Purpose and Scope
To provide guidelines relative to merchandise and consumable inventory control and valuation.
Overview
University departments are ultimately responsible for development, documentation, and implementation of specific inventory processes and procedures to safeguard inventory and ensure accurate financial reporting of inventory at year-end. Departments are also responsible for adequately protecting inventory against theft and obsolescence, limiting inventory access to authorized personnel, and conducting annual counts and valuations of inventory for year-end financial reporting purposes.
Definition of Inventory Types
- Merchandise Inventory:
- Goods owned by the university which are intended for resale.
- Consumable Inventory:
- Items purchased by the university which the university consumes as parts of its ongoing operations.
Internal Controls
Each University department is responsible for safeguarding the university's assets. Goods to be inventoried should be kept in secure locations with access granted only to authorized personnel.
Inventory Valuations
For year-end financial reporting purposes, inventory should be assigned value in accordance with standard valuation procedures. These procedures include the first in/first out (FIFO) inventory method, the last in/first out (LIFO) inventory method, and the average cost inventory method. Departments should exercise professional judgment in determining which inventory method is appropriate for their type of inventory.
Obsolete Inventory
Items held which have a low likelihood of use/resale and have not seen any movement for some time should be deemed obsolete inventory. Obsolete inventory is outside the scope of this guidance. Management should use discretion as to whether this inventory should be disposed of or maintained in the unlikely event it will be needed at a future point in time. Such obsolete inventory should be excluded from the annual inventory value reported to University Accounting Services (UAS) Financial Reporting at year-end.
Annual Inventory Requirement and Segregation of Duties
Annual inventory counts are required for merchandise and consumable inventories at August 31st of each year. Departments should use discretion and investigate significant variances between actual and expected inventory counts. When feasible, normal sales and use of inventory should be temporarily discontinued so that accurate inventory counts can be obtained.
Each inventory should be completed by two University employees (or an independent company with expertise in conducting physical inventories) whose duties do not constitute a conflict of interest with conducting the inventory count. Counters should not have direct access to the inventory throughout the fiscal year, and should not be the inventory custodian and individual responsible for maintenance of inventory records.
Final inventory values should be determined as discussed above and reported to UAS Financial Reporting in accordance with the Year-End Closing Procedures distributed annually through The Controller Connection Newsletter. Consumable inventory should be reported if it totals at least $25,000.00 for Texas A&M University or $5,000.00 for Texas A&M University at Galveston. Merchandise for resale totaling at least $5,000.00 should be reported.
Reporting to UAS Financial Reporting should occur via the Form FD403: Inventory of Consumable Supplies and Materials and items for Resale.