Summary

Controls over the physical inventories of the Army and Navy were studied to determine if their objectives were being accomplished and if performance standards were being met. Department of Defense (DOD) Instruction 4140.35 prescribes the basic elements of the physical inventory control program and allows the individual services to impose more stringent requirements which they have done in their implementing instructions. However, the elements of a good physical inventory program often were not carried out. Deficiencies included: nonperformance of the required number of physical inventories, location surveys, or location audit reconciliations; inventory adjustments in excess of the number and value allowed for an acceptable level of performance; failure to process receipts and issues within the prescribed time; and inability to fill orders because stock was not at the locations shown on the inventory records. Problems identified in carrying out the physical inventory program involved: lack of experienced personnel, high employee turnover, incorrect first counts, poor control of in-float documentation, storage practices, ineffective quality control programs, and lack of reviews by internal audit organizations.