Compliance
Indicator

Inventory records are maintained by the contractor for all equipment and all non-disposable items with an estimated useful life of more than one year, such as computing devices and electronics, purchased in whole or in part with contract funds.

The record describes the acquisition by:

(a) Type

(b) Model

(c) Serial number

(d) Funding source

(e) Acquisition date

The contractor has adopted procedures for managing equipment, purchased in whole or in part with early education contract funds until disposition of the item. In addition, the requirements above, the contractor has:

1. A control system to ensure adequate safeguards to prevent loss, damage, or theft of the property and to investigate any loss, damage, or theft;

2. Adequate maintenance procedures to keep the property in good condition; and

3. Proper sales procedures to ensure the highest possible return in the event the contractor is authorized or required to sell the item.

Regulations/Reference

EED Program Instrument: IV. Administrative EED 21
Education Code: 8231, & 8232
Title 5: 17796
2 Code of Federal Regulations: 200.1, 200.33, 200.302, 200.313(d)(1) and 200.313(d)(2) [d][1]
California School Accounting Manual

Monitoring Review Evidence

Asset & Equipment Inventory Records

Written Procedures for Competitive Procurement

Goods & Services Management System

Below is a snapshot of a SAMPLE Goods & Services Management System that is broken down into 4 categories: Procurement of Goods & Services, Inventory Management for goods, Monitoring & Maintenance, and the Disposal, Loss & Theft of goods.

Procurement

Contractors are required to have adopted procedures regarding the procurement of goods & services that prohibit conflicts of interest & ensure competition in place. 

What might a procurement of goods process look like:

1. Identify Program Need

   • Beyond ongoing purchase requests & maintenance work orders, organizations should have a control system in place that identifies when large purchase items will depreciate & need replaced. This could be anything from computers to replacing a roof on a building.

2. Evaluate

   • The purchase needs must be evaluated to determine if it’s an allowable reimbursable expense.

   • All equipment purchases, replacements and improvements must have at least 3 bids or estimates if the cost equals or exceeds $5000, including tax.

     • Contractors must maintain purchase documentation & justification.

     • Subdividing or splitting equipment purchases into separate items to avoid the competitive bidding requirement is prohibited.

   • Prior written approval from CDE is required when costs equal or exceed $10,000.

   • CDE allows purchases from a pre-approved equipment list without written pre-approval if the total cost is $20,000 or less.

   • If 3 bids cannot be obtained, the contractor must provide documentation of the reason the bids could not be obtained.

   • If an item that exceeds the specific thresholds, contractors complete & submit the Equipment Purchase Approval Request (CD-2703)

     NOTE: Note that in the event a request is denied, the contractor may appeal the decision.

   • Pre-approval for multi-year equipment purchases may be requested when all standard pre-approval requirements are satisfied, no payments are made in advance of each fiscal year, all bids are valid through the duration of the multi-year request, and a payment plan outlining costs is submitted.

3. Purchase

   • After the purchase of goods or services has been determined to be an allowable expense, staff move forward with the purchase. 

   • The contractor must purchase the goods or services from the lowest responsible bidder or estimate, along with charging to the applicable program. 

4. Receive Order

   • When the product is received, a process must be in place to ensure the product is not damaged.

   • Once order is accepted, move forward with approving it for payment if ordered through the purchase order process.

5. Inventory Record

   • Items with an estimated useful life of more than one year must be tagged, recorded and tracked. Examples of tagging options might include adhesive labels with numbers or bar codes.

     Note: If the item is received outside of the central receiving location, a property tag & instructions must be sent to the site to ensure it becomes part of the inventory.

   • Document the minimum requirements as outlined in the compliance indicator & Funding Terms & Conditions (type, model, serial #, etc…)

6. Deployment

• Deliver the items to its location

A written subcontract is required for most service agreements unless otherwise exempt. Just like with purchases of goods, a contractor must maintain records of procurement of services for a minimum of 5 years, including any service descriptions, agreements, bids, quotes, cost justification, invoices, approvals etc.…

The intent of subcontracts are to protect public funds and maintain accountability. They ensure services meet program requirements, support audit transparency and prevent the circumvention of bidding rules.

TIP: To determine if a subcontract is required, ask yourself “Once the contractor stops paying for the item, is there a tangible item that is left with the agency?” If the answer is no, then it is likely that the purchase will require a subcontract.

A subcontract is a written agreement between the contractor and any entity to perform a service on behalf of the contractor.

NOTE: The department has a list of services that are exempt from subcontracting and prior approval requirements; however, exempt does not mean unregulated. Bidding, audits and cost reasonableness may still apply.

Based on the regulations, when purchasing services, unless exempt, at least 3 bids or estimates must be obtained if the total cost equals or exceeds $5000 for CDE programs. If 3 bids cannot be obtained, document the reason why, such as the specific emergency, or an explanation of unique expertise of a sole source.

For subcontracted services not on the exempt list, that exceed $10,000 prior to execution, written department approval is required. Contractors must submit:

1. Justification Letter

2. Bids if a non-public agency, and

3. 2 copies of the proposed subcontract, including line-item budget which shows the costs of services.

NOTE: For specific types of services, there may be additional requirements, which are outlined in the Program Contract or Funding Terms and Conditions.

Inventory Management (Goods)

An inventory record must be maintained for each piece of equipment & non-disposable items, with an estimated useful life of more than one year, purchased in whole or in part with early learning & care contract funds.

In addition to the tagging, an inventory record must be maintained for each applicable item. At a minimum the record must include, the item description, serial number, funding source, acquisition date, cost, assigned location, condition, and disposal information, if applicable.

Most contractors have an electronic database used to maintain their inventory record that includes the minimum inventory record requirements.

If an agency does not have an electronic database, the California Department of Education has a template, form EESD 8604, that may be used.

Monitoring & Maintenance

An asset control system must be in place to ensure adequate maintenance procedures are in place to keep equipment in good condition that includes taking physical inventory for the purpose of verifying the physical existence of property & equipment.

Physical inventory must be taken & results reconciled with inventory records at least once every 2 years. Any differences between quantities determined by the physical inspection & those shown in the accounting inventory records should be investigated to determine the causes of the differences.

Note: CDE recommends that a physical inventory of property and equipment be taken at least annually.

What this might look like in a program:

Full inventory physical check is conducted annually.

Documentation of the most recent physical check of the inventory is maintained within the database.

To ensure adequate safeguards to prevent loss, damage, or theft of the property, the control system includes:

• Alarm systems with cameras throughout each building

• Staff are aware that Inventory Records must be updated within the database when items are moved from one location to the other. The Inventory Record is used to document disposal or transfer of any equipment

• Business office representative conducts a random spot check quarterly

Disposal, Loss & Theft Reporting (Goods)

A procedure for the proper disposal of items, and system for handling items that have been lost, stolen, or damaged beyond repair should be in place.

For example, any differences between quantities determined by the physical inspection and those shown in the accounting inventory records should be investigated to determine the causes of the differences. The results of the physical inventory can be used as a basis for writing off items that have been lost, stolen, or discarded and also for adding unrecorded items.

Contractors are required to have adopted procedures regarding proper sales of items to ensure the highest possible return in the event the contractor is authorized or required to sell the item.

NOTE: If sale of equipment was originally purchased with state funds, the proceeds from the sale would be reported as other restricted income.

What this might look like in a program:

Procedure includes an annual physical inventory of property or equipment along with maintaining property and equipment in good condition.

After reviewing the video lesson & sketch pad notes, it’s time to check for understanding by completing a Knowledge Check. Note that Individual Knowledge Checks will conclude with a Certificate.

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