2nd Largest Forging Player in India Reports Rs 270 Crore Inventory Shortfall Following Joint Fact-Finding Review

The report highlights weaknesses in the Material Management (MM) module of SAP, poor accountability for special SAP entries, and gaps in daily production tracking.

Ramkrishna Forgings Limited (RKFL) has reported significant inventory discrepancies following a joint fact-finding review commissioned by its Audit Committee to investigate concerns regarding stock accounting and inventory balances at its manufacturing facilities. The review primarily focused on the financial year 2024–25, with retrospective checks on earlier periods where possible.

The investigation was conducted by Salarpuria & Partners (Chartered Accountants) and CLA IVC LLP, supported by digital data analysis from CLA Indus Value Consulting Private Limited.

Scope and Methodology

The review involved a thorough physical verification of inventories across RKFL’s plants and third-party processors. It also included an internal controls review, bank and GST reconciliation, and digital analysis of laptops and communications of employees responsible for SAP data entries.

Key Findings: Inventory Shortages

The team found a total inventory shortage of 24,458 metric tonnes, rolling back to 23,650 metric tonnes as of March 31, 2025, and an additional 932 metric tonnes of scrap unaccounted for.

These shortages were valued at Rs 27,074.69 lakhs, of which Rs 22,052.43 lakhs relate to FY 2024–25 and ₹5,022.26 lakhs to the previous year. The net adverse impact on the company's net worth stands at Rs 20,260 lakhs, or 6.73 per cent of its net worth as of March 31, 2025.

Causes of Discrepancies

Key issues identified include:

• Erroneous SAP Entries: The frequent use of movement type 309 for stock rectification led to incorrect inventory balances.
• Inadequate Process Controls: Shortcomings in in-process WIP reporting, especially at Plant VII, and lack of documentation for kerf loss, size variations, and destructive testing losses.
• Reporting Lapses: Delays in production reporting and over-reliance on BoM (Bill of Materials) estimates instead of actual consumption, leading to inaccuracies.
• Scrap Accounting Issues: Improper use of SAP movement types for stock adjustments and insufficient tracking of scrap material.

Internal Control Weaknesses

The report highlights weaknesses in the Material Management (MM) module of SAP, poor accountability for special SAP entries, and gaps in daily production tracking.

Other Observations

• Digital Data Review: No conclusive fraud evidence was discovered, but there were concerns over lack of documentation and SAP access control.

Management’s Response

RKFL’s management has acknowledged the findings and will take disciplinary action against employees found responsible. The company plans to strengthen internal controls, limit manual SAP interventions, and appoint an external SAP consultant to review production and inventory processes. Recommendations from the consultant are expected within four to six months.

This development marks a critical step for RKFL as it works to restore confidence through corrective action and enhanced internal oversight.

Disclaimer: The article is for informational purposes only and not investment advice.