3.4 Physical Inventory
Stan Dunn, CPPM
Property Management Office
A physical inventory is performed in accordance with University policy and Sponsor compliance requirements. At a minimum, the process includes a physical sighting or other approved method of verification to confirm the existence, location, department, project accountability, and use status of equipment.
In general, inventory results are indicators of the overall effectiveness and level of compliance with property management processes and controls. Inventory results confirm the accuracy of the property records and are used as the basis for financial, stewardship, and compliance reporting. Results confirm what may be considered as a best practice or may be used to identify areas of potential improvement.
1. Key Policy Statements
- A campus-wide inventory is performed on a biennial basis; more frequent inventory events may occur depending on the terms and conditions of the accountable sponsored project or other identified risk.
- Asset accountability is at the department level, with additional stewardship responsibilities at the custodian or user level.
- To ensure separation of duties, the primary inventory verification is performed by the Property Management Office (PMO), with reconciliation of exceptions done by departments.
- The Sunflower (SFA) database is used as the data source and system of record for equipment for physical inventory activity.
2. Inventory Performance Goal
Departments are required to meet a performance goal of 98% (100% for sponsor owned) which conforms to current industry standards for property management.
Departments not meeting inventory performance goals may be required to submit a corrective action plan to PMO.
3. Inventory Frequency
A biennial physical inventory is performed on a cyclical basis at Stanford. Circumstances which may warrant more frequent inventories include:
- Award close-out or termination
- Terms and conditions of a sponsored project
- Results of a prior inventory
- Changes in level of departmental compliance
- Large organizational changes
- Emergency response or support
- Other identified risks
4. Inventory Baseline
At a minimum, the assets included in an inventory baseline are comprised of the following asset groupings for which the University is responsible and accountable, regardless of their physical location:
- Stanford-owned capital assets
- Government or other Sponsor-owned equipment and material (regardless of cost)
- Leased equipment
- Equipment on loan to the University
- Designated sensitive property
Other assets, such as Stanford-owned non-capital equipment, may be identified and recorded in the SFA property management database. Such assets, if encountered during the verification process, may be scanned but are not included in the baseline results of the biennial inventory.
Special inventories are performed as needed. Assets included in the baseline for a particular event will be based on the circumstances leading to the requirement for performing the inventory.
5. Physical Inventory Planning, Preparation and Scheduling
PMO is responsible for the development and implementation of the biennial inventory schedule. Prior to each inventory, communications occur with each department involved to confirm details including:
- Key personnel
- Area escorts and access
- Asset baseline
- Space to be included in walkthrough
- Verification and reconciliation expectations
- Documentation requirements
- Inventory event communications
- Reporting resources
- Additional considerations as needed
Critical factors contributing to the success of an inventory include:
- Visible management advocacy of property administration requirements
- Department-wide understanding of property management processes and performance goals
- Timely and effective interaction with the Department Property Administrator (DPA) by all personnel
- Accurate and timely record-keeping by DPA
- Completion of the steps included in the Pre-Inventory Checklist
Inventory Schedule Changes
The Biennial Physical Inventory schedule is developed by PMO in collaboration with the designated Department Property Administrator (DPA).
A primary objective in scheduling is to maintain approximately a 2-year interval between inventory events for a given area/department; however, we strive to support the needs and availability of departmental staff. Should a schedule change be required, please contact your Property Programs Manager (PPM) or the Inventory Specialists in PMO.
6. Key Roles and Responsibilities
Property Management Office
- Establish policy, procedure, performance criteria, and process implementation
- Define inventory schedule
- Conduct initial scanning event
- Provide interim, reconciliation and final reports
- Review, approve, and post inventory adjustments
- Ensure adequate resources are available to support inventory event
- Disseminate inventory information to maximize staff participation
- Support ongoing property management awareness and compliance
Principal Investigator (For equipment accountable to sponsored projects)
- Ensure assets are accessible for inventory verification
- Maintain ongoing communication with the DPA regarding property activities and record updates
- Assist in subcontractor communication, as needed
- Provide assistance to DPA during reconciliation
Department Property Administrator
- Ensure property is tagged and records are current, complete, and accurate
- Provide adequate escort and access during scanning and reconciliation activities
- Provide documentation for untaggable and off-campus assets, including those in storage
- Research and provide resolution for unfound assets within reconciliation period
- Assist the DPA as needed during inventory scanning and the reconciliation periods
7. Verification and Data Collection
The majority of assets are verified during the inventory via one of the following three methods:
- Wall to wall physical verification
- Searching each room of a building for all recorded assets within
- Inventory by exception
- Substantiating asset via pre-defined alternate method (e.g. maintenance or calibration record, transfer documents, network pinging report)
- Attestation with sample verification
- Used primarily in low volume or low risk areas
- Selecting and physically verifying a random sample from a listing which an authorized department representative provided as confirmation of inventory
Wall to wall verification is the primary method used for physical inventory. Inventory by exception and sample inventories may be used for special situations and require the prior approval of the Director of the Property Management Office.
For the majority of assets, barcode technology is used to record the equipment location and verify the following data elements:
- Stanford ID number (SU barcode number)
- Manufacturer Name
- Model Number
- Serial Number
- General Use Status
- General Asset Condition
- Other data elements as needed or specified in the biennial inventory plan
Each asset physically verified during the inventory is marked with an inventory decal identifying the current inventory cycle. Missing or damaged ID tags may be identified and replaced as needed.
The Sunflower database is updated to correct inaccurate data, which is discovered during the physical inventory scanning and verification process.
Asset Record History
The Sunflower asset record for each item included in an inventory baseline has an inventory event recorded in its transaction summary and history. The posting will include an inventory resolution type and date.
8. Special Circumstances
In addition to the verification methods stated above, the following special circumstances may require alternate inventory protocols:
Untaggable assets (As defined in Chapter 3.2– Identification) are to be fully inventoried in conjunction with the initial scanning event for the area in question.
Department Property Administrators (DPA's) are expected to provide the Inventory team with current copies of the required supporting documentation (e.g. “Untaggable Binder”) for all untaggable assets in their department(s), and identify them during the wall to wall scan.
Assets may be located off-campus and inaccessible for physical verification. Such circumstances include:
- Items in use at a subcontractor facility
- Items approved for use at a residential location of a University employee
- Items in use at an alternate business/work location
- Items out for repair
Generally, for verification of an item that is inaccessible due to an off-campus location, the DPA is expected to provide the Inventory Group with a copy of a current (updated within the last 12 months) Off Campus Equipment Verification Form. This document serves to verify the current asset status. Periodically, the custodian may be required to return the item(s) to campus for physical verification.
Government Owned or Furnished Property at Subcontractor Facility
Government-owned or Government furnished equipment at a subcontractor’s facility for which Stanford is accountable may have specific inventory requirements per the terms and conditions of the accountable award. PMO will work closely with the PI and the subcontractor to ensure the inventory is completed, reconciled, and reported.
Items in Storage
Stored equipment may or may not be located on campus. Items in storage on campus can usually be inventoried during the wall to wall physical scanning and verification of a department’s assets. On-campus assets that are inaccessible (i.e. packed or crated) should have an accompanying listing verifying the contents of each storage container for use as an attestation. A sample verification may be performed as needed.
Equipment stored off campus should be documented as an off campus asset, and inventoried as such. Refer to Chapter 3.5, Use and Maintenance regarding the proper documentation and accounting for equipment stored off-campus.
Cannibalized assets should be immediately identified as such and the DPA informed. PMO approval should be requested for the record to be retired from active status. Record updates are processed centrally, by the Property Programs Manager.
Fabrications - Work in Process
Until completed, fabrications are not considered capital equipment; they are construction-in-process (CIP). This includes components that exceed the capital threshold, which have been clearly identified as fabrication components. Unless otherwise specified in the agreement terms and conditions, CIP is not included in the biennial physical inventory.
9. Material Inventories
Material that is Government-owned or Furnished (GFM) and is accountable to a sponsored project is inventoried biennially and/or per the terms and conditions of the sponsored award.
Material items are not individually bar coded. Quantities are verified in a method appropriate to the type of material. The inventory of GFM is limited to the balance on hand items.
10. Reconciliation and Reporting
The reconciliation period begins after the initial wall to wall scanning event of an area by the PMO inventory team. Preliminary reports are provided to the DPA, usually within 5 working days. They identify items still to be located.
Reconciliation periods vary based on the number of assets in a department. The specific timeframe will be communicated to the department prior to the start of the inventory. Departments should plan to have personnel available through the completion of the inventory and reconciliation to identify, locate, or otherwise account for unfound equipment. As unfound items are located, the DPA should contact the Inventory team to arrange for the items to be scanned, or provide photographic evidence of the asset. Documenting extraordinary circumstances in lieu of one of these two actions requires approval from the appropriate Property Programs Manager (PPM) in order to resolve the inventory discrepancy.
During a department’s reconciliation, periodic reports detailing status results of the inventory will be generated by PMO and sent to the DPA and department management, as applicable.
Departments not meeting the inventory performance goals may be required to submit a corrective action plan, outlining in detail the steps they will take to improve performance in subsequent cycles going forward. Failure by a department to successfully meet the inventory performance goal may also result in a department’s physical inventory being performed more frequently than every two years.
11. Final Reporting and Financial Adjustments
At the conclusion of the two-year cycle, items not located will be declared unaccounted in the SFA database. Overall University results are analyzed and final reports generated. Inventory results of government-owned property are provided to the cognizant sponsor representatives per the terms of each accountable agreement.
Should Government-owned assets remain unaccounted at the conclusion of the inventory period the Sponsor will be notified. A corrective action plan is submitted with a request for relief of accountability in compliance with Federal Acquisition Regulations (FAR) regulations and terms and conditions of the award. If a Government-owned asset reported as unfound is later located, the sponsor will be notified and the property record reactivated. Adjustments to the property record will be made in accordance with Sponsor directives.
Non-federal Sponsor-owned assets not located during the inventory cycle are reported to the Sponsor as required by the terms and conditions of the award.
Stanford-owned items not located for two consecutive cycles will be evaluated for potential write-off. Financial adjustments are recorded in the SFA and Oracle Fixed Asset systems.
12. Special Inventories
Location inventories are usually independent of the biennial physical inventory. Moves of equipment into or out of labs, administrative areas, etc. necessitate updating the location information in the SFA database. For large moves, a “Location Inventory” is an expeditious method to update the records with the new location. This will help to ensure that equipment affected by the move has been accounted for.
Contact your Property Programs Manager to arrange a location inventory.
A final physical inventory of the equipment accountable to a sponsored award and, associated subawards, is often required as part of the contract closeout process. These inventories are conducted on an award by award basis at the end of the award period, or as required by the terms and conditions of the sponsoring agency. All accountable property, regardless of location, must be included. The results are reported to the sponsoring agency as specified by the terms of the award.
Per Federal Acquisition Regulations (FAR) 52.245-1.f. (iv), a complete inventory of equipment or material accountable to the contract is usually required if a contract is terminated before the end of the performance period. Contract terminations are time-sensitive. Contact PMO as soon as the issue arises.
Government-owned property at sub-contractor facilities, for which Stanford University is ultimately accountable, is also subject to physical inventory. Sub-contractor physical inventories are performed biennially or as required by the terms and conditions of the sponsored award. The subcontractor provides signed attestation as to the accountable property in their possession. The attestation information is subsequently reported by PMO to the Sponsor as required.