up recall responses considerably.
In this guide, the first of our new 12-part series, learn the roles and responsibilities of the accounting department during a recall.
What Does an Accountant Do?
Product recall management might be important, but it’s expensive. Organizations need to continually monitor recall notices from the Food and Drug Administration (FDA) and other federal/state agencies and remove dangerous/faulty materials and products from supply chains and the marketplace.
Some of the costs associated with product recall management include:
- The expenses involved in recalling products
- Lost profits because of unusable products
- Potential lawsuits when organizations don’t take action quickly enough
An accountant manages all of these costs and identifies money-saving strategies in the product recall process.
What are the Roles and Responsibilities of the Accounting Department During Product Recalls?
Accountants have various roles and responsibilities when managing product recalls.
Audits
Accountants establish audit protocols for product recalls, making it easier to identify financials before, during, and after the recall process. Good accountants review these protocols regularly.
Mitigating Financial Risk
Product recalls have a negative financial impact. Organizations might need to destroy unsellable products or unusable materials as a result of a government recall notice, for example. While accountants can’t mitigate financial risk completely, they successfully monitor the recall process and quantify potential damages.
Financial Reports
Accountants prepare financial reports that assess the potential impact of product recalls on an organization, including profit and market share loss. Good accountants continually monitor the financial impact of product recalls.
Penalties/Lawsuits
Although attorneys deal with penalties and lawsuits that arise from poor product recall management protocols, accountants evaluate the financial risks associated with government enforcement action and litigation.
Cost Assessments
Accountants assess the cost of product recalls, which include:
- Repairing faulty equipment
- Replacing products
- Shipping expenses
- Hiring additional labor to manage recalls
- Administrative expenses
Accountants update an organization’s balance sheets and cash flow statements accordingly.
Compliance
The accounting team ensures their organization adheres to all financial compliance frameworks and guidelines. Failing to do this can result in penalties.
The accounting department works closely with the product management team and other departments when managing product recalls.
Why is the Accounting Department So Important for Product Recalls?
Few organizations realize the financial consequences of bad product recall management until it’s too late. Research shows that food recalls, for example, cost organizations an average of $10 million. This is money most organizations just can’t afford, especially in the current economic climate.
Poor product recall response times also result in lost customers. Another study suggests that 21 percent of consumers wouldn’t buy products from a manufacturer impacted by a recall.
It’s the job of a good accountant to keep an eye on financials so organizations save money on product recall management.
Why Accountants Need Digital Tools
The most successful accountants use the right digital tools to manage product recalls. This makes their job a lot easier. A good product recall management system, for example, lets accountants handle the financial side of recall management from one centralized system, eliminating the need for lots of different programs.
It’s not just accountants who use recall management systems. Various departments share resources and automate many of the tasks associated with recall management from these valuable digital tools. This makes it easier for the entire organization to adhere to recall requests from the government and avoid litigation and enforcement.
Trievr is a product recall management system that includes real-time dashboards, collaborative tools, auto-alert reminders, and other useful features, making it a crucial component of the product recall process. Unlike some other systems, Trievr provides accountants with an extra level of security, making it easy to store and manage sensitive financial data. Trievr is part of the EU-U.S. and Swiss-U.S. Privacy Shield frameworks and never shares financial data.
Final Word
People think product managers are the only ones responsible for product recalls, but this couldn’t be further from the truth. There are different department roles during a recall, and accountants have various responsibilities, making them a vital part of the recall process.
Looking for a product recall management system for the accounting department? Trievr has you covered. Use it to facilitate the financial aspect of recall management with collaborative tools, real-time dashboards, and useful templates. Click here for a live demo.
Learn Part 2: What is the Customer Service Departments Role in Product Recall Management