2011 NPMA Conference Series 1
Wayne Norman
CPPM
Northrop Grumman
Agenda
SOX brief overview
What has that done to you internally in your entity
Records- who and what changes to records do you let be made to capital
records
Physical Inventory methods and a suggested method
Quick info regarding SOX
 The Sarbanes-Oxley Act was signed into law in July 2002
 Its purpose is to review legislative audit requirements and to
protect investors by improving the accuracy and reliability of
corporate disclosures.
 requires that publicly traded companies furnish independent
annual audit reports on the existence and condition of
internal controls as they relate to financial reporting.
 This act also states how the financial reporting process and
controls over safeguarding of assets, reporting the results of
management’s testing and evaluation must be handled.
Sox Risk related to Assets
 The following are capital asset related risks as listed by one
of the Big 5 accounting firms as oversight consultants:
 Inventory/assets locations are not recorded accurately
 What ensures that all assets are included in perpetual





records?
What ensures that changes to system data are properly
implemented (i.e., inputs are validated against changed asset
information in the system)?
Disposed assets (sales & write-offs) remain recorded.
What ensures the continued security of inventory/assets
Inventory counts include goods owned by others.
Perpetual records improperly reflect quantity & $-amts.
Important aspects to ensure SOX
Controls are in place
 Identification and control, record establishment
 Valid location ( at least to city…….taxes), proper location






change recording
Inventory validation
Safeguarding/limited access to assets
Property disposition, retirement and LDD reporting with
financial record closure
Impaired assets are properly adjusted/recorded
Proper recording of assets whose counting was recorded to
a capital asset account
Self Assessment in place to ensure processes are working
Responsibility for Capital
 Who Manages your capital property
 Property Accounting

Just the Property Accounting role?
 Facilities
 Property Management
 No One?
 What constitutes Property Management
 Full Property Management of capital assets is as
important as government property management

 ASTM E2279- Guiding Principles of Prop Mgmt
Single Process
 This suggests (in my opinion)
 One PM group to manage all property
 One Property Mgmt records system
 Similar consistent processes (without all the
regulations)
 Interface shadowing between your Accounting- Capital
records system and your Property Management system
 Supports Sarbanes-Oxley Control requirements
Benefits of One Process /System
 One Focal point group for Management of all assets
under all ownerships
 Keep it simple (KISS) for custodians, property focal
points, coordinators, employees, mgmt
 One place to go for reports, move documents, tagging,
surplus, etc, etc, etc
 With an interface between systems, single entry for
any key strokes
 Is your capital really be managed by Property
Accounting? Their financial role is their focus
Update access to Cap Assets
 Financial actions- start/stop depreciation, account
assignment, retirements- Property Accounting only
 Establishing the asset shell, all in life cycle changesProperty Mgmt
 Location changes- Property Focal points or PM
 Transfers between different financial entities of your
company- Property Accounting
Changes
 Establish an inventory update to ALL capital assets-
tangible, intangible and non-taggable
 An example of requested changes from external audit
 All tangible assets with a Net Book Value (NBV) over $5k must
be inventoried every 3 years
 All intangible assets, and non-taggable assets AND assets
with a NBV of under $5k need reasonable verification of
existence every 5 years
 Stop writing off group assets 2 years after they reached
100% depreciation ( building startup furniture, standard
tooling lot buy, etc) had to move these to reasonable
judmental verification of existence
Capital Asset Inventory methods
 Wall- to- wall (every 1, 2, 3 years)
 Inventory by exception (every 2, 3 years)
 (go find items not otherwise touched during processes
which have recorded an inventory touch date)
 Situational Inventory- touch all items in certain
locations triggered by events (building closures,
remodeling events, organizational relocations)
 Rolling wave inventory by exception(discussed on next
set of slides)
Inventory Rolling wave
 Current- 2 Year cycle- wait until year two and
touch/validate all our exceptions, perhaps conduct a wall to
wall
 Proposed- 3 year cycle
 Everything is touched in some manner every 3 years by
exception
 Rolling wave


Each year, the oldest year items are touched if they have not
recently been touched (still have an inventory date that will
exceed 3 years by current year end)
Every year some those results are turned in
Continuous yearly activity
Benefits of Using the Rolling Wave Inventory
Wall-to-Wall vs. Rolling Wave Inventory
Taged Assets Audited
12,000
Existing
System
Assets to Find
10,000
8,000
Rolling
Wave
Assets to Find
6,000
4,000
Cum
Delta
2,000
0
1
2
3
4
5
6
7
8
9
10
Existing
Rolling
System
Wave
Year Assets to Find Assets to Find
1
3,200
600
2
0
600
3
3,200
600
4
0
600
5
3,200
600
6
0
600
7
3,200
600
8
0
600
9
3,200
600
10
0
600
Cum
Delta
2,600
2,000
4,600
4,000
6,600
6,000
8,600
8,000
10,600
10,000
•Cost Effective
•We would use our own people and not out source to outside companies which is a cost savings.
•The total amount of assets to “Find” is significantly fewer than the Wall-to-Wall Inventory System.
•Resource Sensitive
•Only looking for assets that haven’t been “touched” or inventoried in record within the past 3 yrs.
•Wall-to-Wall system there is much duplication efforts
•More Efficient
•Keeps a steadier stream of go-finds on a yearly basis interval
•Fewer resources are required to find a smaller amount of assets
3 year Rolling Wave Illustration
For 2007- by year end:
Valid Inventory Dates
07
06
05
items with an '04 date need to be touched/verified
For 2008 by year end:
Valid Inventory Dates
08
07
06
items with and '05 date need to be touched/verified
For 2009 by year end:
Valid Inventory Dates
09
08
07
items with and '06 date need to be touched/verified
15
 Current scenario Previous cycle 04- 05,
reported after 2005
completion
 Current cycle 06-07, to be
reported after 2007
completion
Current Inventory cycle process
Valid date during calendar 2007
07
06
05
Valid during 2008
08
07
06
Valid dates during calendar '09
09
08
07
16
04
06
Summary- Rolling Wave
 Reduces disruption to contractor (steady state)
 Reduces redundant touches
 Level sets workload over 3 years
 Does not increase risk to the customer
 Continual annual feedback- more frequent partial
inventory results.
17
Summary
 Sarbanes Oxley is a big deal to your publicly traded company
 Have you been inserted into this important control, and
displayed your values to senior management?
 Have you adjusted your capital processes to meet SOX risk
controls? If not, stay ahead of the time bomb, make changes
before YOU become caught up in the problem
 Wayne.norman@ngc.com
310-813-4566