Packaging audit

Streamlining accounting and auditing of packaging reports

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The accounting and preparation of packaging reports has become better over the years and the awareness of the importance of accounting more but there are still shortcomings in packaging reporting.
Concerning the accounting and preparation of packaging reports, attention must be paid on the following topics:

In some cases, the errors are specific and affect an individual company, but many are recurring. In this article, I list some of the standard errors we have noticed in companies’ reporting on packaging and I provide advice for avoiding these mistakes.

From the point of view of the packaging undertaking, it is important to make sure that in the course of everyday business activity, accounting is kept properly on different categories of packaging, such that it ensures that data are correctly recognised in the packaging report. An audit of the packaging report must be ordered if the threshold arising from legislation is reached. In the last few years, amendments have been planned in the current Packaging Act, which will result in an easing of the administrative burden for packaging undertakings. One key change is the raising of the threshold to 20 tonnes, which will help packaging undertakings with smaller volumes avoid the audit obligation. It is very likely that the draft amendment to the Packaging Act will be approved in 2021 and after that, we can discuss the impact of the new amendments in more detail.

Going back to packaging accounting – if packaging accounting policies and procedures are not in place, there may be difficulties verifying data set forth in the packaging report, and that could mean sanctions.

Below, I list the main problems that can arise in packaging accounting and how they can be resolved.

1. Actions needed for smooth preparation of packaging reports

The typical packaging undertaking is a company that buys goods and resells them. Sometimes it is believed that if the company itself does not engage in packing the goods, but merely buys the packaged goods and sells it in Estonia, it does not have a duty to keep packaging accounting. But this is not always the case.

If a company buys goods from the Estonian market, it is not the first importer of the packaging and in such a case it is true that it does not need to keep accounting on packaging. But if the goods are imported from outside Estonia in packaged form, the company is considered the first importer and is obliged to keep accounting and declare the packaging.

Broadly put, if a company is engaged in the sale of goods, it is likely that it will have to deal with packaging somewhere along the line: it will have to keep packaging accounting and submit a packaging report to the recovery organisation. Even if a company buys goods in Estonia and sells it in Estonia, but uses a plastic bag to package the goods for the customer, it is still defined as packaging and the company is required to keep accounting on and declare the packaging. A good practical possibility for accounting for packaging (such as for plastic or paper bags) is to recognise them in the warehouse module and in the course of each sales transaction, add them separately to the invoice.

Most packaging undertakings have delegated the function of packaging collection to a recovery organisation: Tootjavastutusorganisatsioon OÜ, MTÜ Eesti Taaskasutusorganisatsioon and Eesti Pakendiringlus OÜ.

Some mistakenly believe that once an undertaking has joined a recovery organisation, the undertaking does not need to deal with packaging reporting. While the packaging undertaking is no longer bound to collect packaging from the market and obtain a recovery certificate once it joins the recovery organisation, it is still required to keep consistent accounting on packaging and declare adequate data to the recovery organisation. On the basis of the declarations, the recovery organisation can carry out the necessary recovery activities.

2. Different interpretations of what must be declared and what does not have to be declared

According to the Packaging Act, the categories of packaging material are:

  • glass,
  • plastic,
  • paper,
  • paperboard,
  • metal,
  • wood and
  • other materials.

For the undertaking, declaration of reusable packaging can be confusing (this is mainly in relation to wooden pallets), and there continue to be different interpretations on accounting for such packaging. Reusable packaging is to be declared when it is recycled in Estonia or becomes waste. Accounting must be kept and declarations filed on imported pallets and new unused pallets purchased from Estonia for packaging new goods.

Companies are often unaware that besides the goods’ direct packaging, pallets on which goods are delivered must also be accounted for and declared. A possible option for tracking movements of pallets is to include accounting for them in inventory records, which gives a better overview of pallets circulating during purchase and sale transactions. For reusable packaging, it is often hard to define the point where it should be declared and there is not always a uniform solution for this case.

Selling packaging

It is allowed to sell packaging collected in the course of the company’s activities, but it is not permitted to deduct the corresponding quantity on the packaging report.

Accrual of packaging in production

If a company is a producer and uses plastic, cardboard etc, as a raw material, it does not need to declare plastic or cardboard left over from production. In this case, the material is considered surplus raw material and not packaging; as such, it is not subject to declaration on the packaging report.

Due to the specific nature of some companies, there are different interpretations and it is not possible to list all of them. The problem areas generally stem from companies’ area of activity and specific features. It is necessary to take an approach based on activity and situation and find the recognition method that is most appropriate. I recommend contacting a packaging report auditor for consultation, though it is also possible to get information from a recovery organisation or Environmental Inspectorate specialists.

3. Conducting a packaging report audit

According to legislation in force, the packaging report obligation applies to packaging undertakings who place on the market packaged goods with a packaging weight of more than five tonnes per year. Undertakings whose reported packaging weight is under that level are exempt of the auditing obligation, but must nevertheless keep consistent packaging accounting.

For the last few years, the parliamentary environmental committee has been discussing draft amendments that would make the threshold higher but proceedings have not yet been conducted on this proposal and the old thresholds are still in force. In addition to increasing the threshold, the draft legislation also includes a key change in that the packaging undertaking would be released from the obligation of auditing data to be filed to the registry for the subsequent three years, if they have received an unqualified auditor’s report as a result of the audit of the packaging report. This will certainly be a major motivator for packaging undertakings to review the principles for compiling their packaging report.

4. Preparing for a packaging report audit

Now that the busiest period for auditing packaging reports is arriving, it will be necessary to review the basis for keeping packaging accounting (accounting software, warehouse accounting, separate accounting not in the software accounting system, etc.).

It is certainly important to make sure that if software is used, the changes in packaging are taken into consideration consistently. It is useful to implement routines in the course of which recognition of packaging in accounting software or warehouse accounting is verified at a certain interval, to make sure that the details of the packaging in the packaging reporting are correct (e.g., the type, mass etc. of the packaging have not changed).

In the course of the process described above, the mass of the packaging material and the recognition method, who the packaging weight data were obtained (did the undertaking itself weigh it, or were the data from the supplier of the packaged goods, etc.) must be documented as a set of written guidelines. A situation seen frequently is that packaging matters were once mapped at a company but then, over time, the type, mass and nature of the packaging changed.

Unless the principles that are the basis for packaging accounting are checked periodically, there may be inconsistencies in the declared packaging mass, which could lead to a situation where the packaging placed on the market is declared in a lower amount and there is the risk that the undertaking will have to pay a packaging excise for the undeclared packaging.

Dealing with these topics in-depth is an opportunity to make the process of preparing packaging reporting more streamlined part of everyday activity. Auditing the packaging report for a calendar year will also become more efficient. Above all; this is because companies will have done the important homework to bring packaging reporting into conformity with requirements of legislation, thereby ensuring consistent functioning of packaging reporting.

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