Guidance-on-planning-Physical-Count-of-Inventory

Planning & Organizing Physical Count of Inventories:Generic Guidelines

Table of ContentsPurpose1Responsibilities1Planning for Physical counting of Inventory items2Conducting the Physical Count4Reconciling the Physical Inventory items4Appendix6A: Sample Inventory Tag6B: Sample Instruction for a Physical counting of Inventory items7

Purpose

This document provides guidelines for conducting period-end physical count of inventories, and is applicable to all COs that hold inventories for programmesfor regular operations. Period-end physical inventories count not only help ensure the accuracy of balances of inventory items reported in the UNDP's financial reports but also help you manage the activity in your office. All COs arerequired to performphysical counting exercise of inventory items on a quarterly basis, i.e. on 31 March, 30 June, 30 September and 31 December, for each storage location. However, COs may decide to perform physical count at more frequent intervals (e.g. monthly basis).Responsibilities

Resident Representative (RR) or Head of Office is responsible for ensuring that the quarterly physical counting of inventory items is properly performed, inventory records reflect actual quantities on hand, inventory valuation methods are appropriate, and adjustments are entered in the Inventory Control Report on a timely basis. In addition, RR or Head of Office is responsible for ensuring that segregation of duties is maintained throughout the process of counting inventory items to promote the safeguarding of the assets, authorizing of inventory distribution, and objective reporting of inventory items. Specifically, no one person should be able to authorize a transaction (e.g., a purchase or sale), record the transaction, have custody of the inventory items, and perform the related reconciliation.Planning for Physical Counting of Inventory items

Time spent on planning and preparing for the physical counting of inventory items will streamline the count process and reduce errors and rework.

A. Clearly define roles and responsibilities. In general, the process of counting of inventory items and the reconciliation should be supervised or performed by an independent person. This independent person should NOT be the person who checks in or receives inventory items, maintains the inventory records for the items, or is responsible for the daily security and accountability of the inventory items.

An example of participants' possible responsibilities follows: 1. OperationManager: plans and supervises inventory items, makes test counts, approves adjustment to the balances on inventory cards.2. Staff Member #1: tabulates physical count and identifies possible errors. 3. Staff Member #2: reconciles physical count to inventory cards; creates adjustment journal. 4. Count teams: count the inventory items on hand.

The number of people involved will depend upon the size and complexity of the country office and the items being counted.To achieve adequate segregation of duties, staff members who are the Inventory Focal point should not be the Inventory Physical Count coordinator. Also, the Inventory Physical Count coordinator should not maintain inventory records, or be responsible for the daily safeguarding and accounting of inventory items. The Inventory Physical Count coordinator should not receipt inventory items either.

B. Establish a master schedule that sets the beginning and completion dates for both the counting process and the reconciliation of the inventory items. 1. Physical inventories are typically done at the quarter end to allow sufficient time to reconcile and adjust balances before the quarter end close.2. For ease of reconciliation, consider scheduling the completion ofthe physical counting of inventory items to coincide with the last working day of the quarter.3. Suspend all transaction activities such as receiving and distribution/issuance during the countprocess to make the processmore efficient.

C.Notify affected partiesproviding adequate lead time to planappropriately. For example,1. Notify vendors if deliveries will not be accepted during thistime.2. Advise customers (local recipients) in advance of the shut-down period.3. Inform staff to allow them sufficient time to planfor the activity.

D.Purchase necessarysuppliesbefore the count. Suppliesmightinclude:1. Sequentially-numbered inventory tags (see sample in AppendixA), or similar tools, to be used to identify items thathave been counted and how many times they have been counted.Consider preprinted tags,if available from your inventorytracking system, containing all of the information except the actual counts and team numbers, to reduce the effort on theday(s) of the count.2. Other supplies like name tags, pens,markers, clipboards,calculators,tape, scales, step stools.3. If needed, specialmaterialsfor handling product, such asplastic gloves or masks.

E.Prepare the storage areafor the counting of inventory items (If thewarehouse is clean and organized throughout the year, additionaleffortsbefore the count should be minimal.)1. Clean all areasfor ease of counting.a). Make sure like items are grouped together.b). Arrange items so they can be easily counted (i.e., in "batches").c). Ensure there are no hazards in the warehouse thatcould be dangerous during the counting of inventory items, suchas boxes to trip over,wet floors, items that could fall,etc.

2. Organize the inventory items. a). Arrange products in the storage area to facilitate the first-to-expire, first-out procedure (FEFO). For Global Fund medical supplies / equipments, the storage instruction issued by WHO must be complied. b). Clearly mark package quantities if necessary. c). Count and seal partial packages with the count and date clearly marked. Cross out any conflicting information, like previous counts, different part numbers, etc., and ensure that the package has the correct part number clearly marked. d). Clearly mark items that will not be counted with "DO NOT COUNT". For example, inventory items are ready-to-be issued/distributed should be separated from the rest of the inventories and mark INVENTORY OUT: DO NOT COUNT. e). Identify damaged goods and move them to a designated separate location. f). Label each area to be counted. For example, label shelving units alpha-numerically (AB1, CD2) and each individual shelf numerically (top shelf = AB1-1, second shelf = AB1-2, etc.). In this way, you can create a complete list of all areas to be inventoried and "check off" each area as it is completed. Count each marked location separately. g). Make sure all items are identified with anitem number, bar code, or other identification. h). Update storage area floor plans to reflect current inventory locations and identify count areas.

F. Organize counting teams. Physical inventories should be performed by personnel who have no direct responsibility for assets subject to the physical count. If the use of such personnel is not feasible for any part of an inventory, then those portions should be tested and verified by an independent person. 1. If supplemental resources are required, consider using staff from other office or hiring temporary employees to supplement the staff. 2. Define at least two staff per count team.

G. Develop written instructions for the physical counting of inventory items for individuals participating in the count. Appendix B contains a sample of such instructions.

H.Establish clearcutoff guidelines, identifyingwhich items to include or exclude from the inventory count.1. If possible, complete all handling and recording of inventoryproductsbefore the physicalinventorycount begins. Thisincludes receipts, returns, consolidation between storage locations, etc.2. No movement of any inventory item should be permitted duringthe physical count.Any items that are ready-to-be issued/distributed during the count should be physically separated and labeled "INVENTORY OUT: DO NOT COUNT".

If movement is required, backup documentation should be maintained and the quantity reflected in the count orsubsequent discrepancyreconciliation. A good practice is to attach a count tag to copiesof the documentation.

Conducting thePhysicalCount

A.Review counting instructionswith the counting teams before they begin.Provideexamplesofhow to find COA codes, units ofmeasure, quantities, etc. Demonstrate an actual count.Explain the complete process,including reason forthe count, storage area and inventory layout, numbering and distribution of inventory tags,collection, and summarization of the count sheets.

B.Control of theinventory tagsor count sheets helps ensure completenessand accuracy ofthe count.1. Ifinventory tagsareused,confirm thateachstackissued to count teamsis complete and in numerical sequence. A logshould be kept ofthe tags issued to each teamto ensure all are returned and accounted for, otherwise a tag with a "real"count may be misplaced and you may notbe aware of it.2. Complete inventory tags in ink pento prevent erasures. Correcterrors by lining out the error, writing the correct entry, and initialing the change. If an entire tag must be redone, the tagshouldbe marked "ERRORDO NOT COUNT"and a newtag created forthe item. No inventory tags should be discarded.3. Collect the completed inventory tags from each teamatthe end ofthesecondcounts, confirming against the log that the same tags issued have been returned and that no tags are missing.

C.Countitems twiceto provide asaccurate a countas possible.Each count team should be assigned to a specific area for their firstcount, then perform asecond count in another area to confirm thatarea'sfirst count. Discrepancies should immediately be brought to the manager'sattention.Third and fourth counts maybe necessaryto obtain an accurate count or to investigate any variances between inventory card records and the count results. The explanation of the variances must be documented and the approval of RR or Head of Office is obtained to update the balances on inventory cards.Reconciling the PhysicalInventory items

Reconciliation is defined as the processof identifying, explaining, and correcting the differences between the physical count and inventory card records.A.Determine the amount per physicalcount.1. Enter the physical count into an inventory control report.2. Significant discrepancies between the inventory card records and the countshould be investigatedand explained.3. The explanation of the variances must be documented.4. The approval of RR or Head of Office is obtained to update the balances on inventory cards.

B.Determine the amount per the inventory cards.1. Begin with the quarter-end balance of inventory items in the inventory cards. 2. Update the balanceson the inventory cards are updated by adding or subtracting the excess or missing quantities. 3. If applicable, damaged or expired inventory items found during the physical counting of inventory items are disposed as per UNDPs FRR, and the corresponding information is recorded on the inventory cards.

C. Determine the adjustment amount. The difference between the amount per physical count and the amount on the inventory cards is the adjustment required in the quantity on the inventory cards to reflect the true amount, with proper approval by RR or Head of Office.

D. Consider obsolescence. Compare the quantity on hand to the quantity issued or distributed during the quarter:

PHYSICAL COUNT, PREVIOUS QUARTER+ PURCHASES, CURRENT QUARTER- PHYSICAL COUNT, CURRENT QUARTER = QUANTITY ISSUED/DISTRIBUTED, CURRENT QUARTER

If the amount on hand greatly exceeds what was issued / distributed during the quarter, you may have an obsolescence issue. Determine if excess quantities or obsolete goods exist and prepare an adjustment of quantities to the inventory cards and initiate actions for write off in accordance with the write-off rules and delegated authority.

Appendix

A: Sample Inventory Tag

Count#1:A. Description of item (Product name)B. Item# (or Barcode#)C. Quantity countedD. Unit of measure Note:count items according to the units by which they are issued (e.g. tablet or piece), not by the carton or box. E. Location (listed on shelf, e.g., AB1, AB2)F. Team numberCount #2:G. Description of itemH. Quantity countedI. Unit of measureJ. Team number (on both sections of the tag)

B: Sample Instruction for a Physical Counting of Inventory itemThere will be two counts. Instructions for each count are different and are provided below:Count #1: We will have teams of two; each team will receive a stack of inventory tags:1. One person will count the items.2. The second person will record the count and item information on the inventory tag. 3. The tag will be taped to the shelf where the item is located. 4. Switch roles occasionally to stay sharp. You are responsible and accountable for all tags assigned to you during the first count. Please use them in order and return any unused tags to the issuing staff member. The following will need to be indicated on the bottom half of the inventory tags. Refer to the Sample Inventory Tag for correct replacement of each entry. A. Description of item (Product name)B. Item# (or Barcode# or Manufacturer catalog#)C. Quantity countedD. Unit of measure Note:count items according to the units by which they are issued (e.g. tablet or piece), not by the carton or box.E. Location (listed on shelf, e.g., AB1, AB2)F. Team numberIf your team is unsure of any of the needed information for the tags, please see a supervising staff member (or the focal person for physical counting appointed by RR). Once your team has completed the first count for the shelves or area which you have been assigned please see a supervisor for assignment to a second count area. Count #2: After all first counts of inventory items have been completed, your team will be assigned to a different location to verify its first count. Teams will count items and compare it to the first count made. Once it has been verified, the team will complete the top portion of the tag with the following:A. Description of itemB. Quantity countedC. Unit of measureD. Team number (on both sections of the tag)Your team will tear off the bottom portion of the tag and submit them in numerical order to the supervisor for data entry after you complete your second count. If your team finds ANY discrepancies during your second count please notify a supervisor immediately. 4