inventory system checklist : systems reviewedunder the ... · may 1998 inventory system checklist...

United States General Accounting Office

GAO Financial Management Series

May 1998

Inventory SystemChecklist

Systems ReviewedUnder the FederalFinancial ManagementImprovement Act of1996

GAO/AIMD-98-21.2.4

PREFACE

B-278190

The Federal Financial Management Improvement Act (FFMIA) of 1996 requires, amongother things, that agencies implement and maintain management systems thatsubstantially comply with federal financial management systems requirements. Theserequirements are detailed in the Financial Management Systems Requirements seriesissued by the Joint Financial Management Improvement Program (JFMIP) and in Office ofManagement and Budget (OMB) guidance (Circular A-127 and September 9, 1997implementation guidance).

To assist in reviews of financial management systems under the requirements of FFMIA,we are issuing three checklists concurrently as practice aids. Two of the checklistsreflect the system requirements defined by JFMIP, while the third checklist is based onthe JFMIP framework document. The third checklist describes a single, integratedfinancial management system and, as set forth in the JFMIP framework document, isprimarily a reference source rather than a standard-setting document.

This checklist reflects JFMIP's Inventory System Requirements. The purpose of thisguide is to provide a checklist to assist (1) agencies in implementing and monitoring theirinventory system and (2) management and auditors in reviewing the systems to determineif the inventory system is in substantial compliance with FFMIA. This checklist is notrequired to be used in assessing the inventory system. It is provided as a practice aidavailable for use as a tool by experienced staff. This checklist, the JFMIP sourcedocument, and the two previously mentioned OMB documents (Circular A-127 and theSeptember 9, 1997, implementation guidance) should be used concurrently.

Experienced judgment must be applied in the interpretation and application of this guideto enable the user to consider the impact of the completed checklist on the entireinventory system and whether that system as a whole substantially complies with systemrequirements.

As technology progresses, new applications emerge replacing older, less efficient and lesseffective ones. Policies and procedures in effect under older technologies give way tonew and different processes. Judgment must be used when assessing an agency'sinventory system against JFMIP systems requirements in order to recognize when newand different technologies, although not specified in the guidance, achieve the objectivesof JFMIP systems requirements.

GAO/AIMD-98-21.2.4 - Inventory System Checklist (5/98)

The JFMIP systems requirements series supersedes the standards previously issued inappendix III, "Systems Standards," Title 2, "Accounting," of the GAO Policy andProcedures Manual for Guidance of Federal Agencies.

Additional copies of this checklist can be obtained from Room 1100, 700 4th St. NW, U.S.General Accounting Office, Washington, D.C. 20548, or by calling (202) 512-6000, or TDD(202) 512-2537. It is also available on the Internet on GAO's Home Page (www.gao.gov)under "Special Publications."

Gene L. DodaroAssistant Comptroller GeneralAccounting and Information Management Division

GAO/AIMD-98-21.2.4 - Inventory System Checklist (5/98)Page 2

CONTENTS

Preface 1

Overview 5Authoritative Guidance 6How to Use This Checklist 6

Requirements Checklist 9Needs Determination Function 10Inventory in Storage Function 16Inventory Undergoing Repair or in Production Function 30Inventory Disposition Function 36Program Planning and Monitoring Function 46

Figure

Figure 1: Agency System Architecture 5

Abbreviations

EOQ economic order quantityFFMIA Federal Financial Management Improvement Act of 1996JFMIP Joint Financial Management Improvement ProgramOMB Office of Management and Budget


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OVERVIEW

The Federal Financial Management Improvement Act (FFMIA) of 1996 requires, amongother things, that agencies implement and maintain financial management systems thatsubstantially comply with federal financial management systems requirements. Thesesystem requirements are detailed in the Financial Management Systems Requirementsseries issued by the Joint Financial Management Improvement Program (JFMIP) andOffice of Management and Budget (OMB) Circular A-127, Financial Management Systems. JFMIP requirements documents identify (1) a framework for financial managementsystems, (2) core financial systems requirements, and (3) 16 other systems supportingagency operations. Figure 1 illustrates how these elements fit together in an agencysystems architecture.

Figure 1: Agency Systems Architecture

Source: JFMIP Federal Financial Management System Requirements documents.


To date, JFMIP has issued the framework and core documents and 7 of the 16 systemsidentified in the architecture (See figure 1.).1

In December 1997, GAO issued eight exposure drafts proposing checklists for the theneight documents in the JFMIP series. In early 1998, JFMIP decided to initiate projects toupdate two of those documents (systems related to employee travel and payroll) and toassess three others (systems related to seized/forfeited assets, direct loans, and loanguarantees) to determine the extent updates may be needed, and if needed, to initiaterevisions. When the two documents are updated and the three are either updated ordetermined not to need revision, GAO will issue related final checklists.

Until the revisions are completed, the exposure drafts reflecting the existing five systemrequirements documents will be available for use to the extent agencies wish to applythem. Also, in February 1998, JFMIP issued Managerial Cost Accounting SystemsRequirements. GAO will develop a checklist of those requirements.

Authoritative Guidance

OMB Circular A-127 and OMB's Implementation Guidance for the Federal FinancialManagement Improvement Act (FFMIA) of 1996, issued September 9, 1997, provide thebasis for assessing compliance with the FFMIA requirement for agencies to implementand maintain financial management systems that comply substantially with federalrequirements. OMB's September 1997 implementation guidance identifies various criteriathat an agency must meet to be in substantial compliance with these requirements. Oneof the criteria listed in the OMB guidance is the JFMIP systems requirements series.

The source of all the questions in this checklist is the Joint Financial ManagementImprovement Program Federal Financial Management System Requirements InventorySystem Requirements (FFMSR-7, June 1995).

How to Use This Guide

OMB's 1997 implementation guidance provides indicators for chief financial officers andinspectors general to assist them in determining whether an agency's financialmanagement systems substantially comply with federal financial management systemsrequirements. The annual assurance statement required pursuant to section 4 of the

1Thus far, the series includes the (1) Framework for Federal Financial ManagementSystems, (2) Core Financial System Requirements, (3) Inventory System Requirements, (4)Seized/Forfeited Asset System Requirements, (5) Direct Loan System Requirements, (6)Guaranteed Loan System Requirements, (7) Travel System Requirements, (8) Personnel-Payroll System Requirements, and (9) Managerial Cost Accounting System Requirements.


Federal Managers' Financial Integrity Act is one of those indicators. Agencies can useGAO's checklists to help determine annual compliance with section 4 of the act.

Filling out this checklist will allow agencies to systematically determine whether specificsystem requirements are being met. In determining substantial compliance, agenciesshould assess the results of the completed checklist on the inventory system taken as awhole. "No" answers should not be viewed by themselves or taken out of context. Rather, "no" answers should be assessed as to the impact on the overall system and theextent to which the "no" answers inhibit the entire system from meeting substantialcompliance.

In the checklist, two columns follow each question. Use the first column to answer eachquestion "yes," "no," or "na." Use the second column to explain your answer. A "yes"answer should indicate that the agency's system or systems provide for the capabilitydescribed in the question. For each "yes" answer, the second column should contain abrief description how the system(s) contain the capability and should also refer to asource that explains or shows the capability.

A "no" answer indicates that the capability does not exist. For a "no" answer, the secondcolumn should provide an explanation and, where applicable, a reference to any relatedsupporting documentation. Such explanations could include the following examples: (1)the agency is working on modifying or implementing its system(s) to have the capabilityavailable in subsequent years or (2) management believes the capability is not costeffective and will not enhance the systems' ability to manage operations. Cost-benefitstudies that support each explanation should be identified in the explanation column. Ifthere are no cost-benefit studies or other support, a full explanation should be provided.

Not every guide may apply to each agency. Further, while a guide may be applicable toan agency, certain questions within the guide may not be applicable. Answer suchnonapplicable question(s) with "na" and provide an appropriate explanation in the secondcolumn.


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INVENTORY SYSTEM REQUIREMENTS

The inventory system requirements document helps agencies meet government guidancefor controlling and accounting for inventory in accordance with laws and policies.

The five functions of the inventory system are discussed below.

1. Needs Determination is a supply or logistics function that develops quantityand resource requirements for inventory or production. (The checklistquestions for this area are drawn from pp. 20-25 of the source document.)

2. Inventory in Storage is tangible personal property that is (a) held for sale,(b) in the process of production for sale, or (c) to be consumed in theproduction of goods for sale or in the provision of services for a fee. (Thechecklist questions for this area are drawn from pp. 26-32 of the sourcedocument.)

3. Inventory Undergoing Repair or in Production consists of the followingprocesses: (a) repairing process and (b) work-in-process tracking process. (The checklist questions for this area are drawn from pp. 33-36 of the sourcedocument.)

4. Inventory Disposition consists of the following processes: (a) loaningprocess, (b) issuing process, and (c) disposal process. (The checklistquestions for this area are drawn from pp. 37-43 of the source document.)

5. Program Planning and Monitoring consists of the following processes: (a)policies and standards process and (b) monitoring process. (The checklistquestions for this area are drawn from pp. 44-49 of the source document.)

The checklist questions follow the JFMIP source document. It should be noted that notall questions will apply in all situations and, as with the use of any checklist, professionaljudgment should be exercised. Using the JFMIP source document and its glossary alongwith the two previously mentioned OMB documents will help ensure that the user iscognizant of the background information necessary to fully understand the questions.


Inventory System Requirements

Needs determination function Yes/no

NA

Explanation

1. Does the system recordcustomer demand andreplenishment lead time datafor a period of years, analyzethe data for anomalies, andcompute demand and leadtime forecasts on a regular,frequent schedule? Theseshould be reviewed regularlyby inventory managers,though computer-generatedforecasts generally should bechanged only wheninformation is available to themanager that is not availableto the automated system.

2. Does the system compute androutinely update the orderingcosts, which may varydepending on method ofprocurement and otherfactors? The ordering costsmight include costs of

-- reviewing the stockposition;

-- preparing the purchaserequest;

-- selecting the supplier;receiving, inspecting, andplacing the material instorage; and

-- paying the vendor.




NA

Explanation

3. Does the system estimate androutinely update the per unitinventory holding cost, whichis an estimate of the cost tohold each additional unit ofinventory? Its primaryelements are storage space,obsolescence, interest oninventory investment, andinventory shrinkage (due todeterioration, theft, damage,etc.).

4. Does the system recomputethe Economic Order Quantity(EOQ) on a regular, frequentschedule, using the demandforecast, ordering cost,inventory holding cost, andunit cost of the material? Inlieu of the EOQ, any otheroptimum order quantitycalculation may be used,provided (a) it is based onsound business principles and(b) it minimizes total cost,including the sum of orderingand inventory holding costs.




NA

Explanation

5. Does the system recomputethe safety stock, if any, on aregular and frequent schedule?The safety stock may includevariables manipulated bymanagement to establishintended service levels.

6. Does the system recomputethe reorder point level on aregular and frequent schedule,considering stock available forissue, backorders, quantitieson hold, and quantities due in?

7. Does the system determine ifreplenishment is needed on aregular and frequent schedule,basing the determination onnet stock and reorder point? Ifneeded, immediately initiate areplenishment action using theEOQ or other order quantity,as described above.

8. Does the system provideinformation on currentinventories and historicalusage to be used in capacityplanning?




NA

Explanation

9. Does the system establishoverall production targetsnecessary to fill customers'orders and meet operatingschedules?

10. Does the system support theincorporation of componentavailability and anticipatedlead times for deliveringorders into a masterproduction schedule?

11. Does the system supportpredefined inspection plansand quality standards?

12. Does the system support thebudgeting of resources forinventories? Normally,budgeted resources forinventories are determined byconsidering (a) projectedcustomer orders based onhistorical customer activityand (b) management decisionsprojecting future inventoryneeds.

13. Does the system identifyavailable funds by inventorycommodity?




NA

Explanation

14. Does the system distinguishavailable funds for items thatare slow-moving and arecarried in the inventory formore than one accountingcycle?

15. Does the system access thecore financial system toensure that funds are availableprior to the approval of arequest for acquisition ofinventory items? There mustbe a validation of availablefunds prior to release ofrequisition orders or purchaserequests for inventory items.

16. Does the system provide forreducing or terminatingacquisitions when funds arelimited or not available fornew buys?

17. Does the system identifyfunds used and rates of funduse by inventory commodity?

18. Does the system controlavailability of funds byinventory commodity?




NA

Explanation

19. Does the system calculatefund usage and project thedate on which funds will beexhausted at the current rateof usage?

20. Does the system provide toagency inventory managersand designated internal reviewofficials, on a periodic orrequested basis, at least thefollowing types ofmanagement information:

-- demand?-- procurement lead time?-- procurement cycle?-- requirements?-- assets?-- available funds?-- budget versus actual?-- rates of fund utilization?



Inventory in storage function Yes/no

NA

Explanation

1. Is the system integrated, at aminimum, with the acquisitionand core financial systems toshare information of itemsordered, received, in storage,and sold or otherwisedisposed of.

2. Does the system recordinformation on materialreturned by customers?

3. Does the system recordinformation on the receipt insufficient detail to allowmatching of receipt, purchaseorder/contract, and invoice forpayment purposes? Examplesof data to collect includeditem numbers, quantities, unitsof measure, vendors, andpurchase order numbers.

4. Does the system record thedate of receipt to be used forpurposes of the Prompt PayAct and to monitor thetimeliness of placing itemsinto inventory and the age ofinventory items?




NA

Explanation

5. Does the system differentiatebetween partial receiptsagainst an undelivered orderand full receipts?

6. Does the system performquantity and price conversionsbetween different units ofmeasure? For example, theitem purchase unit may becases and the receivingactivity unit of measure maybe each.

7. Does the system identifytransportation discrepancies(i.e., any discrepancy betweenthe government or commercialbill of lading and itemsreceived) and initiate thetransportation discrepancyreport (e.g., SF 361) andfollow-up?

8. Does the system record itemsin transit and the quantities ofeach if title to inventory itemstransfers at the point oforigin?




NA

Explanation

9. Does the system record theacceptance or rejection ofnew or returned items at theirdestination and the quantitiesof each? Does it updateinventory on hand informationas a result?

10. Does the system record thedate of acceptance forpurposes of the Prompt PayAct?

11. Does the system provideinformation on items receivedand accepted necessary tosupport the paymentmanagement function of thecore financial system?

12. Does the system providecustomer credit/refund onitems returned in accordancewith the agency's returnpolicy?




NA

Explanation

13. Does the system identifyshipping discrepancies (e.g.,SF 364) and product qualitydeficiencies (e.g., SF 368)between the items receivedand the information providedon shipping documents andpurchase orders? Does itsupport the follow-up ondiscrepancies conducted bythe procurement and financeoffices?

14. Does the system identify theintended location of the itemand track its movement fromthe point of initial receipt toits final destination?

15. Does the system recordidentifiers, quantities,condition, location, and otherelements necessary toestablish physical control?

16. Does the system classifyinventory items by commodityclass to meet agency needsfor management and control?




NA

Explanation

17. Does the system distinguishbetween the unit cost of aninventory item and its sellingprice?

18. Does the system maintainsufficient information tosupport the inventoryvaluation method chosen inthe Program Planning andMonitoring function (e.g.,historical cost using First-InFirst-Out (FIFO), weightedaverage, or moving averagecost flow assumptions or thelatest acquisition cost)?

19. Does the system allow thecost of an item to include allappropriate purchase,transportation, and productioncosts incurred?




NA

Explanation

20. Does the system categorizeinventory items as describedin SFFAS No. 3 as (a)inventory held for sale, (b)inventory held in reserve forfuture sale, (c) excess,obsolete, and unserviceableinventory, or (d) inventoryheld for repair? Thesecategories shall be used forfinancial statement purposes.




NA

Explanation

21. Does the system providefinancial information in theappropriate format and usingthe appropriate method toother financial managementsystems used by the agency?For example:

-- Provide total costinformation by financialcategory for items addedinto inventory to the corefinancial system for postingby the General LedgerManagement function andthe Cost Managementfunction.

-- If the agency has a costaccounting system tosupport a manufacturing,industrial fund, or similarfunction, provide cost andother appropriateinformation on itemsprovided to that otherfunction.

22. Does the system provideinformation needed to supportreconciliation between theinventory system's recordsand other systems' records?




NA

Explanation

23. Does the system providesupport for physicalverification of inventorybalances by location and type?

24. Does the system recordchanges in physical condition(e.g., excellent, good, fair, orpoor), quantities, etc., basedon the results of physicalinventory verifications?

25. Does the system provide forthe matching of physicalcounts with inventory quantityand financial records throughcycle counting or otherinventory managementtechniques if the agencymaintains perpetual inventoryrecords?

26. Does the system provide forreconciliation using beginningof period inventory balances,receipts, and dispositions upto the cutoff point for thephysical inventory if theagency does not maintainperpetual inventory records?




NA

Explanation

27. Does the system ensure theretention of records ofphysical inventory counts until(a) the count is reconciled,(b) all adjusting entries for thephysical count are resolvedand entered into the financialrecords, and (c) the nextphysical count isaccomplished, reconciled, andentered into the records?

28. Does the system provide foridentification of all errorsarising from reconciliationprocesses that apply to a timeperiod prior to the lastinventory adjustment? Allsuch errors must be correctedto include appropriateadjustments to prior gains andlosses.

29. Does the system recordchanges in the location of aninventory item, such as fromone warehouse to another,and any associated changes inthe person or organizationresponsible for stewardship ofthe item?




NA

Explanation

30. Does the system record thevalue and quantities of itemsin transit from one location toanother?

31. Does the system record lossesfrom the recognition ofdestroyed, lost, or pilfereditems?

32. Does the system send theappropriate information to thecore financial system and costaccounting system to ensurethat they stay in balance withthe inventory system iffinancial adjustments arerequired as a result of aphysical verification?

33. Does the system adjustinventory item costs forsignificant differencesbetween the amount recordedfor the items upon receipt andthe invoiced amounts paid forthe goods?




NA

Explanation

34. Does the system generatefinancial transactions torecord the transfer ofinventory between financialcategories such as frominventory held for sale toexcess, obsolete, andunserviceable inventory, orbetween cost categories asdefined for internalmanagement? Does it sendthis information to the corefinancial system and costaccounting system asappropriate?

35. Does the system value excess,obsolete, and unserviceableinventory at expected netrealizable value? Thedifference between thecarrying amount of theinventory before identificationas excess, obsolete, orunserviceable and its expectednet realizable value shall berecognized as a loss (or gain)and either separately reportedor disclosed. Any subsequentadjustments to its netrealizable value or any loss(or gain) upon disposal shallalso be recognized as a loss(or gain).




NA

Explanation

36. Does the system recognizeand record unrealized holdinggains/losses when using thelatest acquisition cost methodfor valuing inventory?

37. Does the system calculate thehistorical cost of endinginventory and cost of goodssold using the cost flowassumption (e.g., FIFO,weighted average, movingaverage, or standard cost)chosen by the agency inaccordance with SFFAS No. 3when using the historical costmethod for valuing inventory?

38. Does the system makeadjustments to inventoryvaluations to reflect netrealizable value instead ofhistorical cost or latestacquisition cost if theconditions specified in SFFASNo. 3 under "Exception toValuation" are met or if theinventory is declared to beexcess, obsolete, orunserviceable in accordancewith SFFAS No. 3?




NA

Explanation

39. Does the system maintain thedistinction between the costof inventory items and sellingprice? Does it makeadjustments to themseparately?

40. Does the system compute thevalue of items on the propertyrecords by multiplyingquantities on hand or on loanby the unit cost of theapplicable item? These valuesare totaled and the sumreconciled with the generalledger value.

41. Does the system record thevalue and quantity of itemsshipped from contractors orvendors for which title haspassed to the government?

42. Does the system record thevalue and quantity of itemsshipped from the inventoryorganization to anotherorganization for whichaccountability has beenretained by the inventoryorganization until receipt bythe recipient?




NA

Explanation

43. Does the system record thevalue and quantity of itemsidentified as in transit beingmoved from one inventorystorage location to another?

44. Does the system provide atleast the following types ofmanagement information:

-- unfilled orders?-- discrepancies?-- acceptance and rejection

summary?-- days supply?-- master inventory?-- inactive stock?-- item expiration/shelf life?-- cycle count?-- inventory accuracy?



Inventory undergoing repair or

in production function

Yes/no

NA

Explanation

1. Does the system record thetransfer of an inventory itemfrom its current status to thestatus of "in repair?" Does itprovide information to thecore financial system torecord the change in financialcategory?

2. Does the system adjust thevaluation of inventory items inaccordance with the repairaccounting treatment selectedby the agency in conformancewith SFFAS No. 3?

3. Does the system establish anallowance for repairsconsistent with the estimatedannual cost of repairs if usingthe allowance method?

4. Does the system identify thecosts of repair activities?





Yes/no

NA

Explanation

5. Does the system account forrepair costs as a charge to theallowance account, acapitalization in the inventoryaccount up to the value of aserviceable item, or a repairexpense, depending on theaccounting method used andthe types and costs of repair?

6. Does the system separatelyidentify prior period amountsfor repair expense and recordthe appropriate accountingadjustments whentransitioning to a new repairaccounting method?

7. Does the system record thetransfer of an inventory itemfrom the status of "in repair"to its proper status andlocation? Provide informationto the core financial system torecord the change in financialcategory?

8. Does the system transferitems determined to beunserviceable to the disposalprocess?





Yes/no

NA

Explanation

9. Does the system support theestablishment (includingtechnical specifications andaccounting classificationneeded by the inventorysystem) of orders to be placedwith a contractor or othergovernment entity to performproduction work on itemsneeded?

10. Does the system project theproduction elementsnecessary to complete theproduction cycle? Theseproduction elements mustreflect bills of material,manufacturing requirements,and production time toproduce or repair products.





Yes/no

NA

Explanation

11. Does the system providefinancial information in theappropriate format andmethod to other financialmanagement systems used bythe agency? For example,does it provide work-in-process costs by thedesignated accountingclassification structure (e.g.,fund, program, organization,project, or object class) to thecore financial system forposting by the General LedgerManagement function and theCost Management function?

12. Does the inventory systemaccept cost and otherappropriate information fromthe agency's cost system if theagency has a separate costaccounting system to supportcost accumulation by workelements, such as job order,activities, products, etc.?





Yes/no

NA

Explanation

13. Does the system trackaccumulated costs, whichshould include the value ofdirect materials, direct labor,and overhead whereapplicable (including standardcosts and rates, if applicable)for work in process?Percentage of completioninformation should be used tovalue work in process.

14. Does the system providefeatures to record unit costsand prices of products andservices?

15. Does the system transferwork in process to finishedgoods for inventorycategorization and accountingpurposes?

16. Does the system identify theintended location of the itemand track its movement fromthe point of initial receipt toits final destination?





Yes/no

NA

Explanation

17. Does the system recordidentifiers, quantities,condition, location, and otherelements necessary toestablish physical control?

18. Does the system classifyinventory items by commodityclass or type to meet agencyneeds for management andcontrol?


-- repair status?-- production order?-- work in process tracking?



Inventory disposition function Yes/no

NA

Explanation

1. Does the system recordchanges in the location of theinventory items and theassociated changes in theperson or organizationresponsible for stewardship ofthe item?

2. Does the system record thevalue and quantities of itemsin transit from one location toanother?

3. Does the system record thetransfer of an inventory itemfrom the status of "on loan" toits proper status and location?

4. Does the system adjust thevalue of items being returnedin worse condition or that arenot returned at all?

5. Does the system generate theappropriate financialtransactions if the financialcategory needs to be changedto "held for repair" or "excess,obsolete, or unserviceable?"




NA

Explanation

6. Does the system verify thatthe customer order is receivedfrom an eligible customer whois authorized to use thesystem and order the items?

7. Does the system record thefund citation provided by thecustomer so that it may beincluded on billings?

8. Does the system ensure thatinventory items issued arelimited to available fundsprovided by the customer?

9. Does the system advise thecustomer of the new price ifavailable funds are expectedto be exceeded because ofprice changes, etc.? Ifrequested by the customer,performance and/or shipmentshould be withheld until thecustomer has provided theadditional funds required orhas been given an opportunityto cancel or reduce the order.




NA

Explanation

10. Does the system establish andmaintain customer records ifcustomers are billed or iftrackings of individualcustomer data, businesshistory, and preferences areimportant to the program?

11. Does the system recordrelevant information on thecustomer order, includingitems ordered; quantitiesrequested; customer name andaddress; specifications, ifappropriate; date received;and other data neededconsistent with the inventoryprogram?

12. Does the system record thefund citation provided if thecustomer is a federal agency?

13. Does the system issue stockand backorder the balance aspolicy permits wheninsufficient stock is availableto fulfill the total requirement?




NA

Explanation

14. Does the system send specialorders, orders for services orgoods to be manufactured tospecification, and othersimilar orders to the NeedsDetermination function?

15. Does the system determineand record the value of thecustomer order?

16. Does the system send atransaction to the corefinancial system to recordreceipt of an unfilledcustomer order?

17. Does the system recognizebudgetary resources only upto the amount of cashreceived, unless otherwiseauthorized by statute if thecustomer is not a federalagency?

18. Does the system recognizebudgetary resources for theentire amount if the customeris a federal agency?




NA

Explanation

19. Does the system , if checks orcash are received with thecustomer order, record itagainst the customer orderand send the information tothe Receipt Managementfunction of the core financialsystem?

20. Does the system preparepicking lists to be used inpulling inventory items fromstorage?

21. Does the system reducequantities on hand by thenumber of items removed?

22. Does the system provideadvice to customers onshipments of material so thatthe customers may establishfinancial controls, asapplicable, over shipments intransit from suppliers, and toestablish the point of transferof title? Title to inventoryitems may be passed to thecustomer at the point of saleor the point of destination,depending on the salesagreement with the customer.




NA

Explanation

23. Does the system maintainrecords of items issued,including quantities, shipmentmethods, dates, destinations,etc., to assist in the resolutionactivities?

24. Does the system comparecustomer order records toissue records and flag anydifferences for follow-up?

25. Does the system determinethe appropriate price for aparticular customer orderusing the pricing models andformulas defined in thePricing Method Definitionactivity?

26. Does the system providequality controls to ensure thatall appropriate costs havebeen provided to the pricingformula for a particularcustomer order?




NA

Explanation

27. Does the system develop theinformation necessary toprepare an initial invoice for acustomer that providesadequate support for theprices charged?

28. Does the system prepareeither the initial invoice itselfor pass the informationrequired to the core financialsystem for it to prepare theinvoice?

29. Does the system provide thecore financial system with thedata necessary to establish thereceivable and supportsubsequent administration ofthe receivables managementand collection process?

30. Does the system decrease theinventory (finished goods)account and increase the costof goods sold account by theamount at which the inventoryitems sold are valued (cost)?




NA

Explanation

31. Does the system recordrevenue and the appropriateoffsetting account (e.g., cash,receivables, or advances) inthe amount for which theinventory items are sold(price)?

32. Does the system record thevalue of items issued fromstorage or shipped tocustomers for which title doesnot pass to the customer untila subsequent event occurs?

33. Does the system decrease thequantity of the inventory itemon hand by the number ofitems sent to the disposalorganization?

34. Does the system recordconfirmation of receipt of theitems by the disposalorganization?




NA

Explanation

35. Does the system recognizeasset transfers and/or lossesas appropriate and inaccordance with SFFAS No. 3for items designated asexcess, obsolete, orunserviceable, including items(a) transferred to otherfederal agencies undermandated federal utilizationprograms, (b) sold as scrap,or (c) donated to state andlocal governments undermandated federal donationprograms?

36. Does the system transferbalances between financialcategories, for example, from"inventory held for sale" to"excess, obsolete, andunserviceable inventory?"

37. Does the system account forthe proceeds resulting fromdisposition of inventory itemsas scrap?




NA

Explanation


-- loaned items?-- stock availability?-- customer order?-- inventory turnover?-- stock usage?-- losses?-- disposals?



Program planning and

monitoring function

Yes/no

NA

Explanation

1. Does the system establishprice computation models orformulas to be used in the BillCalculation activity? Pricingmodels for federal entities areusually based on costsincurred, but may be based onother factors, such as specificlegislation for the agency,utility, and condition.

2. Does the system providemethods to support pricing bygroupings or commodities ofitems?

3. Does the system identifyseparate methods of pricingneeded based on statutoryauthority or other agencypolicy? For example, thepricing method used maydepend on the nature of thecustomer, such as within thesame agency, another federalagency, a U.S. corporation orcitizen, or a foreigngovernment.




monitoring function

Yes/no

NA

Explanation

4. Does the system providequality controls over inputdata to the pricing model toensure that all appropriatecosts are included and areaccurate?

5. Does the system establishmethods or formulas to beused in valuing andaccounting for inventorybased on cost? Costs to beconsidered for inventory heldfor sale include appropriatepurchase, transportation, andproduction costs incurred tobring the items to theircurrent condition andlocation.

6. Does the system establishappropriate cost methods thatapply to the various types ofinventories held by an agency?Different methods might alsobe needed for inventory heldfor sale based on the type ofitems, such a medicalsupplies, perishable goods,and hazardous materials.




monitoring function

Yes/no

NA

Explanation

7. Does the system establishmethods to maintain the netrealizable value of inventoryitems?

8. Does the system establishmethods or formulas to beused in valuing andaccounting for inventory inthe process of productionbased on cost? Costs to beconsidered for inventory inrepair or in the process ofproduction (work in process)include materials, labor, andoverhead used to convert theitems to a finished product.

9. Does the system establishappropriate cost methods thatapply to the various types ofinventories involved in theproduction process? Differentmethods might be needed toassign costs to raw materials,work in process, and finishedgoods in a manufacturingentity.




monitoring function

Yes/no

NA

Explanation

10. Does the system establishmethods to capture andaccumulate costs for work inprocess that account forrepair or manufacturingperformed by an independentthird party, such ascontractors or othergovernment activities? Thecost for work in process willbe based on documented costincurred. The process used tovalidate such work-in-processcosts should be based, to themaximum extent possible, onreporting mechanisms usedfor contract management,project management, or othersimilar purposes.

11. Does the system provide theability, where the standardcost method is being used torecord costs for work inprocess, to record standardcosts and actual costs foreach inventory item, in orderto support usage and costvariance analysis? Standardcosts will include theanticipated amounts ofmaterial, labor, overhead, andother applicable factors.




monitoring function

Yes/no

NA

Explanation

12. Does the system track actualand standard cost variancesfor materials (price andusage), labor (rate andefficiency), and overhead(actual and applied) when astandard cost method is used?

13. Does the system establishexception thresholds, performcost analysis, and monitortrends and variances?

14. Does the system recordreasons for significantdeviations between standardand actual costs?

15. Does the system providecapabilities to supportadjustments of rates anddispositions of variances byperforming periodicallocations?

16. Does the system match costsand revenues within theperiods they were incurred orrealized to identify gains orlosses from sales?




monitoring function

Yes/no

NA

Explanation

17. Does the system supportanalysis of operations on anannual basis to determine ifrevenues are sufficient tocover the costs of the entireinventory program?

18. Does the system providesufficient transaction audittrails to support balances ofinventory shown on theagency's general ledger andchanges in those balances?

19. Does the system maintain thedocumentation supportinginventory transactions until itis audited for accuracy andapproved by external financialauditors, but not for less than3 years? Retention may belonger when (a) required byregulations, (b) there is apossibility of legal actioninvolving the inventories, or(c) contract terms ormodifications require longerretention.




monitoring function

Yes/no

NA

Explanation


-- cost per dollar of sales?-- operations cost?-- performance measures?-- audit trails?

(922252)


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