The Wet Stock Reconciliation Management

Introduction to Wet Stock Inventory

In every business, knowledge of the inventory processes is crucial in controlling losses and analyzing abnormal gains. Basic management teaches the flow of product inventory – beginning inventory + purchases – sales – losses = ending inventory.  The cycle of product inventory or dry stocks goes on and thus eventually valuates the inventories of the business at a given point in time.  In gasoline service stations, the flow of product inventory is calculated through the Wet Stock reconciliation (WSR) process.   The valuation of the product inventory is in dollar amounts shown as a snap shot in the assets portion in any given point of time in the balance sheet of a company. 

The WSR process follows the basic flow of the physical product inventory: beginning inventory + purchases – sales – losses = ending inventory. In terms of fuels, the standard physical count is not practical since fuels are volatile and are stored in Underground Storage Tanks (UST). 

In the schematic diagram shown above, emphasis is made on the UST – fuel products are stored in a UST down-below the service station. Thus, the fuels are not seen physically and its volatility is always subject to the Wet Stock Reconciliation principles.

The Wet Stock Reconciliation 

The Wet Stock Reconciliation or WSR is the process of reconciling values of the pump meter readings of fuels dispensed from the dispensing pumps when sold to customers (or fuels dispensed for other purposes) and the values of the readings of the dipsticks when dipped into the under-ground storage tanks (or UST) to measure the levels of the fuel in each UST.   The comparisons of these values derived from each reading result to variations yielding to either acceptable or unacceptable variances.  The latter, unacceptable variances either yield product losses or abnormal gains which is not good in the operations management . 

Nowadays, storage capacities of UST ranges from 4,000 gallons to about 12,000 gallons.   Fuel inventories stored into these UST thus, means a huge investment amount of bulk inventories that should always be accounted and cared for. This is where Wet Stock Reconciliation (WSR) comes into play if you want to safe-guard your investments.  Since WSR is a critical process of bulk fuels management, service station personnel, particularly the Station Dealer and/or his/her Station Manager(s) must know and diligently maintain accurate pump meter reading and dip reading records to effectively control fuel products delivered to, stored into and sold from each and every UST.   Accurate records will minimize the risk of fuel product losses either through leak because of faulty equipment and/or theft due to human greed and dishonesty at the earliest possible time.  It must also be noted, accurate records meet local government compliance requirements and not to mention prevention of leaks that is real costly both to the oil company and the Station Dealer. 

Responsibilities 

The WSR process is an inventory control procedure accepted and practiced worldwide be it manual or automated.   The inventory concept of WSR is to monitor the fuels stored in the UST, products you actually can’t see nor feel unlike physical products inventoried in warehouses, and trigger an immediate investigation upon detection of significant variances.  Oil companies have standard investigation forms introduced and cascaded with the service station dealers.  It is the responsibility of the service station dealers to maintain accurate records at all times and report abnormalities whether a loss or a gain with the oil company promptly.   

A loss in inventory is imminent when variances fall below the threshold.  Industry standard threshold is presently agreed at +/- 5% tolerance level in all standard sizes of the UST. However, when variances go above the threshold, it is either fuel products were delivered more than expected or there is a surge of water inflow into the UST.  Water may move in and out of the UST due to changes in under ground pressure. Evidence of substantial water in the UST should be reported to the oil company for corrected action. 

In the dipping of the USTs , every UST should be check for water levels. And this is done by using a water finding paste. The end of the dipstick is coated with the water finding paste of about 1 to 2 inches and when the dipstick is dipped down to the floor of the UST. Normally, water is present inside the UST and accumulates down below overtime, below the fuel product since water is naturally heavier than fuel. And normally, the paste turn pink with the presence of water. However, what is necessary to check is how much water content is inside the UST. If the pinkish color reaches the about 1.0 to 1.5 inches, it is note worthy to start observing subject UST.   

Computation 

Computing gains or losses in the wet stock reconciliation is straight forward just like in the basic flow of physical product inventories learned in basic management courses: beginning inventory + purchases – sales – losses = ending inventory.  Gains and losses are readily recognized in the product inventory process through physical count.  However, in the world of service station’s wet stocks, the dipstick readings and pump meter readings are reconciled to calculate gains and losses, in lieu of the physical count. 

In WSR, the Gain or Loss is basically derived from the Closing Dipstick Readings, Beginning Dipstick Readings, Fuel Deliveries and Sales from the pumps or dispensers. 

Gain/Loss (GL) = Closing Dipstick Reading – (Beginning Dipstick Reading + Deliveries – Fuel Sales)   

Ideally, fuel sales are the differences in pump meter readings of each dispensing pumps taken at the beginning of a shift and/or day and at the end of a shift and/or day. These readings are tabulated per dispensing pump and then calculated by fuel product by the Shift Supervisor. These computed sales reports derived from the dispensing pumps are submitted to the Service Station Manager for consolidation.

Trigger Limits 

• Industry standards trigger a monthly limit on gain and/or loss of +/- 5%;  
• And after five consecutive days of unexplained gain/loss;  
• 18 days of unexplained gain/loss in the month;  
• Water levels greater than 2.5 centimeters or 1 inch and/or unexplained sudden drop or gain in water levels.   
• Unexplainable high loss or gain in a single day or two consecutive days; 
• Obvious signs of leak were observed which includes discovery of regulated substances around the tank farm (fuel products or fuel vapors in solids, utility lines or nearby surface waters); 
• Extensive cracking, softening, or setting of pavement. 

These trigger limits call for service station management’s attention ensuring records are logically correct and properly reconciled before calling the attention of the oil company and the local authorities.  

Continuous occurrences of above trigger limits should call our attention to pay attention to irregularities such as physical dip readings of tanks that are deemed poorly taken, incorrect dispensing pump meter readings, fuel invoices that have been inaccurately recorded and/or not entered, pump calibration is incorrectly performed, short fuel deliveries, theft, sales made at the end of the day/shift when dips and meter readings are made.  

Inventory Reconciliation 

If these trigger limits are not possible to be resolved at the service station level and persist to exist inspite of all irregularities have been addressed, next level of assurance is to check and rectify the following: 

•  Under dispenser riser pipes 
• Connection on UST sump 
• Fill pipes on spill containers 
• Brine solution levels for double –walled fiberglass USTs 
• Observation Wells 
• Pump/dispenser hosses 
• Pump/dispenser nozzles 
• Manways. 

Where fuels are found physically through visual inspections and/or through pressure tests, once confirmed there is leaks, repairs or replacement of the equipment must take place. Thus, seeking the help of the oil company with their remediation expert is now necessary. Eventually restoring the service station’s credibility to serve its community again. 

 In Essence

Service station management, that is the Dealer and/or the Station Manager, are responsible for keeping complete and accurate Wet Stock Reconciliation (WSR) records at all times not just for legal and regulatory purposes but to ensure safety.  At this point, regardless of a service station is fully automated or not, it has been stressed obviously the necessity of acquiring accurate readings at all times – dip readings of USTs, pump meter readings of dispensing pumps, invoices and calibrations. And, the diligence of populating the WSR report at all times to achieve a reliable WSR process.