0601 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies for the accounting classification and reporting of inventory, operating materials and supplies (OM&S), and stockpile materials.

Key points covered in this chapter:

• VA will comply with the classification, accounting, and reporting requirements as defined in Statements of Federal Financial and Accounting Standards (SFFAS) 3;
• VA will adhere to existing VA logistics and supply chain management policies to ensure adequate protection and accountability for all VA personal property. VA Directive and Handbook 7002 provides guidance to implement or supplement the Federal Property Management Regulations in areas of personal property management;
• VA will maintain stockpile materials and supplies for use in national defense, conservation, or national emergencies; and
• VA will report inventory, OM&S, and stockpile materials in accordance with Office of Management and Budget (OMB) Circular A-136.

0602 Revisions

Section	Revision	Office	Reason for Change	Effective Date
Various	Reformatted to new policy format and completed full review	OFP	Reorganized chapter layout	August 2025
0603	Updated and added definitions	OFP	To explain the importance of personal property management	August 2025
0604	Updated roles and responsibilities	OFP	Update roles and responsibilities to ensure it is aligned correctly	August 2025
060501	Updated Policies section	OFP	Added OMB Circular A-123 and provided guidance on the requirement on the annual certification for personal property	August 2025
0606	Updated Authorities and References	OFP	Updated section to include OMB Circular A-123 and guidance for personal property management	August 2025
Appendix	Added Appendix A and Appendix B	OFP	Previous policy revisions and guidance on Annual Year-End Certification	August 2025

For a complete listing of previous policy revision, see Appendix A: Previous Policy Revisions.

0603 Definitions

Asset – Tangible or intangible items owned by the Government which have probable economic benefits. An asset has two essential characteristics: (1) it embodies economic benefits or services that can be used in the future and (2) VA controls access to the economic benefits and therefore can regulate their use.

Consumption Method of Accounting – The method under which purchases are recognized and reported as assets when produced or purchased and reported as expense in the period when issued to an end user.

Disposition – When assets of an entity are removed either by sale, trade, or disposal.

Excess operating materials and supplies – Stocks of operating materials and supplies that exceed the amount expected to be used in normal operations in the foreseeable future and that do not meet management’s criteria to be held in reserve for future use. In VA, referred to as long supply and defined as the increment of inventory of an item that exceeds the stock level criteria established for that item by the inventory manager but excludes quantities to be declared unneeded and posted to Personal Property Management System (PPMS) for further utilization by other activities or disposition.

Inventory – Tangible personal property that is held for sale, is in the process of production for sale, or is to be consumed in the production of goods for sale or in the provision of services for a fee. Excluded are day-to-day operating materials and supplies. Inventory shall be categorized as (1) inventory held for sale, (2) inventory held in reserve for future sale, (3) excess, obsolete, and unserviceable inventory, or (4) inventory held for repair. See SFFAS 3 for detailed information on categorizations.

Operating Materials and Supplies (OM&S) – Tangible personal property to be consumed in normal operations. OM&S shall be categorized as (1) operating materials and supplies held for use, (2) operating materials and supplies held in reserve for future use, or (3) excess, obsolete, and unserviceable operating materials and supplies. See Statements of Federal Financial and Accounting Standards (SFFAS) 3 for detailed information on categorizations. It is also referred to as recurring personal property in VA, defined as consumable, durable or expendable personal property procured more than one time within a 12-month period. Recurring personal property must be maintained and accounted for in the authorized Accountable Property System of Record.

Purchase Method – An accounting method used to account for inventory and supplies.

Recognition – The process of formally recording or incorporating an item into the financial records of an entity. Recognition comprises depiction of an element in both words and numbers, with the amount included in the totals of the financial statements. For an asset or liability, recognition involves recording not only acquisition or incurrence of the item but also later changes in it, including changes that result in removal from the financial statements.

Stockpile Materials – Strategic and critical operating materials held due to statutory requirements for use in national defense, conservation, or national emergencies. They are not held with the intent of selling in the ordinary course of business. The following items are specifically excluded from stockpile materials: (a) items that are held by an agency for sale for use in normal operations, (b) items that are held for use in the event of an agency’s operating emergency or contingency and (c) materials acquired to support market prices (that is, commodities specifically acquired, held, sold or otherwise disposed of to satisfy or help satisfy economic goals).

Unrequired Personal Property – Owned personal property that is no longer needed and not required for the needs and the discharge of holding facilities/sites responsibilities and will not be replaced by similar or like items (items within the same 2-digit Federal Supply Group) as determined by the Facility/Site Accountable Property Officer (APO). Items will be posted to the internal screening portion of GSA’s Personal Property Management System for internal screening by rest of VA.

Unserviceable Inventory – Inventory that is more economical to properly dispose of in accordance with the VA Directive 7348 and VA Handbook 7348 rather than to repair.

Valuation – A process for calculating the monetary value of an asset or liability.

Weighted Average Cost Method – An inventory costing method used in conjunction with a perpetual inventory system. An average cost per unit (determined by dividing the total cost of all units available for sale by the number of units) is computed at the end of an accounting period and then extended to all units in the ending inventory.

0604 Roles and Responsibilities

Administration and Staff Office Chief Financial Officers (CFOs) are primarily responsible for the appropriate recording and reporting of assets under their jurisdiction.

Office of Revolving Fund (ORF) is responsible to maintain inventory held for sale to VA and other Government agencies customers consisting of prosthetic, commodities, medical equipment, and pharmaceutical supplies.

Accountable Property Officer (APO) is responsible for establishing and maintaining an organization’s accountable personal property records, systems, or financial records, in connection with government personal property, irrespective of whether the personal property is in the individual’s possession. The APOis responsible for certifying the year-end annual certification to account for inventories. Formerly known as the Accountable Officer.

Consolidated Mail Outpatient Pharmacy (CMOP) is a VA program consisting of seven automated pharmacies throughout the United States delivering outpatient medications to Veterans.

0605 Policies

060501 General Policies

1. VA will comply with guidance in Statements of Federal Financial and Accounting Standards (SFFAS) 3, which provides accounting standards for tangible personal property other than long term fixed assets, held by VA. Inventory available and purchased for resale consists primarily of items held for current sales, such as Veterans Canteen Service (VCS) retail store stock. VCS provides retail merchandise, food, and vending services across the country. Related property includes operating materials and supplies (OM&S) and stockpile material. OM&S expense recognition can use consumption or purchase method depending on if the end user has OM&S on hands or does not have it on hands. OM&S includes items such as pharmaceuticals at Consolidated Mail Outpatient Pharmacies (CMOP), which are recognized using the purchase method and ORF (i.e., Supply Fund) purchases of Operating, Medical, and Pharmaceutical Supplies are recognized using the consumption method. Stockpile materials will be expensed using consumption method.
2. VA will comply with applicable guidance from Office of Management and Budget (OMB) Circular A-136 on financial reporting requirements for tangible assets.
3. VA will comply with OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control to ensure there are effective controls in place to manage inventory. Examples of effective internal controls for inventory management are listed below:
   • Physical safe-guarding of tangible personal property;
   • Segregation of duties;
   • Reconciliation of receiving reports;
   • Monitoring for correct method of dispositioning;
   • Maximizing reuse of tangible personal property;
   • Monitoring long supply; and
   • Periodic inventory and valuation

For additional information on internal controls, refer to Volume I, Chapter 5 – Management’s Responsibility for Internal Controls.

4. The Facility/Site Accountable Property Officer will account for personal property and certify for their facility/site, through the Region/VISN to the VA Administration/VACO Staff Office and OAL’s Logistics and Supply Chain Management. For additional information on the Annual Year-End certification for Personal Property, refer to Appendix B: Annual Certification for Personal Property in this document.

060502 Inventory

1. VA will recognize inventory in its accounting records when title passes or when the goods are delivered to VA. Delivery or constructive delivery shall be based on the terms of the contract regarding shipping and/or delivery.
2. VA will remove inventory from its records when title passes from VA, when goods are delivered by VA or upon use when a service is provided, and the related expense is recognized. Delivery or constructive delivery shall be based on the terms of the contract regarding shipping and/or delivery.
3. VA will categorize inventory as:
   • Inventory held for sale;
   • Inventory held in reserve for future sale;
   • Excess (i.e., unrequired personal property), obsolete, and unserviceable inventory; or
   • Inventory held for repair.
4. VA will record inventory held for sale at cost and will include appropriate purchase, transportation, and production costs incurred to obtain the inventory item.
5. VA will use the weighted average cost method for inventory held for sale to determine ending inventory values and the cost of goods sold. When using the weighted average method, the cost of goods available for sale are divided by the number of units available for sale, yielding the weighted-average cost per unit. This weighted average figure is then used to assign a cost to both ending inventory and cost of goods sold.
6. VA will adhere to Directive 7002 Logistics Management Policy which provides reporting guidelines and frequencies for physical inventories.
7. VA will carry inventory that is excess, obsolete, or unserviceable at its estimated net realizable value. Upon disposition, any difference between the inventory’s recorded amount and the value received for the inventory will be recognized as a gain or loss.
8. VA will value inventory acquired through exchange of nonmonetary assets (e.g., barter) at the fair value of the asset received at the time of the exchange. Any difference between the recorded amount of the asset surrendered and the fair value of the asset received shall be recognized as a gain or a loss.
9. VA will value donated inventory at its fair value at the time of donation.

060503 Operating Materials and Supplies (OM&S)

1. OM&S consist of tangible personal property to be consumed in the course of normal operations.
2. VA will recognize and report OM&S as assets when produced or purchased. If the contract between the buyer and the seller is silent regarding passage of title, title is assumed to pass upon delivery of the goods. Delivery or constructive delivery shall be based on the terms of the contract regarding shipping and/or delivery.
3. VA will utilize the consumption method of accounting for the recognition of OM&S expense. However, SFFAS 3 permits use of the purchase method (in lieu of the consumption method) of accounting for the recognition of expenses of OM&S if:
   • The materials and supplies are not significant amounts;
   • The materials and supplies are in the hands of the end user for use in normal operations; or
   • It is not cost beneficial to apply the consumption method.
4. OM&S that are not in the hands of the end user until issued will be accounted for using the consumption method.
5. OM&S that are in the hands of the end user when purchased, will be accounted for using the purchase method,
6. VA will value OM&S on the basis of historical cost or on a basis that reasonably approximates historical cost and will include appropriate purchase, transportation, and production costs incurred to obtain the inventory item.

060504 Stockpile Materials

1. VA will classify all strategic and critical OM&S held in reserve for future use as stockpile materials. Veterans Health Administration (VHA) Pharmacy Benefits Management (PBM) service manages the Emergency Pharmacy Services (EPS) program, which acquires and maintains stockpile materials in emergency caches. Stockpile materials are strategic and critical materials held in reserve for use in national defense, conservation, or national emergencies, per statutory requirements. VA stockpile materials consist of caches of pharmaceuticals and medical supplies stored at designated treatment facilities. They are not held with the intent of selling in the ordinary course of business.
2. VA will recognize and report stockpile materials as assets when produced or purchased (that is, the date that title passes to VA). If the contract between the buyer and the seller is silent regarding the passage of title, title is assumed to pass upon delivery of the goods. The cost of stockpile materials issued for use or sale will be removed from the value of the asset “stockpile materials” and reported as an operating expense.
3. VA will utilize the consumption method of accounting for the recognition of stockpile materials expense.
4. VA will value stockpile materials on the basis of historical cost. Historical cost will include all appropriate purchase, transportation and production costs incurred to bring the items to their current condition and location. Any abnormal costs, related to stockpile materials such as excessive handling or rework costs shall be charged as an operational expense of the current reporting period.
5. VA will apply the first-in, first-out (FIFO); weighted average or moving average cost flow assumption in arriving at the historical cost of stockpile materials.
6. VA will reduce the carrying amount of stockpile materials that have suffered a permanent decline in value to an amount less than their cost or damage or decay to the expected net realizable value of the materials. The decline in value shall be recognized as a loss or an expense in the period in which it occurs.

060505 Presentation and Disclosure of Inventories, Materials, and Supplies

1. VA will report inventories, materials, and supplies in the financial statements in accordance with SFFAS 3 and OMB Circular A-136.
2. VA will disclose in the notes to the financial statements the following about its inventory:
   • General composition of inventory;
   • Basis for determining inventory values, including the valuation method and any cost flow assumptions;
   • Changes from prior years’ accounting methods, if any;
   • The difference between the carrying amount of the inventory before identification as excess (i.e., unrequired personal property), obsolete, or unserviceable inventory and its expected net realizable value;
   • Any restriction on the sale of inventory;
   • Decision criteria for identifying the category to which inventory is assigned; and
   • Any changes in the criteria for identifying the category to which inventory is assigned.
3. VA will disclose the following for OM&S:
   • General composition of OM&S;
   • Basis for determining inventory values, including the valuation method and any cost flow assumptions;
   • Changes from prior years’ accounting methods, if any;
   • Balances for each of the categories of operating materials; and
   • Any restriction on the use of material.
4. VA will disclose the following for stockpile materials:
   • General composition of stockpile materials;
   • The basis for valuing stockpile materials, including the valuation method and any cost flow assumptions;
   • Changes from prior years’ accounting methods, if any;
   • Any restriction on the use of materials;
   • Balances for each of the categories of stockpile materials;
   • The decision criteria for categorizing stockpile materials as held for sale; and
   • Changes in criteria for categorizing stockpile materials as held for sale.

0606 Authorities and References

• OMB Circular
  • Office of Management and Budget (OMB) Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control July 15, 2016
• Statement of Federal Financial Accounting Standards (SFFAS) 3, Accounting for Inventory and Related Property
• VA Directive 7002 Logistics Management Policy, January 8, 2020
• VA Handbook 7002 Logistics Management Procedures, January 2020
• VA Directive 7348 Utilization and Disposition Management, January 2020
• VA Handbook 7348 Utilization and Disposition Management, January 2020
• Office of Financial Policy
  • Vol I, Chapter 5 – Management’s Responsibility for Internal Controls
  • Vol XI, Chapter 4 – Supply Fund
• Federal Property Management Regulations
• GSA’s Personal Property Management System

0607 Rescissions

Volume V Chapter 6, Inventories, Supplies, and Materials dated July 2021.

Section	Revision	Office	Reason for Change	Effective Date
Various	Reformatted to new policy format and completed five-year update	OFP	Reorganized chapter layout	July 2021
0801 Overview	Updated overview to new format	OFP	Reorganization to Policy chapter	July 2021
0802 Revisions	Moved previous policy revisions to Appendix A	OFP	Lengthy past revisions	July 2021
0803 Definitions	Updated definitions	OFP	Updated and added definitions for clarity	July 2021
0804 Roles and Responsibilities	Removed OFP role from previous version	OFP	Updated role titles for clarity	July 2021
0802 Policies	Added reference to alternative valuation method for beginning balances as prescribed by SFFAS 48 at 080204.	APPS	Updated for clarity	April 2017
Overall	Merge Volume V, Chapters 8,8a,8b into one Chapter 8, Inventories, Supplies, and Materials	APPS	Updated for clarity	June 2014
0801 Overview	Added paragraph on controls of operating supplies. Where necessary added headers for the three being discussed.	APPS	Updated for clarity	June 2014
0801 Overview	Updated footnote with VHA policy reference to cache procedures.	APPS	Updated for Clarity	June 2014
0803 Authority and References	Updated references and hyperlinks.	APPS	Updated for Clarity	June 2014
0804 Roles and Responsibilities	Updated sections for VA CFO and OAL	APPS	Updated for Clarity	June 2014
080501	Changed wording for clarity when items are sold or services provided.	APPS	Updated for Clarity	June 2014
080504	Added VA will rely on OAL for managing operating supplies and removed the detail procedures for categorizing operating materials. Added footnote referencing VHA Handbook 1761.02.	APPS	Updated for Clarity	June 2014
080506	Removed reference to old policy. Added parenthetical (current costs) for clarity in A4.	APPS	Updated for Clarity	June 2014
080508	Added a reference to VA Office of Public Health for stockpile policy and Emergency Pharmacy Service for inventory control of stockpile materials	APPS	Updated for Clarity	June 2014
080511 and 080512	Moved detailed procedures for stockpile held for sale and transactions to Appendix A, and renumbered remaining paragraphs. In new 080511, added reference to Appendix A.	APPS	Updated for Clarity	June 2014
080605	Replaced discard with appropriate dispose in definition.	APPS	Updated for Clarity	June 2014
0807 Recessions	Updated rescissions section	APPS	Updated for Clarity	June 2014
0808 Questions	Updated VHA address	APPS	Updated for Clarity	June 2014
0809 Revisions	Section added	APPS	Updated for Clarity	June 2014
Appendix A	Added Appendix for Accounting for Stockpiles and updated policy reference for accounting for declared emergencies.	APPS	Updated for Clarity	June 2014

Appendix B: Annual Certification of Personal Property

1. VA Administrations and Staff Offices are required to submit an annual certification to account for personal property.
2. VA Administrations and Staff Offices can refer to VA Directive and Handbook 7002, Enterprise Logistics Management, and VA Directive/Handbook 7348 Enterprise Utilization and Disposition, for guidance on inventory and personal property management, utilization and disposition, which includes accounting and tracking inventories and personal property.
3. Accountable Property Officer certifies the following on the annual certification memo:
   • An inventory of all accountable personal property has been accomplished during the Fiscal Year;
   • All accountable personal property was signed for by the Responsible/Custodial Officials;
   • A physical inventory of firearms and ammunition has been conducted on a semi-annual basis during the Fiscal Year;
   • All other inventory requirements were met as outlined in VA Directive/Handbook 7002, dated January 2020;
   • Reports of Survey were completed for all items that could not be located, were damaged, or stolen;
   • Adjustment vouchers for capitalized assets were completed and appropriately processed;
   • Recurring personal property was inventoried during Fiscal Year and timely adjustments were made as appropriate;
   • Internal controls have been put in place to reduce loss, damage, and theft of personal property;
   • Internal controls have been put in place to ensure the proper utilization and dispositioning of personal property;
   • Facility/Site has implemented controls to ensure the reuse of available VA and excess personal property through the Personal Property Management System (PPMS) before procurement of new personal property;
   • All personal property that was abandoned or destroyed (including sent to UNICOR in lieu of A/D) was properly approved/signed off on by the appropriate official;
   • Facility/Site has implemented controls to ensure all personal property is posted using the Exchange/Sale Authority in PPMS if property, or lot of property within the same Federal Supply Classification (FSC), is anticipated to sell for over $500 and new property will be purchased in the same FSG in fiscal year of sale or the following fiscal year; and
   • Facility/Site has implemented controls to ensure all personal property sent to UNICOR has first been properly screened through PPMS in accordance with the Hierarchy of Dispositioning at VA.
4. The following is an example of the annual certification for personal property that is available for use:
   
   Annual Certification to account for personal property