Inventory for Resale: Management Guidelines for Service Centers
|Effective:||02/16/10||Approved By: Senior Associate Vice President for Financial Affairs and Chief Financial Officer|
For Assistance Contact: Assistant Controller
To provide guidance on accurately recording the value and minimizing the risk of loss of assets held in inventory by university service centers.
- Texas Government Code Section 403.276 — Reporting to Comptroller and Attorney General
- University of Texas (UT) System UTS 118 — Dishonest or Fraudulent Activities
Table of Contents
- Inventory Accounting Method
- Inventory Valuation
- Controls and Security of Inventory
- Ordering Inventory
- Physical Inventory Counts
- Inventory Reconciliation
- Year-End Inventory Adjustments
UTSA service centers purchase and distribute products and supplies that are maintained as inventory until they are sold or used. The following items must be included in inventory:
- Items purchased explicitly for resale
- Items purchased in quantity for subsequent use
- Materials used to produce items for resale
Items outside of these classifications are not considered inventory for the purposes of this guideline. Items purchased that are not resold to external parties or other UTSA departments are considered operational expenses for that department.
- Beginning inventory
- Amount of purchases
- Ending inventory
UTSA utilizes periodic inventory accounting. All service centers perform mandatory inventory counts the last day of the fiscal year (August 31) if possible.
Each service center is responsible for the proper valuation of inventory — assigning inventory values by computing the cost of inventory dollar amounts — and for ensuring that detailed documentation supporting the inventory valuation is retained.
The valuation method, such as FIFO or LIFO, weighted average cost or specific identification is used to compute the cost of inventory dollar amounts.
Most service centers at UTSA use the specific identification method, but any valuation method is acceptable as long as it is used consistently.
Carrying large quantities of inventory can in some cases maximize financial benefits; however, large inventory levels can also result in greater risk of theft, damage or obsolescence prior to sale or use.
Each service center is responsible for establishing controls and maintaining security over the entire inventory in all locations. All service centers that maintain inventory must implement a system for monitoring internal controls and procedures for staff and business systems. Procedures must address the policies and statutes listed in the Authority section of this guideline.
Inventory items should be housed in secure locations that are only accessible to authorized personnel. All warehouse facilities should be equipped with key/key card access systems. Access to inventory warehouses can only be granted by management.
All inventory items must have specific item or part numbers assigned to them so that they can be tracked in the physical warehouse and in the appropriate inventory management system.
Inventory must be ordered by approved purchasers per UTSA’s official purchasing policies and procedures (contained in the Contract Management Handbook) and fmog.0602.utsa.
All purchases must generate an identifier to facilitate order tracking and inventory valuation.
If an inventory item is returned, the item must be returned to inventory or to the vendor — for credit or replacement — and the appropriate inventory management system must be updated.
Damaged and obsolete items must be disposed of through UTSA Surplus Property. Service centers must save all supporting documentation related to damaged, obsolete and missing inventory and attach copies to the year-end reconciliation to avoid overstatement of the inventory value.
Service centers must conduct annual inventory counts. All physical items included in inventory must be verified against the department’s inventory records via a physical inventory count. Damaged or obsolete items must also be noted.
A detailed inventory sheet must include the number of units and the unit cost for all inventory items on hand. Upon completion, management must
- Review the inventory sheet(s) for damaged or obsolete items
- Ensure that all items have been counted
- Verify the accuracy of the quantity by recounting a sample of the items
- Verify the mathematical accuracy of the extended values and the total inventory value
Management must adequately document any adjustments completed to correct any discrepancies that are found.
Service centers must reconcile their inventory accounts on an annual basis, after completing the physical inventory count. The reconciliation process verifies that the value of the inventory held in the inventory system is equal to the value in the inventory account in the general ledger.
Service centers use the Inventory Reconciliation form for this purpose. The form includes a section for obsolete inventory adjustments and a reconciliation section. The form must be signed by the department manager and their supervisor and submitted to the associate director of accounting by the established due date.
Instructions for completing the form are included in the form.
NOTE: A memorandum is sent in August with instructions for completing the inventory reconciliation process.
At year-end, the value of inventory on hand is computed and compared to the previous year's value of inventory on hand.
An accountant within Accounting Services records the adjustments, which are reflected in the appropriate PeopleSoft Account.
Inventory sold, obsolete inventory and shrinkage are documented and recorded separately.
|11/05/21||Updates to reflect submission of the Inventory Reconciliation form to the associate director of accounting (section G). Updates to section H. Editorial updates throughout.|