The LDD Standard:
The Old, The New,
The Differences and Why
P.S. Does it work?
Lyle Hestermann, CPPM CF, MIAM
Why An LDD Standard?
Common sense says:
• LDD is a key indicator of the effectiveness of a
property management system
• The better the property control system, the lower
the amount of LDD.
• Less LDD = better asset management =
–
–
–
•
fewer acquisitions
more efficient utilization
Better disposition process
LDD is thus a key datum of risk management.
Why An LDD Standard?
However,
• Lack of published, consistent policies and
standards about asset management
So
• NPMA teamed with ASTM International
for VCSs, that will gauge the effectiveness
of policy and procedure implementation
E2131, Old vs New
Original edition approved Jan. 10, 2001.
Published February 2001.
Current edition approved Sept. 1, 2009.
Published October 2009.
The Old, The New –
The Title
Standard Practice for
Assessing Loss,
Damage, or
Destruction of
Property
Standard Practice for
Addressing and
Reporting Loss,
Damage, or
Destruction of
Tangible Property
1. Scope
1.1 This practice covers the
assessment of loss, damage,
and destruction (LDD) of
property, assets, or material.
LDD occurs when such
property is found to be
missing, damaged, or
destroyed. Such discoveries
often are made as a result of a
Physical inventory, an analysis
of material used, or routine
audits.
1.1 This practice focuses
on addressing and
reporting loss, damage, or
destruction (LDD) of
tangible property.
1.3 LDD events are often
discovered as a result of
a physical inventory or
other audit. An actual
LDD event can occur at
any time during the
property life cycle.
1. Scope
1.2 Some occurrences of
damage and destruction are
the result of natural disasters
or other incidents beyond
the control of the company,
agency, or institution, and
are not subject to the
standards in paragraph 7.
However, the reporting of
such instances in
accordance with paragraph
8 is still required.
1.4 LDD events
resulting from natural
disasters or other
incidents beyond the
control of an entity are
not subject to the
criteria in 1.7.
Reporting LDD events
is required.
1. Scope
1.3 Some occurrences
of LDD are a result of
natural degradation or
other incidents of fair
wear and tear and are
not addressed as a part
of this practice.
1.5 Natural degradation or
normal wear and tear are
not considered LDD
events and are not
addressed in this practice
(they may, however, be
considered in establishing
residual value).
1. Scope
1.4 Loss, damage and
destruction, while three
completely different
occurrences, are addressed
as one in this standard. For
the purpose of this
standard, reporting and
evaluating loss, damage
and destruction are the
same.
1.6 Loss, damage, and
destruction, while three
completely different
events, are addressed
as one for the purposes
of this practice.
1. Scope
1.5 Loss, damage and
destruction are key
aspects of risk
management. Projecting
the possibility or
probability of LDD,
reporting and managing,
and minimizing LDD is a
critical and economic
factor in the success of
any endeavor.
1.2 LDD events are key
aspects of risk management.
Projecting the possibility or
probability of LDD,
discovering, disclosing,
reporting, managing, and
minimizing LDD is a critical
and economic factor in the
success of the owning or
holding entity.
1. Scope
N/A
1.7 This practice does not
address situations where LDD is
an expected outcome, for
example, destructive testing.
1.8 Assessing pecuniary liability
for loss, damage, or destruction is
not addressed in this practice;
such assessments are subject to
law.
2. Referenced Documents
2.1 Risk Matrix: DLAD
5000.4, Chapter 7.1,
Contract Property
Management, May 2000
2.2 Risk Management: The
NPMA Standard Property
Book, First Edition, July
1999
2.3 Material Management
and Accounting System
(MMAS): 242.72 and
252.242-7004 DFARS,
January 1, 2000
2.1 ASTM Standards:2
E2132 Practice for Physical Inventory
of Durable, Moveable Property
E2135 Terminology for Property and
Asset Management
E2279 Practice for Establishing the
Guiding Principles of Property
Management
E2378 Practice for the Recognition of
Impaired or Retired Personal Property
E2608 Practice for Equipment Control
Matrix (ECM)
3. Terminology
3.1.1 agency
3.1.2 company
3.1.3 institution
3.1.4 customer property
3.1.5 risk
3.1.6 risk management
3.1.7 high-risk property
3.1.8 Risk degrees and
factors
3.1.1 book value
3.1.2 custodial records
3.1.3 fair value
3.1.4 tangible property
3.2.1 acquisition cost
3.2.2 entity
3.2.3 normal wear and tear
3.2.4 risk,
3.2.5 risk assessment
3.2.6 risk management
3.2.7 low risk property
4. Significance and Use
4.1 LDD analysis can be an
indicator of the adequacy of the
control and security exercised
over the assets in the
possession of or under the
cognizance of a company,
agency or institution. Excessive
LDD can indicate weaknesses
in awareness of control
processes, physical security,
procedures, and the like.
5.1 LDD is an indicator of the
effectiveness of operations.
Excessive LDD can indicate
poor internal management
and controls, policy or
procedural weaknesses, or
lack of compliance, any one of
which can impact entity
profitability, mission
performance, or reputation.
4. Significance and Use
4.2 LDD creates concerns
regarding effectiveness
and efficiency indicating a
negative impact on
profitability or mission.
Excessive LDD increases
risk, and indicates at least
a potential, if not real,
weakness in procedures
processes, and control.
(blah, blah, blah.)
5.2 Addressing and reporting
LDD provides a guideline for
action for decision makers.
5.3 Though the term
equipment is used
consistently throughout
this practice, this process
may be used for the other
classes of property, for
example, material.
5. Procedure
5.1 Upon discovering or
determining LDD (e.g.,
vehicle damage, theft,
negligence, misuse of
property), report it as soon
as possible, but not longer
than 24 hours after the
occurrence. Report LDD to
a cognizant functional area
in the company or institution
such as security.
6.1 Entities adopting this
practice must establish entity
specific policies and
procedures implementing this
practice. These policies and
procedures must be established
in light of Practices E2132,
E2279, E2378, and E2608 and
Terminology E2135.
The Old, The New
5. Procedure
5.2 If the situation warrants,
investigate LDD and prepare a
written report. Submit the
report within 30 calendar days,
when possible. If not all the
facts have been established
within 30 days, prepare an
interim report and submit it to
the cognizant functional area.
A warranted situation should
be determined in accordance
with paragraph 5.4 and
Section 7.
6.2 Entity policies and
procedures will be
developed with special
attention to Practice E2608.
Practice E2608 establishes
equipment control classes
(ECCs)—five classifications or
groupings of equipment based
on the consequences of the
loss of control of the
equipment:
The Old, The New
5. Procedure
3.1.7 high-risk property—
that property either
regulated by law (e.g.
pharmaceuticals, medical
supplies, firearms and
ammunition, hazardous
materials/waste) or in any
way is potentially
dangerous to public
health or security.
6.2.5 Equipment Control Class 1
6.2.5 Equipment Control Class 2
6.2.5 Equipment Control Class 3
6.2.5 Equipment Control Class 4
6.2.5 Equipment Control Class 5
The Old, The New
5. Procedure
5.3 Investigate
excessive LDD,
analyze the
cause(s), and
implement
corrective action.
5.4 Examine LDD
in the light of the
type(s) of property
or assets under
consideration.
6.3 Entity policies and procedures
will, in light of Practice E2608:
6.3.1 Establish specific guidelines
for evaluating and measuring LDD,
6.3.2 Define when and how
investigations are conducted,
6.3.3 Define when and how
corrective action is appropriate and
to be effected, and
6.3.4 Define the LDD reporting
process.
6. Calculation of LDD Ratios
6.1 Method 1: Overall
Picture—Divide the
annual (fiscal year)
losses by the average
mount of like property
(capital, material, or
customer-owned) on
hand (annual
losses/average amount
of like property).
7.1 Method 1—Divide the
annual (fiscal year) losses by
the average amount of like
property (ECC1, ECC2, etc., or
as defined in entity
procedures) on hand (annual
losses/average amount of like
property).
6. Calculation of LDD Ratios
6.2 Method 2: Instantaneous
View—Calculate LDD at the end
of an inventory by comparing
inventory results with records.
Include this analysis as part of
the inventory reconciliation
process. This method can be
applied to the various types of
material inventoried, or to any
one particular type or item of
inventory (such as a particular
line item of material).
7.2 Method 2—Calculate LDD at
the end of a physical inventory by
comparing physical inventory
results with custodial records.
Include this analysis as part of the
inventory reconciliation process.
This method can be applied to the
various types of property
inventoried, or to any one
particular type or item of inventory
(such as a particular line item of
material).
7. Acceptable LDD Ratios
7.1 This is a firm
8.1 The following are
criterion, indicating that firm criteria:
exceeding the
threshold is a cause for
investigation:
7. Acceptable LDD Ratios
7.1.1 The acceptable
LDD ratio for non highrisk Agency,
Institutional or
Company owned
property is 2 % ($ or
quantity.)
7.1.2 The acceptable
LDD ratio for high-risk
property is 0 %.
•8.1.1 The acceptable LDD ratio for property
in ECC1 is 0 %.
•8.1.2 The acceptable LDD ratio for property
in ECC2 is 0.5 % (dollar value or quantity).
•8.1.3 The acceptable LDD ratio for property
in ECC3 is 1 % (dollar value or quantity).
•8.2 Entities must establish acceptable LDD
ratios for ECC4 in accordance with
applicable law, regulation or contractual
guidance, otherwise 3 % (dollar value or
quantity).
7. Acceptable LDD Ratios
N/A
8.3 Entities may establish
criteria more stringent that
those shown in 8.1. For
example, for sensitive
property, or other property
regardless of dollar value.
7. Acceptable LDD Ratios
7.2 The following
are intended as
guidelines against
which individual
policies and
procedures may be
modeled.
N/A (blah, blah, blah)
8. Reporting LDD Events
8.1 Reporting LDD is a
must. Following are
two examples of
reporting, the first
considers customer
owned property in the
possession of another;
the second, property
belonging to the
reporting entity.
9.1 Reporting LDD for tangible
property in ECC1, ECC2, ECC3, or
ECC4 is required. Entity policies
and procedures must establish how,
when, and in what timeframe for
internal reporting for entity owned
tangible property. Reporting of ECC5
property may be required if
determined necessary by customer
requirements, for example, a
contractual requirement.
8. Reporting LDD Events
8.2 Report the following
information for
customer-owned
property:
8.3 Report the following
information for
company, agency or
institution-owned
property:
9.2 Entity policies and procedures
must establish how, when, what
format and in what timeframe for
external reporting for equipment
not owned by the entity.
9.3 Information to be considered
for inclusion in LDD reports
includes, but is not limited to:
9. Summary
9.1 This standard concerns loss,
damage and destruction of
property not related to natural
disasters or similar situations
beyond the limits for which an
agency, company or institution
could reasonably be expected to
prepare.
4.1 This practice has to do
with addressing and
reporting loss, damage, and
destruction of tangible
property.
9. Summary
N/A (blah, blah, blah)
9.2 The standard for
loss, damage and
destruction stated in
7.1 above is a firm
criterion, indicating that
exceeding the
threshold is a cause for
investigation.
9. Summary
N/A (blah, blah, blah)
9.3 The standards
referenced in 7.2,
7.2.2.1 and 8 above are
intended as guidelines
against which individual
policies and procedures
may be modeled.
10. Keywords
10.1 assets; LDD
ratios; loss, damage,
destruction (LDD);
material; property
10.1 damage;
destruction tangible
property; LDD; loss
What’s Wrong With The New
Standard?
How do you justify “Acceptable
LDD Ratios”?
• 8.1.1 The acceptable LDD ratio for property in ECC1 is 0 %.
• 8.1.2 The acceptable LDD ratio for property in ECC2 is 0.5 %
(dollar value or quantity).
• 8.1.3 The acceptable LDD ratio for property in ECC3 is 1 %
(dollar value or quantity).
• 8.2 Entities must establish acceptable LDD ratios for ECC4 in
accordance with applicable law, regulation or contractual
guidance, otherwise 3 % (dollar value or quantity).
Property Professionals’ Best Judgment –
The Most Recent Task Group
•
•
•
•
•
•
•
•
•
•
•
•
•
Kathy McFarland, Esq. – representing herself, Honeywell and the AIA PMC
Amber Barber, OSD, Property and Equipment Policy Office
James Begis, Retired
Richard Culbertson, Lockheed Martin Co., Chair, E53.03, Financial Management
Kim Doner, Sra International
Eric Fassett, Northrop Grumman Corp., Chair, E53.05, Property Management
Maturity
Dr. Doug Goetz, GP Doctors
Pat Jacklets, Northrop Grumman Corp.
Rodney Miller, Retired, Chair, E53.04 Reutilization and Disposal
Gary Quinn, University of Texas Southwestern Medical Center at Dallas
Tom Ruckdaschel, DCMA
Rick Shultz, JHU/APL, E53 Secretary, Chair E53.01 Process Management
Cynthia Thrailkill, DCMA
Property Professionals’
Best Judgment
• After the Task Group – 200 Members of
E53 Vote
• After E53 Vote, Entire ASTM
Membership (30,000+) has the
opportunity to review
Does the LDD Standard work?
“With E2131, property managers do not have to rely
on gut instinct to evaluate the health of their property
systems,” said Brandon Kriner, E53 Committee
member and Property Manager at Harris Corporation,
Government Communications Systems Division.
“The application of E2131 and other ASTM E53
standards offers the benchmark for corrective action
and helps demonstrate sound business practices to
management, subcontractors, the audit community,
and other stakeholders.” *
*From a forthcoming Standardization
News, reprinted with permission
Does the LDD Standard work?
Within the state government system in Texas, ASTM
E2131 not only provides property managers with a
yardstick for their practices, but a financial incentive
as well. Since its initial release in 2001, E2131 has
been a component of the annual appropriations bill in
Texas. The bill authorizes the Comptroller of Public
Accounts to withhold budgeted funds to a state
agency or higher educational institution equal to 50
percent of the lost property value exceeding the
ASTM standard. *
*From a forthcoming Standardization
News, reprinted with permission
Does the LDD Standard work?
Gary Quinn, Manager of Inventory Control,
University of Texas Southwestern Medical Center
and an E53 member, notes that E2131 is the basis for
increased accountability among property
management professionals. “Losing property can be a
black eye for an organization and can hurt public
trust. ASTM E2131 minimizes losses by providing a
critical benchmark for property managers. It provides
increased focus and clear goals for the stewardship of
property systems, enabling managers to do their jobs
in accordance with industry-accepted best
practices.”*
*From a forthcoming Standardization
News, reprinted with permission
Does the LDD Standard work?
At Texas Southwestern, the largest medical school in
the state, Quinn manages property assets in excess of
$40 million. He adds that by relying on the
benchmark LDD criteria in standard E2131 loss of
property at the university has declined in each of the
last four years. *
*From a forthcoming Standardization
News, reprinted with permission
Does the LDD Standard work?
“Loss, damage and destruction of property is a big
area of concern on the federal level and a persistent
focus of congressional oversight,” said Sarah Ball,
Director of Personal Property Policy at the U.S.
Department of Energy. “Applied consistently, ASTM
E2131 guides property management professionals on
the best processes and protocols to better assess and
report on LDD.” *
*From a forthcoming Standardization
News, reprinted with permission
Does the LDD Standard work?
Worldwide corporate leaders such as Harris
Corporation, Northrop Grumman, Booz Allen
Hamilton, and others have also utilized E2131 to
bring their property management policies and
procedures in line with industry norms. *
*From a forthcoming Standardization
News, reprinted with permission
Example
Blackberry
Brooms, mops
Computer hard drive
Eye wash station
Fire extinguiser
Hydrocloric acid
iPhone 4
Laptop computer
Lead solder
Nuclear bomb
Oscilloscope, brand new ($8,000)
Pens, pencils, paper clips
Railroad car full of molten sulfer
Spectrum analyzer ($150,000)
USB (Thumb) drive
500,000 doses smallpox vaccine
Equipment Class?
Control Level
Report?