ADC 485

Attachment, Page 1

ADC 485

DOD Physical Inventory Control Program (PICP)

Chief Financial Officers Act (CFOA) of 1990

Statistical Sampling Requirements and Procedures

1. ORIGINATING SERVICE/AGENCY AND POC INFORMATION:

a. Service/Agency: DLA Logistics Management Standards, DLA J627

b. Originator: DLA Logistics Management Standards

2. FUNCTIONAL AREAS: Supply/MILSTRAP and DOD Physical Inventory Control

3. REFERENCES: 

a. Deputy Secretary of Defense for Supply Chain Integration memorandum of August 16, 

2011; Subject, “Chief Financial Officers Act (CFO) inventory sampling plan” (Enclosure 1).

b. DoD 4140.1-R, DoD Supply Chain Management Regulation, May 2003 (this regulation is in 

the process of being reissued by the Office of the Deputy Assistant Secretary of Defense for Supply 

Chain Integration as an eleven volume manual (DOD 4140.01-M); the CFOA requirement will be 

covered within Volume 5).

c. DoD 4000.25-2-M, Military Standard Transaction Reporting and Accountability Procedures 

(MILSTRAP), Chapter 7, “Physical Inventory Control” as revised by all Approved DLMS Changes 

(ADCs) subsequent to the last MILSTRAP Manual publication.

d. DoD 4000.25-M, Defense Logistics Management System (DLMS), Volume 2 “Supply 

Standards and Procedures,” Chapter 6, “Physical Inventory Control” as revised by all Approved 

DLMS Changes (ADCs) subsequent to the last DLMS Manual publication.

4. APPROVED CHANGE:

a. Description of Change. This change amends the DOD Physical Inventory Control Program 

(PICP) to include the requirements and procedures to conduct the annual CFO Statistical Sample 

Inventory implementing reference 3.a. into references 3.c., and 3.d.

b. Background

(1) The Chief Financial Officer’s Act (CFOA) of 1990 requires that the Department of 

Defense, the Military Services, and Defense Agencies submit financial statements to the Congress. 

One of the financial statement elements is the dollar value of on-hand supply inventory. Reference 

3.a. establishes the DOD requirement to conduct an annual statistical sample to estimate the dollar 

value of the DOD inventory to support compliance with the CFOA of 1990, which can be found at 

http://www.dol.gov/ocfo/media/regs/CFOA.pdf . The initial implementation shall be for materiel in 
ADC 485

Attachment, Page 2

Defense Logistics Agency (DLA) storage sites managed by the Distribution Standard System (DSS),

regardless of the materiel’s ownership. The requirement to conduct the CFO Annual Statistical 

Sample Physical Inventory may be expanded to include inventories beyond that maintained by DSS. 

(2) The goal of statistical sampling is to efficiently gain insight about an entire population 

without examining the total population. Statistical sampling is a valuable tool within the DOD PICP. 

Although inventory errors found within a sample are corrected, the primary purpose of conducting a 

sample within the PICP is to gain insight about the entire population. Listed below are examples of 

sample inventories conducted for different purposes; each requires a different sampling approach.

(a) Sample inventories may be conducted to focus and prioritize physical inventory 

workload resources. Management may draw separate samples from each of its warehouses (or some 

other population strata) in order to determine which warehouses require wall-to-wall or cycle counting 

resources and prioritize when to apply them.

(b) A sample inventory may be taken to estimate the overall value of the inventory in 

storage at a point in time. The purpose of this sample is to determine the degree of dollar error of the 

sample and apply it to the entire inventory to accurately estimate dollar value of the total on-hand 

inventory.

(c) A sample inventory of the entire population may be taken to gain insight into the 

overall accuracy of the records (the percent of the total records where the record quantity and the 

physical count quantity differ). The results of this type of sample report on the percent of records that 

match the physical count exactly or are within some allowed tolerance. The current annual statistical 

sample required by the DOD PICP provides a barometer of performance and improvement 

opportunities for local storage activity managers. Performance sampling directly supports the DOD 

PICP through those evaluations and improvements.

c. Requested Changes: In support of the CFOA of 1990 reporting requirements, DLA shall 

annually prepare and execute the DOD sampling plan using a mutually agreed upon stratified, 

hierarchical inventory sample for the purpose of accurately estimating the dollar value of the DOD 

inventory in DLA storage locations. The CFOA requires that the Department of Defense, the Military 

Services, and Defense Agencies submit financial statements to the U.S. Congress. One of the financial 

statement elements is the dollar value of on-hand supply inventory. DLA, as the common warehouse 

provider, stores the preponderance of the DOD on-hand inventories. The purpose of this sample is to 

estimate the dollar value of the non-fuel portion of the DOD on-hand inventory under DSS 

management and held in DLA storage. Staffing Note: The initial implementation shall be for 

materiel in Defense Logistics Agency (DLA) storage sites managed by the Distribution Standard 

System (DSS), regardless of the materiel’s ownership. The requirement to conduct the CFO 

Annual Statistical Sample Physical Inventory may be expanded to include inventories beyond 

that maintained by DSS. The following are the guidelines to conduct and report the results of the 

annual CFO Inventory sample.

(1) Scheduling: The annual CFO Inventory Sample shall be scheduled as close to the end 

of the fiscal year as possible allowing sufficient lead time to conduct the sample inventory, perform 

analyses, and report results to support the end of fiscal year financial reports.
ADC 485

Attachment, Page 3

(2) Sample Guidelines: CFO Inventory Sample shall ensure that:

(a) The items in storage shall be stratified into dollar value categories to minimize the 

number of items requiring inventory while yielding results with the confidence level and precision

required below. The dollar value stratifications used for sample shall be included in the CFO 

Inventory Value Sample Plan for that year.

(b) Every item stored, regardless of owner/manager, within the extended dollar value 

strata identified in the CFO Inventory Sample Plan for that year shall have an equal probability of 

being selected and inventoried.

(c) The sample results shall have a 95 percent confidence level and a level of precision 

within + (plus) or – (minus) 2.5 percent.

(3) CFO Inventory Value Sample Plan:

(a) Each year’s DOD CFO Annual Statistical Sample Plan shall be provided to the 

Joint Physical Inventory Working Group (JPIWG) Chair for posting to the JPIWG Web Page at:

www.dla.mil/j-6/dlmso/Programs/Committees/JPIWG/JPIWG.asp

(b) The results of the CFO sample shall be reported to the inventory owner for use in 

the preparation of their respective financial statement reporting.

5. REASON FOR CHANGE: To implement reference 3.a. in the DOD PICP.

6. ADVANTAGES AND DISADVANTAGES:

a. Advantages: Implementations the Chief Financial Officer’s Act (CFOA) of 1990 in 

accordance with the direction of reference 3.a.

b. Disadvantages: None noted.

7. IMPACT:

a. Implementation: The changes to the procedures in Enclosures 2 & 3 to the attached ADC 

are effective upon receipt

b. Publications

(1) In accordance with Enclosure 2, update DOD 4000.25-2-M, Military Standard 

Transaction Reporting and Accountability Procedures (MILSTRAP), Chapter 7, “Physical Inventory 

Control”.

(2) In accordance with Enclosure 3, update DOD 4000.25-M, Defense Logistics 

Management System (DLMS), Volume 2 “Supply Standards and Procedures”, Chapter 6, “Physical 

Inventory Control”.
ADC 485

Attachment, Page 4

8. ESTIMATED SAVINGS/COST AVOIDANCE ASSOCIATED WITH IMPLEMENTATION 

OF THIS CHANGE: This ADC has no cost impact, implementation has already occurred.

9. COMMENTS AND DISPOSITION:

Organization PDC 492 Comment Disposition

DLA Comment 1: DLA commented that they believed 

that the implementation of the CFOA Statistical 

Sample should not be limited only to materiel under 

Distribution Standard System (DSS) management 

control.

Comment 2: Recommend That the Annual 

Statistical Plan document and the reporting of the 

sample results be made separate paragraphs.

Comment 3. Recommended that the existing Type 

of Physical Inventory/Transaction History Code “L” 

continue, as in prior practice, to indicate sample 

inventories taken in support of the CFOA.

The Office of the 

Deputy Assistant 

Secretary of Defense 

for Supply Chain 

Integration verified 

that the applicability,

at this time, is to be 

limited to materiel 

under Distribution 

Standard System 

(DSS) management 

control. Therefore, no 

change was made.

This change was 

adopted in this ADC. 

See paragraphs 

C7.2.10.1.2.2.4. and

C7.2.10.1.2.2.5. of 

Enclosure 2 and 

paragraphs 

C6.2.10.1.2.2.4. and 

C6.2.10.1.2.2.5. of 

Enclosure 3.

This change was 

adopted in this ADC. 

The existing code L 

definition is: 

“Scheduled Inventory, 

specified SCCs. 

Initiated by owner for 

a random statistical 

sample Inventory.”

USTRANSCOM Abstains

Air Force Concurs without comments
ADC 485

Attachment, Page 5

Army Concurs

Navy Concurs with comment.

Comment 1: Will consideration be given to 

replacing both the Annual Record Accuracy 

Statistical Sample and Annual Chief Financial 

Officer's (CFO) Statistical Sample Inventory with 

only ONE sample?

Comment 2: Will DLA provide results of the 

Annual Chief Financial Officer's (CFO) Statistical 

Sample Inventory in a format (categories) to allow 

reporting in compliance with the Annual Record 

Accuracy Statistical Sample (C6.2.10.1 & 

C7.2.10.1)?

Comment 3: In the future if this PDC is extended to 

the components, how will the DLA data be merged 

with the components internal data to then report into 

the CFO metric?

No. Both samples are 

required by OSD and 

serve different 

purposes. A single 

sample cannot 

statistically satisfy 

both purposes.

No, see answer above.

This will be 

determined at a later 

date and staffed as a 

separate PDC.

 DoD 4000.25-2-M, Chapter 7

ADC 485, Enclosure 2

Manual Changes (These changes pertain to DoD 4000.25-2-M, 

Chapter 7, Physical Inventory Control)

C7. CHAPTER 7

PHYSICAL INVENTORY CONTROL

Paragraph C7.2.10.1 Changes

C7.2.10.1. Inventory Sampling.

C7.2.10.1.1. Annual Record Accuracy Statistical Sample. A 

stratified, hierarchal inventory sample shallwill be accomplished at least once annually 

for the purpose of validating the accuracy of the accountable records. The results of 

this sample report on the percent of records that match the physical count 

exactly or are within the allowed tolerance. The annual record accuracy 

statistical sample provides a barometer of performance and improvement 

opportunities for local storage activity managers. The results of the sample 

shallwill be reported in accordance with the item categorizations stratification and 

tolerances cited in paragraph C7.2.12.5. When the physical count of an item is 

completed, the physical count and record quantity are compared; if the two are 

within the specified tolerance for Categories B and C, the accuracy of that record 

is considered correct, if the tolerance is exceeded, the record is counted as 

inaccurate. Items in Categories A and D have a zero tolerance; therefore, any 

difference between the physical count and the record quantity is counted as an 

inaccurate record.

C7.2.10.1.2. Annual Chief Financial Officer’s (CFO) Statistical 

Sample Inventory. The Chief Financial Officer’s Act (CFOA) of 1990 requires that 

the Department of Defense, the Military Services, and Defense Agencies submit 

financial statements to the Congress. One of the financial statement elements is 

the dollar value of on-hand supply inventory. The purpose of the Annual CFO 

Statistical Sample Inventory is enable the Components to estimate the dollar 

value of the non-fuel portion of the DoD on-hand inventory held in storage for 

annual financial statement reporting. The Components shall conduct a stratified, 

hierarchal statistical sample inventory for the purpose of accurately estimating 

the true dollar value of their respective on-hand supply inventories. The initial 

implementation shall be for materiel in Defense Logistics Agency (DLA) storage 

sites managed by the Distribution Standard System (DSS), regardless of the 

materiel’s ownership. The requirement to conduct the CFO Annual Statistical 

Sample Physical Inventory may be expanded to include inventories beyond that 

maintained by DSS. The following are the guidelines to conduct and report the 

results of the annual CFO Inventory sample.

C7.2.10.1.2.1. Annual CFO Statistical Sample Inventory 

Schedule. The annual CFO statistical sample inventory shall be scheduled as 

close to the end of the fiscal year as possible allowing sufficient lead time to 
 DoD 4000.25-2-M, Chapter 7

ADC 485, Enclosure 2

conduct the sample inventory, perform analyses, and report results to support 

the end of fiscal year financial reports.

C7.2.10.1.2.2. Annual CFO Statistical Sample Inventory 

Guidelines.

C7.2.10.1.2.2.1. The items in storage shall be 

stratified into dollar value categories to minimize the number of items requiring 

inventory while yielding results with the confidence level and precision required 

below. The dollar value stratifications used for sample shall be included in the 

CFO Inventory Value Sample Plan for that year. 

C7.2.10.1.2.2.2. Every item stored, regardless of 

owner/manager, within the extended dollar value strata identified in the Annual 

CFO Sample Plan for that year shall have an equal probability of being selected in 

the sample and inventoried. 

C7.2.10.1.2.2.3. The sample results shall have a 95

percent confidence level and a level of precision within + (plus) or – (minus) 2.5

percent.

C7.2.10.1.2.2.4. DoD CFO Statistical Sample 

Inventory Plan. Each year’s DoD CFO Annual Statistical Sample Plan shall be 

provided to the Joint Physical Inventory Working Group (JPIWG) Chair for 

posting to the JPIWG Web Page at:

www.dla.mil/j-6/dlmso/Programs/Committees/JPIWG/JPIWG.asp

C7.2.10.1.2.2.5. DoD CFO Statistical Sample 

Inventory Results. The Components shall use the results of the CFO Inventory 

Sample to valuate materiel under their respective ownership and report those 

values to the DoD Chief Financial Officer for use in the preparation of their 

respective financial statement reporting. Note that the results of the CFO 

Inventory Sample shall include all adjustments and documentation that support

the physical completion of the inventory process.

C7.2.10.1.32. Annual Complete Physical Inventory. Annual 

complete (100%) physical inventories can be performed as an alternative to statistical 

sampling.

Paragraph C7.3.3. Changes

C7.3.3.5. Storage activities shall initiate the scheduled annual stratified 

random statistical sample inventory to meet the Department’s requirements to 

conduct the Annual CFO Statistical Sample Inventory identified in paragraph 

C7.2.10.1.2. with a Physical Inventory Request Transaction using Type Physical 

Inventory/Transaction History Code L
DoD 4000.25, Vol 2, Chapter 6

ADC 485, Enclosure 3

Manual Changes (These changes pertain to DoD 4000.25

Volume 2, Chapter 6, Physical Inventory Control)

Paragraph C6.2.10.1 Changes

C6.2.10.1. Inventory Sampling.

C6.2.10.1.1. Annual Record Accuracy Statistical Sample. A 

stratified, hierarchal inventory sample shallwill be accomplished at least once annually 

for the purpose of validating the accuracy of the accountable records. The results of 

this sample report on the percent of records that match the physical count 

exactly or are within the allowed tolerance. The annual record accuracy 

statistical sample provides a barometer of performance and improvement 

opportunities for local storage activity managers. The results of the sample 

shallwill be reported in accordance with the item categorizations stratification and 

tolerances cited in paragraph C6.2.12.5. When the physical count of an item is 

completed, the physical count and record quantity are compared; if the two are 

within the specified tolerance for Categories B and C, the accuracy of that record 

is considered correct, if the tolerance is exceeded, the record is counted as 

inaccurate. Items in Categories A and D have a zero tolerance; therefore, any 

difference between the physical count and the record quantity is counted as an 

inaccurate record.

C6.2.10.1.2. Annual Chief Financial Officer’s (CFO) Statistical 

Sample Inventory. The Chief Financial Officer’s Act (CFOA) of 1990 requires that 

the Department of Defense, the Military Services, and Defense Agencies submit 

financial statements to the Congress. One of the financial statement elements is 

the dollar value of on-hand supply inventory. The purpose of the Annual CFO 

Statistical Sample Inventory is enable the Components to estimate the dollar 

value of the non-fuel portion of the DoD on-hand inventory held in storage for 

annual financial statement reporting. The Components shall conduct a stratified, 

hierarchal statistical sample inventory for the purpose of accurately estimating 

the true dollar value of their respective on-hand supply inventories. The initial 

implementation shall be for materiel in Defense Logistics Agency (DLA) storage 

sites managed by the Distribution Standard System (DSS), regardless of the 

materiel’s ownership. The requirement to conduct the CFO Annual Statistical 

Sample Physical Inventory may be expanded to include inventories beyond that 

maintained by DSS. The following are the guidelines to conduct and report the 

results of the annual CFO Inventory sample.

C6.2.10.1.2.1. Annual CFO Statistical Sample Inventory 

Schedule. The annual CFO statistical sample inventory shall be scheduled as 

close to the end of the fiscal year as possible allowing sufficient lead time to 

conduct the sample inventory, perform analyses, and report results to support 

the end of fiscal year financial reports.
DoD 4000.25, Vol 2, Chapter 6

ADC 485, Enclosure 3

C6.2.10.1.2.2. Annual CFO Statistical Sample Inventory 

Guidelines.

C6.2.10.1.2.2.1. The items in storage shall be 

stratified into dollar value categories to minimize the number of items requiring 

inventory while yielding results with the confidence level and precision required 

below. The dollar value stratifications used for sample shall be included in the 

CFO Inventory Value Sample Plan for that year. 

C6.2.10.1.2.2.2. Every item stored, regardless of 

owner/manager, within the extended dollar value strata identified in the Annual 

CFO Sample Plan for that year shall have an equal probability of being selected in 

the sample and inventoried. 

C6.2.10.1.2.2.3. The sample results shall have a 95

percent confidence level and a level of precision within + (plus) or – (minus) 2.5

percent.

C6.2.10.1.2.2.4. DoD CFO Statistical Sample 

Inventory Plan. Each year’s DoD CFO Annual Statistical Sample Plan shall be 

provided to the Joint Physical Inventory Working Group (JPIWG) Chair for 

posting to the JPIWG Web Page at:

www.dla.mil/j-6/dlmso/Programs/Committees/JPIWG/JPIWG.asp

C6.2.10.1.2.2.5. DoD CFO Statistical Sample 

Inventory Results. The Components shall use the results of the CFO Inventory 

Sample to valuate materiel under their respective ownership and report those 

values to the DoD Chief Financial Officer for use in the preparation of their

respective financial statement reporting. Note that the results of the CFO 

Inventory Sample shall include all adjustments and documentation that support 

the physical completion of the inventory process.

C6.2.10.1.32. Annual Complete Physical Inventory. Annual 

complete (100%) physical inventories can be performed as an alternative to statistical 

sampling.

Paragraph C6.3.3.3. Changes

C6.3.3.3. Random Statistical Sample Inventories

C6.3.3.3.4. Storage activities shall initiate the scheduled 

random statistical sample inventory to meet the Departments requirements to 

conduct the Annual CFO Statistical Sample Inventory identified in paragraph 

C6.2.10.1.2. with a Physical Inventory Request Transaction using Type Physical 

Inventory/Transaction History Code L.