directive #32: non-capital inventory controls and … · 2018. 6. 1. · internal control and...

THE CITY OF NEW YORK OFFICE OF THE COMPTROLLER

INTERNAL CONTROL AND ACCOUNTABILITY DIRECTIVES

DIRECTIVE #32: NON-CAPITAL INVENTORY

CONTROLS AND VALUATION INTRODUCTION

City agency management is responsible for the safeguarding of its Inventory and ensuring the reliability of its Inventory records. This must include controls of non-capitally funded assets to ensure a proper segregation of duties between the purchasing and payment for Inventory, as well as the custodial functions. Inventory Control also requires an effective Inventory Control system to help agencies track Inventory use and maintain appropriate Inventory levels to ensure resources are not wasted on excessive or untimely purchases. It is the responsibility of each agency to tailor its policy to account for unique challenges the agency faces and incorporate contingency planning.

This Directive provides standards for controls that should be present for the safeguarding of agency Inventory and for the proper recordkeeping over that Inventory. It recommends standards to ensure that agencies maintain appropriate stock levels, protect assets against loss or misappropriation, and make certain that adequate controls are in place to ensure the authorized usage, movement, and disposal of Inventory. The Directive also contains requirements for reconciling Inventory records with Physical Inventory counts.

Please note that this Directive sets forth the minimum requirements for Inventory Control and valuation, and does not relieve agencies of other requirements pertaining to procurement, asset management, safe guarding, and financial reporting. Additionally, agencies that receive grant funding and/or are in control of certain assets, such as controlled substances, may be subject to additional State and Federal regulations pertaining to Inventory Control and management.

Agencies should adhere to the rules provided in Comptroller’s Directive #30 – Capital Assets regarding the monitoring, safeguarding, tracking, and accounting for Inventory of capital assets.

Directive #32 – Non-Capital Inventory Controls and Valuation Revised June 1, 2018 of 21

http://comptroller.nyc.gov/wp-content/uploads/2014/03/Directive-30_CapitalAssets.pdf

This Directive is issued pursuant to the authority of the Office of the Comptroller as provided in Chapter 5, Section 93 of the New York City Charter.


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TABLE OF CONTENTS 1. GENERAL INFORMATION .............................................................................................................................. 4

1.1 Effective Date .......................................................................................................................................................................... 4 1.2 Assistance ................................................................................................................................................................................ 4 1.3 Comptroller’s Internal Control and Accountability Directives .............................................................................................. 4

2. DEFINITIONS ...................................................................................................................................................... 5

3. INVENTORY CONTROL................................................................................................................................... 6 3.1 Areas of Inventory Control ...................................................................................................................................................... 7 3.2 Written Inventory Policy .......................................................................................................................................................... 7 3.3 General Controls ..................................................................................................................................................................... 8 3.4 Segregation of Duties in an Inventory Environment ............................................................................................................... 9 3.5 Identification Tags and Labels .............................................................................................................................................. 10 3.6 Inventory Control System (Non-Capitally Funded) .............................................................................................................. 10

4. INVENTORY CONTROL FUNCTIONS ........................................................................................................ 13 4.1 The Purchasing Function ...................................................................................................................................................... 13 4.2 The Receiving Function ......................................................................................................................................................... 14 4.3 The Storage Function ............................................................................................................................................................ 15 4.5 The Inventory Control Unit Function .................................................................................................................................... 18 4.6 End-User Locations ............................................................................................................................................................... 18

5. VALUATION OF INVENTORY ...................................................................................................................... 19 5.1 Book Value ............................................................................................................................................................................. 19 5.2 Valuation Method .................................................................................................................................................................. 20

6. YEAR-END INVENTORY REPORTING ....................................................................................................... 20


1. GENERAL INFORMATION

1.1 Effective Date

This Directive is effective as of the date of issuance and should be implemented as part of agency Inventory Control procedures beginning Fiscal Year 2019.

1.2 Assistance

Questions or comments concerning this Directive should be addressed via Technical and Professional Standards Unit Email ([email protected]); by telephone at: (212) 669-3675; or by mail to: The Office of the Comptroller, Attention: Technical & Professional Standards Unit, Bureau of Accountancy, David N. Dinkins Municipal Building, One Centre Street, Room 200 South, New York, NY 10007.

1.3 Comptroller’s Internal Control and Accountability Directives

Existing Comptroller’s Internal Control and Accountability Directives are available on the Comptroller’s Website.


mailto:[email protected]



http://comptroller.nyc.gov/general-information/comptroller-directives/

http://comptroller.nyc.gov/

2. DEFINITIONS

Definitions for key terms and concepts used in this directive are provided below. • “Audit Report" as used within this directive, refers to the independent report completed by

an employee who is outside of the purchasing and receiving process, that consists of the final findings, recommendations and agency action plan as agreed to by management. The audit should consist of an examination of the Inventory accounting records of an agency and its physical Inventory.

• The original “Barcode” is a one-dimensional, machine-readable code in the form of numbers and a pattern of parallel lines of varying widths, printed on and identifying an item and used to scan/track information in a database, linking the two.

• “Best Practices” are guidelines, practices, or ideas that represent the most efficient and/or prudent course of action. Best Practices are often set forth by a recognized authority on the subject, such as a governing body or industry leader.

• “Book Value” of Inventory is the average cost of a unit of Inventory, or the entire stock of that item, as calculated based on Section 6.1.

• “Claims Against Stock” is the amount of Inventory requested on a properly completed and authorized disbursement request that has not, as yet, been released.

• “End-User Location” refers to the office, building or site where the unit of Inventory is used in the course of operations, as opposed to locations involved in other stages of the Inventory unit’s procurement, storage, and distribution.

• “Inventory” is property held in an agency’s physical possession, intended for use, lease or sale by the agency.

• “Inventory Control”, for purposes of this Directive, is the management and coordination of the procurement, storage, distribution, and tracking of non-capitally funded assets to maintain quantities sufficient for operational needs, while avoiding excessive oversupply or loss.

• “Lead Time” is the amount of time between the placement of an accurately prepared and acceptable purchase order to the time the Inventory is received at the facility and available for use.

• “Perpetual Inventory System” is a method of Inventory tracking that records the purchase and deployment of Inventory in near real-time through the use of Inventory Control software or by manually cataloging every disbursement and receipt of Inventory. Automated Perpetual Inventory usually uses Barcodes and/or QR Codes or Radio Frequency Identification (RFI) technology to track Inventory movement and automatically update computerized Inventory records. Adjustments to records can be made manually to account for theft, breakage or Barcode/QR Code/RFI scanning malfunctions. In contrast with a manual periodic Inventory Control system, a Perpetual Inventory System provides a detailed record of changes in Inventory and allows real-time reporting of the amount of


Inventory an agency has in stock and its Book Value Physical Inventory counts must be conducted to assure validity of Inventory records.

• “Physical Inventory” is the process by which an organization conducts a manual count of all Inventory holdings and adjusts the Inventory Control system’s records to agree to the physical count.

• “QR Code” is a two-dimensional Barcode, composed of black and white patterns. • “Radio-Frequency Identification” (RFI) is a technology that uses microchips and

electromagnetic fields to transfer data from an object to a reading device. RFI chips may be embedded onto almost any objects to track their physical locations

• “Reorder Amount” is the quantity of an item that should be (customarily) ordered when orders are placed.

• “Reorder Point” is the quantity of a stored good that, when reached, indicates that it is time to reorder the item to maintain the Safety Stock Level.

• “Safety Stock Level” is the minimum amount of an item that must be on hand to adequately respond to user needs. When determining minimum amount, the Lead Time between the date the order is placed and the delivery date must be taken into consideration. Usage projections must exist and be updated to prevent stock outs, back orders or conversely, excess Inventory conditions.

• “Vulnerable Asset” is an item of significant value that is particularly susceptible to theft, loss or misuse due to its nature, portability and/or high resale value. Examples of Vulnerable Assets include cell phones, tablets and laptop computers, office equipment, cameras, motor vehicles, weapons, ammunition, and controlled substances.

3. INVENTORY CONTROL

Inventory Control is a system of policies and procedures used to achieve objectives of efficiency and effectiveness in operations, reliability of reporting, safeguarding of assets, and compliance with applicable laws and regulations. Agencies should develop Inventory Control that involves a clearly-defined process used to record, categorize, monitor, and control all Inventory-related activities. Inventory Control may range from basic computerized tracking spreadsheets to sophisticated systems that integrate Barcode, QR Code and/or RFI functionality that are customized to an agency’s operations. The established Inventory Control should provide, at a minimum, the information necessary for all employees responsible for the control of Inventory at the facility level to adequately account for items. Agencies should adhere to Best Practices regarding special Inventory items. Inventory Control should be the primary administrative tool used for making informed management decisions, should ensure adequate and necessary supplies are available for the agency, and should test the completeness and accuracy of reporting Inventory holdings.


3.1 Areas of Inventory Control

Internal controls over Inventory encompass many areas, including:

• Controls that set the tone of the operation and the consciousness of its employees. • Risk assessments and segregation of duties that set out how risks are managed. • Policies and procedures that ensure management requirements are carried out. • Controls that govern information and communications designed to identify, capture,

and exchange that information, to enable employees to better carry out their responsibilities.

• Controls over the monitoring process that assesses the quality of internal control performance over time.

3.2 Written Inventory Policy

All agencies must have a formal written policy that sets forth guidelines for creating and maintaining controls over Inventory, and which provide standards for agency managers to implement in order to safeguard Inventory from loss, misuse, or theft and to ensure that adequate and necessary supplies are on hand.

At a minimum, a comprehensive written Inventory policy should:

1. Identify the different types and quantities of Inventory items an agency procures, as well as the specific position(s) responsible for monitoring and physically safeguarding these items.

2. Institute a minimum cost/value threshold, based on overall scale (value) below which items will not be included in Inventory records due to cost-benefit analysis. For example, an agency may determine that in aggregate boxes of pencils, paper clips, and other low-cost office supplies, held in one location, warrant tracking and monitoring; whereas those exact items held within supply closets would not.

3. Establish a system for assigning unique identification numbers to Vulnerable Assets as defined by agency policy and tagging those assets.

4. Segregate the responsibility for purchasing items, maintaining Inventory records, and controlling physical access to Inventory among different people/positions within the agency (or for larger agencies, segregate between different departments within an agency).

5. Conduct Physical Inventory count on a periodic basis, with a frequency determined to be appropriate by the agency or department based on its size and types of Inventory. However, in all cases, all Inventory must be counted at least annually.

6. Establish Inventory ordering controls, such as maximum stock levels and minimum Reorder Points. Inventory ordering controls should be reevaluated at least annually and updated accordingly.

7. Provide explicit instruction for the proper authorization and documentation of disposal of any Inventory deemed to be no longer needed or usable by the agency.


These procedures should align with the Department of Citywide Administrative Service’s relinquishment guidelines.

8. Contain instructions in alignment with the agency’s disaster recovery plan to ensure adequate Inventory, in the event that Inventory is contaminated or destroyed by natural or human-made disasters.

9. Include, when practicable, the Best Practices for Inventory Control as outlined within this Directive.

3.3 General Controls

Policies and procedures governing overall Inventory Control, organization, security, administration, and the operation of warehouses at the facility level are outlined below.

1. Agency managers must make a vigorous commitment to safeguarding assets. The responsible managers must regularly monitor operations through reporting, audit testing, interviews, observations, and any other appropriate means. Where weaknesses are determined, actions must be taken to strengthen controls. Any indications of corruption must be promptly referred to the agency Inspector General and/or the Inspector General of the Department of Investigation (DOI).

2. Agency managers must establish and enforce segregation of duties for all staff and clearly defined limits of responsibility. The scope of these responsibilities must be communicated through written policies and procedures.

3. Supervisors, and staff involved in the Inventory Control process are encouraged to take vacation or, if possible, work at another location and/or be reassigned to perform other functions within the Inventory process, as resources allow. This should occur as a means for managers to regularly assess the Inventory Control process to determine if the process has been functioning properly. Managerial assessment and/or internal audit reviews of the Inventory process, should occur during normal business operations and include observation of the Inventory staff to attest to the functionality of the Inventory Control system and the staff’s adherence to written policies.

4. Supervisors must provide monitoring, guidance, and training for the staff in accordance with written procedures. The supervisors must communicate duties and responsibilities; make periodic observations on the adequacy and consistency of the work; review staff work and decisions to verify compliance with established procedures; and report to management on the results of the monitoring.

5. Agency management must ensure that all policies and procedures are written, accessible, and routinely updated. Such policies and procedures must detail the objectives to be achieved, the methods to be used to achieve them, and the responsibilities of each unit and position within. These policies and procedures must be made available to all staff. Training sessions should be routinely conducted, as appropriate, to familiarize all staff with all applicable requirements.


6. An independent internal auditing capability must be established or outsourced by the agency. At a minimum, an annual assessment and unannounced site reviews of the major Inventory Control functions must be conducted by an independent internal group within, or on behalf of, the agency. Audit Reports must be prepared on a timely basis and forwarded to agency executive management. Corrective measures must be taken promptly to correct identified material weaknesses. Audit Reports, including the corrective action plans, must be must be filed and accessible upon request.

7. Adequate security that will deter and detect the loss of Inventory must be provided. A security analysis conducted by a loss prevention specialist, including assistance from the Police Department Crime Prevention Unit, may be used as a first step in providing adequate security. Based on the findings and recommendations of the analysis, management must develop a plan for securing Inventory facilities. Security requirements must be periodically evaluated to determine if improvements are needed.

8. Records must be complete and adequately preserved. The Director of the Records Management Division at the Department of Records and Information Services (DORIS) should be contacted regarding any retention questions. All authorized changes to stock must have corresponding transaction records that identify the specific individual employees (by name and office title) who authorize, move, and record the data. All electronic records must be regularly and adequately backed up. Small agencies with limited employees that maintain paper records must ensure those records are stored in a safe, dry, and clean location, and organize them to facilitate a retrieval of the information. Due to the risk associated with paper Inventory Control systems, agencies using such systems must, at a minimum, implement a computerized spreadsheet-based Inventory Control system. Access to records must be limited to authorized employees and restricted, depending on the vulnerability of the records, to prevent theft and alteration.

9. When Inventory is no longer required by the agency, the items should be considered surplus. Inventory may be deemed surplus, and therefore impaired, due to condemnation, obsolescence, destruction, or by being worn out. For additional information regarding the relinquishment and disposition of surplus property, refer to the Department of Citywide Administrative Services (DCAS) Office of Surplus Activities Manual.

10. Ensure that FMS procurement and purchasing documents reference the correct invoice and/or quantity of goods ordered.

3.4 Segregation of Duties in an Inventory Environment

Adequate segregation of duties requires that, at a minimum, employees who physically handle the Inventory, including certifying to receipt, physical count, distribution, and


http://extranet.dcas.nycnet/OCP/media/2876/osa-policy-procedures-manual.pdf


disposal of Inventory, must not be in control of the accounting and payment approvals. Employees’ responsibilities and access to the Inventory must be clearly defined and documented and must not overlap. The main Inventory Control functions consist of purchasing, receiving, storing, disbursing, and an Inventory Control unit or department that adequately tracks Inventory Control functions. The purchasing and control functions must be separate from the receiving, storing, and disbursing functions. In small agencies where complete segregation of duties is not possible, the receiving, storage, and purchasing areas of the warehouse or stockroom may employ the same employees. However, in such a situation, additional compensating controls must be put in place, including assigning responsibilities to achieve the proper segregation. In addition, management oversight must exist for the incompatible activities in order to achieve the required control objectives.

3.5 Identification Tags and Labels

All Vulnerable Assets must be positively identified as property of the agency and assigned unique identification numbers. Where applicable, Inventory must be tagged with serial numbers, metal tags, Barcodes, QR Codes, Radio-Frequency Identification (RFI) tags, or another form of manual or software-assisted tagging.

Barcode, QR Code and RFI technologies use a database program in conjunction with handheld scanning devices to check the unique identification of each inventoried item. Barcode and QR Code technology provides a computerized way to check if Inventory matches internal records and is a standard element in Inventory Control systems. RFI tagging utilizes electromagnetic fields to identify certain types of Inventory and responds to a small microchip implanted in the item, rather than a Barcode or QR Code.

Agencies should apply professional judgment when determining which items to tag for identification. Portable and high-value assets, such as laptops and other handheld electronics, must be tagged. Stock levels of high-value or price-fluctuating consumables, such as gasoline, must be regularly measured and recorded.

3.6 Inventory Control System (Non-Capitally Funded)

Agencies must maintain complete and detailed records of non-capital Inventory (Inventory purchased via an agency’s expense budget). At a minimum, agencies should record, track, and update the following data:

• Agency-assigned property identification number and/or serial number. • A brief description of the item. • Name of the supplier from which the item was purchased. • Date the item was purchased. • Date when, and location where, the item was physically received. • Item cost.


Agencies must update their Inventory Control system at least monthly.

Agencies should perform cost-benefit analysis when determining the kind of Inventory Control system to adopt. The sub-sections below provide special considerations for agencies when purchasing or developing computer-based Inventory Control systems.

3.6.1 Software Considerations for Agencies with Small Inventory Quantities

Agencies with a small Inventory1 will need a less complex Inventory Control system. These include agencies that are primarily office-based with inventories consisting of office supplies, computers and computer-related equipment, and office equipment. These agencies should ensure their Inventory Control system provides the following tracking functions:

• Date of purchase (the date an item is purchased); • Date of receipt (the date an item is physically received by agency

employees); • Unique identification number (the serial or agency-provided number that is

associated with each unique item or asset); • Office or warehouse location (the location where the item is stored); • Stock quantity (the specific amount of the item warehoused or in use); • Book Value (the cost of a unit of Inventory, or the entire stock of that item,

as of its specific purchase date, minus any discount received.); • Barcode or QR Code tracking functionality; • Printable count sheets (a physical hard copy of an Inventory sheet to be used

by Inventory Control employees at the agency); and • Allow the user to manually input data corresponding to Inventory items

when the counts change.

3.6.2 Software Considerations for Agencies with Large Inventory2 Quantities

Agencies that operate in multiple locations and/or manage numerous types of assets that spread throughout the City will require a more sophisticated Inventory Control system. In addition to office equipment, supplies, and computers and computer-related equipment, these agencies may also possess motor vehicles, mobile or immobile machinery, custodial equipment and supplies, uniforms, and handheld devices.

In addition to the software requirements set forth under Software Considerations for Agencies with Small Inventory Quantities (Section 3.6.1, above), agencies

1 Small inventories amount to an aggregated cost of less than $5,000 (which includes postage and supplies). 2 Large inventories amount to an aggregated cost of more than $5,000 (which includes postage and supplies).


should ensure their Inventory Control systems provide the following tracking services and functionality:

• Serial numbers or metal tag lists (the physical inscribed numbers on an inventoried item that corresponds to data in an Inventory Control system);

• Software with counting functionality.

3.6.3 Software Considerations for Agencies Possessing Medical Equipment, Controlled Substances, and/or Hazardous Materials

Agencies that are in possession of, distribute, or warehouse medical equipment, controlled substances, and/or hazardous materials require a higher degree of specificity in their Inventory Control system and should procure a comprehensive Inventory program in alignment with Best Practices. This heightened level of monitoring ensures that products are stored in appropriate temperatures and conditions, expired substances are not distributed and consumed, and controlled substances are not stolen.

• In addition to the software requirements set forth under Software Considerations for Agencies with Small Inventories (Section 3.6.1) and Software Considerations for Agencies with Large Inventories (Section 3.6.2), agencies should ensure their Inventory Control systems accounts for the following Tracking and logging items with potentially harmful chemical properties (a description of any and all information on whether Inventory items are flammable, toxic, or otherwise hazardous);

• Condition of stock (data pertaining to the proper maintenance of Inventory stock, such as temperature, pressure, or age depreciation); and

• RFI information. 3.6.4 Portable Assets

Many agencies maintain inventories of portable assets that get issued to employees. Examples of these inventories include diagnostic tools, cell phones, tablets and laptop computers.

The following special controls must be in place for portable asset inventories:

• An accounting of all portable assets, including items on loan, must be maintained by the agencies.

• A current list of employees authorized to have access to these assets must be maintained by the agencies. One time usage requests must be supported by the authorizing approval of the employee’s management.

• All equipment assigned to employees must be supported by the appropriate receipt documentation bearing the employee’s name, signature, usage


requirement and the date of expected return. Agencies should perform a follow-up on any asset consignment that exceeds its expected return date.

• Annually, agencies must reconcile their portable asset Inventory to verify the existence of all assets in stock and assets which have been assigned. Physical confirmation/count is required for all assets in stock. For assets assigned, physical verification is preferable, but email confirmation from registered assignee is acceptable. At a minimum email confirmation must include a statement acknowledging position and working condition of the item(s), list of types of asset(s) held and serial number(s).

• Upon an employee’s departure or change in responsibilities, where the portable device(s) issued is no longer required to fulfill his/her job function, agencies must ensure that they repossess and account for the portable device(s) previously assigned to the employee and place it back into the Inventory count for that particular item.

4. INVENTORY CONTROL FUNCTIONS

Inventory Control systems are complex operations, and in order to operate effectively, responsibilities and access to Inventory must be clearly defined and documented. The primary functions of an Inventory Control system are purchasing, receiving, storing, disbursing and the Inventory Control unit or department. Each function is described below in detail. 4.1 The Purchasing Function

The purchasing function is pertinent to and directly affects the Inventory Control operation. Proper purchasing entails adherence to established rules and regulations that must be monitored and enforced by management. Comptroller’s Directive # 24 - Agency Purchasing Procedures and Controls provides accounting, internal control, and documentation controls relative to purchases made by the City. The following section focuses more closely on the controls over Inventory levels.

The following must be considered when determining how much and when to order Inventory:

• Safety Stock Levels. • Reorder Point. • Reorder Amount. • The stock depletion rate and usage projections. • Historic, seasonal, and projected usage. • Lead Time. • Claims Against Stock. • Determination of the proper purchasing method to be used (e.g. ordering through

DCAS or open market purchases made directly by the agency).


http://comptroller.nyc.gov/general-information/directives/?pageid=251&value=Agency%20Purchasing%20Procedures%20and%20Controls.%20As%20reissued%20on%20March%2011,%202014

http://comptroller.nyc.gov/general-information/directives/?pageid=251&value=Agency%20Purchasing%20Procedures%20and%20Controls.%20As%20reissued%20on%20March%2011,%202014

• The total purchase price. • Funds available to cover the cost of the purchase.

The purchasing function must ensure that a copy of the detailed purchase order, once processed, is furnished to the receiving function with a notation as to when delivery of the goods can be anticipated and to be used as a means of verifying the completeness of the delivery.

4.2 The Receiving Function

A receiving area accepts and inspects ordered goods, ensures compliance with the terms and conditions of the purchase order and prepares receiving reports. The following controls must be present within the receiving area:

• Incoming goods must only be accepted within a designated area in the warehouse or stockroom. Security must be provided to restrict access and protect against unauthorized removal of goods. For facilities which are not able to dedicate a specific receiving, and/or distribution area, access to goods delivered must be highly secured. Packages must be clearly marked as restricted and inventoried expeditiously, ideally within the same day of delivery. If practical, the common area used for both receiving and distribution would only be used of one purpose at a given time. If simultaneous use is required, items received must be registered in the Inventory Control system pending storage. At no point should unregistered goods and good slated for distribution occupy the same space.

• When shipments are received, the storage manager, or designee who operates outside of conflicting duties, must make sure all goods are inspected, counted, weighed (if applicable), measured and compared with the purchase order and the vendor’s receipt. Shortages and damaged items must be recorded, the vendor and management must be notified of the discrepancy; to coordinate credit, modify payment or schedule delivery of missing items. When the order has been completed it should be indicated on the purchase order then forwarded to the agency’s Inventory Control unit or Inventory Control liaison. Partial delivery should be indicated on the purchase order if the receipt of goods represents incomplete orders. The condition of damaged and defective goods must be recorded and the goods either returned for credit or exchanged for items that comply with the purchase order requirements.

• Receiving reports must be prepared at the time the goods are delivered. They must be sequentially numbered and controlled to hinder unauthorized use. The report should include such information as vendor name, order number, quantity, unit price, and the number and condition of goods delivered. Discrepancies between ordered and received goods must be indicated on the purchase order and receiving


report. Receiving reports should be maintained on file in the receiving area with a copy sent to the Inventory Control unit.

• When cleared by the receiving area all goods must be moved to the storage area.

4.3 The Storage Function

A storage area retains the received goods in a secure and organized manner, maintains Perpetual Inventory records, and prepares goods for distribution. The following controls must be present in a storage area:

• Goods must be inspected upon receipt and before release. Upon arrival, the goods must be compared to the receiving report. Shortages and damaged goods not noted by the receiving department must be recorded and referred to management. Goods rejected are segregated until a final disposition is determined by management. Items accepted must be promptly moved to assigned locations. If stock on hand is insufficient to fill an authorized order, management must be notified. Significant unresolved discrepancies should be reported to the Department of Investigation. Documentation must be retained in the files.

• Goods must be assigned to specific storage locations. A reference list should be developed and maintained to identify each location. Temporary overflow space should be designated.

• Up-to-date Perpetual Inventory records must be maintained. Incoming and outgoing orders must be recorded on a timely basis. Whenever possible, there should be a separation of duties between those who handle the Inventory and those who record the Inventory transactions should be maintained. Supervisors must monitor the accuracy of the transactions and compare entries with requisitions for mathematical accuracy.

• The storage manager or designee must record all Inventory activity in the facility’s Inventory Control and retain and file all supporting documentation. The facility should prepare Inventory Control cards (or an electronic equivalent) which contain the following information: location, physical description of the item, unit size, order Lead Time, minimum quantity (that must be on hand for an efficient supply for the facility), maximum quantity (storage space), reorder quantity, vendor, DCAS number if applicable and location.

• Inventory cards (or the electronic equivalent) must be updated for all Inventory activity. The following information must be included: all procurement activity including the amount requested, the Purchase Order Number (PO), and date(s) the order was received; quantity received and unit price; disbursements including the requisition number, dates(s) quantity disbursed, transferred, or relinquished. The storage manager or designee may elect to keep information of all Claims Against Stock on the Inventory cards.


• Physical Inventory counts should be performed, as often as necessary, but at least annually, to assure that proper and accurate Inventory Control procedures are being followed. The actual Physical Inventory count must be recorded on the Inventory Control. When changes occur involving key employees directly responsible for the day-to-day operation of Inventory Control, a random sampling based Inventory count should be conducted.

• A records retention policy must be in place. Disposal of documents must be done only in accordance with procedures authorized by the City of New York Department of Record and Information Services (DORIS), as provided in Chapter 72, Section 3004 of the Charter.

• Periodic inspections should be performed to identify the accuracy of the records and identify obsolete, deteriorated and damaged goods. Management must review all inspection reports. The agency salvage officer must approve all dispositions. The salvage officer must not be employed by the storage unit.

• Safety Stock Levels, Reorder Points, Reorder Amounts, stock depletion rates, and a valuation policy must be established. An Inventory valuation policy, to allow consistent, accurate valuation for the Inventory balances, must be developed and reported in accordance with the Office of the Comptroller’s Fiscal Year-End Closing Instructions.

• Inventory Rotation – Whenever possible, the earliest acquired Inventory must be distributed first, and the latest acquired Inventory items must be distributed last (FIFO).

• An annual Physical Inventory count must be performed in accordance with Office of the Comptroller’s Fiscal Year-End Closing Instructions.

• For small agencies where the same staff work in both the receiving and storage units, the receiving reports should be prepared by the staff of a separate unit, preferably an inspection or quality control unit. If separate units are not available, the purchase order accompanied by the vendor’s delivery receipt signed by the receiving/storage area staff should serve as the source document for the receipt of stock.

4.4 The Distribution Function The distribution area ships goods to the end user, ensuring compliance with requisitions, and prepares release documents. The following controls must be present in the distribution area:

• Goods must be released only through a distribution area. When practicable, an area separate from the receiving and storage areas must be designated for the preparation and distribution of goods. For facilities that are not able to dedicate a specific distribution and/or receiving area, access to goods scheduled to be distributed must be secured and packages must be clearly marked as restricted for distribution.


https://comptroller.nyc.gov/general-information/fiscal-year-end-closing-instructions/



Ideally, the common area used for both receiving and distribution would only be used of one purpose at a given time. If simultaneous use is required, items slated for distribution can only occupy space with newly registered Inventory, which is pending storage. At no point should unregistered goods and good slated for distribution occupy the same space. Goods must be counted and compared to the requisition and authorized release from the Inventory Control system. Any unreconciled discrepancies between the amounts ordered/delivered to the amount available for distribution must be referred to management. Security must be provided to protect against unauthorized removal of goods. Prior to disbursement of any goods, the storage manager or designee must perform an inspection to verify quantity, quality, condition, model number, etc. with the corresponding requisition.

• The storage manager or designee must post all disbursements of Inventory from the warehouse to the Inventory Control system. Inventory records are updated after receiving a completed and signed copy of the requisition (from the end-user). The storage manager or designee must also maintain a complete and accurate filing system for the disbursement of Inventory. This must consist of copies of all pertinent information relating to the disbursement of Inventory including copies of the properly completed, authorized, signed and recorded stock requisition forms. Note: It is the storage manager or designee’s responsibility to ensure proper segregation of duties between designees.

• The storage managers or designee must follow-up on requests of out-of-stock items and make every effort to assure that the item will be obtained as soon as possible.

• Release orders must be obtained from the Inventory Control unit for all orders prior to distribution.

• Receiving receipts must be prepared and accompany orders. Shipping reports must accompany the distributed goods. Receipts must be sequentially numbered and include the name of the unit receiving the order, order number, quantity and description of the goods being delivered. Any alterations to the forms must be investigated by the appropriate supervisor.

• Signed copies of the receiving report (from the End-User Location) must be obtained, verified and filed. An up-to-date listing of agency employees authorized to accept goods must be maintained in the distribution unit. Copies of the receiving report must be forwarded to the Inventory Control unit and others as determined by procedure. Copies must be on file.

• For small agencies, where the same staff work in the receiving and distribution unit, receiving reports should be prepared by the staff of a separate unit, preferably an inspection or quality control unit. Release documentation should also be prepared by the staff of a separate unit. If a separate unit is not available a properly authorized requisition order, when supported by a receiving report, signed by an authorized end-user, would serve as a source document for release of stock.


• For small agencies, where the same staff work in the storage and distribution area, release documentation should be prepared by the staff of a separate unit. If a separate unit is not available a properly authorized requisition order, which is fully supported by a receiving report by an authorized end-user, can serve as a source document for the release of goods.

4.5 The Inventory Control Unit Function

An Inventory Control unit or department authorizes the release of goods and maintains and evaluates current and historical accounting and statistical data. The following controls must be present in the Inventory Control unit.

• The Inventory Control unit must verify authorizations for orders of goods prior to release. An up-to-date listing of employees allowed to authorize requests for goods must be maintained and used to verify signatures on each requisition. A signed pre-numbered and controlled order release (separate form or stamp placed on the approved requisition) must be forwarded to the storage area and distribution units after validation of the signature(s). Any indication of fraud must be immediately reported to the agency Inspector General and/or the Inspector General of the Department of Investigation.

• A complete set of records that record all authorized additions and deletions from Inventory must be maintained. This record must periodically be reconciled to perpetual and physical Inventory records. Data should be maintained for current levels, Reorder Points, Reorder Amounts, Safety Stock Levels, unit prices, relinquishments, stock-outs, and back orders. These indicators identify time required to complete requisitions. Reports inform operating units of the status of their requisition. Aging and other reports must be developed to assist management in evaluating the materials management process. Exception reports alert management to potential areas of operation failure, waste and dishonest activity.

• Periodically, managers of End-User Locations must run or be sent reports, generated from the Inventory Control system, listing all Inventory sent to their location for the year and asked to certify that the goods were appropriate, received and the amounts were reasonable. Once the user patterns are developed, the Inventory Control unit should monitor, where deemed appropriate, the quantities requested against the patterns, staff levels and other indicators. Anything that is extraordinary or exceeds reasonable thresholds must be identified and investigated.

4.6 End-User Locations

The following controls must be present at the End-User Locations.

• Controls must be established to safeguard security. Many of the controls in the previous sections can be useful in fulfilling this requirement. For example, upon


receipt, requisitioned items must be counted, inspected and compared to both the shipping/receiving report and the properly authorized requisition. If not immediately distributed within the end-user agency, the items must be kept in a secure end-user storage area.

• The end-user manager must certify yearly, to the Inventory Control unit, to the receipt of goods and reasonable usage. The manager must review the report received from the control unit of all goods delivered to their location for reasonableness when compared to the number of staff, purposes and functions of the location and prior year(s) usage. Unresolved questions must be reported to management and the agency’s Inspector General and/or the Inspector General of the Department of Investigation. Otherwise the agency’s internal control unit must be informed, in writing that the report has been reviewed and represents a reasonable usage for the year.

In addition to the rules in this Directive, all agencies must manage their Inventory Control and valuation processes in accordance with the appropriate City requirements, including the Department of Information Technology and Telecommunications (DoITT) Citywide policies and guidelines, the Department of Investigation Standards for Inventory Control and Management, and the Department of Citywide Administrative Services (DCAS) Office of Surplus Activities Manual.

5. VALUATION OF INVENTORY

Agency management must ensure that the Book Value (BV) of Inventory is recorded in their Inventory Control and continually updated. Agencies must also report annually to the Comptroller the BV of all inventories in compliance with the Comptroller’s Fiscal Year-End Closing Instructions.

5.1 Book Value

The BV of each type of Inventory item held is calculated using the average cost method, as follows:

• The total cost paid for all units of a specific Inventory item is calculated by summing all actual amounts paid (net of any discounts) each time that same item is purchased.

• The total cost paid is then divided by the quantity purchased, of a specific Inventory item, throughout the fiscal year to arrive at the average cost paid.

• The average cost paid is then multiplied by the quantity remaining on hand at the end of the fiscal year, to arrive at the BV of a specific Inventory item.


http://www1.nyc.gov/site/doitt/business/technical-vendor-resources.page

http://www1.nyc.gov/site/doitt/business/technical-vendor-resources.page





5.2 Valuation Method

For reporting purposes, the number of units of each Inventory item is multiplied by the average cost paid as of the date of the Inventory valuation. Support for all calculations, invoices and other documentation must be available for review by the Office of the Comptroller.

6. YEAR-END INVENTORY REPORTING

In order for the City’s Comprehensive Annual Financial Report (CAFR) to be in compliance with Generally Accepted Accounting Principle (GAAP), management must assure that Inventory be complete and reported at the appropriate valuation. As required by the Fiscal Year-End Closing Instructions, issued annually by the Office of the Comptroller, Bureau of Accountancy, agencies must conduct a complete Physical Inventory count of all items on hand, including items at the storerooms and portable items, on an annual basis.

If a Perpetual Inventory System is used, a portion of the materials and supplies may be counted and verified periodically during the year. The count does not have to be repeated again. The Physical Inventory count must be completed and reconciled to the agency Inventory records prior to each fiscal year closing. Agencies may also perform additional Inventory counts; aside from the Comptroller’s fiscal yearend requirement, as needed.

Agency Physical Inventory count procedures must include the following:

• All existing in-house Inventory items must be subject to the Physical Inventory count, including items which are un-installed, un-issued, or not in use, as well as those items maintained in storage facilities.

• Agencies should maintain documented Physical Inventory count procedures, which have been reviewed and approved by the appropriate agency official. These procedures should be updated annually, based on any significant findings and/or exposures evident from the most recent Physical Inventory count experience.

• The Physical Inventory count must be conducted and supervised by individuals independent of the Inventory function within the particular location or anyone responsible for the maintenance of the detailed Inventory records, reconciliations and reports for that particular location.

• The results of the Physical Inventory count should be documented as part of the agency’s Inventory Control and immediately reconciled to the agency’s internal records, with any differences promptly investigated, resolved and appropriate adjustments recorded. All unresolved discrepancies suggestive of stolen Inventory should be referred to the Department of Investigation for further investigation.

• The results of each Physical Inventory count, including all findings, discrepancies and correcting adjustments, with the appropriate substantiation, must be documented and maintained by the agency in accordance with its records retention schedules. The Department of Records and Information Systems (DORIS) requires all agencies to




maintain their own records retention schedules subject to their approval and the approval of the Law Department. The Director of Municipal Record Management of DORIS should be contacted at (212) 788-8551 regarding any records retention questions.

• All supporting documentation related to Physical Inventory count results must be kept on file and be made available to the Comptroller’s Office upon request.

• Refer to Directive #1 – Principles of Internal Control for instructions on the required annual filing of a Financial Integrity Statement by agencies. The Statement represents a formal opinion regarding the adequacy of the agency's internal control structure. This opinion must be supported by the Directive #1 Financial Integrity Statement Checklist that agencies are required to complete.

Back to the Beginning of the Directive


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directive #32: non-capital inventory controls and … · 2018. 6. 1. · internal control and...

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