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Contents

About This FAM

Responsible Agency: Office of the Comptroller General
Issued: May 1989
Last Updated: May 1989

1. Introduction

The accounting and control procedures for the purchase of inventories are basically the same as for regular expenditures. However, additional techniques are required to account and control for the continuing cost of inventories until they have been consumed or disposed.

Control accounts in the General Ledger provide independent control over program managers responsible for subsidiary systems, and ensure that managers do not write-off or otherwise dispose of assets without appropriate authority.

Through a proper accounting of inventories:

  1. financial reports can be improved;
  2. custodians can be held accountable for the assets under their control; and
  3. decision making on the acquisition and utilization of assets can be facilitated.
 

2. Definitions

"Inventory"

Inventories consist of such items as bulk fuel products, liquor, finished arts and crafts products, and other materials and supplies. Inventories of materials include:

  1. consumable operating supplies;
  2. goods in process of production;
  3. goods held for sale or re-issue; and
  4. goods on consignment.
 

3. Policy

Inventories must be controlled and accounted for as prescribed by the Comptroller General.

4. Directives

4.1

Accounting controls must be established over inventories of materials to provide:

  1. independent control over those operating subsidiary systems; and
  2. information on the level of inventory on hand.
4.2 An inventory count and subsequent reconciliation to the control account of the Government data base must take place annually. All adjustments to the subsidiary account must be authorized and all differences accounted for.
4.3 Where detailed inventory records are maintained, the duties of custodians must, wherever practicable, be separated from the duties of record keepers to strengthen internal control.
4.4

Directors of Finance shall ensure:

  1. that requirements for accounting and control over inventories are communicated to the program managers responsible for their custody; and
  2. that determination of quantities, physical condition, and values of inventories during the stock-taking are independently verified.
4.5 Managers accounting for inventories shall operate subsidiary accounting systems to record the costs of materials on hand and, in accordance with FAM Policy 1601, ensure that these subsidiary systems are integrated with the Financial Information System.
4.6

As a result of the substantial costs involved in carrying inventories (including the risk of obsolescence):

  1. there is a limit on the Revolving Stores Account;
  2. the total investment in inventories must be specified from year to year; and
  3. a Board of Survey must take place at least every four years.