Effective Inventory Control for Nonprofits

Source: McKonly & Asbury

Implementing effective inventory controls is crucial for any nonprofit organization to ensure that their resources are managed efficiently. Without proper inventory controls, an organization runs the risk of misallocating resources which could lead to failing to meet their mission’s objectives. This article outlines three practices a nonprofit entity can utilize to help maintain effective inventory controls.

Establishing a Clear Inventory Policy
When establishing an inventory policy, it is important for management to outline processes for various fundamental areas, such as the following.

• • Valuation
    Deciding how the organization will value their inventory is not only relevant for financial reporting and budgeting but is also vital in the application process for various funding sources. Many federal and state funding sources require organizations to disclose how inventory is valued on an annual basis. As mentioned in a previous article, there are several appropriate methodologies that an organization can implement when considering the valuation of inventory.
  • Receiving
    A well-functioning receiving department plays a critical role in ensuring efficient inventory management. This includes verifying all incoming shipments against purchase orders or donation listings to help identify any discrepancies and maintain precise records. Additionally, the department should be responsible for properly sorting and storing items in designated locations within the organization’s warehouse, store, or other storage areas.
  • Distribution
    The distribution department should keep accurate picking and packing slips, labels with tracking numbers, and bills of lading to acknowledge the transfer of goods to the recipients. These control documents provide clear documentation and help alleviate the risk of items leaving the organization without a form of authorization or inventory tracking.

Utilizing Inventory Cycle Counts
Implementing cycle counts and full physical counts helps ensure inventory accuracy by management. Cycle counts can take several forms, such as counting a small amount of your inventory on a specific day, with the frequency varying depending on the size of the organization. Other popular types of cycle counts include random selections, location-based sampling, and selections tailored to the frequency purchased of high-value or high-usage items. To maximize the benefits of cycle counting, management should ensure all items are subjected to counts at least once throughout the year. To supplement these scheduled cycle counts, an annual full physical count around the time of year-end close should then be performed. For more in-depth explanations on these various approaches, follow here.

Maintaining Security

Inventory security controls take various forms, including:

• Physical access restrictions: Monitoring who has physical key access, requiring individual security codes, or an integrated badge system that only gives access to those with approved clearances.
• Audit logs: Accounting for day-to-day inventory actions with proper signoffs that track inventory movement.
• Theft prevention policies: Requiring all individuals affiliated with the organization to sign and acknowledge their commitment to theft prevention. This includes all employees, volunteers, and anyone else who has access to inventory, and this reinforces zero-tolerance for theft and outlines clear consequences.

Conclusion
Successful inventory management starts with careful planning and clear policies for specific inventory functions and controls. Organizations that take a proactive approach to inventory management by prioritizing these strategies can shift their focus to their core mission and continue serving their communities effectively.

Please reach out to a member of McKonly & Asbury's Nonprofit team for more information on the topic outlined above. You can also learn more about our nonprofit services by visiting McKonly & Asbury's Nonprofit industry page.

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