Dear OneCert: Demystifying the Mass Balance Audit

Dear OneCert, my inspector said I need to be ready for a “Mass Balance Audit” at my inspection. What does that mean? What records do I need to have available for them to complete this exercise?

7 CFR 205.403(d) The on-site inspection of an operation must verify:
(4) Mass-balances, in that quantities of organic product and ingredients produced or purchased account for organic product and ingredients used, stored, sold, or transported (that is, inputs account for outputs)

The Mass Balance Audit, or sometimes referred to as an “In-Out Audit”, is a mandatory part of the annual organic inspection, per the regulations at §205.403(d)(4). This audit evaluates whether an operation received enough organic ingredients/products to support the amount of organic product produced, shipped, or sold. In other words, the Mass Balance Audit verifies that an operation had enough organic product available to satisfy reported sales.

In its simplest form, the audit will use the following equation:

A + B – D = C

Beginning Inventory + Incoming Ingredients/Products – Ending Inventory = Outgoing Products

To initiate the Mass Balance exercise, the inspector will select an organic product or ingredient and identify the period of time to be audited.

Let your inspector know if you maintain a real-time inventory, or if you take physical inventory counts at a regular interval (e.g. annually, monthly, weekly). The inspector will need to have this information to determine the time period they will audit. For example, if you only do inventory twice a year, it does not make sense to conduct the audit for two months since you are not likely to have both beginning and ending inventories, unless the ending date is the date of the inspection and a physical count can reasonably be performed.

Then, you will be asked to provide documentation of the following:

  • Beginning Inventory (A) – The total stock or inventory at the beginning of the selected period of time. [Inventory reports, physical counts, stock report, etc.]
  • Incoming Ingredients/Products (B) – Total incoming product/ingredient over that period of time. This includes purchases, production, returns, transfers, etc. [Receiving reports, production records, purchase records, etc.]
  • Outgoing Products (C) – The total outgoing product or ingredient for the period of time. This includes ingredients used for production, samples, sales, shrink, waste, etc. [Sales reports, shipment records, production reports, etc.]
  • Ending Inventory (D) – The final ending inventory at the end of the selected period of time. [Inventory reports, physical counts, stock report, etc.]

The inspector will use the provided records to obtain totals for each item and plug them into the equation. The calculated figures are then compared to the actual figures to determine how much deviation exists. If significant deviation is discovered, you will be asked if you can account for that difference.

If you would like to learn more about Mass Balance Audits, we recommend registering for access to the USDA’s (free!) Organic Integrity Learning Center. The course NOP-996: National Organic Program Microlearning has a great mini course titled “Conducting a Mass Balance Audit.” Although written for inspectors, this mini lesson can also give organic operations a better understanding of what to expect.