Inventory Verification Risk Assessments Presented By: Marjorie Cunningham April 27-29, 2004

Inventory VerificationInventory Verification Risk Assessments Risk Assessments

Presented By:

Marjorie Cunningham

April 27-29, 2004

Inventory Verification Risk Assessments

o Inventory verification is the process that the PLCO uses

to verify that items reported excess are properly reported

on the inventory schedules. Results of the inventory

verification are recorded on SF Form 1423 – Inventory

Verification Survey (FAR 45.602-1(b)(1)).

o In October 2000, the DCMA Directive 1 guidance on

inventory verifications was changed to require inventory

verifications to be risk based.

o Prior to this time, an inventory verification was required

for every plant clearance case regardless of the

contractor’s history or the type of property being

reported excess.


o Inventory Verification Risk Assessment begins with an annual rating for a contractor Annual risk ratings should be performed each year in

January for all contractors that submit inventory schedules on a regular basis

An annual risk rating for new contractors or contractors who do not submit schedules on a regular basis should be performed when the first inventory schedule is received during the year

o The Annual Risk Assessment worksheet should be completed and placed in a file along with all applicable backup data used to perform the risk assessment


Annual Inventory Verification Risk Rating Date_________________ Contractor________________________________________________ Total number of cases opened during the previous year - _________ Evaluation Criteria: New Contractor (if yes, rate high) - yes___ no___ PCSA performed within the past three years (if no, rate moderate) – yes____ no____ PCSA Rating (if withdrawn or unsat in disposition, rate high – unsat in any other functions, rate moderate) Sat____ Unsat (Disposition)____ Unsat (Other Functions)_____ Withdrawn_____ Summary of Inventory Verification discrepancies – Discrepancies on 2% or less of schedules verified in the previous year ____ (low) Discrepancies on 3-5% of schedules verified in the previous year ____ (moderate) Discrepancies on more than 5% of schedules verified in the pervious year ____ (high) Other Factors Impacting Inventory Verification Risk (give details under Rationale) - yes___ no___ Overall Rating: High____ Moderate____ Low____ Rationale:


o Steps to complete the annual risk assessment – Enter Date, Contractor Name and the total number of in

house cases opened during the previous year Answer questions under Evaluation Criteria –

• New contractor answer yes or no. A new contractor will be automatically be rated high.

• Property Control System Analysis performed within the past three years answer yes or no. If no PCSA performed in the past three years, rate moderate.

• PCSA Rating = Sat, Unsat or Withdrawn. Obtain this information from the PA or from MOCAS. A rating of Unsat in Disposition or a Withdrawn system will automatically be rated high. A rating of Unsat in any Function other than Disposition will be rated moderate.


• Summary of previous inventory verification discrepancies.

– Discrepancies on 2% or less of schedules verified during the

previous year = low rating

– Discrepancies on 3-5% of schedules verified during the

previous year = moderate

– Discrepancies on more than 5% of schedules verified during

the previous year = high

• PLCO should keep track of inventory verification

discrepancies throughout the year to use for next year’s risk

assessment.


• Other Factors Impacting Inventory Verification Risk. If there are any unusual circumstances at the contractor that would impact the overall risk, the PLCO should give the details under Rationale and use this information in determining the contractor’s overall risk rating. These other factors may be used to either raise or lower the contractor’s annual risk rating. Examples of other factors would be a change in personnel at the contractor, movement of significant amounts of property to new locations or a significant increase in the amount of excess generated by the contractor.


After answering all of the questions, determine the contractor’s annual risk rating.

• If the contractor’s property control system is rated satisfactory (overall and in disposition), the answer to all questions on the form is no and the contractor had discrepancies on less than 2% of their inventory verifications during the previous year they would be rated low.

• If the contractor is rated unsat in any functions other than disposition (must be sat in disposition) or they had discrepancies on 3-5% of their inventory verifications during the previous year or their property control system has not been reviewed within the past three years, they would be rated moderate.

• If the contractor is new or their property control system is withdrawn or they are unsat in disposition or they had discrepancies on more than 5% of their inventory verifications during the previous year, they would be rated high


o A contractor with a low risk rating will need to have an inventory verification completed for 10 percent of their cases (1 of every 10)

o A contractor with a moderate risk rating will need to have an inventory verification completed for 25 percent of their cases (1 of every 4)

o In addition to the above requirements, cases containing certain types of property must always be verified regardless of the annual rating. As a result, it will be necessary to perform an individual case risk rating for each case when a contractor’s annual rating is either moderate or low in order to identify cases containing items that must be verified


o If a contractor’s annual risk rating is low or

moderate, it will be necessary to prepare a case

risk rating worksheet for each case opened

during the year. Individual cases will be rated

either high or low.

o If a contractor’s annual risk rating is high, all

inventory schedules must be verified and it is

not necessary to prepare individual case risk

assessments.


Case Level Inventory Verification Risk Rating Date_________ Contractor’s Annual Rating - ________ Case Number - ___________________ Schedule Reference Number(s) – __________________________________________________________________________________ Does this case contain – Items with assigned demil codes which require demil yes____* no_____ Classified items yes____* no_____ Environmentally regulated items yes____* no_____ Termination inventory yes____* no_____ *If any of these blocks are checked, risk rating is high regardless of contractor’s annual rating

The following criteria may be used at the PLCO’s discretion to waive individual case verifications regardless of the contractor’s annual risk rating -

Property stored at location requiring TDY to perform verification – yes___ no___Does value of property justify TDY expense - yes___ no___ Dollar value of property on the case is so low that it does not justifyThe expense of conducting a verification (with or without TDY costs) yes___ no___

Risk rating assigned to case - ________________

Rationale: If rated low, is this case selected to be verified? yes_____ no_____


o Steps to complete the Case Risk Rating – Enter the Date, Contractor’s annual risk rating, Case

Number and Schedule Reference Number(s).

Answer yes or no to the following questions –

• Does the case contain items in Demil codes C, D, E, F, G or

P or does it not have Demil codes assigned but PLCO

suspects demil required? If yes, case is rated high

• Does the case contain classified items? If yes, case is rated

high


• Does the case contain environmentally regulated items? If

yes, the case is rated high.

• Does the case contain termination inventory? If yes, the

case is rated high.

If TDY is required to conduct the inventory verification,

the inventory verification can be waived if the value of

the property does not justify TDY expense. This

exception applies mainly to property located outside the

U.S. where TDY expense would be high and there is no

on-site government representative to accomplish the

verification.


If the dollar value of the property on the case is

so low that it does not warrant the expense of

sending someone to the contractor’s facility to

verify the items, the verification can be waived

regardless of the contractor’s annual rating.

Verification should not be waived based on

dollar value if the items require demil, are

classified, environmentally regulated or are

termination inventory.


o After completing the Case Risk Rating worksheet,

determine the individual case rating. Cases that are rated

high must have an inventory verification. Cases that are

rated low do not require an inventory verification. The

PLCO may still select a case with a low rating for

verification to satisfy the requirement to verify 10% of

cases on low rated contractors and 25% of cases on

moderate rated contractors if they don’t have enough cases

rated high to meet these percentages. PLCOs should use

dollar value, condition code and type of property as criteria

when selecting the cases to meet the 10% or 25%

requirements.


o The completed Case Risk Assessment worksheets

should be filed in the plant clearance file in the

Inventory Verification section.

Documents

Inventory Verification Risk Assessments Presented By: Marjorie Cunningham April 27-29, 2004