SECOND COUNT VALIDATION AND THIRD COUNT REQUIREMENT.- The second count quantities are summarized by COG/NSN/purpose code/condition code. Review infloat transactions and adjust counts as required. If the adjusted second count quantity matches the stock record actual cutoff quantity, the item is reconciled and the inventory is complete.

If the first and second count do not match and the potential adjustment value is less than an activity's threshold (see Table 5-3), the second count is used for adjustment purposes.

Table 5-3.-Research Threshold

A third inventory count must be conducted for the following reasons: l The first and second count do not match and the potential adjustment is over the activity's research threshold l The item under inventory is sensitive or controlled

Before starting the third count, ensure the following actions are completed: 

. All  second counts for a specific NSN and condition code have been accounted for 

. The infloat transactions and material have been considered 

. The count quantities are compared with the cutoff balance

If the adjusted third count quantity matches the stock record actual cutoff quantity, the item is reconciled and the inventory is complete.

if the adjusted third count matches an adjusted count (first or second), use the adjusted third count. If none of the adjusted counts match, use the adjusted count closest to the stock record actual cutoff quantity.

Time Frame for Processing Inventories

There are two reasons for assigning a time frame for processing physical inventories.

First, timely processing is essential in reconciling the physical counts and in-process transactions with record balances. Delays in processing adversely affect stock point operations.

Secondly, the DSCs have automatic control features that will cancel the inventory after a specified number of days. Inventory counts received after the controls have been lifted will not proms. As a result, the DSC records will not be reconciled or updated. If this happens, the stock point has wasted its mourns.

The scheduled inventories requested by Navy activities must be completed within 30 calendar days of the actual cutoff date. Inventories requested by DSC must be completed within the following time frames: l For a complete inventory, the results must be forwarded within 30 days of the actual cutoff date. l For a sample inventory, the results must be forwarded within 20 calendar days of the actual cutoff date.

Unscheduled inventories requested by Navy or DSC must be completed within 15 calendar days of the actual cutoff date.

Physical Inventory Adjustments

When a discrepancy between the physical count and stock record cannot be reconciled, an adjustment must be processed. The adjustment will result to a gain or loss on the stock record.

Reversal of Inventory Adjustment

The Military Standard Transaction Reporting and Accounting Procedures (MILSTRAP), DOD Manual 4140.22-M, permits the reversal of inventory adjustments. The inventory adjustment must be within 365 days from the date of the adjustment. Reversals of inventory adjustments are permitted only if the following conditions are met:

1. If the original adjustment can be identified, inventory adjustment reversals will be permitted.

2. There has been no separately identifiable physical inventory conducted between the date of the original adjustment and the date the reversal is attempted. If an inventory has been completed between the date of the original adjustment and the date reversal action is attempted, the reversal will not be permitted. If an inventory has been initiated subsequent to original adjustment, and causative research indicates the original adjustment was erroneous, a reversal of the original adjustment is permitted.

3. There are documentations to support the conclusion that the adjustment is in error.

4. Reversals to adjustments greater than 90 days old must be approved by the inventory accuracy officer according to NAVSUPINST 4440.132.

5. Adjustments must be reversed through credit loss or gain procedures. Transactions should not be reversed by complimentary financial transactions. For example, an M4 loss should not be reversed by a D4 gain, but with a credit loss. Refer to Table 5-4 for definitions of M4 and D4 financial inventory report (FIR) codes.

Special Reporting Requirements

Results of inventory for controlled items require a report to be submitted to the applicable item manager. A Missing, Lost, Stolen, or Recovered (MLSR) property report is required whenever there has been a gain or loss of sensitive material. The MLSR report is used only as an initial report. ADD Form 200, SF 364, or SF 361 is required as the final documentation of the gain or loss. The DD Form 200 is the Financial Liability Investigation of Property Loss. The Standard Form (SF) 364 is the Report of Discrepancy. Standard Form (SF) 361 is the Transportation Discrepancy Report. Refer to SECNAVINST 5500.4 for detailed information concerning the MLSR report.

Table 5-4.-Inventory Adjustment FIR Codes

Causative Research

In inventory management, causative research is an in-depth investigation of selected inventory adjustments to find out how they occurred. The errors found as a result of the causative research effort must be corrected. Unprocessed or incorrectly processed inventory adjustments need to be corrected to accurately reflect audit trail history. A summary of the causative research must be submitted to direct management actions to prevent reoccurrence.

TIME FRAME.- Causative research should be conducted after the physical inventory is completed and adjustments are processed to the stock records. The causative research must be completed within 45 days of the date that the adjustments are processed to the stock record. Causative research may be conducted before the completion of physical inventory if the time frame for processing inventories is met.

ERROR CAUSES.- The error causes identified by the causative research are summarized and provided in the physical inventory section of the DOD Inventory Control Effectiveness Report. A local management briefing must be conducted quarterly to discuss the summarized causative research results.

DLA-OWNED MATERIAL.- Stock points do not conduct causative research of DLA owned material unless directed by the appropriate DSC. The DSCs may request a causative research to be performed by stock points according to the MILSTRAP.

Location Survey

The procedures used for conducting location surveys depend upon the system being used by the activity.

STATLOC ACTIVITIES.- Activities using the statistical location (STATLOC) survey system should perform a sample location survey quarterly. Samples used for a location survey are drawn from the total population of recorded locations. To ensure that the sample's size is large enough, activities should serialize the STATLOC run. This allows each serial group to have its sample size determined independently.

Activities are required to maintain at least a 98-percent location survey accuracy rate in all warehouses/warehouse areas. If the accuracy rate is below 98 percent, the following actions are performed within 90 days of the initial sample survey date: l Conduct a 100 percent location survey of the warehouse/warehouse area that failed the criteria. This method is recommended for low-dollar value items with high on-hand quantities. l Conduct a 100 percent physical inventory of the warehouse/warehouse area that failed the criteria. This method is recommended for areas with high-dollar value items and low on-hand quantities.

All STATLOC activities will conduct a location survey for all locations at least once every 3 fiscal years.