Finance, Procurement, and Property Management: A Total Team Effort!

Finance, Procurement, and Property Management: A

Total Team Effort!

Steven F. Holland, CPPM CF

Logistics Management Institute

Robert Kaehler, CPPS

Ascot Associates

Objectives

• Understand the requirements of Finance,

Procurement and Property Management

• Understand the operational relationships between Finance, Procurement and Property

Management

• What you can do to establish and foster a Total

Team Effort

Let’s just have fun and start our journey!

Finance, Procurement and Property Management: A Total Team Effort 2

Why is this important?

• It’s about MONEY!

• Specifically, it’s about Financial Reporting

– Rules, Regulations and Unqualified Audit Opinions

– Assets represent money ; they are a financial component

– Assets appear on Financial Statements the Balance Sheet and

Statement of Operations and Changes in Net Position

– Assets are subject to financial audit and oversight requirements


How Much Are We Talking?

• FY 2012 Balance Sheet

– Total P, P & E - $1.8 Trillion ($855B Net) *

• F, F & E - $1.1 Trillion ($456B Net)

– Material - $316 Billion ($299B Net)

– Total

* Capitalized Assets Only!

- Nearly $1.5 Trillion in Personal Property


Working Together: Finance, Procurement &

Property Management

• What does each discipline need to provide one another?

• What do each need to have constantly in sync with one another?

• The fundamental purpose for collaboration?

– Making sure that Finance, Procurement and Property can easily and confidently rely on their financial reports to support an unqualified audit opinion


Collaboration

Definition of COLLABORATE *

1 : to work jointly with others or together especially in an intellectual endeavor

2 : to cooperate with an agency or instrumentality with which one is not immediately connected

* Merriam-Webster dictionary


How Do We Collaborate?

• NOT an annual conference room meeting to CYA

• Objective is to improve operations

– Reduce Workload

– Improve Communication

– Data Reliability

• Foster Interaction

– People

– Processes

– Tools


Required Outcomes from our Collaboration

• Accurate data across systems

• Accurate data across disciplines

• Consistent, auditable processes to capture information

• Reliance upon data presented

• Support the Five Management Assertions


Exploring the landscape for financially accounting for our assets

KEY STATUTES AND STANDARDS


Statutory and Regulatory Requirements

• Federal Property and Administrative Service Act of 1949 (Pub. L. 152, as amended) (aka “The

Act”)

– Created the General Services Administration (GSA)

– Instituted the Office of the Administrator of the GSA

– Consolidated federal personal and real property affairs under one Agency

– Effectively started today’s world of property accountability

– Allows agency heads to deviate and supplement the

Federal Management Regulation (FMR) under Title 41,

Code of Federal Regulations, Chapter 102 (41 CFR § 102)



• Federal Manager’s Financial Integrity Act of 1982

(Pub. L. 97-255, H.R. 1526)

– Requires federal agencies to establish administrative and internal controls

– Requires internal controls to provide assurance that:

•

• Obligations and costs are in compliance with applicable law

Funds, property and other assets are safeguarded against fraud, waste, abuse, loss, unauthorized use, or misappropriation

• Expenditures are properly accounted for and recorded to support the preparation of reliable financial reports, and maintaining accountability of assets

– Requires prompt resolution of audit findings



• Chief Financial Officer’s Act of 1990 (Pub. L. 101-

576)

– Requires the designation of a Chief Financial Officer in each executive agency within the Federal government

– Requires effective general financial management and accountability

– Requires improvement in accounting systems, financial management, and internal controls

– Requires complete, reliable, timely and consistent financial information



• Federal Financial Management Improvement Act of

1996 (Pub. L. 104-208, 31 U.S.C. 3512)

– Purpose is to advance federal financial management

– Provide consistency in accounting in Federal agencies from one fiscal year to the next

– Requires federal financial management systems to support full disclosure of financial data

– Increase accountability in federal financial management

– Improve performance, productivity and efficiency in federal financial management


Control Guidance

• OMB Circular A-123, Management’s Responsibility for Internal Controls

– Defines management responsibility for internal controls and it requires Agencies to:

• Develop cost-effective internal controls to support resultsoriented management activities

•

•

• Achieve effective and efficient financial and administrative operations, financial reporting, and compliance

Safeguard assets (property) from fraud, waste and abuse

Conduct, integrate and coordinate Internal Controls Over

Financial Reporting (ICOFR) assessments



• OMB Circular A-123 (Cont’d)

– Requires agencies to conduct, integrate and coordinate

Internal Controls Over Financial Reporting (ICOFR) assessments

• Identify areas for improvement, develop corrective action plans, and take action based on approved plans

– A-123 is similar to the Sarbanes-Oxley Act of 2002 that requires internal controls in commercial corporations



• OMB Circular A-136

– Provides federal financial reporting guidance to agencies

– Encourages agencies to develop and report objective measures

– Requires Agencies to assess organizational compliance

– Requires submission of quarterly interim unaudited financial statements to OMB

– Requires submission of fiscal year-end financial reports to

OMB and Congress by Nov. 15 th



• International Accounting Standards Board (IASB)

– International Standard on Auditing 315 , Identifying and

Assessing the Risks of Material Misstatement through

Understanding the Entity and its Environment

•

• Auditors identify and assess risks of material misstatements in the financial statements

Identify and assess risks caused by fraud or error at the assertion or financial statement levels



• International Accounting Standards Board (IASB)

Cont’d

– Auditors review internal controls relevant to financial reporting that include:

– Authorization

–

– Performance Reviews

– Information Processing

– Physical Controls

– Access (IT Security & Physical)

– Segregation of Duties

Management is charged with governance and maintaining an organizational culture of honesty and ethical behavior



• FASAB Statement of Federal Financial Accounting

Standards (SFFAS)

– SFFAS No. 3, Accounting for Inventory and Related

Property (1993) , provides accounting standards for:

– Inventory: Tangible personal property that is held for sale, in the process of production for sale, or to be used in the provision of services for a fee

–

–

Operating Materials and Supplies: Tangible personal property to be consumed in normal agency operations

Stockpile Materials: Strategic and critical materials held due to statutory requirements used for national defense, conservation or national emergencies





–

–

–

Seized and Forfeited Property: Monetary instruments, and property acquired as a result of forfeiture proceedings

Foreclosed Property: Assets received in satisfaction of a loan receivable, or as a result of a claim under a guaranteed or insured loan

Goods Held Under Price Support and Stabilization

Programs: Items acquired, held, sold or otherwise disposed of to stabilize or support market prices





–

SFFAS No. 6, Accounting for Property, Plant and

Equipment (1996)

provides accounting standards for:

–

–

–

General PP&E: PP&E that is used to provide general government goods or services

Heritage assets: Assets possessing significant educational, cultural, or natural characteristics

Stewardship land: Land acquired for agency use that is not associated with G-PP&E





–

–

SFFAS No. 10, Accounting for Internal Use Software

(1996) provides accounting standards for:

–

–

–

Commercial Off-the-Shelf (COTS): Software that is purchased from commercial vendors and is ready for use with little or no changes

Contractor-developed: Agency is paying a contractor to design, program, install and implement software

Internally-developed: Software that is developed or modified by Agency employees without contractor assistance

Requires capitalization of IUS costs when threshold is exceeded regardless if it is COTS, Contractor-developed, or Governmentdeveloped





– SFFAS No. 44, Accounting for Impairment of G-PP&E

Remaining in Use (2013) provides accounting standards for:

• GPP&E Remaining in Use: GPP&E that remains in use, but is impaired where there is significant or permanent decline in the service or utility , excludes Internal Use

Software (IUS)

• Presumes there are existing processes and internal controls to reasonably assure identification and communication of impairments

• Recommends that while

Agencies document the decisions it makes determining how to account for impairment of G-PP&E


Financial Management

• Agency Financial Management Policy

– Provides guidance and oversight of all Agency financial management personnel, activities and operations

– Required for developing and maintaining of accounting and financial systems

– Helps ensure compliance with accounting principles, standards, and internal control, OMB and Treasury requirements

– Supports implementation of Agency financial management systems , including cash management, credit management, debt collection, property and inventory management

– Requires Agency personnel to maintain the financial management system to provide complete, reliable, consistent, timely, and responsive financial information to management



• Financial Accounting

– Financial Accounting Process: Set of activities that converts information about individual transactions into financial statements

– Five principle financial statements for Federal agencies:

–

–

Balance Sheet: Presents the Agency’s total balances of owned assets, liabilities, and net financial position at a specific time (e.g., end of fiscal year)

Statement of Net Cost: Presents the Agency’s gross and net costs, earned revenue, and gain or loss from changes in assumptions



• Financial Accounting (Cont’d)

–

–

Statement of Operations and Changes in Net Position:

Presents the results of the Agency’s operations (including earmarked funds), non-exchange revenue , net cost of government operations , intra-government transfers , unmatched transactions and balances , and net positions at the beginning and end of the period

Statement of Budgetary Resources: Presents the Agency’s disclosures on how budgetary resources were made available and their status at end of the period .

Note: Disclosure information derived from the Agency’s budgetary general ledger




–

–

Statement of Financing: Presents the Agency’s reconciliation of budgetary obligations and non-budgetary resources , against the net cost of operations

Three Key Parts of the Accounting Equation:

Asset = Liability + Equity

• Asset: Anything of value owned or leased by an Agency

•

• Liability: A claim against the Agency’s assets by a creditor

Equity: All claims against the assets of the Agency, equal to the assets over liabilities




– Financial Transactions: Receipts, invoices, and other financial-related documents that substantiate recording an entry in the Agency’s financial records

– Financial accounting policies and procedures are essential in establishing the financial management foundation within an

Agency for:

• strong internal controls

• reliable financial information

• compliance with GAAP and federal statutes, regulations and accounting standards

• support to an unqualified “clean” audit opinion




– Financial accounting personnel and systems are needed to record the following transactions in an accurate, timely, and complete manner :

– financial data, including appropriated funds

– accounting transactions (e.g., journal voucher entries)

– invoices

– payments

• Capitalized Property

– Assets that have a unit acquisition cost that exceeds the

Agency’s PP&E capitalization threshold based on an asset type



• Capitalized Property (Cont’d)

– Has a useful life of two years or more

–

–

Not intended for sale in the ordinary course of business or operation

Acquired or constructed with the intention of being used or being available for use by the Agency

– Is depreciated based on the date the asset is placed into service

(e.g., Initial Operating Capability [IOC])

– Depreciation is based on the straight-line method over the course of the asset’s useful life



• Capitalization Thresholds

– Defines what is a capitalized asset versus an expensed asset

– Established at a level that would not omit a significant amount of assets from the balance sheet , which could materially mis-state the

Agency’s financial statements

– Thresholds are normally established based on the diversity in quantity and acquisition cost of PP&E assets

– FASAB requires that agencies establish an “appropriate” capitalization threshold based on the Agency’s financial and operational conditions and that they are consistently applied and disclosed in the financial reports


Auditability

• Five Management Assertions

– Existence and Occurrence: Assets, liabilities, and equity interests exist and transactions and events recorded have occurred and they pertain to the organization

–

–

–

–

Completeness: All transactions and events that should have been recorded, were recorded

Valuation and Allocation: Assets, liabilities, and equity interests are included in the financial statements in the appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded

Rights and Obligations: The agency holds or controls the rights

(ownership) to assets, and liabilities are obligations of the agency

Presentation and Disclosure: Agency disclosed events, transactions is appropriately presented and disclosures are clearly expressed at appropriate amounts


Auditability

• Audit Opinions

–

–

–

–

Unqualified (Clean): When an Agency’s financial statements are free from material misstatements and are in accordance with

Generally Accepted Accounting Principles (GAAP)

Qualified: When an Agency’s financial statements are fairly presented , but there is a misstatement or some portion of the financial statements could not be audited

Disclaimer: When an auditor is unable to form an opinion on the

Agency’s financial statements

Adverse: When information contained in the Agency’s financial statements are materially incorrect


Auditability

• Audit Opinions (Cont’d)

– Results of independent audits indicate:

• if financial information is presented fairly

• if there are any deficiencies in internal controls over financial reporting (ICOFR)

• if there is compliance with federal statutes and regulations, and procurement and financial assistance instruments

– Agency CFOs must have the confidence and ability to rely on financial information to:

• make informed financial decisions programs in managing government

• achieve compliance with federal statutes and control guidance


How Property/Asset Management Supports the

Five Management Assertions

TYING THE PIECES TOGETHER


Working with Procurement

• Acquisition Planning/Identification of the Need

• Screening of Available Excess

• Agency Acquisition Regulations/Federal Acquisition

Regulations

• Delivery and Inspection Requirements

• Verification of Receipt

• Vendor Payment


Property/Asset Management

• Federal Management Regulations

• Agency Property Policy

• Property Financial Reports

– Capitalized Property

– Internal Use Software

– Real Property (Buildings, Land, Structures)

– Leasehold Improvements

– Capital Leases


Audit Assertion

• Existence and Occurrence

– The property record

– Physical inventory results

– History timeline

– Documentation


Audit Assertion

• Completeness

– Property Record

• Do transactions match finance and procurement?

• All required data elements captured?

(FAR and Agency Property Regulations)

• Are events documented?


Audit Assertion

• Valuation and Allocation

– Can property/asset management determine capitalized assets from other assets?

– Does Acquisition Cost match what’s in the Financial

System?

– Are other costs captured and properly allocated?

– Do the totals in the Property System match the totals in the Financial System?


Audit Assertion

• Rights and Obligations

– Is the appropriate ownership captured in the property/asset system?

• Pay attention to leased, loaned, heritage, etc.

– Is it validated against the financial register and the procurement system?

– Is there appropriate documentation?


Audit Assertion

• Presentation and Disclosure

– Are all the records accurate?

– Do we have everything in the right “bucket”?

– Have we accounted for losses?

– Anything unusual?

• i.e. Deferred Maintenance

– Does everything balance?


Gotchas - Things we need to validate

• Actual Acquisition Costs

• Capital vs. Accountable

– Depreciation and amortization

• Proper Classifications

• Movements and Transfers

• LTDD

• Disposals


Promoting the Team Effort

SUMMARY AND FINAL THOUGHTS

Finance, Procurement and Property Management: A Total Team

Effort

44

Working Together

• Team Partnership

– Understanding each other’s organizational needs

– Cooperation

– Collaboration

– Coordination

– Providing Best Value to the American Taxpayer


Reference Information

• Office of Management and Budget, Audit Requirements for

Federal Financial Statements , OMB Bulletin No. 07-04,

September 4, 2007, P.14, at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/bull etins/fy2007/b07-04.pdf

• Capitalization thresholds, http://www.gao.gov/assets/240/236070.pdf

)

• SFFAS No. 3 , “Accounting for Inventory and Related Property”

(1993)

• SFFAS No. 6 , “Accounting for Property, Plant, and Equipment”

(1996)

• SFFAS No. 10 , “Accounting for Internal Use Software” (1998)

• SFFAS No. 44 , “Accounting for Impairment of General Property, Plant and Equipment Remaining in Use”


Reference Information

• Five principal financial statements, http://www.gao.gov/assets/240/236070.pdf

• International Standard on Auditing 315 , “Identifying and

Assessing the Risks of Material Misstatement through

Understanding the Entity and Its Environment”

• Federal Property and Administrative Services Act of 1949 (Pub. L.

152, as amended)

• Federal Manager’s Financial Integrity Act of 1982 (Pub. L. 97-255,

H.R. 1526)

• Federal Financial Management Improvement Act of 1996 (Pub. L.

104-208, 31 USC 3512)

• Chief Financial Officers Act of 1990 (Pub. L. 101-576)


For more information, please contact:

Robert Kaehler robert.kaehler@ascotassociates.com

925.209.0944

Steven Holland sholland@lmi.org

703.431.8407

THANK YOU!


Finance, Procurement, and Property Management: A Total Team Effort!

Finance, Procurement, and Property Management: A

Total Team Effort!

Working Together: Finance, Procurement &

Property Management

Required Outcomes from our Collaboration

SFFAS No. 6, Accounting for Property, Plant and

Equipment (1996)

• Financial Accounting

How Property/Asset Management Supports the

Five Management Assertions

Related documents

Products

Support

Finance, Procurement, and Property Management: A Total Team Effort!