Federal 

Financial 

Management 

System 

Requirements

 JFMIP-SR-03-02 

August 2003

What is JFMIP?

The Joint Financial Management Improvement Program (JFMIP) is a joint undertaking of the 

U.S. Department of the Treasury, General Accounting Office (GAO), Office of Management and 

Budget (OMB), and Office of Personnel Management (OPM), working in cooperation with one 

another, with other agencies, and with the private sector, to improve financial management in the 

Federal government. The program was given statutory authorization in the Budget and 

Accounting Procedures Act of 1950 (31 U.S.C. 65). Leadership and program guidance are 

provided by the four principals of JFMIP: Comptroller General of the United States, Secretary of 

the Treasury, Director of OMB, and Director of OPM. Each principal designates a representative 

to serve on the JFMIP Steering Committee, which is responsible for the general direction of the 

program. The Executive Director of JFMIP is a permanent member of the steering committee 

and is responsible for the day-to-day operations of JFMIP. Additionally, a representative from 

the Federal community serves on the steering committee for a two-year term.

The program promotes strategies and sponsors projects to improve financial management across 

the Federal government, participates in the financial management activities of central policy 

organizations, and facilitates the sharing of information about good financial management 

practices. Information sharing is accomplished through conferences and other educational events, 

newsletters, meetings with interagency groups and agency personnel, and the Internet.

For more information on JFMIP, call (202) 219-0526, or visit the JFMIP website at

http://www.jfmip.gov.
Foreword

Inventory, Supplies and Materials System Requirements is one of a series of functional systems 

requirements documents published by JFMIP dealing with Federal financial management 

systems. The first of these requirements documents, Core Financial Systems Requirements, was 

originally published by JFMIP in January 1988, and has since been updated. JFMIP also 

published Framework for Federal Financial Management Systems in January 1995, which is 

currently in the process of being updated. This document provides a comprehensive description 

of the basic elements of a model for integrated financial management systems in the Federal 

government including, system integration, data stewardship, and internal controls.

This document is prepared in support of the Federal Financial Management Improvement Act 

(FFMIA) of 1996 and strategic plan of Chief Financial Officer’s (CFO) Council. This act and 

the CFO Council strongly reaffirm the need for the Federal Government to provide financial 

systems that facilitate the effective management of government programs and services for the 

proper stewardship of public resources. Additionally, recent reports from the General 

Accounting Office (GAO) indicate significant shortcomings in Government’s ability to track an 

item from cradle to grave. Key to overcoming this shortfall is the establishment of robust 

inventory system requirements. The Department of Defense owns approximately ninety-five 

percent of the Federal Government’s inventory and therefore lead this effort.

This document, in part, meets the goal of the President’s Management Council (PMC) and 

JFMIP to improve the efficiency and quality of financial management in the Federal government. 

It represents a collaborative effort on the part of more than twenty agencies, led by the U.S. 

Department of Defense and staffed by finance and inventory professionals throughout 

government.

Inventory, Supplies and Materials System Requirements addresses the shared information 

requirements between Federal financial and inventory systems. To this end, it identifies existing 

government-wide statutory and regulatory requirements associated with the mutual functional 

interfaces between Finance and Inventory, Supplies and Materials systems (See Appendix A for 

a complete list of applicable references and authoritative sources). Agencies must use these 

functional requirements, in addition to agency-unique mission requirements, in planning their 

financial management and inventory systems improvement projects. The functionality to support 

the requirements identified in this document does not necessarily reside in a single software 

application or functional system. In fact, the information may reside in a number of applications 

or systems, whether automated or manual.
We thank the agency officials and other participants from the logistics, financial, oversight, and 

information technology communities who contributed to this document. It was particularly gratifying to see the finance and logistics communities unite so effectively behind a common 

objective. We especially wish to acknowledge the Under Secretary of Defense, Acquisition, 

Technology and Logistics, U.S. Department of Defense for leading the effort. (See Appendix E 

for a list of contributors). With continuing support such as theirs, we can confidently face the 

logistics and financial management challenges of this century.

Karen Cleary Alderman 

Executive Director 

September 2003 
Table of Contents

INTRODUCTION.............................................................................................................................. 11

Federal Financial Management Framework .................................................................................13

Federal Inventory, Supplies and Materials System Overview.....................................................14

Introduction to Inventory, Supplies and Materials Systems Requirements................................18

GENERAL REQUIREMENTS FOR INVENTORY, SUPPLIES AND MATERIALS SYSTEMS ... 20

Interface Requirements...................................................................................................................22

Technical Requirements.................................................................................................................24

Security and Internal Controls .......................................................................................................25

Access to Information.....................................................................................................................26

Data Entry .......................................................................................................................................27

Archiving and Purging ...................................................................................................................28

Information Technology in the Inventory, Supplies and Materials Management Process........29

INVENTORY, SUPPLIES AND MATERIALS ACQUISITION....................................................... 30

General Requirements for Inventory, Supplies and Materials Acquisition Process...................30

Needs Determination Process........................................................................................................32

Budget Establishment Process.......................................................................................................35

Purchase Planning Process.............................................................................................................36

Acquiring Process...........................................................................................................................37

INVENTORY, SUPPLIES AND MATERIALS CONTROL.............................................................. 42

General Requirements for Inventory, Supplies and Materials Control Process.........................42

Receipt and Inspection Process......................................................................................................46

Storing Process................................................................................................................................49

Items in Transit Process .................................................................................................................53

Inventory Undergoing Repair and Work-in-Progress Tracking Process ....................................55

Inventory, Supplies and Materials Management Information Process........................................59

INVENTORY, SUPPLIES AND MATERIALS DISPOSITION........................................................ 61

General Requirements for Inventory, Supplies and Materials Disposition Process...................61

Inventory, Supplies and Materials Distribution Process..............................................................67

Inventory, Supplies and Materials Disposal .................................................................................68
Appendix A: References/Authoritative Sources............................................................................... 69

Appendix B: Glossary........................................................................................................................ 72

Appendix C: Inventory, Supplies and Materials Valuation............................................................. 93

Appendix D: Factors Influencing the Environment......................................................................... 95

Appendix E: Contributors............................................................................................................... 101
Illustrations

1. Critical System Interfaces Process Flow............................................................................17

2. Inventory & Related Property Acquisition Process Flow .................................................25

3. Inventory & Related Property Control Process Flow........................................................35

4. Inventory & Related Property Disposition Process Flow..................................................51
Acronyms

ALC Agency Location Code

BPA Blanket Purchase Agreement

CCR Central Contractor Registration

CFO Chief Financial Officer

CFR Code of Federal Regulations

COTS Commercial Off-the-Shelf

CS Cases, Unit of Measure

DoD Department of Defense

EA Enterprise Architecture or Each (if used as a unit of measure)

EC Electronic Commerce

EDI Electronic Data Interchange

EFT Electronic Funds Transfer

EOQ Economic Order Quantity

FASAB Federal Accounting Standards Advisory Board

FFMIA Federal Financial Management Improvement Act

FFMSR Federal Financial Management System Requirements

FIFO First-in, First-out

FMFIA Federal Managers’ Financial Integrity Act

FOB Free On Board (see Glossary)

FSC Financial Systems Committee (Chief Financial Officers Council)

FY Fiscal Year

GAAP Generally Accepted Accounting Principles

GAO General Accounting Office

GPEA Government Paperwork Elimination Act

GPRA Government Performance and Results Act

GSA General Services Administration

ID Identification

IPAC Intra-governmental Payment and Collection

IT Information Technology

JFMIP Joint Financial Management Improvement Program

OMB Office of Management and Budget
OM&S Operating Materials and Supplies

PL Public Law

PMC President’s Management Council

PO Purchase Order

PR Purchase Request

RTN Routing and Transfer Number

SFFAS Statement of Federal Financial Accounting Standards

SGL Standard General Ledger

TFM Treasury Financial Manual

UID Unique Identifier

UOM Unit of Measure

USC United States Code

USAID United States Agency for International Development

XML eXtensible Markup Language
Inventory, Supplies and Materials System Requirements 11

INTRODUCTION

The U.S. Federal Government is the world’s largest and most complex enterprise, involving the 

collection, management, and disposition of billions of taxpayer dollars. Financial, acquisition, 

inventory, and program officials face tremendous challenges in managing Federal programs. 

Improvements in agency Inventory, Supplies and Materials and financial systems are critical to 

government’s efforts to obtain complete and reliable information needed to manage this 

enterprise efficiently. Increasingly, integrated systems are expected to simultaneously support 

multiple users (program managers, financial managers, acquisition managers, and inventory 

managers) while systems and data are being shared by agencies with common needs. 

Information supplied by these systems is expected to become more timely, accurate, and 

consistent across the government.

Representatives from inventory and financial management functions government-wide formed 

the partnership that developed this document. Its purpose is to provide a common set of 

inventory/financial shared information requirements with which each agency’s integrated

financial management system must be consistent. These information requirements, frequently 

arising from Federal statutes or regulations, constitute information available in one system that is 

required for the performance of another system. This document delineates those requirements 

that are critical to the performance of both functions. These requirements are intended to be 

available to all users who rely on the information to carry out their responsibilities. 

This update of Inventory, Supplies and Materials System Requirements demonstrates the 

sustained commitment of the Federal financial and supply/logistics communities to improving 

information management systems, providing the best service possible to support program 

managers, and utilizing the taxpayer dollars entrusted to them as efficiently and as effectively as 

possible. Changes have been made to reflect new legislation and new policies and to clarify the 

document’s purpose and place within a series of Federal financial management systems 

requirements documents. When JFMIP first published Inventory System Requirements in 1995, 

it served as a basis for agencies to make improvements to their processes by standardizing 

requirements for agency systems. This version recognizes an expansion of the basic inventory 

requirements to include requirements for related property, such as operating materials and 

supplies and stockpile, which although similar in many ways to inventory, may have unique 

accounting, reporting, and other requirements. Specific mandatory requirements for Inventory, 

Supplies and Materials apply only to those agencies which manage such property in their 

programs, otherwise they are considered value-added.

The Federal government also has consistently recognized the importance of having high-quality 

information management systems that contain financial, inventory, and other information 

necessary to support government operations. As a result, Congress enacted a variety of recent 

statutes, including the Federal Financial Management Improvement Act (FFMIA) of 1996 and 

the Information Technology Management Reform Act (Clinger-Cohen Act) of 1996 to assure 

that high-quality information management systems are developed to enable effective and 

efficient decision making by program officials. The Office of Management and Budget (OMB) 

also issued several relevant publications, including Circular A-127, “Financial Management 

Systems” and Circular A-130, which outlines the requirement that all electronic systems, 
Introduction

12 Inventory, Supplies and Materials System Requirements

including financial and acquisition systems, have a defined association to an agency’s enterprise 

architecture. The FFMIA and OMB Circular A-127 specifically provide the vision for a single, 

integrated Federal financial management system. As mentioned earlier, in support of that vision, 

JFMIP publishes requirements documents for financial systems and the financial aspects of 

mixed systems (such as Inventory, Supplies and Materials systems). Inventory, Supplies and 

Materials System Requirements should be considered in the context of all the other JFMIP 

requirements documents, which form the basis for total government-wide financial system 

requirements.1

The first section of this document references the “Federal Financial Management Framework,” 

the foundation for the JFMIP Requirements Document.

The next section, “Inventory, Supplies and Materials System Overview,” discusses the high-level 

processes of the Inventory, Supplies and Materials system, while “Introduction to Inventory, 

Supplies and Materials Requirements” describes the methodology used to identify and develop 

specific information requirements.

“Acquisition,” “Control,” and “Disposition” are the sections that define in detail the shared 

information requirements between inventory and related systems and financial systems and the 

list the data elements.

Appendix A lists the statutes, laws and regulations upon which these interface requirements are 

based, 

Appendix B is a glossary of the Inventory, Supplies and Materials and financial terms used in 

this document.

Appendix C describes methods of valuation for inventory, operating materials and supplies, and 

stockpile materials. This is from Federal Accounting Standards Advisory Board’s document 

entitled, “Accounting for Inventory and Related Property” SFFAS-3

“Appendix D, “Factors Influencing the Environment,” provides highlights of the activities that 

are particularly relevant to the Inventory, Supplies and Materials and financial management 

communities. 

Appendix E lists those individuals who contributed their time, effort and vision to the 

development of this document.

 

1

 The requirements documents and other information are available on the JFMIP website at www.jfmip.gov. 
Inventory, Supplies and Materials System Requirements 13

Federal Financial Management Framework 

Financial management systems in the Federal government must be designed to support the vision 

articulated by the government’s financial management community. This vision requires 

financial management systems to support the partnership between Inventory, Supplies and 

Materials program managers and financial managers and to ensure the integrity of information 

for decision making and measuring performance. This includes the following abilities:

• Collect accurate, timely, complete, reliable, and consistent information

• Provide for adequate agency management reporting for decision making, measuring 

performance, and financial reporting

• Support government-wide and agency-wide policy decision making

• Support the preparation and execution of agency budgets

• Facilitate the preparation of financial statements and other financial reports in accordance 

with Federal accounting and reporting standards

• Provide information to central agencies for budgeting, analysis, and government-wide 

reporting, including consolidated financial statements

• Provide a complete audit trail to facilitate audits

• Provide adequate security controls to minimize the risk that data could be disclosed to 

unauthorized individuals, improperly used or manipulated, or destroyed due to 

unauthorized access or use

• Provide disaster recovery capabilities

The JFMIP document, “Framework for Federal Financial Management Systems” provides the 

principles, including Enterprise Architecture, that underlie this document.
14 Inventory, Supplies and Materials System Requirements

Federal Inventory, Supplies and Materials System Overview 

This section provides an overview of the Inventory, Supplies and Materials system. It is provided 

as a background for delineating the high-level processes whereby the Inventory, Supplies and 

Materials and financial management systems, including the core financial, cost accounting, 

acquisition, and property, must share information requirements.

A Federal Inventory, Supplies and Materials system is a unified mixed system used in

administering an Inventory, Supplies and Materials program. Taken as a whole, the components 

of a unified system accomplish the major functions specified in Section Two. The term 

Inventory, Supplies and Materials system does not mean that a specific system architecture is 

required or that only a single software application is used. An Inventory, Supplies and Materials 

system includes all of the modules, applications and data bases used in fulfilling the major 

functions as defined in this document regardless of whether the function is performed in one or 

more information system. For example, the mandatory data elements that are specified in the 

various sections of this document may reside in a central data base that is accessed by a variety 

of systems (e.g., core inventory, budget, logistics, or others) or multiple data bases in various 

locations.

The Federal inventory and related system encompasses the processes, policies, and procedures 

the government employs to obtain, control, account for, and dispose of Inventory, Supplies and 

Materials. Those processes, policies, and procedures are applicable to all executive agencies and 

are published in the Federal Acquisition Regulation (FAR), the Federal Property Management 

Regulations (FPMR), the Federal Management Regulations (FMR), and various agency 

regulations that implement or supplement the FAR, OMB guidance, and Statement of Federal 

Accounting Standards (SFFAS) No. 3: Inventory and Related property. In fiscal year 2002, 

Federal agencies reported over $183.8 billion in Inventory, Supplies and Materials. Inventory, 

Supplies and Materials is defined as tangible property, other than long-term fixed assets, held by 

federal government agencies. Classifications of Inventory, Supplies and Materials discussed in

this requirements document include: inventory, operating materials and supplies, and stockpile 

(see Section 1.2.2 for categories of Inventory, Supplies and Materials that are not addressed in 

this document.)

Scope

The system requirements for Inventory, Supplies and Materials being addressed in this document 

apply to the following classifications of Inventory, Supplies and Materials:

• Inventory -- tangible personal property that is: (1) held for sale, (2) in the process of 

production for sale, or (3) to be used in the provision of services for a fee

• Operating Materials and Supplies -- tangible personal property to be consumed in normal 

operations

• Stockpile Materials -- strategic and critical materials held due to statutory requirements 

for use in national defense, conservation, or national emergencies
Inventory, Supplies and Materials System Overview

Inventory, Supplies and Materials System Requirements 15

This table illustrates similarities and differences between Inventory, Supplies and Materials 

categories.

CLASSIFICATIONS

CATEGORIES

INVENTORY

OPERATING 

MATERIALS 

& SUPPLIES

STOCKPILE

MATERIALS

Held for Sale or Use X X X

Held in Reserve X X X

Excess, Obsolete, Unserviceable X X

Held for Repair X X

The categories of “held for sale or use” and “held in reserve” apply to all three classifications of 

Inventory, Supplies and Materials.

The term "held for sale" shall be interpreted to include items for sale or transfer to (1) entities 

outside the federal government, or (2) other federal entities. The principal objective of the sale 

or transfer of inventory is to provide a product or service for a fee that generally recovers full 

cost or an identified portion of the cost.

The category of held in reserve for future sale or use are items that may be maintained because 

they are not readily available in the market or because there is more than a remote chance that 

they will eventually be needed. Factors to be considered in developing criteria for identifying 

inventory held in reserve for future sale are:

• relevant costs associated with holding these items (including the storage, handling, 

maintenance, repair, and replenishment of out-of-date stock costs)

• expected replacement costs, when needed

• time required to replenish inventory

Inventory, Supplies and Materials classified as excess, obsolete, and unserviceable inventory is 

awaiting disposal because it is no longer needed or is damaged to the point that it is more 

economical to dispose of rather than to hold. This classification applies only to the 

classifications of inventory and operating materials and supplies. The excess, obsolete, and 

unserviceable inventory is defined as follows:

• "Excess" refers to property under the control of a federal agency that the head of the 

agency determines is not required to meet the agency’s need or responsibilities.

• "Obsolete" refers to items that are no longer needed due to changes in technology, laws, 

customs, or operations

• "Unserviceable" refers to damaged items that is more economical to dispose of than to 

repair
Inventory, Supplies and Materials System Overview

16 Inventory, Supplies and Materials System Requirements

Inventory or operating materials and supplies held for repair are items that are worn out or 

broken and are expected to be repaired when needed and eventually sold or consumed in 

operations. The category of “held for repair” applies to items being held that are:

• less costly to repair than to replace

• not available in a timely manner, or

• not being manufactured any longer and may be required to service equipment which is no 

longer being manufactured but is still used in agency operations

Exclusions

There are three other classifications of related property that are not addressed in this document:

• Seized and Forfeited Property

• Foreclosed Property

• Goods Held Under Price Support and Stabilization Programs

System requirements for seized and forfeited property were addressed in JFMIP document 

entitled. “Seized Property and Forfeited Assets Systems Requirements”, dated December 1999.

The system requirements for foreclosed property was also previously addressed in a JFMIP 

document entitled, “Guaranteed Loan System Requirements,” dated March 2000.

Goods Held Under Price Support and Stabilization Programs are commodity programs 

administered by the U.S. Department of Agriculture solely and are not representative of the 

majority of the types of inventory managed throughout the federal government. The system 

requirements in this document specifically address classifications of Inventory, Supplies and 

Materials held and administered by multiple agencies.

Inventory, Supplies and Materials System Interdependencies

The Federal Inventory, Supplies and Materials system relies on, and interacts with, other agencyspecific systems. For example, inventory systems may trigger the decision to procure, while the 

disposition of an inventory end item may be used to establish the agency’s property management 

system record. The principal system that shares information requirements and creates two-way 

dependencies with the Inventory, Supplies and Materials system is the core financial system. 

These dependencies help to ensure integrity and control in the areas of budget, program 

management and delivery, and external reporting.

The Federal Inventory, Supplies and Materials system is represented in the following high-level 

flow diagram (Figure 1). The diagram shows critical interfaces between the Inventory, Supplies 

and Materials system, core financial system and related systems, as well as final disposition of 

the items.
Inventory, Supplies and Materials System Overview

Inventory, Supplies and Materials System Requirements 17

Figure 1 – System Interdependencies

Budget

Formulation

System

Disposition

Of Inventory

Program Management

Information Systems

Acquisition

System

Revenue

System

Property

Management

System

Core

Financial

System

Acquiring

Inventory

Control of

Inventory

Issued/Customer Disposal
18 Inventory, Supplies and Materials System Requirements

Introduction to Inventory, Supplies and Materials Systems 

Requirements 

This document identifies the shared information requirements necessary within the inventory and 

financial systems to facilitate efficient and reliable data sharing between the Inventory, Supplies 

and Materials and financial management processes. These requirements are primarily based upon 

statute and regulation. Inventory, Supplies and Materials systems must comply with these 

requirements to ensure the sharing of data among systems and to form the basis for an agency’s 

single integrated financial management system.

Methodology

The following definitions govern the distinction between mandatory—signified by the word 

“must”—and value-added—signified by the word “should.”

• Mandatory requirements describe what the system must do and represent the 

minimum acceptable functionality necessary to establish a system based on Federal 

laws and regulations. Mandatory requirements are those against which agency heads 

evaluate their systems to determine substantial compliance with systems requirements 

under the FFMIA. These requirements apply to existing systems in operation and 

new systems planned or under development.

• Value-added requirements describe features or characteristics and may consist of any 

combination of the following: (1) using state of the art technology, (2) employing the 

preferred or best business practices, or (3) meeting the special management needs of 

an individual agency. Value-added, optional, and other similar terminology may be 

used to describe this category of requirements. Agencies should consider valueadded features when judging systems options. The need for these value-added 

features in agency systems is left to the discretion of each agency head.

The various steps and information requirements associated with financial and inventory 

processes do not necessarily occur in all cases in the order presented. Any information 

requirement identified as mandatory is mandatory throughout the Inventory, Supplies and 

Materials process, if applicable to the transaction; no matter when in the process the associated 

data becomes available.

This document should be used when developing new Inventory, Supplies and Materials and 

financial systems, and related interfaces, or improving/evaluating current systems. It, however, 

does not provide hardware/software performance requirements for such systems; rather, it 

provides the high-level requirements necessary for the supply and logistics communities to 

effectively support integration of their systems in to the financial management system.
Introduction to Inventory, Supplies and Materials System Requirements

Inventory, Supplies and Materials System Requirements 19

Access to Information

The Inventory, Supplies and Materials system requirements in this publication have been 

identified as essential to the performance of both accountability and financial functions. This 

information is critical at the time of its initial entry into the agency’s single integrated financial 

management system and retains its importance as long as it is necessary for it to be contained in 

this system. As such, these requirements, regardless of their form, must be made available to all 

users—both from the supply/logistics and finance communities—who require it to carry out their 

respective responsibilities.
20 Inventory, Supplies and Materials System Requirements

GENERAL REQUIREMENTS FOR INVENTORY, SUPPLIES 

AND MATERIALS SYSTEMS

A requirement is defined as something needed; a necessity. As it applies to this document, a 

requirement is defined as a necessary system functionality or capability in order to fulfill an 

information need. In any agency, Inventory, Supplies and Materials management must be 

defined in terms of what processes and objectives need to be supported by the system. Agency 

Inventory, Supplies and Materials systems assist managers in collecting and maintaining 

information for managing various types of items in accordance with generally accepted 

accounting principles (GAAP).

These requirements are to be used as a guide for agencies when enhancing existing systems or 

developing new systems and they make the assumption agencies have fully automated systems 

that encompass the complete scope of requirements in this document. Some agencies may 

determine that it is not practical to fully automate all functions based on such factors as operating 

environment and costs. Accordingly, it may be necessary for agencies to make adjustments to 

their processes to meet the general requirements as well as their specific program and system 

requirements.

The requirements that follow provide a description of the major information and processing 

capabilities for inventory systems. The following basic requirements have been identified by 

Inventory, Supplies and Materials functional requirements. These functional capabilities should 

be integrated with agency unique requirements in a manner that best supports the agency’s 

programs, operations, technical environment, and management philosophy.

The Inventory, Supplies and Materials system must support the following common requirements 

for all inventory classification functions:

• Record beginning balances (on-hand), acquisitions, withdrawals (dispositions), and 

calculate ending balances (on-hand) expressed in dollar values and physical units

• Record item identification, classification (e.g., nomenclature, quantity, description, 

Federal stock classification or national stock number), initial cost, and subsequent costs 

related to acquisition (i.e. holding/handling cost)

• Be in accordance with FASAB requirements on Valuation Methods, as outlined in 

Appendix C

• Record the condition of the inventory

• Record changes in value of Inventory, Supplies and Materials due to changes in condition 

or other impacting circumstances
General Requirements For Inventory, Supplies And Materials Systems

Inventory, Supplies and Materials System Requirements 21

• Record whether material received is hazardous, classified, requires special handling, 

requires special packaging, requires munitions list controls, requires trade security 

controls, or has a shelflife

• Identify the type of transaction affecting the item; e.g., initial acquisition, location, 

change in location, and disposal

• Provide edits (controls) to prevent duplicate entries and reduce the likelihood of creating 

erroneous inventory documents/records, thereby ensuring the integrity of data recorded in 

the system

• Permit only authorized users to enter, modify, or otherwise alter inventory records (See 

section on Security and Internal Controls)

• Provide audit trails to trace transactions from source documents, original input, other 

systems, and system-generated transactions

• Enable and account for the transfer of responsibility for inventory from one authorized 

manager to another authorized manager, ensuring that sufficient information is 

transferred to provide an audit trail at the gaining management activity

• Provide the capability to relate data elements to each other as discussed, through an 

integrated data query facility that supports ad hoc query access to financial information 

described in the document and provides reporting tools for data analysis 

• Government Paperwork Elimination Act (GPEA) of 1998—requires Federal agencies to 

allow, by October 21, 2003, individuals or entities, as an option, to interact with them 

electronically where practicable

• Adhere to the applicable final “Electronic and Information Technology Accessibility 

Standards” issued by the Architectural and Transportation Barriers Compliance Board, 

which address technical and functional performance criteria necessary for such 

technology to comply with section 508 of the Rehabilitation Act Amendments of 1998

• Provide a field for a Unique Item Identifier (UID). A UID is a unique, unambiguous 

string of alpha numeric characters that enable the identification of a specific item from 

any other like or unlike it in compliance with ISOs 15434 and 15418.2

 

2

 Inventory, Supplies, and Materials systems are required to have this field function at all steps in the process from 

acquisition to disposal. Use of the field is at the discretion of agency management. However, if an agency decides 

to enable this field, the data in the field must by maintained throughout the lifecycle of the inventoried item.
22 Inventory, Supplies and Materials System Requirements

Interface Requirements

Agencies must also develop strategies for interfacing or integrating other systems, including its 

inventory systems, with the Core Financial System. Interface requirements and system 

architecture necessary to meet management and reporting requirements are determined by each 

agency. However, all systems, modules, or applications that record, use, or manipulate shared 

information should be linked. The inventory system, to include subsystems that record or 

generate inventory management information, should be capable of interfacing with other 

financial and mixed systems. The inventory system should be able to process transactions from 

other systems and record and track such transactions and related information, to provide the basis 

for central control. It is also probable that, where interfaces exist, there will be two-way 

interfaces associated between systems. If the inventory system relies upon a subsystem for 

information or data, such as work-in-progress, there should also exist a two-way interface, 

whereby the inventory system could provide information to the subsystem involved.

Analysts, designers, etc. should consult the JFMIP Framework for Federal Financial 

Management Systems document for guidance on integration or interface issues, e.g., data 

stewardship, internal controls, and security. The purpose of all system interfaces is to:

• Promote a single point of entry to populate the inventory database and all databases with 

which the inventory system interfaces at the same time

• Ensure that audit trails of all system transactions are recorded

• Facilitate ease of reconciliation of related records and pertinent data between systems to 

ensure data accuracy

To facilitate the reconciliation of information that is common to the core financial management 

system and to one or more of the financial mixed systems (e.g., Inventory, Supplies and 

Materials, acquisition, and property management systems) described in the JFMIP Framework 

document and other JFMIP requirements documents, the single integrated financial management 

system must provide for:

• multiple levels of system access, transaction authorization, and approval authority

• single source data entry

• validation of funds available prior to scheduling payment

• communication of the need for additional funds

• simultaneous posting of budgetary and proprietary accounts

• prepayment examinations from diverse locations

• controls to ensure transaction processing in proper chronological/numeric sequence
Interface Requirements

Inventory, Supplies and Materials System Requirements 23

• standard edits for shared data

To support the Interface function the Inventory, Supplies and Materials system must:

• Provide capability to interface with agency core accounting system to record the 

accounting impact of all financial activity at the SGL level, on a daily basis, to support 

consolidated financial reporting if an agency’s financial management system architecture 

is configured so that the major functions described herein are performed entirely by the 

Inventory, Supplies and Materials module

• Provide standard input record format(s) for interface of transactions from other systems 

to the Inventory, Supplies and Materials system and subject all transactions from 

interfacing systems to the Inventory, Supplies and Materials financial system edits, 

validations, and error correction procedures to support data integrity. Erroneous 

transactions must be maintained and tracked until corrected, posted, or deleted by an 

authorized user to enable performance measurement

• Provide for capability to interface to the agency’s cost accounting system

To support the Internal Interface function the Inventory, Supplies and Materials system should:

• Provide capability for a two-way interface with the core system for purposes of funds 

control and funds availability verification
24 Inventory, Supplies and Materials System Requirements

Technical Requirements

Some technical requirements are included in all JFMIP functional requirements documents, and 

especially in the Framework for Federal Financial Management Systems document and the Core 

Financial System Requirements document. As indicated elsewhere in this document, financial 

aspects of mixed systems, such as Inventory, Supplies and Materials systems, are part of an 

agency’s single integrated financial management system. As such, mixed systems are subject to 

the technical requirements contained in the Framework document and to those aspects of the 

Core System Requirements document that apply in some cases in particular agencies. Agencies 

must consult these and other documents in determining appropriate technical requirements for a 

specific agency operating environment.

To support the general technical functionality, the Inventory, Supplies and Materials system 

must:

• Provide for back up and recovery of the system per relevant OMB Circulars

• Allow users to input parameters required to run batch jobs in a production mode either: 

daily, monthly, quarterly or yearly

• Provide all users the capability to perform a “Print Screen” function
Inventory, Supplies and Materials System Requirements 25

Security and Internal Controls

With regard to security and internal controls, in addition to other Federal security standards, the 

Inventory, Supplies and Materials system must:

• Provide flexible security measures to control user access at varying degrees including: 

overall system access, capability to perform specific functions (inquiry, update), access to 

certain functionality

• Provide capability to define access to specific functions by named user, class of user, and 

position

• Provide for multiple levels of approvals based on user-defined criteria including dollar 

limits, type of document processed, etc.

• Provide the capability to perform reconciliation routines for internal participant accounts, 

ledgers, and funds, and to identify unsuccessful reconciliations via error log or error 

report

• For those systems/applications for which the agency, either on its own or through a 

contractor, has the ability to direct and implement coding changes, its should provide a 

mechanism to monitor changes to software coding and the responsible individual 

(authorized user)

• Provide for adequate management controls, including internal and security controls, 

policies, and procedures intended to protect the agency’s key systems, data, and 

interfaces from disruption and unauthorized access or alteration, as prescribed in a variety 

of statutes and regulations
26 Inventory, Supplies and Materials System Requirements

Access to Information

To support the Access to Information process, the Inventory, Supplies and Materials system 

must:

• Comply with the disclosure provisions of the Privacy Act of 1974 (5 U.S.C. § 552A) as 

amended

• Allow for the information contained in the system to be queried and present detailed data 

as requested. This will include user-defined criteria to access data for open or closed 

accounting periods

• Provide users with access to on-line guidance or help for performing system functions

• Allow users to design extract files for their specific requirements, and perform table lookups and expansion of codes when needed to clarify the information contained within the 

results of system queries or reports

• Facilitate the analysis of information contained in the system by allowing analysts to 

obtain report information and the results of system queries in data files that can be 

transferred to other applications or analytical tools

• Provide for easy access to historical files for comparative, analytical, and trend 

information
Inventory, Supplies and Materials System Requirements 27

Data Entry

To support the Data Entry technical function, the Inventory, Supplies and Materials system 

must:

• Utilize various automated input devices when hard copy applications and 

correspondence are received. For example, optical character recognition devises, 

digital imaging tools or other input streamlining technology must be utilized 

whenever feasible when processing standard hard copy applications or other required 

correspondence

• Support both batch and real-time on-line data entry and use the same edit and update 

rules as appropriate for each mode

• Support simultaneous data entry/access by multiple users in a variety of access modes 

• User entry and query screens must support validation of codes entered on the screen. 

Assist users in determining correct codes if an invalid code is entered. Provide for 

inquiry by the user to verify valid codes during the data entry process

• Provide the capability to display inputs required to complete transactions by a user 

based on the selection of transaction type. Whenever possible, keystroke reducing 

tools such as drop down menus should be utilized to reduce chance of data entry error

• Display a message to the user notifying them of the acceptance or rejection of each 

transaction once all inputs are completed

To support the Data Entry technical function, the Inventory, Supplies and Materials system 

should: 

• Identify erroneous inputs with corrective recommendations.

• Provide the capability for financial users to create comments relating to all types of 

transactions using free-form text.
28 Inventory, Supplies and Materials System Requirements

Archiving and Purging

Archiving and purging criteria should be developed in accordance with Federal regulations and 

jointly agreed to by the system administrator. The process supports data management for the 

Inventory, Supplies and Materials system. It removes data that is no longer needed for 

immediate access from the system data stores used for inquiry and reporting on current 

information. Archiving moves data to a storage medium that has a longer access time (i.e. from 

disk to tape.) Purging deletes data altogether. Archiving and purging criteria should be 

developed in accordance with Federal regulations and jointly agreed to by the system 

administrator and users to balance user needs with resource limitations.

To support the Archiving and Purging process, the Inventory, Supplies and Materials system 

must:

• Provide an automated means for permanently storing electronic data

• Archive transactions and related information needed for audit trails in a format 

accessible by audit software

• Provide the authorized system administrator the flexibility to determine whether 

records are to be archived or purged. Of those documents that meet the criteria the 

system must allow selective action. The system must include the capability to 

establish and maintain user defined archival criteria

• Retain system records in accordance with Federal regulations established by the 

National Archives and Records Administration (NARA), GAO, and others. Prevent 

the purging of transactions prior to the proper period in accordance with regulations 

governing the retention of documents and transactions
Inventory, Supplies and Materials System Requirements 29

Information Technology in the Inventory, Supplies and 

Materials Management Process

Advancements in information technology are of particular importance to agency Inventory, 

Supplies and Materials and financial systems, organizations, and communities. This importance 

is described in the introduction and other sections of this document, and is demonstrated by the 

significant amount of information requirements and processes that are common to the Federal 

Inventory, Supplies and Materials and financia l communities, and systems. This document 

identifies some general and specific information technology requirements. However, each 

agency meets its unique financial management information requirements through the 

development of its enterprise architecture. 
30 Inventory, Supplies and Materials System Requirements

INVENTORY, SUPPLIES AND MATERIALS ACQUISITION

General Requirements for Inventory, Supplies and Materials 

Acquisition Process

Inventory, Supplies and Materials Acquisition Process Flow 

Designated

Official

Budget

Office

Finance

Office Acquisition Vendor

ACQUISITION PROCESS

Determines Need

By Item

Develops Budget

Redetermines Need

Based on Budget

Contracts

For Items

Develops

Actual

Budget

Inputs Budget

Into Core

System

Records

Commitments

Records Contract

in Core System

Verifies Funds

To Controlling Process

Receives Invoice

To Controlling Process

Processes Order

Sends Invoices

Ships Items
Inventory, Supplies and Materials Acquisition

Inventory, Supplies and Materials System Requirements 31

General Mandatory Requirements for Inventory, Supplies and 

Materials Acquisition

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Provide asset identifier in order to include all costs incurred and track total 

acquisition/contracting cost

• Track the asset identifier to the specific document used to acquire the asset, e.g., purchase 

order, task order, etc.
32 Inventory, Supplies and Materials System Requirements

Needs Determination Process

Needs determination process and ultimately the specific requirements, including the quantity and 

cost of items acquired, consist of: 

• customer demand

• lead time

• internal process costs

• item levels

• timely replenishment

Managers should seek to minimize Inventory, Supplies and Materials levels through the use of 

economic order quantity (EOQ) or by the use of other acceptable methods. The primary means 

of doing so are (1) working closely with customers to develop accurate long-term demand 

forecasts, and (2) working closely with vendors to ensure accurate forecasts of delivery time and 

to minimize delivery times by shortening lead time and using other just-in-time techniques. The 

budgetary process is used when the level of inventory balances and activity must be approved 

through the agency’s budget justification and/or legislative procedures.

Mandatory Requirements for Needs Determination

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record customer demand and replenishment lead time data for a period of time (as 

specified by management), identify anomalies (such as unusual spikes in customer 

demand), and compute demand and lead time forecasts based upon a regular schedule 

determined by management

• Compute and routinely update the ordering costs, as determined by management

• Estimate and routinely update the per unit holding cost

• Either Economic Order Quantity (EOQ) or any other management approved method, may 

be used to minimize total costs of inventory, supplies, and materials, including the sum of 

ordering and holding costs may be used to compute the optimum order quantity

• Compute the safety level of an item, if any, on a regular schedule. The safety level may 

include variables stipulated by management to establish intended service levels. 

• Recompute the reorder point level on a regular schedule, considering the item’s 

acquisition lead time, quantity, safety level, repair cycle level, if applicable, and any 
Needs Determination Process

Inventory, Supplies and Materials System Requirements 33

applicable non-demand-based levels. Demand-based items may be procured when the 

items on-hand an on-order are equal to or less than the reorder point

• Record the authorization and expiration of non-demand based requirements, i.e., special 

program requirements, war reserve requirements, and provisioning requirements

• Determine if replenishment is needed on a regular schedule, basing the determination on 

net item and reorder point

• Schedule replenishment reviews on a regular basis

• Access to the following information:

o fiscal year

o organization code

o cost center

o estimated amount

o estimated quantity

o project code

o program code

o transaction date

o action code (new/modification)

o subject to funds availability indicator

o interagency agreement number

o performance measure code

o description

o estimated amounts increased and/or decreased

o revenue source code

o agency location code

o shelf life
Acquiring Process

34 Inventory, Supplies and Materials System Requirements

Value-Added Requirements for Needs Determination

To support this process, the agency’s Inventory, Supplies and Materials system should:

• Compute overall production targets necessary to fill customers’ orders and meet 

operating schedules.

• Support predefined inspection plans and quality standards, as determined by 

management.

• Access the estimated quantity associated with establishing the obligation where 

applicable.

• Enable electronic approvals, notification alerts, and point-of-entry automated requisition 

forms.

• Allow for collection of scrap and waste rates on Inventory, Supplies and Materials

• Systems should make contract termination recommendations based on mathematical 

models of termination costs, ordering costs, and holding costs
Inventory, Supplies and Materials System Requirements 35

Budget Establishment Process

This process establishes budgetary limitations for Inventory, Supplies and Materials. This 

process also supports the control of funds allocated to Inventory, Supplies and Materials in a 

manner consistent with OMB Circular A-11 and the JFMIP Core Financial System 

Requirements.

Mandatory Requirements for Budget Establishment Process

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Support the budgeting of resources for Inventory, Supplies and Materials.

• Identify available funds by item.

• Distinguish available funds for items that are slow moving and carried in the inventory 

for more than one accounting cycle

• Provide access to the core financial system to ensure that funds are available prior to 

submitting approval of a request for acquisition of inventory items

• Disallow the creation of any obligation that would exceed the available funding

• Identify funds utilized and rates of fund utilization by item

• Control availability of funds by item

• Calculate fund usage and project the date on which funds will be exhausted at the current 

rate of usage
36 Inventory, Supplies and Materials System Requirements

Purchase Planning Process

The principal purpose of the purchase planning process is to determine item replenishment 

quantities in sufficient time to meet demand without excessive holding costs. Primary factors 

that influence the process in determining order quantities mirror the factors used in Section 3.1 

Needs Determination Process; however, inventory models may produce constrained purchase 

quantities based on approved budget levels.
Inventory, Supplies and Materials System Requirements 37

Acquiring Process

This process addresses the requirements for assuming initial physical control of items. Initial 

physical control begins when title passes to the entity obtaining the item or when the items are 

delivered. When there is an interface, the inventory, supplies, and materials system may share 

information with the acquisition system, such as when an item is ordered or received. For 

example the inventory, supplies, and materials system records item receipt and the results of an 

initial physical inspection regarding the condition of the item, whether purchased, donated, or 

transferred. Upon receipt of the item, the inventory, supplies, and materials system records 

confirmation information about physical receipt and forwards the information to the acquisition 

system and the Core Financial System (see section on Interface Requirements). This section 

describes functional requirements for recording information relative to the acquisition and 

receipt of item.

Mandatory Requirements for Acquiring

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Provide access to the core financial system to obtain the following information:

o fiscal year

o appropriation/treasury fund symbol

o organization code

o cost center

o object classification

o project code

o program code

o commitment amount

o obligation amount

o contractor name, including any previous company names prior to any notation 

agreements; (management will determine the number or necessary names 

required)

o supplier TIN

o interagency agreement number

o trading partner
Acquiring Process

38 Inventory, Supplies and Materials System Requirements

o award date

o transaction date

o effective date

o action code

o product or service description

o amounts increased and/or amounts decreased

o subject to funds availability indicator

o Use account definitions consistent with the account definitions in the USSGL. 

Any expansion to the chart of accounts must roll up to the accounts as defined in 

the USSGL (as provided in the Treasury Financial Manual)

• Access to the full estimated cost of the interagency agreement (both direct and indirect 

costs need to be provided for evaluation)

• Maintain transaction details to support account balances

• Provide access to a hard copy or an electronic copy (where cost effective) of the entire 

executed (signed) contract,3 including the following data elements recorded at obligation 

and necessary for payment and/or other financial processes:

o contract number and all associated delivery order numbers or task order numbers 

(including modification number, if any); Purchase Order (PO) number (including 

modification number, if any); blanket purchase agreement (BPA) number and all 

associated BPA call numbers (including modification number, if any); or 

obligating document number (if different from contract number)

o contractor name and address

o contract administration office

o payment office

o unit of issue/measure

o unit price

o extended price

o quantity

 

3

 Per FAR 4.201, the entire signed contract is provided to the paying office.
Acquiring Process

Inventory, Supplies and Materials System Requirements 39

o variance amount allowed

o total amount

o payment terms and conditions, e.g., discount terms, applicable payment clauses, 

withhold indicator, withhold percentage, etc.

o delivery/performance schedule

o estimated completion date

o payment type (e.g., prompt pay, fast pay, progress pay, or partial pay)

o names of government-designated receiving, invoice-approving, and acceptance 

officials.

o shipping terms, e.g., FOB destination

• Identify the method of acquisition, e.g., purchase, donated, etc.

• Create a skeletal record or other mechanism for capturing information on item in-transit 

from the providing entity (e.g., vendor, donator, etc.). The skeletal record or other 

mechanism is required only for Inventory, Supplies and Materials for which the 

Government has taken title. For example, the skeletal record or other mechanism may 

identify the following on newly acquired property:

o Name and address of the shipper/vendor

o Estimated date of delivery

o Shipping address (“ship to” address)

o Requisition information (e.g., contract/purchase order, or other requisition 

document number; name and address of requisitioning organization)

o Order Date

• Complete the skeletal inventory record, or create an inventory record for items with no 

skeletal record, upon assuming possession of the inventory item

• Record the method of acquiring each inventory item or bulk inventory items (e.g., direct 

purchase, completed work-in-process, donation, non-reciprocal transfer or reciprocal 

transfer), and the date of acquisition

• Record quantity, date of physical receipt, and condition of item received when a 

condition assessment is required

• Record the inspection date for items delivered

• Record the acceptance date for items delivered
Acquiring Process

40 Inventory, Supplies and Materials System Requirements

• Forward physical receipt information, including quantity and date of physical receipt, to 

the acquisition system and core financial system 

Value-Added Requirements for Acquiring

To support this process, the agency’s Inventory, Supplies and Materials system should

• Access other information where applicable and available, such as

o performance measure code

o revenue source code

o additional funding indicator, including increases and decreases

o line item number, including access to contract line item data

o agency location code

o name and phone number of agency contracting/acquisition/procurement 

official responsible for acquiring the Inventory, Supplies and Materials item(s)

o minimum acceptable shelf-life date

o warranty information

• Access to the following information related to an EFT payment

o contract number and all associated delivery order numbers or task order 

numbers (including modification number, if any); PO number (including 

modification number, if any); BPA number and all associated BPA call 

numbers (including modification number, if any); name and remittance 

address

o automated access to government-wide systems such as, Business Partner 

Network (includes Central Contractor Registration), E-authentication, 

Integration Acquisition Environment

o the Fedwire Transfer System telegraphic abbreviation of the contractor’s 

financial agent

o name, address, telegraphic abbreviation, and nine-digit RTN of the financial 

institution receiving the wire transfer payment if the contractor’s financial 

agent is not connected directly to the Fedwire Transfer System online.

• Provide the ability to cross-reference requisition orders, contract numbers, and related 

interagency agreements.
Acquiring Process

Inventory, Supplies and Materials System Requirements 41

• Enable electronic obligation of funds, approvals and signatures, and notification alerts 

for pending actions

• Enable periodic obligations such as, contract-specified cost escalations to existing 

contract line numbers

The next interface process, control of Inventory, Supplies and Materials is discussed in the 

following section.
42 Inventory, Supplies and Materials System Requirements

INVENTORY, SUPPLIES AND MATERIALS CONTROL

The control requirements define the processing and data requirements for Inventory, Supplies 

and Materials. The principal objective of controlling Inventory, Supplies and Materials is to be 

able to process the sale or transfer of Inventory, Supplies and Materials or to provide a product or 

service for a fee that generally recovers full cost or an identified portion of the cost. Inventory, 

Supplies and Materials shall be recognized when title passes from vendor to the purchasing 

activity or when the product is delivered to the purchasing entity, whichever is earlier. Upon sale 

(when the title passes or the goods are delivered) or upon use in the provision of a service, the 

related expense shall be recognized and the cost of those goods shall be removed from inventory. 

Delivery or constructive delivery shall be based on the terms of the contract regarding shipping 

and/or delivery. Custodial Inventory, Supplies and Materials may not require financial 

accountability by the custodian depending on the interagency agreement.

General Requirements for Inventory, Supplies and Materials 

Control Process

Inventory, Supplies and Materials control is the accountability of Inventory, Supplies and 

Materials of the Federal Government. Control is a critical management function exercised in 

concert with acquiring, and disposing of Inventory, Supplies and Materials. Accountability 

begins when the item is received or when ownership passes to the Government.

The general requirements for control of Inventory, Supplies and Materials consist of the 

processes of receipt and inspection, storing, and item in transit. Receipt and inspection 

establishes physical control over items received and supports the valuation of and accounting for 

items received. Storing supports the monitoring of and accounting for items on hand. The 

process consists of those activities in which all return and repair functions are performed and 

monitored (e.g., customer interactions, problem capture, returns, exchanges, loaners, diagnosis, 

estimates, repair processes, and tracking of return/repair status and respective activities), as 

opposed to work-in-progress, which is discussed later. In transit maintains financial data and 

accounting control over inventory items that are in transit between storage locations, including to 

entities, e.g. government contractors, outside the agency. 

To maintain control of inventories, all acquisitions of, and expenditures for, inventory should be 

substantiated by accounting records and recorded in inventory records as close as feasible to the 

time the transactions occur; i.e., the receipt (purchase, production, return, transfer, recognition of 

gain) or expenditure (issue, transfer, sale, write-off). Internal control procedures and records are 

required to reflect the existence, completeness, rights/obligations, condition, valuation, pricing, 

presentation and disclosure and associated with the inventory. Inventory, supplies, and materials 

in the possession of contractors have significant accountability and financial control risk, 

therefore, special attention should be given to these assets in agency procedures designed to 

ensure that these assets are properly safeguarded and reflected in agency accountability and 

financial systems. In addition, management should be provided sufficient information via 

system query or reporting capabilities to monitor its inventory, supplies, and materials 

management activities and performance.
Inventory, Supplies and Materials Control

Inventory, Supplies and Materials System Requirements 43

Inventory, Supplies and Materials Control Process Flow

Designated

Official

Finance

Office Vendor

CONTROL PROCESS

From Acquiring Process

Customer

Receive

Inspect

Place in

Inventory

Physical

Verification

Disburse

To Vendor

Borrower

(see Disposition Process)

Manufacturer

Work-in-Process

(see Disposition Process)

Match Contract,

Customer Invoice,

Receiving Report

Reconcile with

Core System

Reconcile With

Core Financial

System

General Mandatory Requirements for Control of Inventory, Supplies 

and Materials

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record changes in quantities, including unit of issue/measure, where applicable, for 

beginning balance adjustments, additions, and deletions, and compute ending 

balances by category

• Provide an audit trail for all adjustments, to include who made the adjustment and 

when, to quantities and units

• Record the estimated value of donated inventory

• Generate data for the journal entries necessary for recording changes in the valuation 

including any associated gains or losses
Inventory, Supplies and Materials Control

44 Inventory, Supplies and Materials System Requirements

• Record asset identifier

• Record location

• Record the current owner (e.g., the agency, contractor, grantee, etc.)

• Record an item’s condition

• Record identity of inventory custodian and/or accountable organization

• Record in-transit information to establish/maintain accountability and control over 

Government Inventory, Supplies and Materials, (e.g., name and address of the 

shipper/vendor, estimated date of delivery, shipping address, item identification, and 

source information)

• Provide for Physical Inventory/Cycle Counting functionality and processing

• Record the acquisition cost of individual items acquired through bulk purchase 

General Value-Added Requirements for Control of Inventory, Supplies 

and Materials

To support this process, the agency’s Inventory, Supplies and Materials system should:

• Provide information on current inventories and historical usage to be used in capacity 

planning

• Compute overall production targets necessary to fill customers’ orders and meet 

operating schedules

• Support the incorporation of item availability and anticipated lead times for delivering 

orders into a master production schedule

• Support predefined inspection plans and quality standards

• Identify the type of cost or basis of valuation recorded (e.g., acquisition cost, estimated 

fair market value, revaluation, present value)

• Support lot control and serial control of inventory for traceability requirements

• Support shelf life tracking

• Support ownership status (i.e. owned, non-owned, or consigned)

• Support unit of measure (UOM) conversion for various functions (i.e. shipping, stocking, 

and ordering)
Inventory, Supplies and Materials Control

Inventory, Supplies and Materials System Requirements 45

• Support multiple sources of supply and cost
46 Inventory, Supplies and Materials System Requirements

Receipt and Inspection Process

The receipt and inspection process consists of item receipt, inspection, placement into inventory, 

and initial valuation and financial categorization activities.

Item Receipt Process

Mandatory Requirements for Item Receipt

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record information on material returned by customers and provide customer 

credit/refund on items returned in accordance with the agency’s return policy

• Record information on the procurement receipt document in sufficient detail to allow 

matching of receipt, purchase order/contract, and invoice for payment purposes. 

Examples of data to collect include item numbers, quantities, units of measure, vendor, 

purchase order number, and storage location

• Complete skeletal record of donated (including gifted or bequeathed items) items to 

include such information as quantity, description, estimated fair market value of each 

item received, receipt date, method of acquisition, etc. in sufficient detail to initiate 

appropriate accountability and financial control

• For Prompt Pay Act purposes, record the date of receipt or the date of acceptance is used, 

whichever is later 

• Record partial and full receipts of orders along with item that are backordered

• Provide for performing quantity and price conversions between different units of 

issue/measure. For example, the item purchase unit may be cases (cs) and the receiving 

activity unit of issue/measure may be each (ea)

• Identify transportation discrepancies (i.e., any discrepancy between the government or 

commercial bill of lading and item received), and generate the transportation discrepancy 

report (e.g., SF 361, Transportation Discrepancy Report)

Value Added Requirements for Item Receipt

To support this process, the agency’s Inventory, Supplies and Materials system should:

• Assign lot control and serialization numbers

• Provide disposition codes for subsequent actions of rejected materials
Receipt and Inspection Process

Inventory, Supplies and Materials System Requirements 47

• Record items being returned to vendor, including items on backorder

• Ensure incoming materials are appropriately labeled or marked and readily visible

Inspection Process

Mandatory Requirements for Inspection

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record the acceptance or rejection of new or returned items at their destination and the 

quantities of each. Update inventory on hand information as a result

• Update accountability records to record acceptance or rejection of new or returned items

• Record the date of acceptance for purposes of the Prompt Payment Act

• Provide information, such as quantity, asset identifier, and cost on items received and 

accepted necessary to support the payment management function of the core financial 

system, 

• Identify shipping discrepancies (e.g., SF 364, Report of Discrepancy) and product quality 

deficiencies (e.g., SF 368, Product Quality Deficiency Report) between the items 

received and the information provided on shipping documents and purchase orders, to 

support follow-up 

Value Added Requirements the Inspection 

To support this process, the agency’s Inventory, Supplies and Materials system should:

• Identify shipments of components for any inventoried items

Placement Into Inventory Process

Mandatory Requirements for Placement Into Inventory

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Identify the intended location of the item and track its movement from the point of 

initial receipt to its final destination

• Record identifiers, quantities, condition, location, and other information as 

determined by management, necessary to establish physical control
Receipt and Inspection Process

48 Inventory, Supplies and Materials System Requirements

• Record items within an item class or category as determined necessary by 

management for maintaining control over inventory, supplies, and materials

• Provide an identifier for identifying restrictions on the sale, or use, or disposal of 

inventory, supplies, and materials by category and item

Initial Valuation and Financial Categorization Process

Mandatory Requirements for Initial Valuation and Financial 

Categorization

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Capture both unit cost and sales price of an inventory item

• Maintain sufficient information to support the inventory valuation method chosen in the 

Budgeting and Purchase Planning functions, consistent with Federal accounting 

requirements outlined in Appendix C

• Include all appropriate purchase, transportation, and production costs incurred to get the 

item to its current condition and location

• Categorize inventory items as (1) inventory held for sale, (2) inventory held in reserve for 

future sale, (3) excess, obsolete, and unserviceable inventory, or (4) inventory held for 

repair

• Categorize operating material and supplies as (1) operating material and supplies held for 

use, (2) operating material and supplies held for repair and (3) operating material and 

supplies excess, obsolete, and unserviceable

• Categorize stockpile materials as (1) held for sale or use and (2) held in reserve

• Provide interface data required to meet core financial system requirements

• Provide total cost information by financial category as described in section 1.2.1 for 

items added into inventory to the core financial system for posting by the General Ledger 

Management function and the Cost Management function

• If the agency has a cost accounting system to support a manufacturing, industrial fund, or 

similar activities, provide the cost of items, and other information as determined by 

management, needed to determine item consumption/usage and assess performance

• Provide information, such as description, quantity, asset identifier, and other information 

as specified by management, needed to support reconciliation between the inventory 

system’s records and other systems’ records
49 Inventory, Supplies and Materials System Requirements

Storing Process

The storing process supports the monitoring of and accounting for inventory on hand. This 

process focuses on inventory which is held as inventory as opposed to work-in-process, which is 

handled in the work-in-progress tracking process below. The storing process consists of those 

activities intended to provide appropriate physical and financial accountability within a storage 

location. Activities may include physical verification functions, tracking of assets within a 

location to maintain accurate location information, the condition of items in storage, and the 

status of those items that have been deemed to have use, have no further use, or will be reentered 

into the system as reutilized items.

Physical Verification Process

Mandatory Requirements for Physical Verification

Physical verification is the internal control process of verifying records of items on hand through 

comparisons with physical counts. If the data maintained in the system does not match the actual 

inventory, the system must be updated to reflect actual. These adjustments may affect physical 

control data, financial data, or both. 

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Provide support for physical verification of inventory balances by location and item type 

in accordance with management selection criteria such as by (1) sequential selection of 

rows or areas within a warehouse or facility, (2) random selection, (3) weighed selection 

towards higher dollar, higher turn-over activity items, or (4) blind count (performance of 

a physical inventory without the knowledge of, or access to, the on-hand quantity balance 

in the inventory records)

• Record changes in physical condition (e.g., excellent, good, fair, poor), quantities, etc., 

based on the results of physical inventory verifications

• If the agency maintains perpetual inventory records, provide for the matching of physical 

counts with inventory quantity and financial records through cycle counting or other 

inventory management techniques

• If the agency does not maintain perpetual inventory records, provide for reconciliation 

using beginning of period inventory balances, receipts, and dispositions up to the cutoff 

point for the physical inventory

• Retain records of physical inventory counts until (a) the count is reconciled and (b) all 

adjusting entries for the physical count are resolved and entered into the financial records
Storing Process

50 Inventory, Supplies and Materials System Requirements

• Identify all errors arising from reconciliation processes that apply to a time period prior to 

the last inventory adjustment. All such errors must be corrected, to include appropriate 

adjustments to prior gains and losses

• Enable the use of management determined error codes (such as incorrect entities, leaks or 

spills, wrong location, receipt error, stock picking error, shipping error, etc.) that would 

aid in the consistent identification and reporting of the causes of variance between 

Inventory, Supplies and Materials records and physical counts

• Provide the ability to (1) identify historically slow periods of operation when there is 

little movement of Inventory, Supplies and Materials items, (2) prevent or minimize the 

movement of Inventory, Supplies and Materials items to be counted on the day the items 

are selected for counting, and (3) use transaction histories to trace the movement of items 

and reconcile the count

• Restrict access to approve adjustments resulting from physical counts to only authorized 

individuals, including those having tiered or restricted levels of access

• Record approval of management of inventory adjustments and referrals of potential fraud 

or theft to investigators

• Calculate the inventory accuracy rate, based on management approved methodology (A 

common method used is number of accurate items or records divided by the number of 

items or records counted.)

• Record management identified assessment of risk (based on activity or turnover, dollar 

value, sensitivity/classification of item(s), and criticality of the item(s) to production or 

mission readiness) and degree of control required by segment, class, or type of Inventory, 

Supplies and Materials

• Record management determined frequency of physical count verification by segment, 

class, or type of Inventory, Supplies and Materials

• Record management established tolerances or criteria for selection of variances to 

research such as: (1) effect on operations or mission readiness, (2) quantity and dollar 

value, and (3) characteristics of the items with the variance, such as sensitive, classified, 

or items susceptible to fraud or theft

• Provide cut-off date to ensure that all inventory and related items that should get counted 

do and aid in identifying items, for which title has not passed, that are received after the 

cut-off date are not included

• Provide information, such as (1) shipping and receiving records, (2) relocation of 

inventory items within a warehouse or facility, and (3) production usage records, to aid in 

the research of variance causes and to ensure the proper adjustment of inventory records
Storing Process

Inventory, Supplies and Materials System Requirements 51

• Identify and compare performance goal(s) established by management, such as an 

inventory count accuracy goal of 95 percent, adjustments and number of accurate 

physical counts, dollar value and quantity of adjustments, to the results of actual physical 

counts by warehouse, facility, item type, or other agency specific selection/performance 

measurement criteria

• Identify the existence of inventory stored at outside/off-site locations and the personnel or 

organization responsible for verifying its physical existence

• Record the identity (including description, location, condition, quantity, etc.) of slow 

moving or excess obsolete inventory and related items that could be segregated and 

precounted

Value Added Requirements for Physical Verification

To support this process, the agency’s Inventory, Supplies and Materials system should:

• Record the identity of the employee/supervisor responsible for establishing and 

maintaining physical control over items by location, segment, type of item , etc., to 

compare to inventory accuracy rates to aid in holding appropriate personnel accountable 

for achieving the organization’s performance goals (e.g., accuracy rate)

• Provide or interface with the tools used to perform the count (e.g., prenumbered count 

cards or tags, count sheets, or electronic or radio frequency devices)

• Record electronic confirmation from other parties responsible for storing items that are 

recorded in the Inventory, Supplies and Materials system

Accounting for Stored Items Process

Mandatory Requirements for Accounting for Stored Items

Accounting for stored items maintains financial data on items in storage. 

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record reductions in the dollar value and quantity of inventory items destroyed, lost, or 

pilfered

• If financial adjustments are required as a result of a physical verification, send the 

appropriate information to the core financial system and cost accounting system to ensure 

that they stay in balance with the inventory system

• Adjust inventory item costs for significant differences between the amount recorded for 

the items upon receipt and the invoiced amounts paid for the goods or any refunds/rebates
Storing Process

52 Inventory, Supplies and Materials System Requirements

• Generate financial transactions to record the transfer of inventory between financial 

categories such as from inventory held for sale to excess, obsolete, and unserviceable 

inventory, or between cost categories as defined for internal management. Send this 

information to the core financial system and cost accounting system as appropriate

• Recognize and record unrealized holding gains/losses when using the latest acquisition 

cost method for valuing inventory. See Appendix C for categories of inventory, supplies, 

and materials that can value items using latest acquisition costs

• Calculate the historical cost of ending inventory and cost of goods sold using a cost flow 

assumption method

• Make adjustments to inventory valuations to reflect net realizable value instead of 

historical cost or latest acquisition cost if the conditions specified in SFFAS Number 3 

under “Exception to Valuation” are met or if the inventory is declared to be excess, 

obsolete, or unserviceable in accordance with SFFAS Number 3

• Maintain the distinction between the cost of inventory items and selling price. Make 

adjustments to them separately

• Compute the value of items on the inventory record by multiplying quantities on hand or 

on loan by the unit cost of the applicable item (consistent with the allowable inventory 

valuation methods, as described in Appendix C). These values are totaled and the data 

given to management reconcile with the general ledger value
Inventory, Supplies and Materials System Requirements 53

Items in Transit Process

Items in transit are items being moved from one location to another, including between storage 

locations, and being moved from suppliers, for which title has passed to the government, to 

warehouse or from warehouse to customer. This process consists of movement and tracking and 

accounting for items in transit activities.

Movement and Tracking Process

Mandatory Requirements for Movement and Tracking

Movement and tracking monitors inventory items that are moved from one location to another 

but still remain on the books of the agency and under its control. 

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record changes in the location of an inventory item, such as from one warehouse to 

another, and any associated changes in the person or organization responsible for 

stewardship of the item

• Record the asset identifier, description, cost, and quantities of items in transit from one 

location to another

Value Added Requirements for Movement and Tracking Items

To support this process, the agency’s Inventory, Supplies and Materials system should:

• Provide a confirmation receipt to losing organization

Accounting for Items In-Transit Process

Mandatory Requirements for Accounting for Items In-Transit

Accounting for items in transit maintains financial data and accounting control over inventory 

items which are in transit between storage locations. 

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record the asset identifier, description, cost, and quantities of items shipped from 

contractors or vendors for which title has passed to the government

• Record the cost and quantity (including asset identifier and description data) of items 

shipped from the inventory organization to another organization for which 
Items in Transit Process

54 Inventory, Supplies and Materials System Requirements

accountability has been retained by the inventory organization until receipt by the 

recipient

• Record the cost, quantity, and identity (including asset identifier and description data) 

of items in transit to the initial storage location, between storage locations, to a 

customer, or to a disposal activity

• Require systematic review and follow-up of aged in-transit deliveries. Specifically, 

the system must require review and follow-up on a scheduled basis, i.e., after 30 days 

and 60 days. Require a mandatory disposition review after 90 days
Inventory, Supplies and Materials System Requirements 55

Inventory Undergoing Repair and Work-in-Progress Tracking 

Process

The Inventory Undergoing Repair process and Work-in-Progress Tracking process are valueadded modules for any agency that does manufacturing or repair of consumables. If an agency is 

involved in manufacturing or repair of consumables, the following would be mandatory.

Inventory Undergoing Repair Process

The repair process supports the monitoring of and accounting for inventory in need of repair 

consisting of the transfer to repair status, account for repair costs, and return to inventory 

activities.

Transfer to Repair Status Process

Mandatory Requirements for Transfer to Repair Status

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Record the asset identifier, description, cost, and quantities of items transferred from its 

current status to “in repair”. Provide information to the core financial system to record 

the change in financial category

• Adjust the valuation of inventory items in accordance with the repair accounting 

treatment selected by the agency in conformance with SFFAS Number 3

• Using the allowance method, establish an allowance for repairs consistent with the 

estimated annual cost of repairs or consistent with impaired status in the case of items 

which will not be repaired within the year.

Account for Repair Cost Process

Mandatory Requirements for Account for Repair Cost

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Capture the direct and indirect costs of repair activities using either the direct or 

allowance methods of accounting for inventory held for repair

• If the allowance method of accounting for repairs is used, see appendix C for valuation of 

items
Inventory Undergoing Repair and Work-in-Progress Tracking Process

56 Inventory, Supplies and Materials System Requirements

o Capture estimates for repair, via annual (or period) credit(s), to an allowance for 

repairs account

o Capture the actual cost of repair, by asset identifier, and create a debit charge to 

an allowance for repairs account

• If the direct method of accounting for repairs is used, See appendix C for valuation of 

items

o Capture the estimated cost of repair by item, including asset identifier, within the 

category of inventory held for repair

o Capture the actual cost of repair for each item by asset identifier

o Calculate the difference between estimated and actual costs of repair and provide 

to the core financial accounting system as either a debit or credit, as appropriate, 

to the repair expense account.

• Record the method of accounting, e.g., direct or allowance, used to account for repair of 

an item held in inventory held for repair 

Return to Inventory Process

Mandatory Requirements for Return to Inventory

To support this process, the agency’s Inventory, Supplies and Materials system must:

o Record the transfer of an inventory item from the status of “in repair” to its proper status 

and location. Provide information. such as cost, quantity, asset identifier, description, 

change in status, etc., to the core financial system to record the change in financial 

category

o If the item is determined to be unserviceable, transfer it to the disposal process and 

remove item information from the inventory system once accepted by the disposal system

Work-in-Progress Tracking Process

The work-in-progress tracking process supports the monitoring of and accounting for inventory 

in a production process, such as manufacturing. The process consists of the production ordering, 

accounting for work-in-process costs, and recording finished goods activities.
Inventory Undergoing Repair and Work-in-Progress Tracking Process

Inventory, Supplies and Materials System Requirements 57

Production Ordering Process

Mandatory Requirements for Production Ordering

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Support the establishment (including technical specifications and accounting 

classification needed by the inventory system) of orders to be placed with a contractor or 

other government entity to perform production work on items needed

• Project the production elements necessary to complete the production cycle. These 

production elements must reflect bills of material, manufacturing requirements, and 

production time to produce or repair products

Accounting for Work-in-Progress Costs Process

Mandatory Requirements for Accounting for Work- In-Progress Costs

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Provide financial information in the appropriate format and method to other financial 

management systems used by the agency. For example, provide work-in-process costs by 

the designated accounting classification structure (e.g., fund, program, organization, 

project, object class) to the core financial system and cost accounting system

• Accept cost and other appropriate information from a separate cost accounting system to 

support cost accumulation by work elements such as job order, activities, products, etc

• Track accumulated costs, by asset identifier, including the cost of direct materials, direct 

labor, and overhead where applicable (including standard costs and rates, if applicable) 

for work-in-process. Percentage of completion methodology should be used to value 

work-in-process

• Provide features to record unit costs and prices of products and services

Recording Finished Goods Process

Mandatory Requirements for Recording Finished Goods

To support this process, the agency’s Inventory, Supplies and Materials system must:
Inventory Undergoing Repair and Work-in-Progress Tracking Process

58 Inventory, Supplies and Materials System Requirements

• Transfer work-in-progress to finished goods for inventory categorization and accounting 

purposes

• Identify the intended location of the item and track its movement from the point of initial 

receipt to its final destination

• Record identifiers, quantities, condition, location, and other elements necessary to 

establish control

• Classify inventory items by item class or type to meet agency needs for management and 

control
Inventory, Supplies and Materials System Requirements 59

Inventory, Supplies and Materials Management Information 

Process

The process for the management of Inventory, Supplies and Materials provides the mechanism to 

aggregate information regarding Inventory, Supplies and Materials upon which management 

awareness can be achieved and decisions can be made.

Mandatory Requirements for Management Information

To support this management need, the agency’s Inventory, Supplies and Materials system must

support a summary of the following information, which may be provided in the form of a report:

• Accept Unfilled Orders. The dollar amount of orders accepted from other accounts within 

government for goods and services to be furnished on a reimbursable basis. In the case 

of transactions with the public, these orders are amounts advanced or collected for which 

the account or fund has not yet performed the service or incurred its own obligations for 

that purpose [GAO: A Glossary of Terms Used in the Federal Budget Process]

• Post Discrepancies. The numbers and types of discrepancies found between items ordered 

and received. This enables managers to identify potential problem areas in the ordering 

and distribution processes. It is supported by detailed information on specific 

discrepancies to support follow-up and resolution activities

• Record Acceptance and Rejection Summary. The number of items received, accepted, 

and rejected from each supplier. This can be used to evaluate the performance of 

suppliers and in reconciling with payment and general ledger posting activities

• Identify Days Supply. The number of days until the current on-hand quantity of an item 

or group of items is likely to become zero, based on current demand forecasts

• Master Inventory. Information regarding all items in inventory at a location, such as item 

numbers, descriptions, quantity on hand, unit cost, and location

• Inactive Inventory. Information regarding items that have not been used over a userdefined period to allow managers to identify slow-moving items

• Item Expiration/Shelf Life. Information regarding items that have expired or are due to 

expire

• Cycle Count. Provides the status of cycle counting in each warehouse, for inventory 

verification purposes

• Inventory Accuracy. Provides information regarding variances between actual counts and 

on-hand quantities as a result of performing a physical inventory
Inventory, Supplies and Materials Management Information Process

60 Inventory, Supplies and Materials System Requirements

• Inventory Undergoing Repair or in Production. Inventory in the process of production 

for sale or to be consumed in the production of goods for sale are classified as inventory 

under SFFAS Number 3. The inventory system must be able to account for items or 

activities associated with these types of inventory

• Repair Status. Identifies items, by management specified criteria, transferred from an 

inventory facility to a repair facility and either the return of the item back into active 

inventory or the transfer to the disposal process because the item was determined to be 

unserviceable

• Production Order. Provides information, including technical specifications and 

accounting classifications, regarding work to be performed for items needed in inventory. 

The order should identify projected bills of material, manufacturing requirements, and 

production time to produce or repair products

• Work-in-Process Tracking. Accumulated costs of work-in-progress, by asset identifier, 

program, project code, or other management specified criteria, including the cost of direct 

materials, direct labor, and overhead, where applicable
Inventory, Supplies and Materials System Requirements 61

INVENTORY, SUPPLIES AND MATERIALS DISPOSITION

General Requirements for Inventory, Supplies and Materials 

Disposition Process 

The Inventory, Supplies and Materials Disposition process addresses the (1) distribution and (2) 

disposal of items. Disposition is the action taken to physically transfer property from one’s 

accountability to another’s accountability. Disposal is the act of getting rid of excess, obsolete 

property. According to SFFAS 3, the point of having inventory is to sell it or use it in the 

provision of goods or services for a fee. This activity takes items out of inventory and delivers 

them to the customer. In addition to the General Requirements outlined here, mandatory and 

value-added requirements for the sub-processes follow this section.

Inventory, Supplies and Materials Distribution

In a typical distribution operation, customer requests, customer orders, or other written 

agreements are filled by issuing or loaning items. A discussion of the two distinct distribution 

processes follows: Issuance and Loan.

Issuance Process

The issuing process generally involves the passing of title from one entity to another with the 

intention that the item be consumed in use, sold, or retained on hand for later use or sale. 

Different types of transactions can bring about the issuing process including sales, transfers, 

donations, , and the issuance of items to an end user or accountable activity without charge. The 

passage of title, regardless of the type of issuing transaction encountered, requires the quantity 

and cost information related to the item be removed from the Inventory, Supplies and Materials 

system.

Loan Process

The loaning process supports the monitoring of and accounting for items which have been loaned 

out to others, such as government contractors, but are still owned and maintained on the books of 

the loaning agency. The accounting and controlling of loaned items is the same as the process 

employed in the Inventory, Supplies and Materials Control section.

Inventory, Supplies and Materials Disposal Process

The disposal process involves the passage of title of an item(s) from one entity to another with 

the intent to ultimately dispose of the items. Item quantity and cost information is removed from 

the Inventory, Supplies and Materials system with title transfer. Items subject to the disposal 

process include items that are excess, obsolete, unserviceable, or not issuable and subject to 

direct disposal. Direct disposal methods are commonly used when addressing health safety and 

environmental issues.
Inventory, Supplies and Materials Disposition

62 Inventory, Supplies and Materials System Requirements

Inventory, Supplies and Materials Disposition Process Flow

Designated

Official

Finance

Office

DISPOSITION PROCESS

Customer

Processes

Order

Ships

Order

Places

Order/Request

(Either End User, Borrower,

or Manufacturer)

Records Order

In Core System

End User

Receives Order

Manufacturer

Work-in-Process

Borrower

See Controlling Process

Core System

Receives Payment

Validates

Customer

General Mandatory Requirements for Inventory, Supplies and 

Materials Disposition

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Provide access to the following information:

o fiscal year

o transaction code (e.g. sale, transfer, loan, disposal)

o item description

o asset identifier
Inventory, Supplies and Materials Disposition

Inventory, Supplies and Materials System Requirements 63

o performance measure code

o transaction dates (date item issued/disposed and received by customer)

o status (in storage, in transit, etc.)

o quantity distributed, in transit, disposed

o quantity of items remaining on hand subsequent to distribution/disposal activities

o item condition

o unit of issue/measure for each item

o unit price of items distributed

o unit cost of items distributed/disposed

o extended price of items distributed/disposed

o shipping costs of items distributed/disposed

o date customer/disposal activity received the items

o name, address, contact information regarding transporter

o contract terms regarding delivery (e.g., FOB) or constructive delivery

o date item received by customer

o increase in the cost of goods sold account

o gain or loss recognized as a result of the item’s distribution

• Reflect changes in the quantity and cost of items on hand due to distribution/disposal 

activities

• Support account balances by providing an audit trail with access to specific transaction 

details

• Use a chart of accounts consistent with the basic number structure and titles provided in 

the USSGL. Any expansion to the numbering system must roll up to the posting 

accounts provided in the USSGL
Inventory, Supplies and Materials Disposition

64 Inventory, Supplies and Materials System Requirements

• Access to the following customer information:

o authorization of customer eligibility

o organization code

o trading partner (Treasury Dept code)

o loan agreement number and all associated delivery order numbers or task order 

numbers (including change order number, if any)

o purchase order number (including change order number, if any)

o blanket purchase agreement (BPA) number and all associated BPA call numbers 

(including change order number, if any)

o Change in product or service descriptions

o Change in unit of measure

o Change in quantity

o Change in total amount

o Change in delivery/performance schedule

o Provide the ability to compare customer order records to issue records and flag 

any differences for follow-up

o cost center code

o object classification

o project code

o program code

o funded through date (for those contracts that are incrementally funded)

o variances between available funds provided prior to order fulfillment and the sales 

price of items requested

o quantities requested
Inventory, Supplies and Materials Disposition

Inventory, Supplies and Materials System Requirements 65

o customer name and address, specifications such as government-designated 

receiving, certifying, and acceptance official, if appropriate

o date request received; and other data needed consistent with the inventory 

program

• Record unfilled orders if checks or cash are received with the customer order, record it 

against the customer order and send the information to the Receipt Management function 

of the core financial system for proper recognition of the associated liability to reflect the 

customer advance

• Differentiate between price and historical cost

• Record revenue earned and the appropriate offsetting account (e.g., cash, receivables, 

advances) in the amount for which the inventory items are sold (price)

• Identify item requests/orders for which the funds designated by the customer to purchase 

the items is less than the sales price of the items due to price changes, etc.

• Record the consumption (including cost, asset identifier, description, quantity, etc.) of 

operating materials and supplies by management identified cost object identifier code to 

facilitate cost accounting and program management

• Provide indicators to identify any sensitive, classified, or other management determined 

items which restrict the loan or disposal process of an inventory, supplies, or material 

item

• Flag any restricted inventory, supplies, or materials items that are designated for loan or 

disposal and provide a system control, which must be overridden by management, to 

prevent improper loan or disposal activities

General Value Added Requirements for Inventory, Supplies and 

Materials Disposition

To support this process, the agency’s Supplies and Materials system should provide the 

following capabilities:

• Access other information where applicable and available:

o revenue source code

o additional funding indicator, including increases and decreases

o line item number, including access to contract line item data
Inventory, Supplies and Materials Disposition

66 Inventory, Supplies and Materials System Requirements

o signature (or electronic alternative) of acceptance official at agency or 

organization receiving the items

o name, title, phone number, and mailing address of acceptance official at agency or 

organization receiving the items

o Unique Item Identifier (note: When UIDs are used, data syntax and semantics for 

high capacity advanced information technology devices should conform to ISO 

15434 and ISO15418 respectively)

• Capability to use Electronic Data Interchange (EDI) to obtain customer orders 

electronically without the need for manual keying
Inventory, Supplies and Materials System Requirements 67

Inventory, Supplies and Materials Distribution Process 

Mandatory Requirements for Inventory, Supplies and Materials 

Distribution

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Access to the following information:

o pick lists to be used in pulling inventory items from storage

o person or organization responsible for stewardship of loaned item(s)

o location of loaned items

• Identify unfilled customer orders

• Provide the ability to backorder unfilled customer orders as policy permits when 

insufficient stock is available to fulfill the total requirement

• Provide the ability to compare customer order records to issue records and flag any 

differences for follow-up

• Provide quality controls to ensure that all appropriate costs have been provided to the 

pricing formula for a particular customer order

• Provide the ability to develop the information necessary, (e.g., payment terms, invoice 

date, item quantity, unit price, extended price, invoice amount, and additional charges 

such as transportation, etc.) to prepare an initial invoice for a customer that provides 

adequate support for the prices charged
68 Inventory, Supplies and Materials System Requirements

Inventory, Supplies and Materials Disposal

Mandatory Requirements for Disposal of Inventory, Supplies and 

Materials

To support this process, the agency’s Inventory, Supplies and Materials system must:

• Account for the proceeds resulting from the disposal process

• Quantity and cost of items designated as “excess, obsolete, unserviceable, or 

unissuable”

• Identify Munition List Items, small arms, and other controlled items such as FlightSafety Critical Aircraft Parts (FSCAP) and items requiring trade security controls
Inventory, Supplies and Materials System Requirements 69

Appendices

Appendix A: References/Authoritative Sources

Public Law

PL 97-177, Prompt Payment Act of 1982

PL 97-255, Federal Managers’ Financial Integrity Act (FMFIA) of 1982

PL 100-496 Prompt Payment Act Amendments of 1988

PL 101-576, Chief Financial Officers (CFO) Act of 1990

PL 103-62, Government Performance and Results Act (GPRA) of 1993

PL 103-355, Federal Acquisition Streamling Act (FASA) of 1994

PL 103-356, Government Management Reform Act (GMRA) of 1994, as amended

PL 104-106, Division E, Information Technology Management Reform Act (ITMRA) of 

1996, as amended (AKA Clinger-Cohen Act of 1996)

PL 104-134, Debt Collection Improvement Act (DCIA) of 1996

PL 104-208, Federal Financial Management Improvement Act (FFMIA) of 1996

PL 105-277, Government Paperwork Elimination Act of 1998

PL 106-229, Electronic Signature in Global and National Commerce (E-SIGN) Act of 

2000

PL 106-398, Government Information Security Act of 2000

United States Code

26 USC 6941A, Returns regarding payments of remuneration for services and direct sales

31 USC 1535, Money and Finance—Agency agreements

31 USC 3512 Chief Financial Officers Act of 1990

31 USC 3901-3908, Money and Finance—Prompt payment

44 USC 35, Coordination of Federal Information Policy
Appendix A: References/Authoritative Sources

70 Inventory, Supplies and Materials System Requirements

Code of Federal Regulations

5 CFR, Part 1315, Prompt Payment

41 CFR, Parts 100-128, Subtitle C, Federal Property Management Regulations System

41 CFR, Parts 101-127, Inventory Management

48 CFR, Chapter 1, Federal Acquisition Regulations (FAR), Part 45, “Government 

Property”

Regulations

Federal Acquisition Regulation

Federal Property Management Regulations

Federal Management Regulations

Treasury Financial Manual

TFM S2-02-03 September 2002 (SGL)

Vol. I TFM 2-1500, Description of Accounts Relating to Financial Operations (T/L 598)

Vol. I TFM 6,-4000, On-Line Payment and Collection (OPAC) System

Vol. I TFM 6-5000, Administrative Accounting Systems Requirements in Support of the 

Debt Collection Improvement Act of 1996

Vol. I TFM 6-8000, Cash Management

Financial Accounting Standards Advisory Board

SFFAS 3, Accounting for Inventory and Related Property

SFFAS 4, Managerial Cost Accounting Concepts and Standards

SFFAS 10, Accounting for Internal Use Software

Technical Release No. 4, Reporting on Non-Valued Seized and Forfeited Property

Technical Release No. 5, Implementation Guidance on SFFAS No. 10: Accounting for 

Internal Use Software

Office of Management and Budget Documents

OMB Bulletin 01-09, Form and Content of Agency Financial Statements
Appendix A: References/Authoritative Sources

Inventory, Supplies and Materials System Requirements 71

OMB Circular A-11, Overview of the Budget Process, June 27, 2002

OMB Circular A-123, Management Accountability and Control, June 21,1995

OMB Circular A-127, Financial Management Systems, including Transmittal 

Memorandum No. 2, June 10, 1999

OMB Circular A-130, Management of Federal Information Resources, November 28, 

2000

OMB Bulletin 01-09, Form and Content of Agency Financial Statements, September 25, 

2001

OMB Memorandum M-00-15, Guidance on Implementing the Electronic Signatures in 

Global and National Commerce Act.

OMB Memorandum M-03-01, Business Rules for Intra-governmental Transactions, 

October 4, 2002

Joint Financial Management Improvement Program

JFMIP Core Financial System Requirements (SR-02-01)

JFMIP Framework for Federal Financial Management Systems (FFMSR-0)

JFMIP Guaranteed Loan System Requirements (SR-00-01)

JFMIP Property Management Systems Requirements (SR-00-4)

JFMIP Seized Property and Forfeited Assets Systems Requirements (SR-99-4)

JFMIP Acquisition/Financial Systems Interface Requirements (SR-02-02)

Additional Cross-Reference Information

Statutory, regulatory, accounting standards, and other guidance used as a basis for 

identifying the information requirements and capabilities discussed in this document is 

available on the JFMIP website at JFMIP.gov.

Executive Guide: Best Practices in Achieving Consistent, Accurate Physical Counts of 

Inventories and Related Property (GAO-02-447G, March 2002)
72 Inventory, Supplies and Materials System Requirements

Appendix B: Glossary

Term Definition Source, if 

Available

Acceptance Also referred to as acceptance of work. The act of an authorized 

representative of the government by which the government, for 

itself or as agent of another, assumes ownership of existing 

identified supplies tendered or approves specific services 

rendered as partial or complete performance of the contract.

Federal 

Acquisition 

Institute (FAI) 

Glossary of 

Acquisition 

Terms

Accounting The system of recording and summarizing business and financial 

transactions in books of accounts and analyzing, verifying and 

reporting the results.

Accountability The assignment of duties and responsibilities to ensure that 

property entrusted to an individual or organization is properly 

used and cared for and that proper custody, safeguarding, record 

keeping, and proper final disposal are provided.

Accounting 

Classification

A subset of the agency financial information classification. The 

accounting classification structure provides a means for 

categorizing financial information along several dimensions as 

needed to support financial management and reporting functions. 

The data elements a particular agency includes in its accounting 

classification structure will depend in part on the implementation 

strategy for the SGL, data aggregation requirements for 

preparation of financial statements under the CFO Act, 

appropriation structure, and other reporting and management 

needs of the agency.

JFMIP Core 

Financial 

System 

Requirements

Acquisition Acquisition of Inventory, Supplies and Materials means to

procure, purchase, or obtain in any manner, including transfer, 

acquisition from excess, donation, manufacture, or production at 

government-owned plants or facilities.

Action Code Identifies whether the transaction is a new action or a 

modification of an existing record. 

JFMIP Seized 

Property and 

Forfeited 

Assets 

Systems 

Requirements
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 73

Term Definition Source, if 

Available

Agency 

Location Code

A numeric symbol used to identify accounting reports and 

documents prepared by or for agency accounting stations and 

disbursing offices, e.g., eight-digit agency accounting station 

code, four-digit disbursing office symbol, and three-digit 

Treasury disbursing center symbol (I TFM 2-3315 and 3320).

Vol. I TFM, 

5-1030

Agency Single 

Integrated

Financial

Management 

System 

A unified set of financial systems and the financial portions of 

mixed systems (e.g., acquisition) encompassing the software, 

hardware, personnel, processes (manual and automated), 

procedures, controls, and data necessary to carry out financial 

management functions, manage the financial operations of the 

agency, and report on the agency’s financial status to central 

agencies, Congress, and the public.

OMB Circular 

A-127

AntiDeficiency Act

Enacted legislation that:

prohibits the making of expenditures or the incurring of 

obligations prior to appropriations;

prohibits the incurring of obligations or the making of 

expenditures in excess of amounts available in appropriation or 

fund accounts unless specifically authorized by law;

requires agencies to apportion appropriated funds and other 

budgetary resources;

requires a system of administrative controls within each agency;

prohibits incurring any obligation or making any expenditure in 

excess of an apportionment or reapportionment or in excess of 

other subdivisions; 

specifies penalties for anti-deficiency violations;

requires apportionment of appropriation or fund accounts to 

prevent the need for supplemental or deficiency appropriation; 

and

assists in bringing about the most effective and economical use 

of appropriations and funds.

Appropriation A provision of law (not necessarily an appropriations act) 

authorizing the expenditure of funds for a given purpose. 

Usually, but not always, an appropriation provides budget 

authority.

JFMIP Core 

Financial 

System 

Requirements
Appendix B: Glossary

74 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

Asset Identifier A string of alpha numeric characters that enable the 

identification of group of like items. The asset identifier is a 

new information requirement used to identify assets or multiple 

assets, as in the case of inventory or pooled property, plant, and 

equipment (PP&E) items, for which costs are incurred. Federal 

accounting standards require that recorded costs for inventory 

and PP&E assets include all costs incurred to bring these assets 

to the form and location suitable for their intended use. Since 

more than one contract or acquisition activity may be utilized to 

acquire and place PP&E (including national defense PP&E) in 

the form and location suitable for its intended use, this code will 

facilitate the accounting for total acquisition/contracting costs. 

The need for total costs is important for cost accounting, 

financial reporting, and asset valuation purposes. Therefore, the 

asset-identifier code has been included throughout the interface 

processes. Agencies will have to determine what organization 

will determine the coding of assets, e.g., program or finance. 

(See Unique Item Identifier for more information and context)

Award Date Date contract signed by contracting officer.

Blanket 

Purchase 

Agreement 

(BPA)

A simplified method of filling anticipated repetitive needs for 

supplies or services by establishing charge accounts with 

qualified sources of supply.

FAR 13.303 -

1(a)

Blanket 

Purchase 

Agreement 

Call Number

A unique number assigned by the BPA issuing office that is used 

to track orders against the BPA.

Budget 

Authority

The authority provided by law to incur financial obligations that 

will result in outlays. Specific forms of budget authority include 

appropriations, borrowing authority, contract authority, and 

spending authority from offsetting collections.

OMB Circular 

A-34, 2000

Bulk Funding A system whereby the contracting officer receives authorization 

from a fiscal and accounting officer to obligate funds on 

purchase documents against a specified lump sum of funds 

reserved for the purpose for a specified period of time rather 

than obtaining individual obligation authority on each purchase 

document. Bulk funding is particularly appropriate if numerous 

purchases using the same type of funds are to be made during a 

FAR 13.101 

(b) (4)
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 75

Term Definition Source, if 

Available

given period. 

Cardholder Any Federal employee that has a purchase card issued in his or 

her name.

GSA Card 

Program 

definitions

Certifying

Officer

An accountable officer responsible for and required to reimburse 

personally the government for any illegal or otherwise improper 

payment made by a disbursing officer because of his or her 

certification.

GAO Policy 

and 

Procedures 

Manual

Claim A written demand or written assertion by one of the contracting 

parties seeking, as a matter of right, the payment of money in a 

sum certain, the adjustment or interpretation of contract terms, or 

other relief arising under or relating to the contract.

FAI Glossary 

of Acquisition 

Terms

Commitment An administrative reservation of funds (including increases to 

existing commitments) in anticipation of obligation(s). 

Condemned 

Inventory

See Unserviceable Inventory.

Consumption 

Method

A method of accounting for goods, such as materials and 

supplies, where the goods are recognized as assets upon 

acquisition and are expensed as they are consumed.

SFFAS-3

Contra 

Account

One of two or more accounts which partially or wholly offset 

another or other accounts; on financial statement, they may be 

either merged or appear together.

Kohler’s 

Dictionary for 

Accountants

Contract A mutually binding legal relationship obligating the seller to 

furnish the supplies or services (including construction) and the 

buyer to pay for them. It includes all types of commitments that 

obligate the government to an expenditure of appropriated funds 

and that, except as otherwise authorized, are in writing. In 

addition to bilateral instruments, contracts include (but are not 

limited to) awards and notices of awards; job orders or task 

letters issued under basic ordering agreements; letter contracts; 

orders, such as POs, under which the contract becomes effective 

by written acceptance or performance; and bilateral contract 

modifications. Contracts do not include grants and cooperative 

agreements covered by 31 U.S.C. 6301, et seq. 

FAR 2.101
Appendix B: Glossary

76 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

Contract 

Number

An alphanumeric designator created by each agency for a 

contract. Per GAO Policy and Procedures Manual for Guidance 

of Federal Agencies, Title 7—Fiscal Guidance (Feb 1990): The 

contract number should consist of alpha characters in the first 

positions to indicate the agency, followed by alpha-numeric 

characters identifying bureaus, offices, or other administrative 

subdivisions authorized to enter into contacts. The last portion of 

the contract number should be sequential with a unique number 

series for each contracting activity.

Contracting Purchasing, renting, leasing, or otherwise obtaining supplies or 

services from nonfederal sources. Contracting includes 

description (but not determination) of supplies and services 

required, selection and solicitation of sources, preparation and 

award of contracts, and all phases of contract administration. It 

does not include making grants or cooperative agreements.

FAR 2.101

Contracting 

Officer

A person with the authority to enter into, administer, and/or 

terminate contracts and make related determinations and 

findings. The term includes certain authorized representatives of 

the contracting officer acting within the limits of their authority 

as delegated by the contracting officer.

FAR 2.101

Control Management and accounting of items of Inventory, Supplies and 

Materials received from the time the government takes title up to 

the time it is released to an end user or disposal activity. This 

would include physical control of the property and the tracking 

of its movement and valuation of the item(s) in accordance with 

SFFAS #3 including adding incidental and repair costs, as 

needed, to the value.

Core Financial 

System

An integral part of an agency’s single integrated financial 

management system. It controls and supports the key functions 

of an agency’s financial management, including general ledger 

management, funds management, payment management, receipt 

management, cost management, and reporting. The core 

financial system receives data from all other financial and mixed 

systems and from direct user input, and it provides data and 

supports processing for those systems that need it.

JFMIP Core 

Financial 

System 

Requirements

Cost The monetary value of resources used or sacrificed or liabilities 

incurred to achieve an objective, such as to acquire or produce a 

good or to perform an activity or service.

GAO/PCIE 

Financial 

Audit Manual
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 77

Term Definition Source, if 

Available

Cost-Benefit 

Analysis

The weighing of benefits against costs usually expressed as a 

ratio of dollar benefits to dollar costs for each of a variety of 

alternatives to provide a comparable basis of choice among 

them.

Kohler’s 

Dictionary for 

Accountants

Costing 

Methodology

Methodology for accumulating the costs of resources that 

directly or indirectly contribute to the production of outputs and 

assigning those costs to outputs.

Customer 

Order

An order (e.g., requisition) for inventory or related property 

received from a customer.

GAO/PCIE 

Financial 

Audit Manual

Cycle 

Counting

A technique for counting specific parts of an inventory 

throughout the year to validate the accuracy of Inventory, 

Supplies and Materials records and controls.

Days Supply Items or materials that will be consumed or used in a day or 

given number of days.

Delivery Order An order for supplies placed against an established contract or 

with government sources.

FAR 2.101

Designated 

Official

Refers to the organizational element responsible for the process 

step, such as the program office, receiving and acceptance 

officials, and sometimes contracting or finance representatives.

Direct Cost Costs that can be specifically identified with an output. All direct 

costs should be included in the full cost of outputs. Typical 

direct costs in the production of an output include: (a) Salaries 

and other benefits for employees who work directly on the 

output; (b) Materials and supplies used in the work; (c) Various 

costs associated with office space, equipment, facilities, and 

utilities that are used exclusively to produce the output; and (d) 

Costs of goods or services received from other segments or 

entities that are used to produce the output.

SFFAS 4

Direct Disposal Disposal due to health, safety, or environmental issues.

Disbursement Payment made using cash, check, or electronic transfer. 

Disbursements include advances to others as well as payments 

for goods and services received and other types of payments 

made.

JFMIP Core 

Financial 

System 

Requirements
Appendix B: Glossary

78 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

Disbursing 

Authority

Authority to disburse public money to officers and employees of 

other Federal agencies in accordance with 31 U.S.C. § 3321(b).

Vol. I TFM 4-

10000

Discrepancies Difference. The degree or amount by which things differ in 

quantity or measure.

Disposition This is the distribution of items of Inventory, Supplies and 

Materials through issuance or loan and the disposal of items 

determined to be excess, obsolete, unserviceable, unissuable, or 

not saleable.

Donation Property that is under the control of an agency and authorized 

for donation by statute to an authorized donee.

Economic 

Order Quantity

The quantity derived from a mathematical technique used to 

determine the optimum (lowest) total variable costs to order and 

hold inventory or operating materials and supplies.

Effective Date The date of contract award or the stipulated date, whichever is 

later.

Electronic 

Commerce

Electronic techniques for accomplishing business transactions 

including electronic mail or messaging, World Wide Web 

technology, electronic bulletin boards, purchase cards, EFT, and 

electronic data interchange (EDI).

FAR 2.101

Electronic Data 

Interchange

A technique for electronically transferring and storing formatted 

information between computers utilizing established and 

published formats and codes, as authorized by the applicable 

Federal Information Processing Standards.

FAI Glossary 

of Acquisition 

Terms

Electronic 

Funds Transfer

A transfer transaction instruction given to the Federal Reserve 

System to execute an outlay or disbursement.

End User Any component of a reporting entity that obtains goods for 

direct use in its normal operations. The component may also be 

a contractor.

SFFAS-3

Enterprise 

Architecture

A strategic information asset base that defines the business, 

information necessary to operate the business, technologies 

necessary to support the business operations, and transitional 

processes for implementing new technologies in response to the 

Federal 

Enterprise 

Architecture 

Framework, 
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 79

Term Definition Source, if 

Available

processes for implementing new technologies in response to the 

changing needs of the business.

Framework, 

V.1.1, Federal 

CIO Council, 

September 

1999

Excess 

Inventory

Property under the control of a federal agency that the head of 

the agency determines is not required to meet the agency’s need 

or responsibilities 

SFFAS-3

Expenditure See Outlay

Expenditure 

Variance

The percentage or dollar variance of an expenditure amount that 

can exceed an obligation amount. Some organizations refer to 

this as “tolerance level.”

Adapted from 

the definition 

of “Tolerance 

Levels” in the 

JFMIP Core 

Financial 

System 

Requirements

Expense The outflow of assets or incurrence of liabilities during a period 

resulting from rendering services, delivering or producing goods, 

or carrying out other normal operating activities.

JFMIP Core 

Financial 

System 

Requirements

Federal 

Agency

Any executive agency or any independent establishment in the 

legislative or judicial branch of the government (except the 

Senate, the House of Representatives, the Architect of the 

Capitol, and any activities under the Architect’s direction).

FAR 2.101

Final 

Acceptance 

Indicator 

Designated agency official acknowledgement that final 

acceptance has occurred.

Financial

System

An information system, comprised of one or more applications, 

that is used for any of the following: 

collecting, processing, maintaining, transmitting, and reporting 

data about financial events; 

supporting financial planning or budgeting activities; 

accumulating and reporting cost information; or 

OMB Circular 

A-127
Appendix B: Glossary

80 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

supporting the preparation of financial statements. 

A financial system supports the financial functions required to 

track financial events, or provide financial information 

significant to the financial management of the agency, and/or 

required for the preparation of financial statements. A financial 

system encompasses automated and manual processes, 

procedures, controls, data, hardware, software, and support 

personnel dedicated to the operation and maintenance of system 

functions. A financial system may include multiple applications 

that are integrated through a common database or are 

electronically interfaced, as necessary, to meet defined data and 

processing requirements.

Finished 

Goods

Manufacturing organization’s completed product held for sale.

First-In, FirstOut (FIFO)A cost flow assumption; the first goods purchased or produced 

are assumed to be the first goods sold.

SFFAS-3

Fiscal Year The government’s accounting period. It begins on October 1 and 

ends on September 30, and is designated by the calendar year in 

which it ends.

OMB Circular 

A-34

Free on Board A transportation term that indicates that the price for goods 

includes delivery at the seller’s expense to a specified point and 

no further. FOB is used with an identified physical location to 

determine 1) the responsibility and basis for payment of freight 

charges, and 2) the point at which title for the shipments passes 

from seller to buyer. 

FOB Origin. The buyer assumes title and control of the goods 

the moment the carrier signs the bill of lading. The buyer 

assumes the risk of transportation and is entitled to route the 

shipment.

FOB Destination. The seller retains title and control of goods 

until they are delivered and the contract of carriage has been 

completed. The seller selects the carrier and is responsible for 

the risk of transportation.

Funds

Certification

The process of affirming that funds or budget authority is 

available for potential purchases of goods or services. It is part 

of the funds control process that reserves funds in anticipation of 

an obligation.
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 81

Term Definition Source, if 

Available

Generally 

Accepted 

Accounting 

Principles 

(GAAP)

The accounting principles that the entity should use. For federal 

executive agencies, these are federal accounting standards 

following the hierarchy listed in SAS 91. The standards issued 

by FASAB are the first level of the hierarchy.

GAO/PCIE 

Financial 

Audit Manual 

July 2001

Hardware

System

Two or more individual items (equipment components) that are 

part of a self-contained group; are joined physically, 

electronically, or electromechanically; are programmed or 

designed specially to rely on each other; cannot function 

independently if separated; and cannot be easily disconnected 

and reconfigured to function with or within another unit or 

“system”.

JFMIP 

Property 

Management 

Systems 

Requirements

Head of the 

Agency

(also called 

Agency Head)

The Secretary, Attorney General, Administrator, Governor, 

Chairperson, or other chief official of an executive agency, 

unless otherwise indicated, including any deputy or assistant 

chief official of an executive agency.

FAR 2.101

Historical Cost 

method

Historical cost includes all appropriate purchase, transportation, 

and production costs incurred to bring the items to their current 

condition and location. Any abnormal costs, such as excessive 

handling or rework costs, are charged to operations of the 

period. The first-in, first-out (FIFO); weighted average; or 

moving average cost flow assumptions may be applied in 

arriving at the historical cost of ending inventory and cost of 

goods sold

SFFAS-3

Holding Cost Costs associated with carrying inventory and may include any or 

all of the following costs: storage space cost, handling cost, 

obsolescence losses, shrinkage, and clerical costs.

Indirect Cost Costs of resources that are jointly or commonly used to produce 

two or more types of outputs but are not specifically identifiable 

with any of the outputs. Typical examples of indirect costs 

include costs of general administrative services, general research 

and technical support, security, rent, employee health and 

recreation facilities, and operating and maintenance costs for 

buildings, equipment, and utilities.

SFFAS 4

Information 

Technology

Any equipment, or interconnected system(s) or subsystem(s) of 

equipment, that is used in the automatic acquisition, storage, 

manipulation, management, movement, control, display, 

FAR 2.101
Appendix B: Glossary

82 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

switching, interchange, transmission, or reception of data or 

information by the agency.

Interagency 

Agreement 

Number

Identifier associated with an agreement between two Federal 

entities. The agreement, similar to a statement of work, specifies 

the business partners involved, the products/services to be 

provided, and other pertinent information.

Interface

Requirement

A need for information, such as data requirements, reporting 

needs, internal controls, or edit requirements, required by the 

acquisition and finance functions as a result of transactions 

within the single integrated financial management system.

Internal 

Control

Plan of organization, methods, and procedures adopted by 

management to ensure that (1) resource use is consistent with 

laws, regulations, and policies; (2) resources are safeguarded 

against waste, loss, and misuse; and (3) reliable data are 

obtained, maintained, and fairly disclosed in reports.

Intragovernmental 

Business 

Partner Code

Similar in concept to a vendor or supplier code. It is an identifier 

for a Federal entity engaged in acquiring or providing 

products/services from another Federal entity.

Intragovernmental 

Payment and 

Collection 

System (IPAC)

The primary method used by most federal agencies to 

electronically bill and/or pay for services and supplies within the 

government. Used to communicate to the Treasury and the 

trading partner agency that the online billing and/or payment for 

services and supplies have occurred.

GAO/PCIE 

Financial 

Audit Manual

In-Transit Items being moved from one location to another, including 

between storage locations and in transit from suppliers for which 

title has passed to the government.

Inventory Tangible personal property that is (1) held for sale, (2) in the 

process of production for sale, or (3) to be used in the provision 

of services for a fee. The principal objective of the sale or 

transfer of inventory is to provide a product or service for a fee 

that generally recovers full cost or an identified portion of the 

cost.

SFFAS-3

Inventory/ 

Financial 

Interface

The points during the inventory and financial management 

processes where:
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 83

Term Definition Source, if 

Available

Interface the Financial community (budget, accounting/finance, and 

disbursing) interfaces with the program/contracting function in 

order to obtain information needed to accomplish its functional 

requirements (including core financial system general ledger 

management, funds management, payment management, receipt 

management, cost management, and reporting). See JFMIP Core 

Financial Systems Requirements document.

the Acquisition community (receiving, program, and 

contracting) interfaces with the budget/finance function in order 

to fulfill an information need, accomplish a necessary functional 

process, or conduct internal control activities.

Inventory and 

Related 

Property 

Systems

All agency resources committed to the inventory and related 

property process, including, but not limited to human resources, 

information hardware and software systems, acquisition process 

documentation, as well as applicable regulations, policies, 

procedures and agency-implementing guidance and instruction.

Inventory Held 

for Sale

See Inventory.

Invoice A contractor’s bill or written request for payment under the 

contact for supplies delivered or services performed.

FAR 32.902

Item Single piece of Inventory – See Inventory for further 

clarification.

Item 

Expiration

The date or period on which an item loses value or becomes 

obsolete.

Last-In, LastOut (LIFO)A cost flow assumption; the last goods purchased are assumed to 

be the first goods sold.

SFFAS-3

Latest 

Acquisition 

Cost Method

The latest acquisition cost method provides that the last invoice 

price (i.e., the specific item’s actual cost used in setting the 

current year stabilized standard [sales] price) be applied to all 

like units held including those units acquired through donation 

or non-monetary exchange.

SFFAS-3

Lead Time The total number of days from the time of need identification for 

an item until the item is placed into inventory.

Liability Assets owed for items received, services received, assets 

acquired, construction performed (regardless of whether invoices 

have been received), an amount received but not yet earned, or 
Appendix B: Glossary

84 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

have been received), an amount received but not yet earned, or 

other expenses incurred. Liabilities include (1) amounts owed 

for goods in the hands of contractors under the constructive 

delivery concept (when an agency, the seller, meets long-term 

contract obligations) and (2) amounts owed under grants, 

pensions, awards, and other indebtedness not involving the 

furnishing of goods and services.

Lower of Cost 

or Market

A valuation rule that recognizes impairment of asset values but 

avoids anticipated gains. The rule is typically applied to 

individual items or groups of like items, such as inventory or 

operating materials and supplies. In this rule, “cost” refers to 

historical cost and “market” refers to current replacement cost by 

purchase or production.

Kohler’s 

Dictionary for 

Accountants 

(modified)

Market Value The estimated amount that can be realized by disposing of an 

item through arm’s length transactions in the marketplace; the 

price (usually representative) at which bona fide sales have been 

consummated for products of like kind, quality, and quantity in a 

particular market at any moment of time.

SFFAS-3

Micropurchase An acquisition of supplies or services (except construction), the 

aggregate amount of which does not exceed $2,500, except that 

in the case of construction, the limit is $2,000.

FAR 2.101

Micropurchase 

with P-card

Purchases valued at $2,500 or less that use a government-issued 

purchase card to purchase and pay for the supplies or services 

purchased.

Mixed System An information system that supports both financial and nonfinancial functions of the Federal government or components 

thereof.

FFMIA of 

1996

Moving 

Average

An inventory costing method used in conjunction with a 

perpetual inventory system. A weighted average cost per unit is 

recomputed after every purchase.

SFFAS-3

Net Realizable 

Value

The estimated amount that can be recovered from selling, or any 

other method of disposing of an item less estimated costs of 

completion, holding and disposal.

Kohler’s 

Dictionary for 

Accountants
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 85

Term Definition Source, if 

Available

Object 

Classification

A method of classifying obligations and expenditures according 

to the nature of services or articles procured, e.g., personal 

services, supplies and materials, and equipment. Obligations are 

classified by the initial purpose for which they are incurred, 

rather than for the end-product or service provided. OMB 

Circular A-11 provides current object classifications for 

reporting budget estimates to OMB. Many agencies have defined 

lower levels of object classification for internal use.

OMB Circular 

A-11

Obligating 

Document

Number(s)

An identifier that refers to a specific document representing an 

obligation of Federal funds, which can be a task or delivery 

order number and its associated contract number; a BPA call 

number and its associated BPA number; a contract number; or a 

PO number.

Part of the obligating document number(s) is any modification 

number associated with any of the above numbers. Acquisition 

obligating documents often have more than one number that 

must be recorded to properly record the obligation.

Obligation A binding agreement that will result in outlays, immediately or 

in the future. Budgetary resources must be available before 

obligations can be incurred legally. Obligations are amounts of 

orders placed, contracts awarded, services received, and similar 

transactions for bona fide needs existing during a given period 

that will require payments during the same or a future period and 

that comply with applicable laws and regulations. Such amounts 

will include outlays for which obligations had not been 

previously recorded and will reflect adjustments for differences 

between obligations previously recorded and actual outlays to 

liquidate those obligations.

JFMIP Grant 

Financial 

System 

Requirements 

and Core 

Financial 

System 

Requirements

Obligation 

Amendment

Amendment to an obligation amount resulting from a contact 

modification. (See also Contract Action). 

Obsolete 

Inventory

Inventory that is no longer needed due to changes in technology, 

laws, customs, or operations.

SFFAS-3

Operating 

Materials and 

Supplies

The amount of tangible personal property to be consumed in 

normal operations. Excluded are (1) goods that have been 

acquired for use in constructing real property or in assembling 

equipment to be used by the entity, (2) stockpile materials, (3) 

goods held under price stabilization programs, (4) foreclosed 

property, (5) seized and forfeited property, and (6) inventory.

SFFAS-3
Appendix B: Glossary

86 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

Organization 

Code

A code representing the offices, divisions, branches, etc., 

established within an entity based on responsibility assignments, 

whether functional or program related; can also reflect the 

distribution of operating plans or other funding.

Outlay A payment to liquidate an obligation. Outlays are the measure of 

government spending. Outlays generally are equal to cash 

disbursements but also are recorded for cash-equivalent 

transactions.

JFMIP Core 

Financial 

System 

Requirements

Partial

Payments

Payments for accepted supplies and services that are only a part 

of the contract requirements. OMB A-125 requires agencies to 

pay for partial delivery of supplies or partial performance of 

services unless specifically prohibited by the contract.

FAR 

32.102(d)

Payment A government disbursement of monies to a contractor in 

accordance with contract terms. The payment management 

function consists of the following processes: payee information 

maintenance, payment warehousing, payment execution, and 

payment confirmation and follow-up. 

FAR 32.902 

and JFMIP 

Core 

Financial 

System 

Requirements

Payment Date The date on which a check for payment is dated or, for an EFT, 

the specified payment date.

FAR 32.902

Payment 

Office

The office or employee responsible for scheduling invoices for 

payment.

PL 97-177, 

Prompt Pay 

Act of 1982

Performance 

Measure Code

A code used to identify the performance goal that would be 

associated with the PO, so that it would be easy to link 

performance execution (obligations) to the approved 

performance plans/measures. The code is intended to serve as an 

agency option to comply with GPRA requirements, to deploy 

resources in accordance with strategic plans and objectives, and 

measure results against them.

Periodic 

Obligations

Obligations for an item that are developed periodically.
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 87

Term Definition Source, if 

Available

Receipt Date The date goods or services are received or accepted, whichever 

is later

Physical 

Completion 

The point in time at which all contract items and services have 

been delivered and accepted or the term of the contract has 

expired. The contract administration office may issue a contract 

completion certificate.

Production 

Order

An order to start production of an item.

Program Code A code to which expenses incurred or assets acquired relate to a 

program.

JFMIP Core 

Financial 

System 

Requirements

Project Code A code to which expenses incurred or assets acquired relate. A 

project is a planned undertaking of something to be 

accomplished, produced, or having a finite beginning and finite 

end. Examples are a construction project or a research and 

development project. Project code is also referred to as job code 

in some organizations.

JFMIP Core 

Financial 

System 

Requirements

Proper Invoice A bill or written request for payment that meets the minimum 

standards specified in the applicable prompt payment clause and 

other terms and conditions contained in the contract for invoice 

submission. A “proper invoice” must meet the requirements of 5 

CFR, Chapter 3, Sec. 1315.9(b) and can include receiving 

reports and delivery tickets when contractually designated as 

invoices. 

FAR 32.902

Proper 

Matching

An example, for purposes of payment, is a comparison of the: 

(1) acceptance/receipt document or receiving report, (2) 

obligation, and (3) request for payment (invoice).

Purchase Card “Government-wide commercial purchase card” means a 

purchase card, similar in nature to a commercial credit card, 

issued to authorized agency personnel to use to acquire and to 

pay for supplies and services.

FAR 13.001

Purchase Card 

Reconciliation

The task of matching and resolving purchase card transactions 

made by the cardholder with the purchases listed on the periodic 

account statement provided to the agency by the card-processing 
Appendix B: Glossary

88 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

account statement provided to the agency by the card-processing 

financial institution.

Purchases 

Method

A method of accounting for goods, such as materials and 

supplies, in which the acquisition cost is recognized as an 

expense upon purchase of the goods rather than upon their use.

SFFAS-3

Purchase Order An offer by the government to buy supplies or services, 

including construction and research and development, upon 

specified terms and conditions, using simplified acquisition 

procedures.

FAR 13.001

Raw Materials Items to be used in the production of goods for sale or provisions 

of services for a fee.

Receiving

Report

Written evidence meeting the requirements of FAR 32.905(f) 

that indicates government acceptance of supplies delivered or 

services performed by the contractor.

FAR 32.902

Repair Status Status of item in repair.

Repairable An item of inventory subject to economical repair and for which 

the repair is considered in satisfying computed requirements at 

any inventory level.

Reparable See repairable.

Replacement 

Cost

The cost to reproduce an item by purchase or manufacture. In 

lower of cost or market computations, the term “market” means 

replacement cost, subject to ceiling and floor limitations.

SFFAS-3

Requirements 

– Mandatory

Mandatory requirements describe what the system must do and 

consist of the minimum acceptable functionality necessary to 

establish a system, or are based on Federal laws and regulations. 

Mandatory requirements are those against which agency heads 

evaluate their systems to determine substantial compliance with 

systems requirements under the FFMIA. These requirements 

apply to existing systems in operation and new systems planned 

or under development.

JFMIP Core 

Financial 

System 

Requirements

Requirements 

– Value-Added

Value-added requirements describe optional features or 

characteristics and may consist of any combination of the 

following: (1) using state-of-the-art technology, (2) employing 

the preferred or best business practices, or (3) meeting the 

JFMIP Core 

Financial 

System 

Requirements
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 89

Term Definition Source, if 

Available

the preferred or best business practices, or (3) meeting the 

special management needs of an individual agency. Valueadded, optional, and other similar terminology may be used to 

describe this category of requirements. Agencies should consider 

value-added features when judging systems options. The need 

for value-added features in agency systems is left to the 

discretion of each agency head. 

Requirements

Revenue 

Source Code

Identifies and classifies the types of revenue and receipts as 

defined by the user. For example, categories could be rental 

income, sales by product type, income by type of service 

performed and others.

JFMIP Core 

Financial 

System 

Requirements

Safety Level Level of quantities stocked as a buffer against backed orders 

caused by fluctuations in demand over lead times, repair cycle 

times, attrition rates, and other variables.

Shelf Life The span of time an item may be kept until it is considered 

unusable by the supplier or inventory manager.

Signature or 

Signed

The discrete, verifiable symbol of an individual which, when 

affixed to a writing with the knowledge and consent of the 

individual, indicates a present intention to authenticate the 

writing. This includes electronic symbols. 

FAR 2.101

Simplified

Acquisition

Procedure

The methods prescribed in FAR Part 13 for making purchases of 

supplies or services.

FAR 2.101

Software The application and operating system programs, procedures, 

rules, and any associated documentation pertaining to the 

operation of a computer system.

JFMIP 

Property 

Management 

Systems 

Requirements

Special 

Controlled 

Items

Items that require special inventory controls such as precious 

metals, small arms, munitions list items, and Flight Safety 

Critical Aircraft Parts

Specified

Payment Date

The date that the government has placed in the EFT payment 

transaction instruction given to the Federal Reserve System as 

the date on which the funds are to be transferred to the 

contractor’s account by the financial agent. If no date has been 

specified in the instruction, the specified payment date is three 

FAR 32.902
Appendix B: Glossary

90 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

specified in the instruction, the specified payment date is three 

business days after the payment office releases the EFT payment 

transaction instruction.

Standard 

General Ledger

A uniform list of accounts and support transactions that 

standardizes Federal agency accounting and supports the 

preparation of standard external reports. The U.S. Government 

Standard General Ledger Chart of Accounts (1) provides control 

over all financial transactions and resource balances, (2) satisfies 

basic reporting requirements of OMB and Treasury, and (3) 

integrates proprietary and budgetary accounting.

U.S. Treasury 

Financial 

Manual

Stockpile 

Materials

Strategic and critical materials held due to statutory 

requirements for use in national defense, conservation, or 

national emergencies. They are not held with the intent of 

welling in the ordinary course of business.

SFFAS-3

Subject to 

Funds 

Availability

Funds have not yet been certified as available. Solicitations to 

industry may include a clause that provides a caveat to this 

effect, so as not to project the program as funded and thereby 

raising unwarranted hopes by companies for potential sales.

Task Order An order for services placed against an established contract or 

with government sources.

FAR 2.101

Taxpayer 

Identification 

Number 

The number required by the IRS to be used by the offeror in 

reporting income tax and other returns. The TIN may be either a 

Social Security Number or an Employer Identification Number 

(EIN). Also, the number is defined by the Treasury Financial 

Management Service Tax Identification Policy as follows: “A 

nine digit Employer Identification Number or Social Security 

Number as defined in Section 6109 of the Internal Revenue 

Code of 1986.”

Title The right to property; the means by which such right is 

established.

Kohler’s 

Dictionary for 

Accountants

Trading 

Partners

As defined by the U.S. Department of the Treasury, trading 

partners are agencies, bureaus, programs or other entities (within 

or between agencies/departments) participating in transactions 

with each other.
Appendix B: Glossary

Inventory, Supplies and Materials System Requirements 91

Term Definition Source, if 

Available

Trading 

Partner Code

Codes assigned by the Department of Treasury, Financial 

Management Service (FMS) to certain Federal agencies to 

facilitate disbursement, reconciliation, and other 

activity/reporting by FMS.

Transaction 

Code

Used to identify movement of goods (e.g., sale, transfer, 

issuance, loan, disposal).

Transaction 

Date

The date a transaction takes place.

Transaction 

Type

Type of accounting transaction processed. For example, partially 

liquidating obligation or fully liquidating obligation.

Undelivered

Orders

The value of goods and services ordered and obligated that have 

not been received. This amount includes any orders for which 

advance payment has been made but for which delivery of 

performance has not yet occurred.

Unfilled 

Orders

Difference between total order and item availability.

Unit Cost Assigned cost per unit of measure.

Unique Item 

Identifier 

(UID)

A unique, unambiguous string of alpha numeric characters that 

enables the identification of a specific asset from any other like 

or unlike it.

Example of UIDs vs. Asset IDs:

A UID applies when we need to identify a specific item or 

equipment. The best example is the Vehicle Identification 

Number. Using this single number you can tell your light blue 

2002 Buick Regal from every other light blue 2002 Buick 

Regal. The structure of the UID as proposed provides a way for 

any manufacturer to ensure that the UID they assign to a product 

will not be duplicated either by themselves or any other 

company world wide.

An Asset ID would apply to automobile brake shoes of a specific 

size. They could be manufactured by any one of a dozen 

manufacturers. They are virtually the same and 

interchangeable. There is no reason or need to track any one 

particular brake shoe. Examples of Asset IDs that we see daily 

are the Store Keeping Unit (SKU) you find at WALMART and 

the National Stock Number (NSN) used by the defense 
Appendix B: Glossary

92 Inventory, Supplies and Materials System Requirements

Term Definition Source, if 

Available

the National Stock Number (NSN) used by the defense 

Department

Unliquidated 

Obligations

See Undelivered Orders.

Unserviceable 

Inventory

Damaged inventory that is more economical to dispose of that to 

repair. Also known as condemned inventory.

SFFAS-3

Variance The difference for a year or less between the elements (direct 

material, direct labor, factory overhead) of standard cost and 

actual cost. The term applies to (a) a money difference or (b) 

changes in character or purpose of amounts expended.

Kohler’s 

Dictionary 

for 

Accountants

Vendor Any person, organization, or business concern engaged in a 

profession, trade, or business, and any not-for-profit entity 

operating as a supplier (including State and local governments 

and foreign entities and foreign governments, but excluding 

Federal entities). 

5 CFR, 

Chapter III, 

Sec. 1315

Voucher The Standard Form 1034, Public Voucher for Purchases and 

Services Other Than Personal, or similar form; a type of request 

for payment. 

FAR 

49.103(c)

WeightedAverageA periodic inventory costing method where ending inventory 

and cost of goods sold are priced at the weighted-average cost of 

all items available for sale.

SFFAS-3

Write-Off An action to remove an amount from an entity’s assets or 

financial resources.

Treasury 

Financial 

Manual 

Supplement
Inventory, Supplies and Materials System Requirements 93

Appendix C: Inventory, Supplies and Materials Valuation

The following table shows the allowable methods of valuation allowed for each 

classification of Inventory, Supplies and Materials.

CLASSIFICATIONS

VALUATION METHODS

INVENTORY

OPERATING 

MATERIALS 

& SUPPLIES

STOCKPILE 

MATERIALS

Historical X X X

Latest Acquisition X

Expected Net Realizable Value X X X

Allowance or Direct Method 

(Held for Repair Only) X X

Historical cost shall include all appropriate purchase, transportation and production costs 

incurred to bring the items to their current condition and location. Any abnormal costs, 

such as excessive handling or rework costs, shall be charged to operations of the period. 

Donated inventory shall be valued at its fair value at the time of donation. Inventory 

acquired through exchange of non-monetary assets (e.g., barter) shall be valued at the fair 

value of the asset received at the time of the exchange. Any difference between the 

recorded amount of the asset surrendered and the fair value of the asset received shall be 

recognized as a gain or a loss.

The first-in, first-out (FIFO); weighted average; or moving average cost flow 

assumptions may be applied in arriving at the historical cost of ending inventory. In 

addition, any other valuation method may be used if the results reasonably approximate 

those of one of the above historical cost methods (e.g., a standard cost system).

The latest acquisition cost method is allowable for inventory only. It provides that the 

last invoice price, (i.e., the specific item’s actual cost used in setting the current year 

stabilized standard [sales] price) be applied to all like units held including those units 

acquired through donation or non-monetary exchange. The inventory shall be revalued 

periodically but at least at the end of each fiscal year. Revaluation results in recognition 

of unrealized holding gains/losses in the ending inventory value. Upon adjustment for 

unrealized holding gains/losses, the latest acquisition cost method then results in an 

approximation of historical costs. “Holding gains (or losses)” result from holding assets 

in periods of changing prices. Under historical cost methods, holding gains (or losses) 

are not separately recognized even though they exist. Under the latest acquisition cost 

method, holding gains (or losses) will be recognized in the valuation of inventory since 

that value is adjusted periodically to present the more current latest acquisition costs. 

These gains or losses are unrealized holding gains or losses. “Unrealized” refers to any 

gain or loss associated with inventory still held by the entity. “Realization of the holding 

gain or loss occurs when an item of inventory is sold.

The expected net realizable value method is an exception. Use of this method is 

acceptable if there is (1) an inability to determine approximate costs, (2) immediate 
Appendix C: Inventory, Supplies and Materials Valuation

94 Inventory, Supplies and Materials System Requirements

marketability at quoted prices, and (3) unit interchangeability (e.g., petroleum reserves). 

Application of this exception may result in inventories being valued at greater than 

historical cost. Excess, obsolete, and unserviceable inventory and operating materials 

and supplies will be valued using the expected net realizable value.

Use of the allowance or direct methods is allowable only for inventory and operating 

materials and supplies held for repair.

• Under the allowance method, inventory and operating materials and supplies held 

for repair are to be valued at the same value as a serviceable item. However, an 

allowance for repairs contra-asset account (i.e., repair allowance) will be 

established. As the repairs are made the cost of repairs shall be charged to the 

allowance for repairs account.

• Under the direct method, inventory and operating materials and supplies held for 

repair shall be valued at the same value as a serviceable item less the estimated 

repair costs. When the repair is actually made, the cost of the repair shall be 

capitalized in the inventory account up to the value of a serviceable item.
Inventory, Supplies and Materials System Requirements 95

 Appendix D: Factors Influencing the Environment

At any particular point in time, there are multiple on-going or planned projects or

activities with interlocking goals, objectives, and plans, which frequently involve some 

form of system automation, Electronic Data Interchange (EDI), or Electronic Commerce 

(EC). This appendix provides highlights of three activities that were identified during the 

development of this document that are particularly relevant to the Inventory, Supplies and 

Materials management and financial management communities, i.e., Information 

Technology in the Inventory, Supplies and Materials Process, Intra-governmental 

Transactions, and JFMIP testing of Core Financial System Requirement.

This appendix is not comprehensive or exhaustive in terms of the aspects of each project 

or activity or their relevance to each other. Also, these and other projects change over 

time, i.e., some are completed, some are terminated, and others are established. The 

projects and activities discussed in this appendix, and others, should be considered in 

agency’s efforts to develop, implement, operate, and maintain agency financial 

management systems.

Information Technology (IT) in the Inventory, Supplies and Materials Process 

As previously discussed, IT is a critical factor influencing Inventory, Supplies and 

Materials processes and interfaces. Its application allows paperless processes, better 

buying decisions, and ultimately, improved customer service. IT enables the 

reengineering of inventory and financial processes.

The information technology approach chosen to implement the functional shared 

information requirements identified in this document do not require any specific IT 

solution in either hardware or software. However, agencies should recognize the 

availability of government-wide IT solutions designed to achieve congressional goals to 

reduce paper processes, to secure electronic information and to improve access to 

information. Any agency implementing these Inventory, Supplies and Materials/financial 

functional requirements must take into account these influences when developing its IT 

strategy.

Besides enabling improved processes, IT allows better functional integration by 

automating the exchange of information from one function to another. Information is 

acquired at its source and shared across functional boundaries so that a particular contract 

award record in a financial system is identical to the record in the acquisition system.

Electronic Commerce (EC)

Electronic Commerce, is the exchange of business information through electronic means. 

Three EC technologies are currently significant to Inventory, Supplies and Materials: 

The Internet and World Wide Web, of which a key example is FedBizOpps for posting 

synopses and solicitations; EDI transaction standards for electronic ordering and 

invoicing; and EFT payment transaction standards for paying contractors electronically.
Appendix D: Factors Influencing the Environment

96 Inventory, Supplies and Materials System Requirements

The FedBizOps web portal is one approach toward meeting the single point of entry 

objective, while the use of EDI and Electronic Funds Transfer (EFT) standards provide 

government-wide interface standards for Inventory, Supplies and Materials and finance. 

The acquisition and financial EDI and EFT standards are being updated to a new 

interchange standard called Extensible Markup Language (XML), which allows greater 

integration with web applications. As these electronic interface technologies evolve, 

system developers should be cognizant of their support of the functional interface 

requirements contained in this document and stand ready to integrate them into existing 

systems.

Electronic Government (E-government)

The OMB’s E-Government Strategy describes twenty four initiatives to improve the 

quality of services to citizens, businesses, governments and government employees, as 

well as the effectiveness and efficiency of the Federal government. The initiatives 

influencing the Inventory, Supplies and Materials/financial interface requirements 

environment are:

Integrated Acquisition Environment will allow agencies to begin sharing common data 

elements to enable other agencies to make more informed procurement, logistical, 

payment and performance assessment decisions.

E-Authentication will build and enable the mutual trust needed to support wide spread 

use of electronic interactions between the public and government and across 

governments. This will establish a method for satisfactorily establishing “identity,” 

without which the promise of E-Government will never reach its full potential.

Information Security

Another IT influence on Inventory, Supplies and Materials is the requirement for 

adequate security controls on systems, the security of business communications and the 

ability to rely on electronic signed documents. These requirements impact Inventory, 

Supplies and Materials and finance due to their considerable paper interface with the 

public and other Federal agencies and the need to store sensitive business information in 

their computer systems. The solutions are computer system access controls, public key 

cryptography and digital signature technology. Electronic signatures and internet 

security, essential for paperless purchasing and payment, will be provided to the 

acquisition community through the Access Certificates for Electronic Services (ACES) 

program administered by the GSA. ACES facilitates secure online access to government 

information and services by the public through the use of public key infrastructure/digital 

signature technology.

Information security has gained greater emphasis since the Government Information 

Security Reform Act of 2000 amended the Paperwork Reduction Action of 1995 by 

adding a new subchapter on information security. The Security Act codifies existing 

OMB security policies, Circular A-130, Appendix III, and reiterates security 

responsibilities outlined in the Computer Security Act of 1987, the Paperwork Reduction 
Appendix D: Factors Influencing the Environment

Inventory, Supplies and Materials System Requirements 97

Act, and the Clinger-Cohen Act of 1996. In addition, the Security Act requires annual 

agency program reviews and annual independent evaluations for both unclassified and 

national security programs.

Enabling Process Change

The effect of IT is a reengineering of inventory and finance processes. Examples are: 

Purchase card technologies enable traditional customers of the procurement process to 

individually acquire their own micropurchases, which in turn permits thousands of 

individual invoices to be consolidated into one monthly statement for payment to the 

card-provider bank.

Electronic catalog technologies that enable online ordering via GSA Advantage or other 

agency internet ordering systems to speed sourcing, placement, and receipt of supplies 

and services.

Internet and email technologies that allow agencies, through the FedBizOps portal, to not 

only post solicitations directly on the Internet but send interested suppliers an email 

notice with a link to the solicitation. The results are one-stop access to all Federal 

business opportunities, a paperless solicitation process, greater competition, and 

ultimately, better customer service.

Electronic Signature Requirement

There is a general requirement to accept electronic signatures. This requirement, which 

must be adhered to, stems from the following:
Appendix D: Factors Influencing the Environment

98 Inventory, Supplies and Materials System Requirements

The FAR defines signature4or signed to mean the discrete, verifiable symbol of an 

individual which, when affixed to a writing with the knowledge and consent of the 

individual, indicates a present intention to authenticate the writing. This includes 

electronic symbols. Simply stated, systems which produce electronic signatures must be 

capable of ensuring that these signatures are: (1) unique to the signer, (2) under the 

signer’s sole control, (3) capable of being verified, and (4) linked to the data in such a 

manner that, if the data are changed, the signature is invalidated upon verification. 

The Electronic Signatures in Global and National Commerce (E-SIGN) Act (Public Law 

106-229) provides that a signature or contract may not be denied legal effect solely 

because it is in electronic form. The E-SIGN Act does not require Federal agencies to 

use or accept electronic signatures or records for contracts. However, a Federal agency 

and its contractor may choose by mutual agreement to use electronic signature 

methodologies. (OMB Guidance on Implementing the Electronic Signatures in Global 

National Commerce Act, dated September 25, 2002 (Memorandum M-00-15)).

GPEA5 requires Federal agencies to allow, by October 21, 2003, individuals or entities 

that deal with the agencies, the option to submit information, transact with the agency, 

and maintain records electronically when practicable. Like the Electronic Signatures in 

Global and National Commerce Act, the act specifically states that electronic records and 

their related electronic signatures are not to be denied legal effect, validity, or 

enforceability merely because they are in electronic form.6 The act also encourages the 

Federal government’s use of a range of electronic signature alternatives.

Appendix II of OMB Circular A-130, “Management of Federal Information Resources,”7

implements the GPEA and calls for the Federal government to develop a public key 

infrastructure to enable the widespread use of cryptographically-based digital signatures. 

For example, some agencies have successfully developed secure electronic transaction 

systems using personal identification numbers for security.

OMB does not endorse any one technological approach to electronic signatures. It is 

neutral as to the best approach for electronic signatures.

Central Contractor Registration

A general requirement exists for the identification of suppliers through a common 

system. Although the FAR does not mandate one system, the OMB’s June 7, 2001, for 

the FY 2003 Budget8 states, 

“An outcome for expanding electronic government will include the

establishment of a government-wide single point of vendor registration. 

 

4

 FAR 2.101, Definitions. 

5

 44 USC 3504.

6

 OMB Memorandum, M-00-10, dated April 25, 2000, entitled “OMB Procedures and Guidance on 

Implementing the Government Paperwork Elimination Act.”

7

 Revised Feb. 8, 1996.

8

 OMB’s June 7, 2001, Budget Guidance for FY 2003.
Appendix D: Factors Influencing the Environment

Inventory, Supplies and Materials System Requirements 99

In FY 2003, agencies will use the Central Contractor Registration (CCR), 

an existing on-line database, as the single validated source of data on 

vendors doing business with the government. Beginning October 1, 2003, 

agencies will cease to collect the Standard Form 129 known as the

Solicitation Mailing List Application.”

The CCR provides a standard means of providing taxpayer identification data and EFT 

routing information to financial systems. Internet technology allows firms doing business 

with the government to register in one database for use by all Federal contracting and 

finance offices needing to determine supplier identity. The result is a standard process 

that eliminates contractors having to submit Standard Form 129, Solicitation Mailing List 

Application, to each contracting office, as well as eliminating maintenance of separate 

supplier databases throughout the government.9

While not currently a requirement, all agencies will soon be required to have their 

vendors registered within this system. Therefore, to support the overall 

financial/acquisition interface, the agency’s single integrated financial management 

system should enable interface with the CCR.

Accessibility for the Disabled

Section 508 of the Rehabilitation Act of 1973 (as amended), requires that all Federal 

agencies’ electronic and information technology (EIT) be accessible to people with 

disabilities. Subsection 508(a)(1) requires that when Federal departments or agencies 

develop, procure, maintain, or use EIT, they must ensure that the EIT allows Federal 

employees with disabilities to have access to and use of information and data that is 

comparable to the access to and use of information and data by other Federal employees. 

Section 508 also requires that individuals with disabilities, who are members of the 

public seeking information or services from a Federal department or agency, have access 

to and use of information and data that is comparable to those provided to the public 

without disabilities. Comparable access is not required if it would impose an undue 

burden on the agency.

Intra-governmental Transactions

During program operations, the need frequently arises for one government agency or 

component to acquire goods or services from another government agency or component. 

When this occurs, that is, one government agency “contracts” with another agency for 

goods or services, financial information associated with these transactions is reflected in 

the financial systems and financial reports of two different Federal agencies or 

components. These “intragovernmental” transactions must be eliminated from the 

various agencies’ financial statements in order to avoid double counting and prepare a 

consolidated, government-wide financial statement. Disparate business practices and 

widely divergent data structures across agencies result in significant transaction 

 

9

 OMB’s June 7, 2001, Budget Guidance for FY 2003 states: “In FY 2003, agencies will use the Central 

Contractor Registration (CCR), an existing on-line database, as the single validated source of data on 

vendors doing business with the government.”
Appendix D: Factors Influencing the Environment

100 Inventory, Supplies and Materials System Requirements

differences. The inability to identify and reconcile intragovernmental transactions has 

been cited as a material weakness government-wide and is a factor in the GAO’s 

disclaimer of opinion on the U.S. financial statements.

The Office of Management and Budget is working with the logistics and financial 

communities to develop and implement policies, procedures, and electronic exchange 

mechanisms for intra-governmental business transactions. The approach is modeled after 

the purchase order/invoice concept used for simplified, commercial purchases.
Inventory, Supplies and Materials System Requirements 101

Appendix E: Contributors

Joint Financial Management Improvement 

Program (JFMIP) Steering Committee

Joseph L. Kull, Chair, Office of 

Management and Budget

Jeffrey C. Steinhoff, General Accounting 

Office

Robert N. Reid, Department of the Treasury

Clarence C. Crawford, Office of Personnel 

Management

Kathleen M. Turco, General Services 

Administration

Karen Cleary Alderman, Executive Director, 

JFMIP

Joint Financial Management Improvement 

Program

Karen Cleary Alderman, Executive Director

Elvon Lloyd, Financial Systems Analyst

Inventory, Supplies and Materials System 

Requirements Project Manager

Robin Quinlan, Department of Defense 

(Office of the Under Secretary of Defense, 

Acquisition, Technology and Logistics)

JFMIP Project Team Leader

Elvon Lloyd, JFMIP

Department of Defense (Sponsoring 

Agency)

Gretchen Anderson

William Beasley

Debra Bennett

Bruce Burbage

Brandon Burke

Michael Canales

Anthony Colucci

Shannon Donovan

Phillip Graham

Wayne Hudson

Edward Johnson

James Kornides

Noel Lacey

Justine Landrum

Lt Col Colquitt Lawrence, USAF

Terry Trepal

LeeAnn Upshur-Brown

Department of Health and Human Services

Rose Ann Corley

Steve Mahaney

Sue Mundstuk

Department of Justice

Carolyn Bridgeman

Randall Claud

Robert Harris

Department of Transportation

Sarah Ball

Ray Gagne

Barbara Hays

Julie Martin

Les Mooring

Chereace Richards

Department of the Treasury

Judy Kuhn

Janet Shirk

Steve Sax

Robert Deans

Department of Veterans Affairs

Katherine Galos 

Steve Graves 

Freddie Martinez

Robert McKenna

Federal Accounting Standards Advisory 

Board

Richard Wascak

Environmental Protection Agency

Nathaniel Lewis

General Accounting Office

Evelyn Logue (Technical Advisor)
Appendix E: Contributors

102 Inventory, Supplies and Materials System Requirements

General Services Administration

James Begis

Robert Holcombe

Edward Reubens

Angela Smith

National Aeronautics and Space 

Administration

Dale Hupp

Arthur Johnson

Glenda Patrick

Office of Management & Budget

Kimberly Geier

Special Recognition

William Beasley

Brandon Burke

Shannon Donovan 

Phillip Graham

Judy Kuhn

James Kornides

Elvon Lloyd

Evelyn Logue
Requests for JFMIP Publications

JFMIP documents may be accessed electronically on the Internet in electronic format, suitable for online 

viewing or printing. 

http://www.jfmip.gov

To receive notification of JFMIP publications when they are issued, join the JFMIP Mailing List through 

the JFMIP home page.
1990 K Street NW

Suite 430

Washington, DC 20006