20.25 Non-Capital Inventories Control (Consumable Supplies and Merchandise)
Preamble. Inventory control of non-capital assets consisting of consumable supplies and merchandise on-hand for resale is an important internal control. Proper inventory accounting and control ensures appropriate recording of assets and expenditures in the University of Idaho (university) financial systems and accurate recording of the university’s financial position. Proper controls also mitigate the risk of loss and obsolescence of such assets and serve to protect university personnel responsible for the oversight, distribution and resale of such materials.
This procedure outlines process for the accounting for and maintenance of expendable consumable supply inventories and merchandise held for resale inventories.
A-1. Inventories Covered by This Policy. Any individual inventory consisting of either consumable supplies or merchandise held for resale with an aggregate dollar value exceeding $1,000 is covered by policy.
a) Consumable Inventory. Goods and supplies units maintained on hand, or through a centralized distribution storeroom, for use in ongoing operations.
b) Merchandise Inventory. Supplies, retail goods and equipment held by University units for sale to other University units, agencies or the general public.
A-2. Perpetual Inventory Method. The maintaining of inventory through a constant, real-time process of recording additions to, or distributions from, inventory.
A-3. Periodic Inventory Method. The maintaining of inventory on a periodic basis through the process of taking physical inventory on a routine basis (e.g., weekly, monthly, semi-annually) and making adjustments for additions to and distributions from inventory at that time.
A-4. Physical Inventory Process. Counting and tabulating the number of individual inventory components on hand and their computed dollar value on both an individual item and aggregate basis at a particular point in time.
B-1. General. Units maintaining consumable supplies and/or merchandise inventories must maintain proper inventory control. Ongoing inventory transactions (i.e., receipts and disbursements of inventory, inventory balance adjustments required when physical inventory counts identify variances from Banner or other unit records) shall be entered into the Banner financial system on a regular basis. The following processes shall be utilized in maintaining covered inventories:
a) Follow the physical inventory process (i.e., perform itemized inventory counts) on at least an annual basis;
b) Ensure that proper controls are in place for both receipt and distribution of inventory items. (e.g. two persons signing for receipt of inventory items, providing customer with a sales receipt for merchandise purchased, having customer or unit sign for receipt of inventory supply items when disbursed);
c) Follow the perpetual inventory method and reconcile items received and disbursed;
d) Maintain cost of inventory items either on perpetual basis, or value, according to most recent acquisition pricing;
e) Identify causes of inventory variances, including any inventory write-offs due to disposals or obsolescence and capture such information in an appropriate inventory over/under account within the Banner financial system to keep an accurate record of discrepancies. Variances and inventory write-offs must be reviewed and approved by a next-level supervisor.
B-2. Physical Inventory
a) Ensure that inventory has been properly recorded as inventory in the Banner, i.e., that an inventory asset account has been established for your inventory and your inventory dollar value has been recorded to that account. If uncertain as to whether the unit has such an account, contact General Accounting (email@example.com).
b) Perform physical inventory at the end of an accounting period; e.g., perform count at month-, quarter- or year-end to enable reconciliation to the amount reflected in Banner.
c) Utilize appropriate inventory count sheets that include columns for the list of individual inventory items, the quantity physically counted, the cost for each individual item, the extended value of each item (cost per item times physical quantity on hand), and the combined total balance for all extended inventory values. An example inventory sheet can be viewed here, or can be obtained from General Accounting (see C below).
d) If using a perpetual inventory system, i.e., real-time, identify any discrepancies in counts between system quantities and physical quantities on hand. Where possible, inventory count sheets should include a column for the system-recorded quantities on hand for comparative purposes.
e) Assign two persons where possible to conduct inventory counts and complete the inventory count sheet information. Once completed, those persons involved with the physical counts should sign off on the count sheets (only those specific sheets the individual uses/completes).
f) Upon completion of the physical inventory, have a staff member not involved in the physical count spot-check the physical counts per the count sheets for items whose cost per item or extended value constitutes a significant dollar value of total inventory. This will provide review and verification of sample of the physical counts.
g) Once counts and spot checks have been completed, and the total value for the inventory has been computed, appropriate personnel should review and reconcile to the total recorded in Banner as of the applicable period-ending date. Any discrepancy between the physical inventory dollar total and Banner must be noted. Units shall make a concerted effort to identify and resolve the cause(s) of a variance to ensure the variance does not reoccur in future periods. Appropriate adjustments to the Banner inventory value and corresponding inventory short/over account must be made to correct the University’s financial records. Changes should be made to ongoing inventory processes to minimize, or eliminate, further discrepancies.
B-3. Reporting and Retention
a) Copies of physical inventories and reconciliations must be forwarded to general accounting for review and verification.
b) Original physical inventory count sheets and reconciliations shall be retained by the originating unit for a period of 3 years past the ending date of the fiscal year in which the physical inventory was performed. Such records will be made available for review if requested by the UI Controller’s Office, Internal Audit Office, General Counsel, Office of Sponsored Programs, external auditors, and State of Idaho agencies such as the State Controller’s Office and the Division of Financial Management.
B-4. Exemptions. Inventories for which the aggregate inventory value is less than $10,000 may request an exemption from the requirement for an annual physical inventory count. Such exemption shall be submitted to General Accounting for approval.
C. Contact Information. Questions can be directed to General Accounting at 208-885-2130 or by email to firstname.lastname@example.org.